Premier Wen Jiabao Tuesday called on financial officials to tighten
their reins on lending to over-invested industries to slow down
investment growth, which he described as being excessively
fast-paced last year.
Addressing officials from banking, securities and insurance
industries, Wen said another key priority for the financial sector
this year should be to deepen the reforms at state commercial
banks. The core part of the reforms will be joint-stock
restructuring of the Bank of China and the China Construction Bank,
he said.
Financial officials are in Beijing for their annual working
conference, where they discuss their strategies and plans for the
year.
Wen said the problem of launching unreasonable and poor copy-cat
projects, which ignited runaway inflation in the early 1990s, is
now serious in some industries and regions. At the same time,
credit grew at a faster-than-needed rate last year, which poses
risks to the health of the nation's financial system, he said.
China's fixed assets investments totaled 5.5 trillion yuan
(US$662 billion) in 2003, which represented a whopping 26 percent
annual growth. The rate compared to 16 percent in 2002.
Economic officials said the investments were responsible for 46
percent of last year's economic growth, which stood at an
impressive 9.1 percent despite the impact of SARS (severe acute
respiratory syndrome).
But many of these investments were excessive and unhealthy.
At a conference earlier this month, Vice Premier Zeng Peiyan
singled out sectors such as steel, aluminum and cement as
industries showing signs of overcapacity.
These sectors have experienced powerful growth last year due to
increasing demand from manufacturers and real estate developers.
But the demand also lured companies to expand their capacity
without considering the limits of demand.
At yesterday's meeting, Wen said that some cities' lavish urban
development programs also spurred unwanted investment growth.
Behind investment growth was the expansion of loans, which
jumped by 21 percent last year, as compared to about 16 percent in
2002. Structure problems were also founded on loan growth.
Wen said the financial sector should limit credit growth and
optimize loan structures to help the central government meet its
goals of healthy economic growth.
In fact, the central People's Bank of China already took some
steps to slow down credit growth last year.
In May, it issued a circular requiring commercial banks to
refrain from financing speculative real estate developers and
buyers.
In August, the bank raised the required reserve ratio for
commercial banks from 6 percent to 7 percent, which further reduced
money available to the banks for funding new projects.
But factors that drove unnecessary credit growth did not
disappear. Many local governments still intervened in commercial
banks' operations to make the banks fund local officials' pet
projects, and some banks themselves are loosely managed.
In addition, despite its tightening moves, the central banks'
foreign exchange purchases with Chinese funds still resulted in an
affluent money supply which banks can use as source for issuing new
loans.
China's rapid export growth and speculators smuggling "hot"
money into China -- betting on an appreciating renminbi -- led to
abundant foreign exchange in the markets.
Under China's foreign exchange administration system, the
central bank has to buy foreign exchange with renminbi to keep the
yuan's exchange rate stable.
Central bank officials have pledged to take more sophisticated
measures to counter all factors that drive up credit growth in
2004.
(China Daily February 11, 2004)