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August 8, 2009

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China to stay course of economy

CHINA won't set quotas on new loans to rein in liquidity despite the credit surge in the first half, the central bank said yesterday.

"The central bank will not use quantitative control methods to limit the amount of lending by commercial banks," Su Ning, vice governor of the People's Bank of China, said yesterday in Beijing.

China shifted to what it calls a "moderately loose monetary policy" at the start of this year to ride out the global recession. Before the move, China set lending quotas on banks to control liquidity.

Commercial banks have rushed to issue loans amid the looser monetary policy. Lenders tried to front load as much credit as possible to maximize their interest income as they feared the resumption of credit quotas.

Banks in China issued 7.37 trillion yuan (US$1.08 trillion) worth of new yuan loans in the first half of this year, surpassing the full-year target of 5 trillion yuan.

Su reiterated that "fine-tuning" the country's macroeconomic policy will take place but did not specify exactly what moves might be made. He said the priority is to shore up domestic demand and spur growth.

China's economy grew 7.1 percent in the first half, buoyed by a 7.9 percent spurt in the second quarter.

Su made the remarks at a news conference in Beijing with other senior policy makers from the National Development and Reform Commission and the Ministry of Finance.

Zhu Zhixin, vice minister of the NDRC, told the news briefing that the overseas market was still troubled and the country's economic policy direction would remain unchanged.

Although China's economy has shown signs of recovery, it still faces many difficulties in maintaining stability, he said.

"Any change in the macroeconomic policy would disturb the recovery, or even reverse the previous gains," Zhu said. "Efforts to maintain stable economic development are the top priority in the second half."

Lu Zhengwei, an Industrial Bank senior economist, said the central bank's adherence to its looser monetary policy has left open-market operations, or central bank bills, as the major fine-tuning mechanism.

"There won't be changes in the reserve ratios or interest rates, which are deemed as key indicators of changes in policy," Lu said.

The economist also noted that banks may slow credit in the second half as it may be more difficult to find as many stable and profitable projects as those in the first half.

Peng Ken, an economist at Citigroup, said new yuan-backed loans in the first half were too much for the economy to digest.

"We believe that policy makers intend to keep lending in the range between 300 billion yuan and 450 billion yuan each month, consistent with a 9 percent economic growth in the foreseeable future," Peng said.

Zhao Zhongwei, a researcher at the Chinese Academy of Social Sciences, said China will not tighten monetary policy until developed nations make the move.

"Before exports stage a stable recovery, China won't tighten its current monetary policy as exports still weigh quite a lot in the country's economic performance," the researcher said.


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