More controls on investments and lending needed
(AP)
Updated: 2006-07-04 15:41
China needs to take more aggressive action to curb lending and rein in a
nationwide investment binge, the government's main planning agency said in a
report issued Tuesday.
The report came amid warnings that China's sizzling economy shows scant signs
of slowing despite repeated efforts to bring growth down from double-digit
levels.
The National Development and Reform Commission issued its call for stronger
moves to tighten credit in an article published in the state-run newspaper China
Securities Journal.
"The reason why investment is growing too fast is that local governments are
spending excessively in an irrational and impulsive way," the report said,
forecasting that the likelihood of a decline in investment in the second half of
the year was "rather small."
It said China's central bank may raise interest rates on deposits and loans
if the "high fever" for investment continues.
The last rate hike, in late April, raised the benchmark lending rate by 27
basis points to 5.85 percent.
The central bank should also issue bills to specific financial institutions,
especially after the monthly release of economic data, to tighten the funds they
have available.
Such "open market operations" induce banks into locking up large sums of
money for a specified period of time in exchange for a higher than usual rate of
return, taking money out of circulation.
The central bank conducts such operations routinely on Tuesdays and Thursdays
and is known to have organized two non-routine bill sales so far this year to
penalize banks whose loan growth was deemed too fast.
The government also might levy a special tax on investments in construction
and factory equipment, known in China as "fixed assets" investments, to help
discourage such spending, it said.
New Chinese currency loans are likely to total 3 trillion yuan (US$375
billion;euro293 billion) this year, the report forecast, noting that new loans
totaled 1.78 trillion yuan (US$222 billion;euro174 billion) in the first five
months of the year.
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