Is monetary loosening underway in China?
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Xinhua, November 5, 2011
As investors speculate policy change over recent government moves, analysts say China is poised to selectively ease its tightening policies, and a full swing of monetary change seems unlikely in the short run.
With both the economy and inflation cooling, the government recently mulled monetary and fiscal measures to unfreeze credit and relieve tax loads for small enterprises, which are deemed as signs of monetary loosening.
"Although high levels of the government gesture for fine tuning on macro policy, the premise of a prudent monetary stance will not be changed," said Sun Jianlin, general manger with China CITIC Bank's credit management department.
A statement released on Oct. 29 after a State Council executive meeting chaired by Premier Wen Jiabao said the government should fine tune its macroeconomic regulation at a proper time.
"The adjustment in credit supply may be targeted increases...banks will prioritize industries that the macro policy favors," Sun said.
According to the statement, the government will maintain reasonable growth in bank lending and boost structural tax reductions, and more financial support should be given to small and medium-sized enterprises (SMEs) and projects that improve people's well-being.
Central bank advisor Li Daokui said the country's monetary policy should first maintain stability and then fine tune with a view of developments in its major trading partners such as the European Union (EU), the U.S. and India.
The country has adopted a prudent monetary policy this year to contain runaway inflation. With the purchase price index dropping 10.4 percentage points month-on-month to shoot under the boom-or-bust line of 50 percent in October, inflationary pressures obviously eased, according to the China Federation of Logistics and Purchasing.
But the government tightening effort has made financing and investment difficult for business entities.
To ease credit crunch, some state-owned banks are reported to have been given consent to appropriately increase credit supply in a reasonable range.
Banks are speeding up lending in the fourth quarter, and the full-year yuan-dominated loans might hit 7.5 trillion yuan (1.19 trillion U.S. dollars), the ceiling set by the People' s Bank of China (PBOC), or the central bank earlier this year, China Securities Journal cited a banking insider as saying on Tuesday.
The central bank also stopped draining liquidity from banks via open-market operations. By hedging against 107 billion yuan in bills and repurchase agreements, it released 96 billion yuan into the money market this week, the first net cash injection in four weeks.
To reduce corporate operating costs, the Ministry of Finance on Tuesday announced threshold lifts for both value-added tax and business tax for cash-strapped small and micro-sized firms, which create about 80 percent of the nation's jobs.
As for areas the fine tuning may be directed, Fu Bintao, a researcher with the Agricultural Bank of China's strategic planning department, said the government will focus on structural tax reductions, flexible fiscal spending, financial supports for SMEs and low-income housing construction.
Meanwhile, Shanghai-based economist Zhu Daming warned that there are chances of lowering banks' reserve requirement ratio in the near term and interest rate cuts are also possible year's end or the beginning of the next year.
"Recent rate cuts by nations such as the EU and Australia have given rise to a new round of monetary easing. China's economy fell to a low ebb...sustained monetary tightening will definitely hurt China's future economy," he said.
The European Central Bank on Thursday unexpectedly cut its key interest rate by 25 basis points, the first cut since May 2009. The move aims to help the debt-ridden bloc encounter rising debt risks and comes two days after the Reserve Bank of Australia slashed its cash rate by 25 basis points to 4.5 percent.
China's economy expanded by 9.1 percent year-on-year in the third quarter of the year, the slowest pace since the third quarter of 2009, down from 9.5 percent in the second quarter of the year and 9.7 percent in the first quarter.
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