BIZCHINA> Review & Analysis
|
BIZCHINA> Review & Analysis
|
|
Concerns mount over loan policies
By Liu Jinhe (China Daily)
Updated: 2009-10-12 08:01 Disparities During the course of China's economic growth, disparities in investment and foreign and domestic demand began to appear that have yet to be resolved. The majority of export-driven businesses in China, which has a 70 percent dependence rate on overseas trade, attempted to use the domestic market to resolve the excess in export production capabilities. They faced limitations due to the nation's weak domestic consumption power. There is a growing possibility that the loan easing policy will result in deflation and overproduction rather than an increase in consumption, due to the fact that a large amount of the funds are being injected into leading government-owned industries such as steel, cement and electricity. The possibility of a financial bubble is slowly fading due to the large inflow of loans into the stock and real estate markets, rather than the real economy. Twenty percent of loan funds was invested in the stock and real estate markets in the first half of 2009, which is why the stock and real estate markets continued to do relatively well despite the economic slump. Due to the government's dependence on capital from land and its contribution to economic growth, the government has more or less resigned itself to the abnormal swelling of the real estate industry. And expectations of inflation are slowly increasing because large-scale loans have been excessively pumped into production. Basic conditions of the monetary policy will be maintained and monetary easing will be adjusted according to the rate of economic recovery. The monetary easing policy will remain the same into the third quarter as tightening monetary policies in order to attain the 8 percent target economic growth rate. If reaching the economic growth rate target goes according to plan, there will be no need to reduce the size of loans. With the recovery of both domestic and foreign economies, a readjustment of the scale of loans will be needed from the fourth quarter. It will also be necessary to re-examine the transfer path of funds in the real economy as well as preventing another financial crisis caused by a financial bubble through tightening, supervising and managing the funds being injected into the stock and real estate markets. Approving loans to small and medium-sized businesses will help control the unemployment rate.
An official at the central bank expressed his concerns about the two, saying that a tightening of loans could become an obstacle for economic recovery and continuously easing them could lead to inflation. The author is a researcher with Samsung Economic Research Institute (China). The views expressed here are his own.
(For more biz stories, please visit Industries)
|
||||||
