allesennogwat
07-22-2007, 12:58 PM
China seeks to control its blazing economy
BEIJING - China is expected to take more steps to slow its galloping economy, a key engine of global growth, after hiking borrowing costs in a bid to stop the boom giving way to a bust.
China's central bank raised its benchmark interest rate by 0.27 percentage points Saturday. The main bank lending rate rose to 6.84 percent and the deposit rate increased to 3.33 percent.
The move was intended to encourage "rational growth in credit and investment" and keep inflation stable, the bank said in a statement, amid fears uncontrolled expansion could push the economy into the buffers.
Analysts had expected measures to slow the economy after official figures earlier this week showed it expanded by 11.9 percent in the second quarter and by 11.5 percent for the first half of the year.
But some experts said the rate hike by itself might not cool the economy down enough, with inflation already hitting 4.4 percent in June.
"We believe the government has placed priority on market mechanisms to cool the economy, but we cannot rule out the possibility of more administrative measures," Li Huiyong, a Shanghai-based economist with Shenyin Wanguo Securities, told AFP.
"Over the coming months, we expect to see more administrative interference in the economy, such as measures aimed at reducing energy consumption and pollution, adjusting industrial over-capacity and improving economic efficiency at the local level," Li said.
The government was likely to make banks put more money aside in reserves, cutting the amount available to lend, the economist added.
It also intended to issue 850 billion yuan (112.5 billion dollars) in bonds, he said.
These measures could slow the growth in the amount of money circulating around the Chinese economy, and thereby its rate of expansion.
China also slashed the interest rate tax on bank deposits from 20 percent to five percent Friday, in a bid to encourage people to park their cash in savings accounts rather than inject it into the stock market or the real economy.
"We expect that these market-oriented mechanisms will have a rather small impact on the expansion of the economy in the second half," Feng Yuming, an economist with Shanghai's Orient Securities, told AFP.
So "the scope of government interference on industrial growth and a stricter land policy are likely to increase," the economist said.
The government's aim to cut energy consumption by 20 percent per unit of gross domestic product (GDP) by 2010, and key air and water pollution targets, also helped to form a "comprehensive macro-economic control package," Feng said.
"If you suddenly raise the cost of environmental pollution, then a lot of investment into high energy consuming, high polluting industries will be shelved," Feng said.
However, firms could just become more efficient rather than cut back on expansion.
"The energy consumption standards work both ways because energy efficiency will be gauged to per unit of GDP," he explained. "This will not bring pressure on the pace of GDP growth, but rather it will lower the consumption of energy."
Deutsche Bank added the possibility of administrative measures was not a grave concern as the economy was already showing signs of health.
But a bias for higher borrowing costs, together with measures to address China's trade surplus, intensive energy use and envioronmental degradation, were all likely to guide policy in the immediate future, the bank said.
Experts have worried for some time that China's boom could end badly. But that has yet to happen, and the country's development has instead helped to power global economic growth.
BEIJING - China is expected to take more steps to slow its galloping economy, a key engine of global growth, after hiking borrowing costs in a bid to stop the boom giving way to a bust.
China's central bank raised its benchmark interest rate by 0.27 percentage points Saturday. The main bank lending rate rose to 6.84 percent and the deposit rate increased to 3.33 percent.
The move was intended to encourage "rational growth in credit and investment" and keep inflation stable, the bank said in a statement, amid fears uncontrolled expansion could push the economy into the buffers.
Analysts had expected measures to slow the economy after official figures earlier this week showed it expanded by 11.9 percent in the second quarter and by 11.5 percent for the first half of the year.
But some experts said the rate hike by itself might not cool the economy down enough, with inflation already hitting 4.4 percent in June.
"We believe the government has placed priority on market mechanisms to cool the economy, but we cannot rule out the possibility of more administrative measures," Li Huiyong, a Shanghai-based economist with Shenyin Wanguo Securities, told AFP.
"Over the coming months, we expect to see more administrative interference in the economy, such as measures aimed at reducing energy consumption and pollution, adjusting industrial over-capacity and improving economic efficiency at the local level," Li said.
The government was likely to make banks put more money aside in reserves, cutting the amount available to lend, the economist added.
It also intended to issue 850 billion yuan (112.5 billion dollars) in bonds, he said.
These measures could slow the growth in the amount of money circulating around the Chinese economy, and thereby its rate of expansion.
China also slashed the interest rate tax on bank deposits from 20 percent to five percent Friday, in a bid to encourage people to park their cash in savings accounts rather than inject it into the stock market or the real economy.
"We expect that these market-oriented mechanisms will have a rather small impact on the expansion of the economy in the second half," Feng Yuming, an economist with Shanghai's Orient Securities, told AFP.
So "the scope of government interference on industrial growth and a stricter land policy are likely to increase," the economist said.
The government's aim to cut energy consumption by 20 percent per unit of gross domestic product (GDP) by 2010, and key air and water pollution targets, also helped to form a "comprehensive macro-economic control package," Feng said.
"If you suddenly raise the cost of environmental pollution, then a lot of investment into high energy consuming, high polluting industries will be shelved," Feng said.
However, firms could just become more efficient rather than cut back on expansion.
"The energy consumption standards work both ways because energy efficiency will be gauged to per unit of GDP," he explained. "This will not bring pressure on the pace of GDP growth, but rather it will lower the consumption of energy."
Deutsche Bank added the possibility of administrative measures was not a grave concern as the economy was already showing signs of health.
But a bias for higher borrowing costs, together with measures to address China's trade surplus, intensive energy use and envioronmental degradation, were all likely to guide policy in the immediate future, the bank said.
Experts have worried for some time that China's boom could end badly. But that has yet to happen, and the country's development has instead helped to power global economic growth.