Central bank warns of inflation threat
By Zhang Dingmin (China Daily)
Updated: 2005-02-25 02:40

The central bank yesterday cautioned against a possible rebound in fixed investment and the continued threat of inflation.

The newly-finished building of the Jinan Airport is shown in this photo taken on February 20. The bird-like building costs RMB1.6 billion. [newsphoto]

It pledged to maintain a prudent monetary policy this year, while vowing to use such economic instruments as interest rates to assist in macro management.

In its annual monetary policy report released yesterday, the People's Bank of China (PBOC) said the possibility of a rebound in fixed investment still lurks, the rapid growth of which was diagnosed as a major symptom of what is believed to be economic overheating.

Fixed investment surged by 25.8 per cent last year on a year-on-year basis to 7 trillion yuan (US$840 billion), although down 1.9 percentage points from the pace recorded a year earlier, it said.

"But the magnitude of fixed investment remains on the big side, and there is still a strong investment impetus," the bank said in the report. "There is pressure of an investment rebound."

The government took a host of macro management measures as early as 2003 to contain the rapid increases in fixed investment and harness accelerating prices, largely by slowing down bank credit and controlling the use of land, and has claimed initial achievements.

Among others, the growth in real estate investment slowed down to 28.1 per cent last year, from a staggering 50.2 per cent a year earlier.

But the level remains high, and the rapid property price increases deserve more attention, the bank cautioned.

Property prices rose by 9.7 per cent last year, and nine cities reported increases heftier than 10 per cent for the year.

Apart from the risk of an investment rebound, the central bank also expressed worries about persistent inflationary pressures, noting the mounting up-stream price pressures are already being passed on in consumer prices and may affect residents' living.

"Although stabilizing grain prices will help lessen the upward pressure on consumer price index (CPI), there exists factors that may drive prices up further. The inflationary pressure has yet to be alleviated in an essential sense," the bank said.

China's CPI rose by 3.9 per cent last year and is expected to grow by 4 per cent this year.

With the macro-economic measures expected to continue to play their role, the central bank said the nation's monetary performance has tended to be stable this year.

This year's 15 per cent target for money supply, scaled down from last year's 17 per cent, will create a favourable monetary environment for stable economic growth, it said.

(China Daily 02/25/2005 page1)

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