The People's Bank of China (PBOC) -- the nation's
central bank -- cautioned against a possible rebound in fixed
investment and the continued threat of inflation in its annual
monetary policy report, released on Thursday.
It pledged to maintain a prudent monetary policy this year while
using such economic instruments as interest rates to assist in
macroeconomic management.
The bank warned that the possibility of a rebound in fixed
investment still lurks. Excessively rapid growth in this area is
considered a major contributor to economic overheating.
Fixed investment surged 25.8 percent year-on-year in 2004, to 7
trillion yuan (US$840 billion). The growth rate was down 1.9
percentage points from the pace recorded a year earlier, according
to the report.
"But the magnitude of fixed investment remains on the large
side, and there is still strong investment impetus," the bank said
in its report.
The government implemented a variety of macroeconomic measures
as early as 2003 to contain the rapid increases in fixed investment
and harness accelerating prices, largely by restricting bank credit
and controlling the use of land.
Growth in real estate investment slowed to 28.1 percent last
year from a staggering 50.2 percent a year earlier, but the level
remains high. The PBOC said that rapid property price increases --
up 9.7 percent last year -- bear close attention. Nine cities
reported increases of more than 10 percent for the year.
The central bank also expressed worries about persistent
inflationary pressures, noting that climbing upstream prices are
already being passed on to consumers.
"Although stabilizing grain prices will help reduce the upward
pressure on the consumer price index (CPI), there are other factors
that may drive prices up further. The inflationary pressure has yet
to be fundamentally alleviated," the report said.
China's CPI rose 3.9 percent last year and is expected to grow
about 4 percent this year.
With the macroeconomic measures expected to continue having
effect, the central bank said the nation's monetary performance
would tend to be stable. This year's 15 percent target for money
supply growth, scaled down from last year's 17 percent, will create
a favorable environment for stable economic growth, it said.
(China Daily February 25, 2005)