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.