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CHINA / National

China raises bank lending rate to slow investment
(chinadaily.com.cn)
Updated: 2006-04-28 09:26

While the central bank rate increase is intended to discourage lending in general, the government has also taken more targeted measures in sectors where growth appears to be outstripping demand. Investment controls have already been imposed on the aluminum, ferrous alloy, coke and cement industries.

The auto industry will be next, He Yanli, a vice-director at the National Development and Reform Commission, told Dow Jones Newswires Thursday.

Car sales in the first three months this year rose 74 per cent from the same period a year earlier to 890,000 units, according to data from the China Association of Automobile Manufacturers.

International Reaction

The US Treasury Department welcomed the move as a sign Beijing was being flexible in its management of the giant economy.

"It's another example of the Chinese using market instruments to deal with market conditions in their economy," Treasury spokesman Tony Fratto told reporters. "From that perspective, it's positive.”

Federal Reserve Chairman Ben Bernanke said that allowing the yuan to move more freely would give Beijing even more independence in setting monetary policy.

"It's a very large country, they need to have an independent monetary policy. They can't really run independent monetary policy without a flexible exchange rate," he said.

Lorenzo Bini Smaghi, the European Central Bank board member responsible for international relations, called the Chinese move a step in the right direction. Asked in Florence, Italy, if more hikes were needed, he replied: "Yes, and they'll do it."

"It's a positive step in so far as it should help take some of the steam out of investment demand. It also signals a proactive central bank," said Ben Simpfendorfer, a strategist with Royal Bank of Scotland in Hong Kong, in an interview with the Reuters.

The Chinese authorities have been trying for the past year to rebalance high economic growth rates away from investment and more into domestic consumption -- a shift that could help rein in the soaring trade surplus by lifting imports, analysts said.


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