Exerting macro controls
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A liquidity overhang early this year led to rapid rise in home prices and inflation concerns. The necessity of exerting tighter macroeconomic control therefore became evident.
These curbs have shown positive results during the near term. It is important, however, to learn from past experience and plan for the next few months.
It is quite clear that China's rate of GDP growth is slowing. It has declined from 11.7 percent in the first quarter to 10.3 percent in the second, and is likely to decrease in the coming months.
This is partly attributable to strict macro-control measures, which will further propel economic restructuring and transform growth patterns.
These macro-controls must be implemented stringently in the coming months as well. And, other policies to ensure a smoother functioning of the economy must be devised.
The following measures, in my opinion, seem adequate.
First, the country must adhere to its earlier set monetary policy.
Early this year, the People's Bank of China set a cap of 7.5 trillion yuan in fresh loan disbursals for the year. This means the rate of increase in loans over the previous year must be contained at below 18.8 percent.
It is true that the loan disbursal amount (it was 9.5 trillion yuan in 2009) has shrunk in the first half, but the rate of increase has been higher than the average 13.8 percent gain seen over the past five years.
To limit the increment, the standard limit must be strictly adhered to.
One phenomenon deserves to be highlighted.
Tighter control on loans has meant that the "cooperation between banks and trusts" has become popular. Stricter supervision is requited to regulate this undesirable process.
The recent adjustment to the floating exchange rate has been widely welcomed. The exchange rate must be made more flexible in the coming months, as it will help stimulate foreign trade and structural adjustments as well as ease expectations of a renminbi appreciation.
Second, some local financing platforms need to be reformed and consolidated.
Local investment agencies, with support from provincial governments, have propped up the nation during the global financial crisis. There are 8,000 such platforms in all and many of these operate on the basis on local government guarantees. Yet, some of those guarantees are against stipulations.
