China's central bank promises pro-growth policies

[January 09, 2012]  BEIJING (AP) -- China's central bank is promising pro-growth conditions this year to support struggling entrepreneurs but says it will stay prudent amid complex global conditions and inflation pressures.

The announcement following a weekend government planning conference comes as Beijing is promising to channel lending to entrepreneurs who have been battered by weak global demand while keeping consumer prices and surging housing costs in check.

Communist leaders tightened lending and investment curbs last year to cool an overheated economy but have reversed course in recent months after slumping global demand hurt exporters and led to job losses, threatening to fuel unrest.

The weekend conference, held to make plans for financial industries for the next five years, ended with no major reform initiatives announced.

Analysts say China's state-owned banking industry, which lends mostly to government companies, has to be made more market-oriented to support entrepreneurs who create most of the country's new jobs and wealth. But they expected few major changes out of this weekend's meeting due to lack of agreement in the Communist Party and among regulators.

At the meeting, Premier Wen Jiabao promised more support to the "real economy" -- a reference to efforts to channel money to productive businesses while preventing credit from fueling stock and real estate speculation.

The People's Bank of China echoed that, pledging to "optimize the credit structure to support the real economy" and "especially small and micro enterprises."

Still, the bank emphasized it would stick to a "prudent monetary policy" and be ready to fine-tune its approach.

The world's second-largest economy grew by a relatively robust 9.1 percent in the three months ending in September, down from 9.6 percent the previous quarter. But manufacturing activity shrank in November and December, fueling fears efforts to steer growth to a more manageable level might lead to an unexpectedly sharp slump.

Policymakers face conflicting forces including slowing export growth, Europe's debt crisis and pressure for Chinese prices to rise, said central bank Gov. Zhou Xiaochuan in an interview with the official Xinhua News Agency.

"Overall, in 2012 the world economy has relatively more difficulties and uncertainties," Zhou was quoted as saying Sunday after the planning meeting.

Entrepreneurs, especially exporters, have been battered by weak global demand and lending curbs. Thousands of small companies have closed and the survivors have laid off workers, heightening social tensions and government fears of unrest.

Wen, the premier, promised more bank lending to entrepreneurs last year after the credit crunch forced many to turn to high-interest underground lenders, but it is unclear how much lending has increased.

Inflation fell from a three-year high of 6.5 percent in July to 4.2 percent in November but Chinese planners are still on guard against a new acceleration in politically volatile consumer prices.

The central bank promised to improve operations and risk management in China's banking industry. But it made no mention of reforms that economists say are needed, such as allowing market forces to play a bigger role in bank decisions about who can borrow and at what interest rate.

In the interview, Zhou warned against moving ahead at this point with letting market forces set interest rates, citing uncertain global conditions and decisions by other central banks to hold down interest rates.

"From this perspective, currently it still is not a good time to promote `interest rate marketization'," Zhou said.

[Associated Press; By JOE McDONALD]

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