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infrequently.
The
specialised
banks have no autonomy in
setting their own deposit and lending rates. Interest rates are thus not responsive to changes in the demand for and supply of credit. During an economic boom the cost of borrowing is usually understated, and in periods of high inflation the real interest rates can become negative.
This has the effect of encouraging investment excessively whilst discouraging savings at the same time. As a result, the strength of demand in the economy is compounded. current intention of the government is to develop the
financial markets, including notably the inter-bank money market, first before pursuing interest rate liberalisation on a substantial scale. The People's Bank of China may then replace credit rationing by open market operations if only partially in regulating the supply of money and
credit.
The
23.
has
The People's Bank of China reportedly
tightened its credit policy since October last year. The specialised banks are not allowed to increase their lending beyond the given quotas without approval from the central bank. In addition, to stop raising funds indiscriminately for investment in fixed assets, bond issues by enterprises
will be put under strict state scrutiny. However,
according
to recent press reports, the People's Bank of China is still targetting a growth rate of around 20% in loans in 1993, which is somewhat higher than the forecast growth rate of China's nominal GNP, at 15-18%. Hence, the overall monetary and credit stance is probably still not
very restrictive. This shows that, despite the concern
about inflation, the current emphasis of the central government is still very much on economic growth.
But in
the light of the latest inflation trend, stronger restraint measures aimed at curtailing the less justifiable
investment projects are now more likely.
24.
Index in
On current indications, the General Retail Price
China
in 1993 will most probably increase at a
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