China may take measures to stop its economy plunging, though economists are divided on whether the central bank will relax its tight monetary policy.
CITIC Ka Wah Bank economist and strategist Liao Qun said yesterday in Shanghai that the policy may be relaxed after the Beijing Olympic Games.
Premier Wen Jiabao called for steady and fast development of the economy and warned against wild fluctuations during a three-day research trip in Shanghai and Jiangsu Province last week.
Wen also said the central government's goal to tame inflation was a major task.
"No mention of the 'tight monetary policy' and a call for steady and fast economic development indicates that the central government may consider loosening the tight monetary control to avoid a sharp decrease in the economy," Liao said.
The timing may come after the Olympics when the central government would be more focused on economic issues, Liao said.
Lower inflation in the second half and the cool-off of investment and exports would be the main reasons for a possible loosening of the policy, Liao said.
Liao expected the first half of the year's inflation to range between 6.5 percent and 7 percent, with the second half dropping to less than 6 percent. He said China's economy may grow between 9 percent and 10 percent for the whole year.
Lu Zhengwei, an Industrial Bank chief economist, said China's economy may slow in the third quarter.
"Tight monetary policies like the lending quota are unlikely be loosened until the end of this year amid the current economy," Lu said.
Shenyin & Wanguo Securities Co said in a research report yesterday that the key challenges China faced were to fight inflation and avoid a sharp drop in the economy.
"The peak of inflation has passed but risks are still there for a rebound due to increasing oil prices," the report said. Shenyin & Wanguo expected the loosening may come from fiscal policies such as relaxing export controls - but not the tight monetary policy, which would still be used to hose down inflation.
However, even if the tight monetary policy was loosened, it didn't mean there would be a cut in interest rates and banks' reserve requirement rates, Liao said.
"It is more likely that the central government may ease the control of banks' lending quotas," Liao said.
China has raised the reserve requirement ratio to a record 17.5 percent in five stages this year. The central bank also raised interest rates six times last year to fight inflation and cool investment.
(Shanghai Daily July 9, 2008)
