Sharp loan curb could hit China growth: economist

China should avoid overly stringent bank lending curbs in 2008 lest it hamper economic growth, a senior government economist said on Tuesday. The central bank should set 2008 target rates of 16 percent for broad money supply growth and 14.5 percent for yuan loan growth, Xia Bin, a senior researcher in the Development Research Centre, a think-tank under China's cabinet, told a forum.
The central bank has yet to reveal its 2008 loan expansion target, although the market is expecting a big drop from the 2.9 trillion yuan ($395 billion) new loan level set for 2007. It targeted 16 percent growth in the M2 money supply this year.
China has pledged to tighten its monetary policy in 2008 to head off inflation and economic overheating. It has already stepped up its usual year-end clampdown on bank lending and policy-makers have suggested this will continue in the new year.
"Too low a loan extension target and overly tight controls will have a very big impact on the economy," Xia said. Slowing US growth and consumption would help China to meet its goal of cutting its huge trade surplus, he said.
Policies are already in place for China to address its range of economic worries, from excessive capital spending to a surge in its foreign exchange reserves, and it is just a matter of implementing them effectively, Xia said.
He also said China's high inflationary pressures would persist, stemming from rapid money supply growth rather than a spike in consumer demand. Li Yang, a senior economist at the Chinese Academy of Social Sciences, told the same forum that China's recent decision to impose quarterly limits on bank loans was a step backwards in policy and could have come from the planned economy era.
Li, a former member of the central bank's monetary policy committee, also said the People's Bank of China was studying a switch to M3, which includes more types of money, as its broadest money supply measure. M1 and M2 measures no longer give an accurate picture of the amount of money circulating in China, he said.