China will stick to a stable monetary policy even though loan growth is
accelerating and the banking system is likely to remain awash with liquidity in
the short term, a senior central bank official said on Saturday.
Speculation has swirled that the People's Bank of China could be forced into
tightening policy, perhaps by raising banks' reserve requirements, to mop up
some of the surplus cash and rein in credit growth.
But asked whether an increase in required reserves was on the cards, Wu
Xiaoling, a deputy governor of the central bank, said: "The direction of
monetary policy will not change."
Wu was speaking to reporters on the sidelines of a forum on mergers and
acquisitions.
She said the problem of excess liquidity would not fundamentally change in
the short term, but the central bank would continue to implement the stable and
neutral monetary policy it mapped out at the start of the year.
Any change of policy would depend on circumstances but would not have an
impact on the stock market, she added.
A meeting of the state council, or cabinet, called by Premier Wen Jiabao to
analyze first-quarter economic growth concluded that money supply was growing
too fast and credit was too loose, according to a report of the discussion
posted on the central government Web site (www.gov.cn) on Friday.
The central bank reported on Friday that the broad M2 measure of money supply
grew 18.8 percent in March from a year earlier, the same pace as in February and
well above the central bank's 16 percent target.
Banks issued 1.1 trillion in new yuan loans in the first quarter, compared
with a target for the whole year of 2.5 trillion. As a result annual loan growth
spurted to 14.7 percent in March from 13.0 percent in December.
In her speech, Wu expressed concern that, because China's capital markets
were underdeveloped, banks provided the bulk of the financing in the risky area
of mergers and acquisitions.
In their headlong rush to expand and diversify, some companies have got into
financial difficulties, bringing trouble down on their bank lenders.
She cited the example of Delong (Group) Co. Ltd., a private
ketchup-to-finance conglomerate that fell into receivership after misusing at
least 6 billion yuan ($750 million) in investor cash -- partly through a trio of
brokerages it controlled, according to state media.
The answer, Wu said, was for China to beef up its capital markets, nurture
private equity funds and make the financing of mergers and acquisitions more
transparent.