The head of China’s central bank said conditions are ripe for Beijing to liberalize interest rates, which would boost domestic consumption as the nation’s exports are hit by weaker overseas demand.
Beijing has cut the nation’s growth target this year as its export-driven economy slows and a key policy focus this year will be on expanding demand at home.
In an article in China Finance — a magazine backed by the People’s Bank of China — Zhou Xiaochuan (周小川) said “the conditions to further push forward with interest rate liberalization are basically there.”
“The central bank will ... continue to actively push for this,” he wrote in the magazine, which was distributed to readers yesterday.
China’s central bank currently sets interest rates — which banks have to adhere to — but policymakers control the way they can channel and allocate capital.
Analysts say this has led to imbalances in the economy, with savers getting small returns on deposits and corporate entities able to borrow at low rates and invest in projects they might not otherwise have engaged in.
China’s economy has slowed because of falling demand in debt-wracked Europe and the US. Last month the country saw its biggest trade deficit since records began, while manufacturing activity is plodding.
Economic growth hit 9.2 percent last year, slowing from a blistering 10.4 percent in 2010, as global turbulence and efforts to tame high inflation put the brakes on growth.
Earlier this month, Chinese Premier Wen Jiabao (溫家寶) cut the country’s growth target for this year to 7.5 percent, from an 8 percent target last year.
Zhang Xin (張欣), chief executive officer of property developer Soho China Ltd, said China’s government is set to loosen credit this year to avoid putting the 7.5 percent economic growth target at risk.
“When there is no money in the system, companies cannot borrow,” Zhang said in the transcript of an interview recorded for the Charlie Rose television program in the US. “Small companies cannot borrow. They cannot develop. So money has to be in the system in order for the economy to grow.”
She said she would be surprised if credit was not loosened after this year proved “one of the most challenging years” that her company had encountered because of limits on lending.
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