heavy-handed policies to restore confidence

Zhou Pledges Fast, Heavy-handed Policies to Restore Confidence

http://www.bloomberg.com/apps/news?pid=20601087&sid=aPla2l2PoY7s&refer=home

By Li Yanping and Luo Jun

March 6 (Bloomberg) -- Chinese central bank Governor Zhou Xiaochuan pledged “fast and heavy-handed” policies to restore confidence and prevent the global financial crisis from deepening the nation’s economic slump.

“If we act slowly and less decisively, we’re likely to see what happened in other countries: a slide in confidence,” Zhou said at briefing in Beijing. The central bank has “ample room” to fine-tune monetary policy after a record surge in lending in January, he said.

The central banker said he saw “signs of stabilization and recovery” in the world’s third-biggest economy, echoing Premier Wen Jiabao’s confidence that the nation’s 8 percent growth target for 2009 remains within reach. Collapsing exports because of the global recession have dragged growth to the weakest pace in seven years and cost the jobs of 20 million migrant workers.

“This isn’t the time to be cautious with the measures you roll out, it’s time to overdo it,” said Dariusz Kowalczyk, chief investment strategist at SJS Markets Ltd. in Hong Kong. “The outlook for the global economy has deteriorated dramatically.”

The Shanghai Composite Index of stocks fell 1.5 percent as of 1:11 p.m. on concern that the global recession is deepening. The yuan was little changed against the dollar.

Premier Wen restated the 8 percent target in an annual speech to China’s parliament yesterday, the equivalent of a U.S. State of the Union address.

Slump in Confidence

“We would rather be faster and heavy-handed if it can prevent confidence slumping during the financial crisis,” Zhou said today.

China’s confidence contrasts with U.S. Treasury Secretary Timothy Geithner’s warning yesterday that his nation’s recession is deepening as it starts a $787 billion stimulus program of public works.

China’s official manufacturing index rose for a third month in February, from a record low in November. Wen has also cited growth in power output and consumption, loans and retail sales as positive signs.

Chinese banks doled out a record 1.62 trillion yuan ($237 billion) of loans in January and more than 800 billion yuan last month, Liu Mingkang, chairman of the China Banking Regulatory Commission, said in Beijing yesterday. The regulator plans to conduct spot checks of bank loan books to “ensure quality of growth,” Liu said.

Lending Quotas

Loans and money supply may have grown too quickly, Zhou said, after China cut interest rates, scrapped quotas limiting lending and pressed banks to support the nation’s 4 trillion yuan stimulus package. The jump in lending exceeded the central bank’s expectations, he said.

The central bank cut interest rates five times in the final four months of last year, including the biggest single reduction since the 1997-98 Asian financial crisis, leaving the benchmark one-year lending rate at 5.31 percent. There have been no cuts in 2009.

China needs “stable and relatively fast growth” to create jobs, boost incomes and ensure social stability, Premier Wen said yesterday.

Not everyone is convinced that China will meet its 8 percent goal.

The 6.8 percent gain in the fourth quarter was down from 9 percent for all of 2008 and 13 percent for 2007. The International Monetary Fund forecasts the economy will grow 6.7 percent in 2009, the least in almost two decades.

Economist Kowalczyk sees a 6 percent expansion this year and warns that surging unemployment may undermine social stability if the government fails to do more to boost growth.

“China’s economic conditions may appear less dismal than its Asian peers, but the government’s growth target of 8% seems too optimistic,” said Sherman Chan, a Sydney-based economist at Moody’s Economy.Com.

To contact the reporters on this story: Li Yanping in Beijing at [email protected]

Last Updated: March 6, 2009 00:32 EST
Blocked Ad