Beijing plans easing of credit curbs
(Agencies)
Updated: 2005-09-03 11:31

China should loosen credit in the second half of 2005 amid signs that the booming economy is slowing down, the country's top economic planning bureau says.

China began tightening credit in late 2003 to counter what it said was excessive investment in redundant or potentially unprofitable factories and construction. With the economy growing at a rate of 9.5 percent, such controls have remained in place.

But signs that growth may be slowing have prompted calls for to relax those curbs, it is reported.

"In the years to come China will face clear deflationary pressure," said the report by the Macroeconomic Research Institute, which cited corporate earnings, price trends and export growth trends.

"Credit to the property sector is still tight ... But an immediate letup of financial controls over the sector could lead to a strong rebound of investment," the report said.

The report by the institute, a division of the government's National Development and Reform Commission, was published in the official China Securities Journal on Friday.

Despite lingering energy shortages, the report warned against excess investment in the power and coal mining industries, which it said will result in oversupply and increase deflationary pressure in the years to come.

An oversupply of coal has already resulted in price declines in recent months.

Rises in the consumer price index, China's main barometer of inflation, have remained below 2 percent for the past four months, with the index up 1.8 percent in July from a year earlier.

In June, the CPI rose 1.6 percent from a year earlier, its slowest pace so far this year.

Many industries already are facing price cuts due to excess capacity, although prices for some commodities and services in relatively short supply have continued to rise sharply.

Weaker global demand for exports may worsen the problem, the report warned.

Meanwhile, corporate profit margins have been shrinking due to rising wags and costs for oil and other commodities.