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SCMP Reporter

BEIJING has agreed in principle to allow this year's credit quota to float by a maximum of 20 per cent, meaning total loans could considerably exceed the stipulated ceiling.

  The 20 per cent 'threshold of tolerance', however, did not mean that Beijing would relax its tight monetary policy, according to sources close to the ongoing national financial meeting in the capital.

  Officials presiding over the conclave, including Executive Vice-Premier Zhu Rongji, would not disclose the 1996 credit ceiling.

  However, a vice-premier pointed out that the money policy this year 'would not be tighter than last year'.

  'Credit policy will be relatively loosened up a bit, even though it will not be much,' he said.

  Banking officials disclosed on Sunday that total loans last year were up 638.7 billion yuan (HK$593.99 billion) on 1994.

  Analysts close to the meeting said there would be a larger increase this year.

  Mr Zhu and his aides pointed out that the slightly relaxed credit policy would be strictly for the benefit of priority sectors such as agriculture, infrastructure, as well as the resuscitation of selected state enterprises.

  He also criticised central government departments and local administrations for 'indiscriminate borrowing' from Chinese as well as foreign banks adding cadres concerned would be held responsible.

  A number of times the central Government has had to shoulder responsibility for unauthorised foreign loans.

  Other topics yesterday included ways to quicken the freeing up of interest rates, the convertibility of the renminbi, and the modernising of state banks.

  Meanwhile, in an apparent bid to reassure overseas media pro-Chinese Hong Kong dailies, Wen Wei Po and Ta Kung Pao, ran front-page stories about the gradual relaxation of fiscal policy.

  The papers quoted 'authoritative figures', believed to be Mr Zhu and his aides, as saying that the 'macro-economic adjustments and controls' this year would not be as severe as those of last year.

  The 'authoritative figures' pointed out while such adjustments and controls would be a long-term affair, Beijing would gradually substitute administrative fiats with non-executive levers such as interest rates.

    It was stressed, however, that given China's basic conditions, the central Government would continue to keep the credit quota and other fiscal operations under tight control.

  The two papers quoted central-level leaders as saying that without such scrutiny, money supply and the entire economy would spin out of control.

  The leaders denied a credit squeeze had been imposed since the onset of the tight-monetary policy in July 1993, pointing out the lending ceiling had been raised every year even though the rate of increase had been slower.

  Moreover, priority had been given to infrastructure projects such as railways, highways and ports, the leaders said.

 They added that Beijing had to continue fixing the maximum quantity of loans in the foreseeable future because it was not possible to fully apply tools such as interest rates or foreign exchange rates.

  One leader told Wen Wei Po that if a factory went under and the laid-off workers held demonstrations, municipal authorities would pull out all the stops to make the banks bail out the concern.

  'When an enterprise is not prepared to pay back the money it borrows from a bank, what constraint can a rise in the interest rate put on it?' Wen Wei Po and Ta Kung Pao quoted him as asking.

   Moreover, some state entrepreneurs just borrowed money to expand their projects without bothering whether there was a market for their goods.



Beijing floats credit 20pc above ceiling