Chinese authorities have rushed to assure its financial markets there’s been no change in the accommodative monetary policy that has helped power the country’s economic rebound and a surge in bank lending for the stockmarket, projects and property.
Chinese Premier Wen Jiabao has joined the growing chorus of Government officials who said there would be no change in the stimulus spending or in the current stance of monetary policy.
A statement from him issued yesterday while on a trip in China said in part:
"We are persisting with implementing active fiscal policies and appropriately relaxed monetary policies because we still face many hardships and challenges, the international economic outlook remains unclear, and pressure from falling external demand remains heavy," said Wen, according to the central government’s website (www.gov.cn).
"The impetus for self-sustaining growth in the economy is still not strong…Therefore, the direction of macro-economic policy cannot change."
This was after most Asian markets ended lower Friday, as investors dumped property shares in Shanghai and Hong Kong on fears that Beijing may tighten monetary policy.
The weakness in China and Hong Kong helped push Asian markets down 1% over the day as they also fretted about the July jobless figures for the US.
They were better than expected, so markets should take heart today, but Chinese monthly economic figures will make some investors wary in the next day or so while they are being issued.
The Premier’s statement will also help quell the rising tone of unease and the continuing refusal by markets to believe that lending will not be curbed in this half.
Reports of one big bank curtailing loans this half and stories of a change in official policy saw Chinese markets fall.
Bloomberg had quoted Zhang Jianguo, president of China Construction Bank, as saying in an interview on Thursday that the bank would cut lending by about 70% to 200 billion Yuan in the second half to avert a surge in bad debt.
This was rightly or wrongly seen as a direct result of the small change in the way the Chinese central bank and other officials were describing the current state of monetary policy.
There have been more than half a dozen comments/stories quoting central bank and other government economic officials in the past month suggesting that banks were being told to lend more for real investment, not for stockmarket deals.
Lending for houses, credit cards and some types of business were reportedly being tightened.
That led to more and more speculation that second half lending would be slowed and more directed towards actual projects.
China’s Shanghai Composite slid 2.9% to 3,260.69 Friday, for a weekly loss of 4.4% after rising in the previous seven weeks.
In Hong Kong, the Hang Seng Index fell 2.5%, also erasing gains made earlier in the week, on persistent fears that China may tighten lending policies, especially in the property sector, to prevent asset bubbles.
An official with the country’s economic planner said on Friday there would be no change in China’s macro-economic policy orientation amid the world economic downturn.
Xinhua newsagency quoted Zhu Zhixin, vice minister of the National Development and Reform Commission (NDRC), as saying at a State Council Information Office conference, that the overseas market was still severe and the country’s economic policy direction will remain unchanged.
"Although the country’s economy has shown signs of recovery, it still faces of many difficulties in maintaining stability," he said.
"Any change in the macro-economic policy would disturb the recovery or rebound momentum, or even perish the previous efforts and achievements. Efforts to keep a stable and fast economic development is the top priority of the country in the second half."
The semi-official China Daily website reported that when asked whether a large loan extension would result in inflation, Su Ning, vice governor of the People’s Bank of China, said the country’s moderately easy monetary policy has played an important role in boosting investors’ confidence, enlarging domestic consumption, and inflation should not be a current concern.
"In the first half, most of the loans were channelled to support the construction of several major projects, and less projects are expected in the second half," Su added.
Chinese banks advanced a record 7.37 trillion Yuan (1.08 trillion U.S. dollars) in new loans during the first half of the year, exceeding the full-year target of 5 trillion Yuan.
"Su denied the market talk that China changed its monetary policy, saying the government fine-tuned the monetary policy all the time as a means to keep abreast of the changing economic climate.
"There is no change in China’s monetary policy.
"The central bank would stick to its moderately easy monetary policy to consolidate the country’s economic recovery," said Su.
And the country would use "market tools" to guide appropriate lending growth during the second half of this year, instead of controlling loan scale of the country’s commercial banks, he said.
The central bank reaffirmed on Wednesday in a quarterly report that its major task was to continue fostering steady economic growth by maintaining credit policy continuity and stability as the economy was still in a crucial phase.
Friday’s fall in the Shanghai Composite Index was the third day it had fallen since the central bank’s announce
