China raises bank lending rate to slow investment
(chinadaily.com.cn)
Updated: 2006-04-28 09:26
First step to curb overheated investment
The interest rate rise Tuesday is clearly the first of a number of additional
steps to curb an overheated investment, Managing Director and Chief Economist of
Morgan Stanley, Stephen S. Roach, said Friday.
Roach said though China
needs a lot of investments, the current growth rate is far too excessive with an
investment sector of 45 percent in GDP last year and 50 percent on its way this
year.
"The current rapid growth is certainly unsustainable," he said.
The action taken by the Chinese government will importantly temper the
overall growth rate by decreasing the current 10.2 percent to 8 or 8.5 percent
by the end of this year, Roach said.
He suggested some other measures
that the Chinese government may adopt. One is to slow down in the export growth.
"The export has been growing far too rapidly and there is a breakout of anti-
China protectionism in the United States and increasingly in the Europe as
well," he said.
Another step that China should take, and it has been
carefully written in the 11th Five-Year Plan, is to call for 7.5 percent average
real GDP growth through 2010, and it means that China is moving away from the
25-year export and investment growth to more of a private consumption one, he
said.
On the flexibility of the Chinese currency RMB, Roach said China
deserves more credit for the current appreciation.
He noted a lot of
politicians and policy-makers are making a huge mistake by simply looking at the
fluctuation of RMB against the U.S. dollar, saying though RMB has moved very
little against U. S. dollar at 3 or 3.5 percent since July of last year, the
real effect of the exchange rate against all Chinese trading partners is up 15
to 16 percent over the last year.
"This has much bigger impact on all
Chinese trade than the dollar against RMB," he said.
G7 and the United
States think there should be a big, big increase in RMB and they gave China the
same advice they gave to Japan 20 years ago, which has led to 15 years of
inflationary slump. "China understands the mistake that Japan made and it will
not make the same mistake," he said.
Roach believed that RMB will
continue on a path of very slow and gradual revaluation.
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