PBOC to focus more on core inflation for monetary policy

Date Dec 31 2010 13:02:59

Dec.31,2010(SHMET)--Core inflation should be considered more important than the consumer price index (CPI) when the People's Bank of China (PBOC) makes short-term monetary policy decisions, said a senior official of the central bank on Thursday.

Core inflation, a measure of inflation which excludes certain items that experience volatile price movements (notably food and energy) could reflect basic price fluctuations more accurately and reduce the influence of temporary factors on monetary policy, Sheng Songcheng, the head of the financial survey and statistics department of the People's Bank of China, wrote in an article published on the bank's website.

Between January and November, the benchmark CPI, in which prices of fresh food and energy are omitted, was 1.6 percentage points lower on average than the official CPI rate announced by the National Bureau of Statistics, said Sheng.

"The trend of benchmark CPI was basically in line with other emerging markets," he said.

The country is facing inflationary pressures after CPI, a main gauge of inflation, accelerated to a 28-month high of 5.1 percent in November

To soak up excessive liquidity and curb inflation, the central bank has raised the reserve requirement ratio for banks six times and increased interest rates twice this year to support healthy economic development.

In addition, it increased the benchmark lending rate to commercial banks by 52 basis points to 3.85 percent, and raised the rediscount rate (the interest rate at which financial institutions borrow from the central bank) by 45 basis points to 2.25 percent on Sunday, both increases were the first for two years.

Zhou Xiaochuan, China's central bank governor, said in an earlier interview that the country's monetary moves such as raising interest rates are more closely related to the core inflation situation than the official CPI figures.

The governor said that China's core inflation had increased in the second half of this year, but maintained that this was normal considering the effects of the stimulus package adopted during the global financial crisis.
"That means our adjustment of monetary policies need to be as timely as possible," said Zhou.

"The central bank has to maintain a balance between economic growth, employment, consumer prices and international payment.

"Under different economic conditions, the monetary policy priorities would be different," said Sheng, adding that the acceleration of international capital inflows is another barrier hampering the government from raising interest rates.

He said that when the economy is stable, the central bank usually focuses on price stability, but when the economy goes into depression, growth becomes a top priority.

"But generally, the major target of monetary policy is to stabilize prices," he added.

Apart from consumer prices, the fluctuation of asset prices is also an import factor the central bank has to take into account, said Sheng.

"Dramatic changes in asset prices, especially real estate prices, indicate a change of currency value in itself," he said.

Because it is technically difficult to combine asset prices with CPI as a general measure of price fluctuation, the central bank needs to track asset prices carefully, and let the market determine interest rates to better stabilize prices, Sheng said.

Edited by SHMET

China to enhance regulating property market

Date Dec 30 2010 17:06:25

Dec.30,2010(SHMET)--China will enhance regulating its property market in 2011 and strengthen implementation of the tightening measures already unveiled by the government, a senior official said Wednesday.

Jiang Weixin, minister of Housing and Urban-Rural Development, said at a national work conference that China would clamp down on speculative home purchases and curb excessive growth in property prices next year.

The country has rolled out a string of tightening measures to cool the real estate market in 2010, including suspending mortgages for third-home purchases, speeding up trials of property taxes and raising down payment requirements for first-home buyers, which have "helped contain speculative demand to some extent", Jiang said.

Further, Jiang noted that the ministry would assess local governments' performances in stabilizing property prices to ensure central government measures are properly implemented.

China will also continue to increase the land supply available for residential property and strengthen management of the Public Housing Fund in 2011.

The country built 5.9 million units of affordable housing and renovated 1.36 million dangerous rural dwellings in 2010, compared with the annual target of 5.8 million units and 1.2 units, respectively, Jiang said.

Further, China will increase the supply of affordable housing, renovate more shantytowns and develop public rental housing to solve the housing problem of middle- and low-income earners, the newly-employed and migrant workers, Jiang said.

Edited by SHMET

Car registration limit to vary each year

Date Dec 29 2010 09:17:29

Dec.29,2010(SHMET)--"Beijing will control the number of registered vehicles next year to 240,000. The number will be decided by each year's traffic capacity from now on," Li Xiaosong, deputy director of Beijing Municipal Commission of Transport said, The Beijing News reported Tuesday. 

According to Li, the traffic measures unveiled Dec 23 have undergone much consideration. "The city's vehicles increased to 2 million in 5 years while Japan took 22 years," he said.

City officials introduced 28 measures to ease congestion and ensure transportation safety in China's capital.

An authority with the commission told the reporter that though the number of registered vehicles will vary each year, the number of plates they allocate will be in accordance with the traffic measures, which reserve 88 percent for private cars, 10 percent for public cars and 2 percent for commercial use cars every month.

Edited by SHMET

Banking industry introduces director elimination mechanism

Date Dec 29 2010 09:15:07

Dec.29,2010(SHMET)--China's banking regulator has rolled out a regulation to assess the qualification of commercial banks' directors, requiring banks to promptly replace unqualified directors, the 21st Century Business Herald reported Tuesday.

The regulation, issued by the China Banking Regulatory Commission (CBRC), established the assessment and elimination mechanism for bank directors. It is the first such regulation by CBRC targeting individuals in company supervision.

Directors will be labeled qualified, basically qualified or unqualified. Basically qualified directors need to improve their performance within a set time if they want to maintain their positions.

The regulation also stipulates one person can not act concurrently as directors of competing banks. Currently, it is common for one person to serve as director of two or even more banks at the same time.

The CBRC will also release regulations on members of supervising committees and senior management in the future, the report said.

Edited by SHMET

Wen: We are beating inflation

Date Dec 27 2010 13:20:22

Dec.27,2010(SHMET)--The government will be able to keep inflation in check, Premier Wen Jiabao said on Sunday, after the central bank raised interest rates for a second time in just over two months.

The central bank raised one-year lending and deposit interest rates by 25 basis points on Dec 26, after issuing a statement posted on its website on Saturday.

Steps taken in the past month, including price controls to curb speculation and monetary tightening, have started to produce results, Wen said in a radio broadcast.

The central government has raised the reserve requirement ratio for banks six consecutive times and increased interest rates twice this year to absorb excess liquidity in the market to support healthy economic development.

The State Council, China's cabinet, has also been trying to rein in food prices by increasing production of vegetables and other basic goods.

"I believe we can keep prices at a reasonable level through our efforts. As a major leader of the government, I have the responsibility and I have the confidence, too," Wen said, referring to large grain reserves as well as moves to support production by reducing and waiving taxes.

The country is facing inflationary pressure as the consumer price index (CPI), a main gauge of inflation, accelerated to a 28-month high of 5.1 percent in November.

This is the second time the central bank hiked interest rates in 2010 after it raised the benchmark lending and deposit rates by 25 basis points on Oct 20, for the first time in about two years.

The country will bring its overall money supply to a normal level with a range of policy tools next year as the government shifts monetary policy from "moderately loose" to "prudent", the central bank said on Friday in a statement on its website, citing Hu Xiaolian, deputy governor.

Hu stressed that China is facing pressure due to excess liquidity from home and abroad, and for the next phase the government will work on liquidity controls with a range of policy tools, including open market operations, and adjusting interest rates and reserve requirement ratios.

Brian Jackson, economist with the Royal Bank of Canada, believes China will see another 75 basis points of rate hikes in 2011.

Wang Tao, chief China economist at UBS Securities, shared a similar viewpoint. "The average CPI will range from 4 to 4.5 percent in 2011, and the inflation risks will be manageable. We expect an increase in interest rates by 75 basis points next year."

The expectation of interest rate hikes next year, however, will also attract an inflow of overseas speculative money seeking quick returns.

According to the Yellow Book of the World Economy, published by the Chinese Academy of Social Sciences (CASS) on Sunday, the risk of deflation in developed economies and inflationary pressure in emerging economies will further intensify next year, resulting in capital flow from developed to developing countries.

The interest rate gap between the United States and India, for instance, has reached 6 percent, according to the book.

"The scale of hot money flooding into China will definitely increase next year, due to the interest rate gap and the expectation of renminbi appreciation," said Zhang Ming, a senior research fellow of CASS.

"Stock and property markets are still the two major fields for the inflow of speculative money. China thus faces more pressure in containing asset price growth next year," he added.

Foreign investment in China's property sector rose 48 percent to $20.1 billion in the first 11 months of 2010, the Ministry of Commerce said on Dec 15. This is almost three times the 17.7 percent increase in the country's total overseas capital inflow.

"The climbing interest rate and a stronger yuan will definitely make the mainland a more attractive destination for us, but we will not change our investment strategy right now as we are a long-term investor," said a managing director at a US-based real estate fund.

Li Daokui, an academic member of the central bank's monetary policy committee, said the inflow of hot money is not expected to have a major impact on China, given the scale of the country's economy and controls on capital flows.

International Monetary Fund statistics show that China will replace Japan this year as the world's second largest economy in terms of its overall GDP.

Edited by SHMET