Last month's rapid rise in bank loans makes it necessary to take
more steps to rein in excessive investment growth in overheated
sectors such as the real estate industry.
The State Council's call on Wednesday for tighter controls on
investments and land use is an immediate response to the
surprisingly strong growth of loans so far this year.
Latest statistics show that bank loans surged 209.4 billion yuan
(US$26 billion) in May, nearly double the same period last year.
And this rapid monthly growth has pushed the country's new bank
loans for the first five months to 2.12 trillion yuan (US$262
billion), accounting for 85 percent of the lending target set by
the central bank for the entire year.
At first glance, the Chinese economy's 10.3 percent growth in
the first quarter seems to explain why banks have granted so many
But special attention ought to be paid to this surge in banks'
loans, given the nation's wish to fundamentally change its growth
Instead of being a boon, soaring bank loans to finance runaway
investment growth might do a disservice to both the banking sector
and the national economy.
With enormous loans being pumped into those sectors risking
either overcapacity or bubbles, domestic banks increasingly expose
themselves to bad loans that will emerge in large numbers when the
economy slows down.
Meanwhile, extensive investment growth fuelled by bank loans
also hinders the country's efforts to shift its economic growth
pattern towards a balanced and sustainable one. The country is
resolved to achieve energy-saving and environmentally friendly
development, but the current extensive investment growth is making
it more difficult to achieve this goal.
Breakneck investment growth has already been on the radar of
macroeconomic control. An April interest rate hike and other
administrative measures aimed at the property market bear full
testimony to the central authorities' determination to cool down a
rapid expansion in investment.
However, the financial data for May confirmed that previous
tightening measures have not had the desired effect. Not that these
measures are ineffective. The authorities need to further step up
efforts to squeeze credit in order to control investment
For a populous country like China, it is always important to
maintain strong growth momentum to create enough jobs for its
swelling labor force. In addition to this concern, a fairly low
consumer price index, the main gauge of inflation, also pre-empts
drastic tightening measures. Official figures indicated that the
consumer price index rose 1.4 percent year-on-year in May.
Under such circumstances, the focus of macroeconomic control
should be placed on structural adjustment.
The People's Bank of China has made it clear that it will
strictly control bank loans to industries with overheated
investment, as well as lending more money to support weak links in
That will be the best way to control money supply without
hurting the economy.
(China Daily June 16, 2006)