China to keep tight credit policy

China to keep tight credit policy

Elaine Kurtenbach,
Associated Press,
Shanghai,China

China's leaders were expected to hold their annual economic
meeting this week, a Beijing-backed newspaper reported on
Wednesday, as a central bank official stressed the country's
commitment to keeping its currency stable.

China usually holds an economic work conference late in the
year to set policy direction for the coming year.

Both market players and foreign governments will likely be
watching the meeting closely for signs China might allow its
tightly controlled currency, the yuan, to rise in value against
the U.S. dollar.

The secretive Communist Party rarely openly announces such
meetings. But the Web site of Ta Kung Pao, a Beijing-backed
newspaper in Hong Kong, said the gathering will take place on
Friday through Sunday in Beijing.

State media on Wednesday cited a senior central bank official
as saying that China intends to keep the yuan stable, despite
mounting speculation it might adjust upward the yuan's value
against the U.S. dollar, long kept in a narrow range around 8.28
yuan per dollar.

"We have the target of keeping the currency stable," Wu
Xiaoling, a vice governor of the People's Bank of China, was
quoted as saying. She noted that the national priority was
"fiscal balance and economic stability."

The United States and other trading partners are urging China
to loosen controls on the yuan, saying that keeping it pegged to
the weakening greenback undervalues Chinese exports, giving
manufacturers here an unfair advantage.

China contends that its debt-burdened banking system must be
shielded from shifts in the yuan's value and that Washington
should do more to boost the dollar's value, which has sunk
against many currencies amid worries over the mounting U.S. trade
and fiscal deficits.

Central bank official Wu said Beijing will keep growth in bank
lending at reasonable levels while encouraging fund-raising in
the country's nascent capital markets, the China Securities
Journal and other financial newspapers reported.

Moving to temper sizzling economic growth, China has sought to
curb bank lending for investments in construction and some other
sectors, saying soaring spending was straining the financial
system and fueling inflation.

The People's Bank of China, or central bank, will promote fund
raising in the stock market and other capital markets while
trying to reduce "indirect financing," a term usually used for
bank loans, the reports cited Wu as saying.

Wu's comments highlight some of the dilemmas facing China's
policy-makers. Though Beijing is pushing to develop its capital
markets, scandals involving major securities companies and a
number of listed firms have crimped fund-raising in the stock
markets, based in Shanghai and Shenzhen.

Companies are wary of relying on the stock market to raise
funds amid slumping share prices, and bond markets remain
underdeveloped.

Financing via share offers and corporate bonds by nonfinancial
entities has fallen to about 6.5 percent of total financing from
about 10 percent in 2001, Wu said.