Inflation fight hits smaller companies

PUBLISHED : Friday, 24 June, 2011, 12:00am
UPDATED : Friday, 24 June, 2011, 12:00am


Beijing's monetary tightening has exacerbated funding difficulties for the mainland's small and medium-sized companies while doing little to tame inflation, according to a senior official with the top legislative body.

In unusual and harsh criticism of the austerity measures meant to curb inflation, He Keng, a deputy director of the financial and economic affairs committee of the National People's Congress, cast doubt on the central bank's policies. He, a former deputy director of the National Bureau of Statistics who is also an economist, said they were causing a rising number of bankruptcies and increasing unemployment.

'I don't understand the central bank's policies,' He said in answer to an internet user's question during an online session organised by the website of People's Daily. 'The inflation problem was not as scary as was thought.'

The central bank used administrative steps and tightening measures such as raising banks' reserve requirement ratios to curb lending to companies and individuals in an effort to contain inflation, which hit 5.5 per cent in May, the highest since August 2008.

He contends that the 17.6 trillion yuan (HK$21.1 trillion) lent out in the past two years was not what was driving soaring consumer prices.

'The inflation problem is still manageable and the whole-year consumer price index growth could certainly be controlled at a level of below 5 per cent,' He said. 'I don't think the inflation problem should be linked to loans and money supply.'

His views were echoed by Chen Wei, vice-chairman of the China Association for Small and Medium Enterprises. 'Small firms always bear the brunt of pain brought by monetary tightening though they are viewed as an important part of the economy,' Chen said. 'I don't have a clear figure on how many of them have been forced to close down, but it's obvious that quite a large number of privately owned firms have gone bankrupt recently.'

According to the People's Daily, more than 7,300 companies in Zhejiang province, which has a high concentration of privately owned businesses, were dissolved in the first four months of this year.

The mainland is home to more than eight million privately owned companies, which create 80 per cent of new jobs each year. 'The credit tightening has made life difficult for most of them,' Chen said.

However, Lu Ting, chief China economist with Bank of America-Merrill Lynch, pointed out that wage increases, rather than funding difficulties, that pushed up the business costs in labour-intensive industries should be blamed for the failure of private businesses.

'There is no large-scale closure of small and medium-sized enterprises in the mainland as a result of the credit tightening measure,' he said.

Lu said Beijing's policy of capping money supply growth at 16 per cent this year should be sufficient to support economic growth which is expected to reach 9 per cent this year.