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bank loans. All these factors suggest that monetary policy of the sort in China has probably become less effective now than before in controlling overall credit and investment
growth.
20.
Apart from monetary measures, the government has
several additional policy actions. But they are more of a structural nature and their effect in moderating inflation
may only be seen in the longer term. First, in tackling
the bottleneck sectors, the
government is seeking to
rationalise the prices facing the industries supplying basic materials. A case in point is energy: the price of coal in China, for example, is at present substantially
below the international price. In order to stimulate
production, the price has to be decontrolled. Although this may add to the price pressures in the short term, the larger supplies and the greater responsiveness of producers demand conditions will tend to stablise the price in the
Continued price reform in the production to be complemented by further enterprise
reforms, which are now being intensively promoted in the
state-owned industrial sector, as well as by improvements in transport facilities, which are also well in hand.
to
longer term.
sector
21.
has
to
Secondly, the government will continue restructure the fiscal system. On the expenditure side,
rigidity will be
and price reforms
reduced when progress in the enterprise enables the government to progressively
substantial amounts of regular subsidies On the revenue side, enhancement of the income
cut back on the
rendered.
tax system will help to strength the government's recurrent revenue position. A reduced fiscal deficit thus resulted
will be conducive to lower inflation.
Thirdly, liberalisation of the banking sector is Of particular significance is the towards deregulation of interest rates. At
rates in China are rigid and change only
22.
expected
to continue.
expected
move
present,
interest
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