G.F. 326
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12
subsidies granted to enterprises in compensation for their losses (such losses in many cases are due to increased prices for their inputs) amount to Rmb 40.7 billion and have reduced total revenue by 14%.
18.
In the context of monetary policy, policy tools like reserve ratios, open market operations and interest rates are either inefficient or simply non-existent in China. The interest rate structure is rigid and not sufficiently refined to reflect accurately the cost of funds as well as the risks of the projects. At current inflation rates, all Chinese bank deposit and lending interest rates are negative in real terms (14). Their swing to being substantially negative in real terms from slightly positive just about a year earlier provided a significant stimulant to loans and borrowing. Since the fourth quarter of 1987, the People's Bank of China (PBOC) has made attempts to tighten its monetary policy stance. But even assuming that credits can be effectively restrained by higher reserve ratios and higher interest rates, which itself is a strong assumption since a specialised bank's lending policy is often influenced by non-economic factors, this could have a significant effect in curtailing China's aggregate demand only towards the
end of 1988.
(14) This was so even after the recent increase in the
bank deposit and lending rates by about one and half percentage points starting from 1 September 1988.
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