China’s top economic official cautioned that the country still faced economic problems and assured jittery investors that easy credit policies aimed at kick-starting a recovery would continue.
“We still face many difficulties and challenges and there is uncertainty over the prospect of the international economy,” Wen Jiabao said during a recent visit to eastern Jiangsu province, according to remarks posted Sunday on the central government’s Web site.
He said the economy continues to be challenged by plunging demand for Chinese exports and challenges in boosting domestic demand.
Wen said Beijing will stick to its “relatively relaxed monetary policy” and a “proactive fiscal policy” a reference to the 4 trillion Yuan ($586 billion) stimulus for the world’s third-largest economy.
Chinese leaders say the country’s recovery is not firmly established even though economic growth accelerated to 7.9 per cent in the latest quarter, up from 6.1 per cent in the previous quarter. They say the rebound is still dependent on government spending and a full-fledged private sector recovery has yet to take hold.
Wen’s pledge of continued easy credit added to a string of government assurances to nervous investors that the flood of bank lending that fueled China’s nascent economic rebound would continue despite concerns that it might be adding to dangerous speculation in stock and real estate.
Analysts are concerned that stimulus-fueled speculation in stocks and real estate could cause a boom and bust in those markets. They say reckless lending could add to pressure for prices to rise and leave banks burdened with bad debt.
Total lending by Chinese banks soared to 7.1 trillion Yuan ($1 trillion) in the first half of the year. Economists say an estimated 15 per cent of that has flowed into stocks and real estate in violation of government lending rules.
Banks have been told to curtail credit for the second half of the year and make sure borrowers put money into productive investments, according to Chinese news reports. They say 10 lenders, including Bank of China Ltd., the country’s No. 2 commercial lender, were ordered to buy 100 billion Yuan ($14 billion) in government bonds to curb their credit growth.