CHINA / From Editor
Bold moves to cool down economy
By Li Hong (chinadaily.com.cn)
Updated: 2006-06-15 16:42
The government has recently enacted three key policy adjustments to
better shepherd the world's fastest-growing economy: raising bank lending
rates, gasoline prices and taxes on luxury goods.
These measures, while prompt and of immediate efficacy, were courageous.
They not only have caused ripples on the world stock, currency and goods
markets, but their economic and social ramifications will continue to be
seen in the daily lives of tens of millions of Chinese.
Facing a raucous outcry that the galloping, economy might run out of
control, the People's Bank of China announced on April 28 the raising of
the benchmark one-year lending rate by 27 base points to 5.85 percent.
Obviously the measure is intended to deter inflationary pressure, fuelled
by easy corporate loans from China's commercial banking system.
Following the rates hike, nearly all major stock markets from New York to
Tokyo saw a dip in trade due to worries that one of the world's major
economic locomotives was losing steam. However, figures from the central
bank point to a clear sign of high investment rates. Bank loans lent in
the first 4 months of the year totaled 1.58 trillion yuan (US$197.5
billion), almost two-thirds of what the central bank had expected for the
full year.
Over-heated? You bet. And nobody wants to see China's economy go bust,
right?
Wisely, the central bank did not touch the bank savings rate, leaving it
at a low number to discourage residents from depositing. As a result,
domestic spending has kept on growing, with retail sales in May jumping
by a spectacular 14 percent over the same period last year. As the
economy relies more on domestic consumption, its vitality and
sustainability stabilize.
In mid-May, governmental pricing authorities raised gasoline prices by
more than ten percent, a step towards bringing gas prices in China closer
to world market levels. Though car owners might not be happy with having
to pay more for gas, the measure is clearly designed to help conserve one
of the earth's most precious resources and inspire government and
corporate research into producing alternative forms of energy.
At a time when some foreign reports note affluent Chinese urbanities are
buying cars like they eat dumplings, it is appropriate to cool it down a
little with a price hike unless you want to see China's clogged traffic
getting more jammed, and the foul air we breathe even more polluted.
Earlier this year, the government's taxation administration raised taxes
on luxury items, including luxury cars, private planes, plush mansions
and expensive watches.
Some argue this measure casts a greedy eye on the pockets of the super
rich, will choke productivity and may drive the rich away from investing
in China. But isn't it their duty to contribute more back to society,
after having made a fortune, while millions of their countrymen struggle
on one dollar a day?
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