China PBOC Adviser Says Monetary Tightening Pressure Eased
Pressure on China to tighten monetary policy and macroeconomic controls is easing as inflation will be “relatively low” this month due to slowing food-price gains, central bank adviser Song Guoqing said.
Compared with January and February, the pressure “has in my view, been relieved,” Song said at a forum in Beijing yesterday. “That’s good news for growth.” He estimated first- quarter economic expansion will accelerate to 8.3 percent.
The People’s Bank of China drained cash from the financial system in each of the two weeks since the Lunar New Year holiday ended on Feb. 15, boosting speculation that it was tightening amid concerns inflation was accelerating and real-estate price gains were excessive. The State Council stepped up efforts to cool the property market on March 1, five days before the country’s legislature is due to start its annual meeting that will see Li Keqiang take over from Wen Jiabao as premier.
The measures “will lead to downside risks to property prices and investment but the effectiveness of the policy depends on whether the money supply will be tightened as well,” Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong, said in a March 1 note. Monetary policy will probably tighten “in the next several months,” which will slow economic growth, he said.
Housing Minister Jiang Weixin said he was confident the government will be able to control home prices, the Shanghai Securities News reported on its website yesterday. Jiang, a member of the Chinese People’s Political Consultative Conference, spoke in Beijing on the eve of that advisory body’s annual meeting. The legislature, the National People’s Congress, will begin its session on March 5.
China’s economy expanded 7.9 percent in the final three months of 2012 from a year earlier, the first pickup in two years. The pace may accelerate to 8.2 percent in the three months through March, according to the median estimate of 23 analysts surveyed by Bloomberg News in February. Nomura’s Zhang predicts expansion of gross domestic product will ease to 7.3 percent in the second half.
Purchasing managers indexes released over the past week indicate the economy’s recovery from a seven-quarter slowdown may have peaked.
A services industries gauge for February fell to 54.5 from 56.2 the previous month, the slowest expansion since September, according to a report today from the National Bureau of Statistics and China Federation of Logistics and Purchasing.
The federation’s manufacturing PMI released March 1 fell to 50.1, the weakest level in five months, while a separate gauge from HSBC Holdings Plc and Markit Economics dropped to a four- month low of 50.4. Readings above 50 indicate expansion while those below that number signal a contraction.
Song, a professor at Peking University, said yesterday he expects first-quarter growth will be higher “mainly because the comparative base in the first quarter of last year is very low.” The property tightening measures were announced too late to affect expansion for the period, he said.
GDP climbed 8.1 percent in the first three months of 2012 from a year earlier, down from 9.7 percent in the first quarter of 2011, according to previously released data from the National Bureau of Statistics.
Song, one of three academics who sit on the People’s Bank of China monetary policy committee, said “low inflation” is still the main objective for China’s monetary policy.
The nation must be alert to changes in price-gain expectations and to imported inflation, the central bank said in a quarterly monetary policy report released Feb. 6. An economic recovery and expansion in demand may pass through to the consumer-price index in a “relatively fast manner,” and monetary easing in major developed economies may push up commodity prices, the central bank said.
Consumer inflation eased to 2 percent in January from a year earlier after a 2.5 percent increase the previous month, government data show. UBS AG estimated February’s rate was 3.3 percent while Mizuho Securities Asia Ltd. forecast 3 percent, as the Lunar New Year holiday pushed up food prices, according to reports last week.
China’s new-home prices rose for a ninth straight month in February, SouFun Holdings Ltd. said March 1, 10 days after Wen told local authorities to “decisively” curb property speculation and ordered cities with rapid price gains to limit home purchases.
Property controls “are still in a crucial period and expectations of further gains in housing prices are increasing,” the State Council said in its March 1 statement.
It called for higher down payments and interest rates for second-home mortgages in cities with “excessively fast” price gains and ordered stricter enforcement of taxes.
Real-estate companies found hoarding land or collaborating to push up home prices will be barred from getting new development loans or raising funds in capital markets, it said.
Chinese regulators “know well the damage a real-estate bubble can cause to a nation’s growth and treasury,” David Loevinger, former senior coordinator for China affairs at the U.S. Treasury Department, said by e-mail. “With the middle class being priced out of city centers, China can ill afford to again let real estate prices run far ahead of household income,” said Loevinger, now an analyst in Los Angeles at TCW Group Inc., which oversees about $138 billion.
The PBOC drained a net 5 billion yuan ($803 million) of capital last week after withdrawing 910 billion yuan the previous week, the most since Bloomberg started compiling the data in 2008. The monetary authority sold repurchase contracts for the first time since June on Feb. 19, taking out funds from banks after they lent the most money in two years in January.
Governor Zhou Xiaochuan said on March 1 the cash withdrawal was aimed at removing funds injected before the Lunar New Year festival, according to a report on the Securities Times website.
The overnight money-market rate rose 5 basis points on March 1, increasing for a ninth straight day. The rate completed its biggest weekly jump in a year, climbing 190 basis points to 4.10 percent in Shanghai, according to a weighted average rate compiled by the National Interbank Funding Center.
About a quarter of the 910 billion yuan drained in the week after the holiday was “aimed at liquidity tightening” and the reintroduction of repurchase contracts was a “tightening signal,” Dariusz Kowalczyk, a Hong Kong-based senior strategist with Credit Agricole CIB, said in a Feb. 21 note.
Rather than tightening policy, the central bank’s actions were designed to smooth liquidity after the festival from Feb. 9-15 and to counter reviving capital inflows, according to Qu Hongbin, chief China economist at HSBC Holdings Plc in Hong Kong.
“Inflation pressures are still manageable, something that we expect to continue given China’s modest growth recovery in the coming quarters,” he said in a note on Feb. 22.
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