Fis­cal, mone­tary set­tings stay steady next year

China Daily (Hong Kong) - - BUSINESS - By GAO CHANGXIN in Shang­hai gaochangxin@chi­

China will main­tain its “proac­tive” fis­cal pol­icy and “pru­dent” mone­tary pol­icy next year, said a state­ment re­leased af­ter the con­clu­sion of the an­nual Cen­tral Eco­nomic Work Con­fer­ence on Fri­day.

A “pru­dent” mone­tary pol­icy in­cludes keep­ing the growth of credit and so­cial fi­nance ag­gre­gates at a “rea­son­able” level, said the state­ment. Any macroe­co­nomic poli­cies must con­form to the “spirit of re­form”, in­di­cat­ing that mone­tary pol­icy might take new forms.

The meet­ing didn’t re­lease a GDP growth tar­get for 2014, but econ­o­mists be­lieve it will re­main the same as this year at 7.5 per­cent.

Zhang Qi, a Shang­hai-based econ­o­mist with Haitong Se­cu­ri­ties Co Ltd, said that mone­tary pol­icy next year might in re­al­ity be tighter than the “pru­dent” set­ting that’s of­ten men­tioned.

“Cen­tral bank op­er­a­tions re­cently have al­ready been in the di­rec­tion of tight­en­ing. Mone­tary poli­cies won’t be any looser next year, in the broad pol­icy frame of ‘delever­ag­ing’,” said Zhang.

In the week ended on Fri­day, the Peo­ple’s Bank of China drained a net 37 bil­lion yuan ($6.1 bil­lion) from the money mar­ket through open mar­ket op­er­a­tions.

That amount com­pared with a net in­jec­tion of 56 bil­lion yuan dur­ing Novem­ber.

Aus­tralia and New Zealand Bank­ing Group Ltd said in a re­search note on Fri­day that tight liq­uid­ity will likely per­sist at least un­til the Lu­nar New Year, which in­di­cates that the Chi­nese au­thor­i­ties in­tend to force com­mer­cial banks to re­duce their lever­age ra­tios.

Lu­nar New Year starts at the end of Jan­uary.

“Against this back­drop, whether the liq­uid­ity tight­ness will con­tinue next year will largely de­pend on the delever­ag­ing process of the Chi­nese com­mer­cial banks,” the bank wrote.

Chi­nese banks ex­tended 624.6 bil­lion yuan of new yuan­de­nom­i­nated loans in Novem­ber, al­most 24 per­cent higher than the 506.1 bil­lion lent in Oc­to­ber.

The fig­ure topped both the 550 bil­lion yuan me­dian fore­cast in a poll of 11 econ­o­mists by The Wall Street Jour­nal and the 580 bil­lion yuan me­dian es­ti­mate of 41 an­a­lysts sur­veyed by Bloomberg News.

Rapid credit ex­pan­sion runs against Bei­jing’s goal of delever­ag­ing an econ­omy that’s laden with debt on the back of rapid growth.

The stock of debt surged to 200 per­cent of GDP at the end of 2012, from 129 per­cent in 2008, when au­thor­i­ties moved to stim­u­late the econ­omy with a 4 tril­lion yuan in­vest­ment pack­age to counter the im­pact of the global fi­nan­cial cri­sis.

“The ‘pru­dent’ mone­tary pol­icy stance will likely be kept, but tight­en­ing has al­ready started,” wrote Bri­tish bank Bar­clays Plc in a re­search note on Wed­nes­day, com­ment­ing on the CEWC.

Bar­clays ex­pects the M2 growth tar­get to be kept at 13 per­cent in 2014, com­pared with ac­tual growth of more than 14 per­cent year-to-date. And that may trans­late to tighter liq­uid­ity.

Com­ment­ing on fis­cal pol­icy, Zhang said that be­ing “proac­tive” doesn’t mean Bei­jing will stim­u­late the econ­omy with in­vest­ment, as it has done pre­vi­ously.

“Fis­cal pol­icy will mainly tar­get job cre­ation, but Bei­jing will be very care­ful, so as to not put money into the many in­dus­tries that are al­ready ex­pe­ri­enc­ing se­vere ex­cess pro­duc­tion,” he said.

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