The government has recently enacted three key policy adjustments to better
shepherd the world's fastest-growing economy: raising bank lending rates,
gasoline prices and taxes on luxury goods.
These measures, while prompt and of immediate efficacy, were courageous. They
not only have caused ripples on the world stock, currency and goods markets, but
their economic and social ramifications will continue to be seen in the daily
lives of tens of millions of Chinese.
Facing a raucous outcry that the galloping, economy might run out of control,
the People's Bank of China announced on April 28 the raising of the benchmark
one-year lending rate by 27 base points to 5.85 percent. Obviously the measure
is intended to deter inflationary pressure, fuelled by easy corporate loans
from China's commercial banking system.
Following the rates hike, nearly all major stock markets from New York to
Tokyo saw a dip in trade due to worries that one of the world's major economic
locomotives was losing steam. However, figures from the central bank point to a
clear sign of high investment rates. Bank loans lent in the first 4 months of
the year totaled 1.58 trillion yuan (US$197.5 billion), almost two-thirds of
what the central bank had expected for the full year.
Over-heated? You bet. And nobody wants to see China's economy go bust, right?
Wisely, the central bank did not touch the bank savings rate, leaving it at a
low number to discourage residents from depositing. As a result, domestic
spending has kept on growing, with retail sales in May jumping by a spectacular
14 percent over the same period last year. As the economy relies more on
domestic consumption, its vitality and sustainability stabilize.
In mid-May, governmental pricing authorities raised gasoline prices by more
than ten percent, a step towards bringing gas prices in China closer to world
market levels. Though car owners might not be happy with having to pay more for
gas, the measure is clearly designed to help conserve one of the earth's most
precious resources and inspire government and corporate research into producing
alternative forms of energy.
At a time when some foreign reports note affluent Chinese urbanities are
buying cars like they eat dumplings, it is appropriate to cool it down a little
with a price hike unless you want to see China's clogged traffic getting more
jammed, and the foul air we breathe even more polluted.
Earlier this year, the government's taxation administration raised taxes on
luxury items, including luxury cars, private planes, plush mansions and
expensive watches.
Some argue this measure casts a greedy eye on the pockets of the super rich,
will choke productivity and may drive the rich away from investing in China. But
isn't it their duty to contribute more back to society, after having made a
fortune, while millions of their countrymen struggle on one dollar a
day?
