OpinionAfter putting the brakes on credit growth, China must accelerate reform
Hu Shuli says the government is right to treat the recent lending crunch as a structural problem detrimental to the economy's long-term development
Three pieces of financial news over the past week were worthy of note. One, China's interbank lending crunch has been roiling the markets; two, US Federal Reserve chief Ben Bernanke again indicated that an imminent reduction in stimulus was not far off; three, the State Council met to discuss how the financial industry could support China's economic restructuring.
These were related events.
China's economy today is generally stable, but faces many challenges, not least the risks of slowing growth, a squeeze on government revenue and substantial government debt. Add a credit crunch, and the pressure on policymakers to reach for a quick fix has been immense.
The central government was right to pledge last Wednesday that it would maintain a prudent monetary policy and keep money supply at a reasonable level, because such measures will benefit China's long-term development.
As a result, the central bank sat tight last week. But with the markets still in flux, it sought on Tuesday to reassure investors by announcing selective support for bank liquidity. It made clear, however, that its help would be conditional; commercial banks were warned they had to keep risks in check.
Monetary prudence is the right policy choice given the global financial outlook. Market expectations that the Fed will soon end its programme of bond buying are rising, after Bernanke - in an announcement made just hours after the State Council meeting ended - suggested that the stimulus could end in the middle of next year, when the unemployment rate is forecast to fall back to 7 per cent. The bond buying could be scaled back later this year as soon as the jobless rate starts to come down.