Fine-tuning “will target areas where the financial system isn’t giving effective support due to some failures in the system,” Xia said at a forum in Beijing today, citing examples such as ensuring lending to small businesses. It doesn’t mean “loosening curbs on property. Don’t count on it,” he said.
Premier Wen Jiabao said last month that the government will fine-tune economic policy as needed, fueling speculation that reserve requirements for banks may be cut to support growth in the world’s second-biggest economy. Most economists expect the government to loosen some fiscal or monetary policies without cutting interest rates through 2012 as inflation remains elevated, a Bloomberg News survey indicated this month.
The Shanghai Composite Index tumbled 2.4 percent as of 1:01 p.m. local time.
“High investment growth before the financial crisis can’t be sustained because it has led to property bubbles and huge latent risks in local government financing vehicles,” said Xia, an academic adviser on the People’s Bank of China monetary policy committee. “Under such circumstances, we must maintain a relatively tight stance on credit.”
Adequate Money Supply
The central bank should ensure that growth in the money supply can support economic expansion of 8 percent to 9 percent, said Xia, who is also a researcher at the State Council’s Development Research Center.
Banks including UBS AG and Citigroup Inc. have lowered estimates for China’s growth next year as the government’s campaign to curb property speculation damps investment and the European debt crisis saps export demand. A slowdown in property sales could trigger developer collapses and lead to bad loans, the Organization for Economic Cooperation and Development warned this week.
China’s economy, the world’s second-biggest, grew 9.1 percent in the third quarter from a year earlier. Expansion has slowed from 11.9 percent in the first quarter of last year. UBS has lowered its estimate for next year to 8 percent.
“We think a sharper deceleration in property investment is the biggest risk to China’s economy,” Johanna Chua, Hong Kong- based chief economist for Asia at Citigroup, said in a report this week. “But a hard landing can be averted in the near term with sufficient policy flexibility to provide offsetting support for growth, especially on the fiscal front.”
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