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China credit policies key to handling growth, inflation

(Agencies)
Updated: 2010-03-02 15:05

BEIJING: China must find the right balance in lending to ensure steady economic growth while keeping inflationary pressures in check, the country's top banking regulator said in remarks published on Tuesday.

Liu Mingkang, chairman of the China Banking Regulatory Commission, said in a report published in the Chinese-language Financial News that the risks of inflation driven by higher international commodity prices were low but warranted attention.

The key to successfully balancing price rise pressures against keeping up economic growth lay in enforcing the government's policies to control and channel credit, Liu wrote.

"Among economic growth, credit policy and inflation, it is credit policy that is important to get a handle on," Liu said in the report, which also appeared in "Seeking Truth", the main magazine of the ruling Communist Party.

Liu's remarks underscored the Chinese government's focus on tempering credit flows after Chinese banks made a record 9.6 trillion yuan ($1.4 trillion) in new loans last year to support the government's stimulus plan.

Authorities have recently moved to rein in bank lending, including two increases in banks' reserve requirements, due to concerns about asset price bubbles and the rising risks of bad loans.

Premier Wen Jiabao, in an online chat ahead of this week's session of the National People's Congress, the largely ceremonial parliament, reiterated on Saturday that China would stick to a pro-growth monetary policy but would make sure inflation does not derail the world's third-largest economy.

Liu said that this year major Chinese banks would have to maintain a capital adequacy ratio of 11 percent or higher, while the ratio for small and medium-size banks would be 10 percent or higher. His remarks appeared to scotch recent Chinese newspaper reports suggesting that those ratios could go up.

Credit policy would focus on steering loans to supporting job-generating investments, "strategic emerging industries" and agriculture and smaller businesses, while seeking to tame loan flows to wasteful sectors and those facing gluts in capacity, said Liu.

"Strictly handle the dividing lines in credit policy," said Liu, urging closer supervision of credit to local government-led investment vehicles and more support to private business.

"In principle, there should be no issuing of bridging loans" to those local government investment vehicles, said Liu.

"We must abolish all unreasonable restrictions on entry of private investment as quickly as possible," he added.

Reuters