By Xin Zhiming (China Daily)
Updated: 2007-12-11 09:39

China is expected to introduce more aggressive monetary tightening measures following last week's Central Economic Work Conference.

The nation's leaders last week said monetary policy will play a greater role in macroeconomic regulation, and will be made "tight" for 2008.

Analysts predict an all-round policy package is in the pipeline.

"We expect more aggressive monetary tightening next year," Sun Mingchun, an economist with Lehman Brothers, said.

Shen Minggao, an economist with the Citigroup in Beijing said: "Credit control could take the lead going forward".

The combined use of interest rates, reserve requirement, central bank bills as well as "window guidance" for commercial banks will cool the economy down, which expanded by 11.5 percent year-on-year in the first three quarters, analysts said.

Following the central economic conference, the People's Bank of China, the central bank, announced it will proceed with a tightening monetary policy in 2008, a step up from the "moderate tightening" used in the past few years.

"This change of wording signals more aggressive monetary tightening next year, most likely via window guidance, hikes in the reserve requirement ratio and open market operations," Sun said.

The reserve requirement is expected to continue being a dominant policy tactic next year.

According to Lehman Brothers forecasts, there may be aggressive hikes in the reserve requirement ratio - as much as 350 basis points, pushing it to 17 percent by the end of 2008.

Though interest rates will not necessarily take center stage, they may keep rising, Liu Xiahui, an economist with the Institute of Economics, Chinese Academy of Social Sciences, said.

"It is a fact that Chinese enterprises are not that sensitive to interest rate rises," he said.

Hiking up interest rates may not achieve the country's desired goal.

"China has used interest rate hikes in recent years, but the authorities seem to have realized its limited effect," Liu said.

More possible is "moral suasion", through which the authorities would ask banks to lend less, Guo Tianyong, an economist with the Central University of Finance and Economics, said.

"There are signs and rumors that the authorities would increasingly play such a card, although I don't agree to such regulation," Guo said, adding that it was not in line with China's drive to improve its market-oriented economy.

This year, commercial banks are estimated to make up to 3.7 trillion yuan ($500 billion) in new yuan loans, about 410 billion yuan more than last year.

The increased money supply, coupled with the growing trade surplus, has led to such problems as strong asset price rises and the danger of entrenched inflation.

Despite 10 reserve requirement ratio adjustments and five interest rate hikes, consumer price index growth in November is expected to exceed the decade high of 6.5 percent in October and August.

"The authorities still have cards to play," Liu Xiahui said.

The so-called semi-administrative measures, such as "window guidance", will work in controlling credit growth, he said.