BEIJING - More
belt-tightening measures are being introduced to
slow China's overheating economy, as now not only
the government but many of the country's bankers
as well have become increasingly concerned with
the excessive rate of growth, particularly in the
property sector.
The People's Bank of
China (PBoC), the nation's central bank, has
demanded all financial institutions raise their
capital reserves by 0.5 percentage points, to 8%,
starting on July 5. The PBoC expects this to
freeze 150 billion yuan (US$18.75 billion) of
banks' funds, making them unavailable for lending
activities. Following the announcement, PBoC
governor Zhou Xiaochuan pledged that
China
would continue to adjust its monetary policy to
"fine tune" the economy.
Meanwhile, the
Ministry of Land and Resources has issued a
circular demanding local land and resources
authorities complete local surveys and statistics
on property development and the supply of land in
their areas within one month, a measure taken to
"strengthen the transparency of information and
stabilize psychological expectations", according
to a ministry official.
Beijing has taken
these latest moves as a recent survey by the
central bank showed that more and more bankers in
the country are becoming concerned with the
overheating economy. Some 42.6% of bankers
considered the macroeconomy "overheated" in the
second quarter of this year, and 26.6% predicted
the situation would continue in the next quarter.
Both these results were the highest in the history
of the regular quarterly survey.
China's
economy is facing many signs of overheating. The
central bank said on June 14 that loans extended
by Chinese banks totaled 209.4 billion yuan in May
alone, nearly double that of the same month last
year, showing that the current investment binge
might be far from being curbed. Furthermore, by
the end of this May, outstanding loans totaled
2.12 trillion yuan, surging 15.97% year-on-year
and closing in on the central bank's annual target
of 2.5 trillion yuan.
In April, the PBoC
raised the minimum rate commercial banks charge on
one-year yuan loans by 27 basis points to 5.85% in
an aggressive move to discourage lending. This was
the first increase since October 2004.
Then, to further discourage bank lending,
the PBoC announced last Friday that it would raise
the required capital reserves of financial
institutions by 0.5 percentage points, from the
current 7.5% to 8%, starting on July 5. This
number is high by global standards but not
unreasonably so; for example, the Eurozone only
requires a 2% reserve ratio, while the US is at
10% (though some deposit types in the US do not
require reserves).
"The economy maintains
relatively stable with fast growth and has good
momentum, but there remain some striking problems
such as excessively rapid growth in fixed asset
investments," the central bank said in a statement
on its website.
According to the National
Bureau of Statistics, fixed-asset investment in
urban areas maintained its rapid growth in the
first five months of this year, rising 30.3%
year-on-year to 2.54 trillion yuan. That compares
to a 29.6% increase in the first four months.
The higher growth rate has once again caused
concern among officials, who worry about an
overheating economy, particularly since first
quarter gross domestic product growth figures
exceeded all expectations at 10.3%. The State
Council, China's cabinet, noted in a meeting last
Wednesday that excessive growth of fixed-asset
investment and lending was a major problem.
The central bank believes that although
the consumer price index, China's inflation
yardstick, is still relatively low, the rapid
increase in bank lending will likely overstimulate
the economy and lead to inflation.
"Money
supply and credit growth are too fast. And also
the trade surplus is widening. The increase in
bank reserve requirements by 0.5 percentage points
is aimed at curbing this rapid growth," it said.
It has been reported that commercial
banks' required reserves held by the central bank
currently amount to 2.3 trillion yuan, in addition
to 7 trillion yuan worth of floating state
treasury bonds, financial bonds and central bank
notes. The reserve ratio hike could help freeze
150 billion yuan worth of floating money, bank
sources said.
The PBoC survey on bankers,
however, shows that 18.5% of them still think the
current monetary policy is too mild and further
tightening may emerge in the next quarter.
PBoC governor Zhou pledged the central
bank would continue to adjust its monetary policy
to "fine-tune" the economy. "There will be
fine-tuning [measures] and we will strengthen open
market operations," Zhou was quoted by China Daily
as saying on the sideline of a banking forum. He
did not elaborate on specific measures, however.
The vice governor of the PBoC, Wu
Xiaoling, also urged commercial banks throughout
the country to slow their pace of lending and
optimize their loan structure. She warned that
fast growth in loans created risks and asked the
banks to slow down to a "reasonable level."
The banks should also step up controls on
capital to realize the goal of "steady
performance", Wu said. Banks that had a capital
adequacy ratio that was not up to the required
level should control their level of investment
risk and enhance risk controls and default
prevention ability, she added.
Meanwhile,
to keep a closer eye on the overheating real
estate market, the Ministry of Land and Resources
has issued its circular requiring local land and
resources authorities to complete surveys and
statistics work on real estate development and
land supply within the next month.
A
ministry official said that publicizing overall,
timely and accurate information on real estate
development and the land supply situation of
cities and towns in the country was a helpful way
of strengthening the transparency of information
on the property market and "stabilizing
psychological expectations". This is also a major
measure taken to adjust the land supply structure
and stabilize housing prices.
The
information to be published mainly concerns the
location, name, purpose of use, areas, planned
construction areas and development status of real
estate projects approved since 2004. The intention
is to reduce speculation by giving developers and
the public a more accurate picture of the property
market.
