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China targets proactive policy as PMI dips

08-02-2010 09:48 BJT

China's central bank will continue to ensure an adequate money supply in 2010 to back up economic growth which has shown signs of slackening in June and July.

The People's Bank of China, the central bank, urged Sunday the country's banks to "effectively" enforce a moderately easy monetary policy in the following time this year, in an apparent bid to pump more liquidity and reverse a slowing-down trend.

Monetary policy is to become more proactive and flexible this year, analysts say.

After the National Statistics Bureau reported China's GDP lowered to 10.3 percent rise in the April-June quarter, from the faster 11.9 percent growth in the first quarter, the corporate purchasers' federation said the PMI index for July dipped further to 51.2 percent, dropping 0.9 percent from June. The index, a gauge of industrial activity, is the lowest in 17 months.

It doesn't augur well for the country's economy in the coming months, analysts have warned. They point to Beijing's hardening measures to cool off housing prices and its effort to re-caliber China's economic mix of inspiring domestic consumption by removing a big part of the export rebates as "negatives" to the economic growing momentum.

However, the central bank said in the policy statement that it will not depart from the "differentiated" housing loan policy, begun in mid April, which requires 50 percent down payment and 1.1 times the normal mortgage rates for second and more home-buyers in the cities. As a result, property speculation and investment has tapered off, and housing sales have plummeted.

Although China's policy-makers aren't expected to loosen the housing regulation in the remaining time of 2010, which will cause another bigger prize bubble and endanger China's stability, analysts believe that Beijing will try to ensure monetary market liquidity to augment economic growth.

Some economists predict the central bank is to maintain a monthly 20 percent money supply growth in later months, which will bring this year's aggregate loans to 7.5-8.0 trillion yuan, as compared to last year's 9.6 trillion yuan, a record high to jump start a tumbling economy from the global financial crisis. In the first six months, total loans added up to 4.6 trillion yuan.

The central bank also asked for continuous efforts to adjust the country's economic structure, and manage people's inflation expectations. Beijing has promised to keep the annual inflation.

Lu Zhengwei, an economist with China's Industrial Bank, said that the central bank should allow for more loans in the third and fourth quarters to buffer the economy from landing hard.

However, Li Daokui, an economist at Qinghua University and member of the central bank's monetary policy committee, said that the slowdown is not surprising and largely a statistical phenomenon.

The low-base effect has contributed to the relatively slow growth in gross domestic product in the second quarter, Li said. He predicted that China's year-on-year GDP growth will be more than 10 percent this year.

Editor:Xiong Qu |Source:

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