China's task of managing its economy to a soft landing remains at a critical juncture and any let-up in policy restraint may risk losing ground already gained in the campaign, the central bank warned Thursday.

Similar rhetoric by the bank last month cautioning about the difficulty in macro management refueled speculation about a widely-anticipated interest rate rise, but analysts said Thursday they believed the bank was not hinting at any immediate action.

The market has been anxiously awaiting signs of the central bank's judgment on the economy, especially after frenzied fixed investment and loan growth showed a faster-than-expected slowing down during the past couple of months.

"Macro management has achieved initial results, but there may be a rebound if our efforts are loosened up to any extent," said Zhou Xiaochuan, governor of the People's Bank of China (PBOC).

Fixed investment growth may accelerate again, he said, given the massive scale of projects under construction, and enthusiasm for investment among businesses and local governments across the country "remains high."

Base money is still growing rapidly as the central bank continues to absorb inflows of foreign currency, complicating its monetary policy operations, Zhou said.

"I feel that the central bank is just responding to calls for easing credit curbs instead of hinting at a greater possibility of an interest rate hike," said Wang Yuanhong, a senior analyst with the State Information Center.

Economists have been cautioning recently about the prospect of an abrupt slowdown in investment and credit growth bringing the economy to a hard landing. Others believe that cooling down the economy remains the more urgent task currently.

China has taken a raft of measures, including raising bank reserve requirements and administrative measures such as imposing strict land controls and credit curbs, to contain fast growth in fixed investment and money supply that started in the latter half of last year.

The frenzied investment and loan growth raised worries about the economy overheating.

Both fixed investment and bank loans slowed down subsequently, but at a faster pace than expected. Fixed investment growth registered only 18.3 percent in May, which compared to more than 50 percent in the first two months of the year, while money supply growth slid to 15.3 percent in May from above 20 percent earlier this year.

But analysts have warned the investment and credit growth may rebound should the administrative tightening slacken, and have called for more market-oriented methods.

Investment growth climbed again in July, registering 31.5 percent, as estimated by investment bank Goldman Sachs. Steel prices, a major concern fuelling worries about overheating, have clawed upward.

The US Federal Reserve's two interest rate rises this year did little to stop the inflow of foreign currencies, a senior PBOC official said last month, dashing hopes higher overseas interest rates would alleviate the pressure on the central bank to mop up excessive liquidity generated when purchasing dollars to keep the yuan stable.

"The likelihood of a rebound is out there at this point in time," Wang said. "But with the central bank watching the situation now, the possibility has become dim."

On a related front, the China Banking Regulatory Commission (CBRC) Thursday released long-anticipated guidelines on commercial banks' lending risks in the fast-growing real estate market, a key sector the State intends to slow down as part of its macro management efforts.

The guidelines detail risk prevention measures for commercial banks regarding their housing loans, and require individual borrowers' monthly repayments to be no more than half of their monthly income.

Chinese commercial banks' housing loans have been expanding since 1997 as the real estate market experienced a boom. But "since real estate developers rely mainly on bank loans, the banks' non-performing assets may rise considerably should the market reverse its course," said a CBRC spokesman.

(China Daily September 3, 2004)