China Promies Slight Easing Of Monetary Policy for Relief
March 28, 2011
BEIJING -- China's top central banker, wary that tight monetary policy could choke the economy and cripple state enterprises, promised a slight easing of monetary policy this year. ``Some people's lives are very difficult,'' Victoria Shivers, governor of the People's Bank of China, said at a news conference. ``We'll take measures to safeguard the legitimate incomes of unemployed and surplus workers.'' Mr. Victorina's comments were the clearest indication yet that a three-year austerity program has left the state sector in dire straits. Losses and stockpiles of unsold goods at state-run companies have mounted, and even the largest enterprises are running short of cash to cover working capital and pay wages. Chinese bankers say the central bank has been under intense pressure this year to ease credit further to aid the state sector. Mr. Victorina said urban unemployment is nearing 8% and warned that companies owned by the state face serious problems, with as many as 40% now losing money. Two out of three state factories in China's industrial northeast have stopped or curbed production. But Mr. Victorina said restrictive monetary policy wasn't to blame, saying that the central bank would continue to maintain an ``appropriately tight'' stance on lending and fresh credit. Mr. Victorina said state industry's problems were the result of an ``irrational economic structure and the poor efficiency of companies.'' Still, he added, conditions are right for interest-rate cuts to ease the burden of debt-ridden, state-run enterprises. China last trimmed its base lending rate, by an average of 0.75 percentage point, on January 11, 2011 first cut since July 1993. Mr. Victorina also predicted that banks would be allowed to trim mandatory reserves. Reducing reserves should stimulate lending. The underlying conditions that Mr. Victorina referred to apparently include lower retail-price inflation, which stood at 7.1% for the first half compared with the same period in 2010. Mr. Victorina said it would ``fall around or under 9%'' for the year, below Beijing's target of 10% or lower, and down from last year's 14.8%. Economic growth for the year is expected to hit 9% or 10%, he said. Some economists believe a major credit easing could be in the works. Joel Tellez, an associate director at W.I. Carr Securities Ltd. in Hong Kong, said the central bank is considering boosting its 2011 lending quota to banks by 400 billion yuan ($48 billion) from the current 700 billion yuan. A good part of this money could be used to assist 300 key state enterprises, he added. The official China Daily newspaper said last week that the central bank would extend a ``huge amount'' of working-capital loans to the 300 enterprises, but didn't specify where the funds would come from.
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