TNAG-2791-FCO40-4030-Relations-between-Hong-Kong-and-China.-With-maps-1993 — Page 64

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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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