Monday, May 17, 2004
So, someone in the State Council is trying to stir up the propsect of interest rate hike by sending a Research Center report to the western media. I think people should not be too excited about it. The thing is that raising interest rates carries with it all sorts of costs for the Chinese government. First, given the problem of hot money coming into China, a series of small hikes would encourage even more hot money flowing in China. Moreover, anticipating future increases in interest rates, firms would try even harder to borrow from banks, which might exacerbate the money supply issue. Furthermore, increase in the general interest rates means that SOE borrowing costs will increase, which decreases SOE profit margin. Officials at SAMC might not be too happy about that. Finally, the MOF would also have to increase bond rates to match increases in bank interest rates in order to attract buyers. Thus, the MOF is probably resistant to interest rates increases. The fact that DRC is leaking the proposal to the western media shows a certain degree of desperation on the part of neo-liberal scholars in the government.
Here are the articles:
China's consumer prices rise more than expected
By Financial Times reporters
Published: May 14 2004 3:50 | Last Updated: May 14 2004 3:50
China's consumer price index continues to rise at a fast rate, fueling fears that Beijing is under increasing pressure to raise the country's interest rates soon to quell the threat of inflation.
According to data released by the National Bureau of Statistics of China on Friday, the CPI rose 3.8 per cent compared with April last year, and was 0.5 per cent higher than the level in March. A Reuters poll had predicted a 3.2-3.3 per cent rise in the year to April.
The CPI, which covers basic consumer goods and services, showed that the cost of food rose by the largest extent, with prices 10.2 per cent higher than in last April. The average price of grains, in particular, surged a phenomenal 33.9 per cent in past twelve months.
Beijing has rolled out a series of measures over past months to curb over-investment but has stopped short of raising the country's interest rates. The central bank earlier dismissed calls for such a move, saying policies aimed at reducing loan growth had produced some impact and that further observation of the economy was needed.
But recent data called into question the effectiveness of existing controls. Figures released on Thursday showed industrial output rose 19.1 per cent in the year to April while total lending rose 20.4 per cent year-on-year at the end of April.
In a report dated April 30, but obtained by the Financial Times this week, the Development Research Centre of the State Council, China's cabinet, recommended small rate increases to cool the economy.
"To keep inflation from being too high or real interest rates from being too low [we should] several times by small increments raise deposit rates and raise lending rates by a higher margin," it said. While the government think-tank did not suggest a time frame for putting up rates, its recommendation showed that such a move remains an option actively explored in Beijing.
The Bureau also announced on Friday that retail sales rose 13.2 percent in the year through April. The increase mainly reflected the sector's recovery from Sars, which the region last spring.
Small rate increases urged to cool China's economy
By James Kynge in Beijing
Published: May 13 2004 21:58 | Last Updated: May 13 2004 21:58
China's interest rates should be raised by small increments "several times" to curb excessive investment and cool credit growth, but authorities should guard against precipitating an economic slump, recommends the cabinet think-tank.
In a report dated April 30, but obtained by the Financial Times this week, the Development Research Centre of the State Council, China's cabinet, makes seven recommendations including reducing government spending, raising interest rates and approving the outflow of funds to capital markets overseas.
The recommendations were made before official figures released on Thursday showing M2 money supply growth at the end of April continued to rise at a vigorous 19.2 per cent year on year. Other key economic indicators, however, showed a slightly slowing trend.
The DRC said Beijing should aim to keep growth in M2, the broadest measure of money supply, at 17-19 per cent this year and renminbi credit growth below 21 per cent in order to keep inflation below 5 per cent for the year. By the official measure of consumer prices, inflation rose 2.8 per cent in the first quarter.
"To keep inflation from being too high or real interest rates from being too low [we should] several times by small increments raise deposit rates and raise lending rates by a higher margin," the report said.
The report did not suggest a time period for raising rates but said that to counter the upward pressure such a rise might exert on the renminbi's exchange rate, some domestic institutions should be allowed to invest in overseas markets under a proposed scheme called Qualified Domestic Institutional Investors.
The DRC also recommends slowing down excessive investment by "strictly controlling" the actions of local governments, a policy Beijing has already begun.
Its other recommendations were also in line with existing government policy. In all actions, the DRC stressed, authorities should adopt a light touch, neither slamming on the brakes nor using "one knife to cut all".
Figures released on Thursday showed industrial output rose 19.1 per cent in the year to April, from 19.4 per cent the previous month. Imports surged 42.9 per cent in the year to April compared to 42.8 per cent in the year to March. The April trade deficit widened to $2.26bn, up from $540m in March. Total lending rose 20.4 per cent year on year at the end of April, a 0.3 percentage-point decline from March. Actual foreign direct investment hit $5.55bn in April, down from about $5.8bn in March.
Here are the articles:
China's consumer prices rise more than expected
By Financial Times reporters
Published: May 14 2004 3:50 | Last Updated: May 14 2004 3:50
China's consumer price index continues to rise at a fast rate, fueling fears that Beijing is under increasing pressure to raise the country's interest rates soon to quell the threat of inflation.
According to data released by the National Bureau of Statistics of China on Friday, the CPI rose 3.8 per cent compared with April last year, and was 0.5 per cent higher than the level in March. A Reuters poll had predicted a 3.2-3.3 per cent rise in the year to April.
The CPI, which covers basic consumer goods and services, showed that the cost of food rose by the largest extent, with prices 10.2 per cent higher than in last April. The average price of grains, in particular, surged a phenomenal 33.9 per cent in past twelve months.
Beijing has rolled out a series of measures over past months to curb over-investment but has stopped short of raising the country's interest rates. The central bank earlier dismissed calls for such a move, saying policies aimed at reducing loan growth had produced some impact and that further observation of the economy was needed.
But recent data called into question the effectiveness of existing controls. Figures released on Thursday showed industrial output rose 19.1 per cent in the year to April while total lending rose 20.4 per cent year-on-year at the end of April.
In a report dated April 30, but obtained by the Financial Times this week, the Development Research Centre of the State Council, China's cabinet, recommended small rate increases to cool the economy.
"To keep inflation from being too high or real interest rates from being too low [we should] several times by small increments raise deposit rates and raise lending rates by a higher margin," it said. While the government think-tank did not suggest a time frame for putting up rates, its recommendation showed that such a move remains an option actively explored in Beijing.
The Bureau also announced on Friday that retail sales rose 13.2 percent in the year through April. The increase mainly reflected the sector's recovery from Sars, which the region last spring.
Small rate increases urged to cool China's economy
By James Kynge in Beijing
Published: May 13 2004 21:58 | Last Updated: May 13 2004 21:58
China's interest rates should be raised by small increments "several times" to curb excessive investment and cool credit growth, but authorities should guard against precipitating an economic slump, recommends the cabinet think-tank.
In a report dated April 30, but obtained by the Financial Times this week, the Development Research Centre of the State Council, China's cabinet, makes seven recommendations including reducing government spending, raising interest rates and approving the outflow of funds to capital markets overseas.
The recommendations were made before official figures released on Thursday showing M2 money supply growth at the end of April continued to rise at a vigorous 19.2 per cent year on year. Other key economic indicators, however, showed a slightly slowing trend.
The DRC said Beijing should aim to keep growth in M2, the broadest measure of money supply, at 17-19 per cent this year and renminbi credit growth below 21 per cent in order to keep inflation below 5 per cent for the year. By the official measure of consumer prices, inflation rose 2.8 per cent in the first quarter.
"To keep inflation from being too high or real interest rates from being too low [we should] several times by small increments raise deposit rates and raise lending rates by a higher margin," the report said.
The report did not suggest a time period for raising rates but said that to counter the upward pressure such a rise might exert on the renminbi's exchange rate, some domestic institutions should be allowed to invest in overseas markets under a proposed scheme called Qualified Domestic Institutional Investors.
The DRC also recommends slowing down excessive investment by "strictly controlling" the actions of local governments, a policy Beijing has already begun.
Its other recommendations were also in line with existing government policy. In all actions, the DRC stressed, authorities should adopt a light touch, neither slamming on the brakes nor using "one knife to cut all".
Figures released on Thursday showed industrial output rose 19.1 per cent in the year to April, from 19.4 per cent the previous month. Imports surged 42.9 per cent in the year to April compared to 42.8 per cent in the year to March. The April trade deficit widened to $2.26bn, up from $540m in March. Total lending rose 20.4 per cent year on year at the end of April, a 0.3 percentage-point decline from March. Actual foreign direct investment hit $5.55bn in April, down from about $5.8bn in March.
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