Vehicles drive Jianguo Road in Beijing's central business district. Government statistics used to gauge the health of the Chinese economy are notoriously unreliable. They are compiled by local government officials who have an incentive to inflate the results. China watchers say, however, that the trend of the data can be trusted, if not the detailed numbers themselves.JASON LEE
China's central bank has given its first public indication that it is thinking about when to move away from the ultra-loose monetary policy it adopted a year ago to shield the economy from the global financial crisis.
Zhou Xiaochuan, governor of the People's Bank of China, said the bank had suspended its normal criteria for judging the right degree of monetary restraint, but could not do so forever.
"An appropriately relaxed monetary policy was a measure to respond to the crisis," the China Securities Journal cited Mr. Zhou as saying.
"The central bank's measures in responding to crisis are different from the guidance on inflationary expectations in normal times. There must be a handle on duration."
Speaking on Thursday evening to a university audience, Mr. Zhou did not say when the bank might start to reverse the easy policies that have caused annual yuan lending growth to jump to 34.2 per cent in the year to September from 14.6 per cent last October.
"The central bank has rarely in the past adopted relaxed monetary policies, and if it weren't for the financial crisis, there would not be today's appropriately relaxed monetary policy," the paper quoted Mr. Zhou as saying at a forum that had been declared off the record to reporters.
But China is unlikely to take dramatic tightening steps any time soon, analysts said.
"Monetary policy now is quite loose, but it is also quite moderate. In the short term, it is doubtful that regulators will judge that it is overly loose," said Xing Ziqiang, an economist with China International Capital Corp in Beijing.
The central bank will not raise interest rates before the U.S. Federal Reserve acts to do so, for fear of sucking in speculative capital, he said. Lifting banks' reserve requirements, an important quantitative control in China, is also difficult, because banks have only a thin margin of excess reserves at present.
This leaves more frequent central bank bill sales and stricter management of commercial bank lending as the main options for Beijing if it is to rein in soaring liquidity.
"All the data agree that the economy has recovered. The panic is over. The emergency is over. So it's reasonable to expect a change in policy," said Stephen Green, an economist with Standard Chartered in Shanghai. He said the central bank would likely rely on open-market operations to begin with.
Moral suasion will also be important and, to that end, the China Banking Regulatory Commission on Friday warned big banks to make sure their lending does not spiral out of control and that their capital adequacy ratios do not deteriorate.
The banking regulator and the central bank have repeatedly told commercial lenders in recent months to stabilize credit flows and direct loans to the real economy as opposed to asset markets.
Their warnings have been heeded to a certain extent, with monthly new yuan bank loans in the second half about a quarter of their average 1.2 trillion yuan ($176-billion) pace in the first half, though that drop-off also chimes with usual seasonal patterns.
Economists think Beijing will delay a more pronounced shift in its policy footing until export growth has resumed, the sustainability of the recovery in the broader economy is beyond doubt and, in particular, until deflation has ended.
Figures next Thursday will show a month-on-month increase in the consumer price index in September, but the CPI will still be in negative territory compared with a year earlier, Mr. Zhou said.
The Shanghai Securities News said the year-on-year fall would be 1.2 per cent, with a month-on-month rise of 0.5 per cent. It did not say where it got the information.
Economists polled by Reuters expect a 0.8 per cent drop in the CPI in the year to September.
"In setting monetary policy, the central bank pays a great deal of attention to the impact of inflationary expectations, but in responding to a crisis, guidance on inflationary expectations should be different from normal circumstances," the paper quoted Mr. Zhou as saying.
A Reuters poll of economists released this week pointed to a 2.5 per cent year-average rise in the CPI in 2010 after a 0.7 per cent drop this year. But some fear the degree of monetary stimulus in the pipeline could push inflation up to the 4 per cent range next year.