China's Central Bank Claims Loans Fell In January
China's central bank issued the newest figures for loans
made in January, claiming that loans fell by 65.6 billion
yuan over the previous month. It says that this continues
a five-month downward trend for loans made.
The Chinese statistics point to an economy which is growing
rapidly, but which is showing signs of cooling off from
the rapid growth which took place in the second half of
2003, when the Chinese government increased capitalization
requirements for Chinese banks. Because of the large portfolio
of non-performing loans held by China's state-owned banks,
the government has used bank capitalization requirements
as a tool to reduce loans instead of interest rates.
The Chinese economy is currently awash in cash, and the
Chinese government is anxious to keep inflation manageable,
and muffle any concerns that China is in the midst of
a major asset inflation bubble. When it comes to reporting
economic statistics, Chinese government ministries have
shifted their weighting. Before 2003, there was a tendency
to exagerrate growth figures; after 2003, the tendency
has been to under-report growth figures. In 2004, the
government is anxious to show that it is in control of
an economy where its options for control are much more
limited than before.
Economists in the Europe, Japan and the US have been
more skeptical of the figures. This has made useful ammunition
for trade officials, which continue to push China to allow
the yuan to rise from its fixed peg against the dollar.
The Chinese press has discussed a shift to a basket of
currencies (euro, dollar and yen), instead of a peg to
the dollar. Normally, these discussions are a prelude
to changes in policy.
A shift to a euro, dollar, yen basket would suggest a
much wider band for trading the yuan because the weighting
of individual currencies and bands within which each currency
traded could be easily adjusted.
The truth is nobody is completely sure about the figures,
and more often than not, statistics are used as tools
for policy. It makes much more sense to debate general
trends.
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