China's economists suggest moderate interest rate hike to cool economy


Updated Tue, 24 Aug 2004 00:00:00 GMT

China's economists advise to take a moderate interest rate soar to cool the economy as investment growth in overheating sectors like cement and property are rebounding after slowing down in the first half on central government macro-control policies.

 Ba Shusong, deputy head of a State Council-affiliated financial research
institute, said in an interview with the newspaper that market-oriented measures such as interest rate hikes are necessary in the government's macro-control program.

He said previous measures were primarily administrative in nature and could easily achieve initial effects, but were difficult to maintain over the long term due to a rapidly growing and evolving economy.

As the central government relaxed controls, investment growth quickly
rebounded as borrowing has consistently been cheap considering the current
negative interest rates, Ba said.

China's July Consumer Price Index (CPI) rose 5.3 pct year-on-year, making
real interest rates negative under the current one year deposit rate of 1.98pct, and the one year lending rate of 5.31 pct almost negative.

Zhang Yongjun, a senior researcher at the Chinese Academy of Social
Sciences, said an interest rate hike is virtually inevitable and September is the right time for regulators to make a decision.

 In the first half of this year, growth rates in fixed asset investment (FAI) have been falling on the central government's macro-control policy, but began rebounding last month.

FAI rose 31.2 pct pct year-on-year in July, slightly higher compared with a 31 pct year-on-year growth rate in June, figures from the National Bureau of Statistics said.

 Zhang Zhuoyuan, another economist at the State Information Center, said a
moderate interest rate hike will not seriously impact consumption.