Chinese credit tightening measures losing effect

Chinese credit tightening measures losing effect

The credit tightening measures implemented by Chinese government are losing their effectiveness due to the loan controls that have been eased for state-run enterprises. On the other hand, private investments are being financed by kerb market. Kerb market is the term given to unofficial trading of stocks or securities away from a recognized stock market or outside stock market hours. It is stated that the sharp increase in kerb market is causing worries. Yuan 100-140 billion ($12-17 billion) of deposits is used to finance local investment. Chinese government is reportedly changing quantitative restrictions to price restrictions such as interest rate hikes and possibly exchange rate adjustments in the coming months will take place. The normalization of interest rates is expected to tighten the revival in real estate sector. According to the International Money Fund (IMF) reports, it is possible for China to healthily slow down the economy to a sustainable level unless the lending and investment curbs are not too quickly loosened. According to the IMF forecast China's economy will grow by 9% on annual basis in 2004, a growth rate almost as high as 9.1% recorded last year. However, annual economic growth will eventually regress to 7.5% in 2005. Warning against easing controls too quickly IMF urged China to impose budget controls on state-run industries to help keep spending under control.