Central Bank of China: more loans from banks, but the Yuan remains low
Beijing (AsiaNews) - To address the difficult economic situation of the country, China will continue to allow its banks to grant more loans, but will slow the appreciation of the Yuan. These are the two tracks that emerged at the press conference by Zhou Xiaochuan, governor of the Central Bank of China, held yesterday on the margins to the National People's Congress in Beijing.
Over the weekend data on the trade balance was published, showing the highest deficit in 22 years, with the decline of China's industrial output (see 12/03/2012 Beijing announces worst trade deficit in 22 years) .
Zhou said there is "ample room" for further cuts in bank reserves, allowing them to increase lending.
In 2008-2009, China launched a support package for its economy with easy credit to the tune of nearly 10 billion Yuan. This, however, has produced high inflation and the risk of a speculative housing bubble. In 2010-2011, Beijing ordered banks to offer fewer loans, increasing reserve requirement ratio (RRR) that banks should hold. " The RRR is over 20 per cent now. We have had much lower RRR, such as the 6 per cent in the late 1990s, and there is even lower than that in some countries."
Analysts say these moves go someway to easing the issue, but do not solve the problem that China needs to change its development model, overly focused on exports and too little domestic demand (see 10/01/2012 China's economy, as sick as that of the US).
China also seems to balk on another front: the appreciation of the Yuan. The United States and Europe accuse China of keeping value of the currency low to support exports. According to data based on the GDP produced by the Asian giant, the Yuan should be revalued by 40% (see 19/11/2010 Currency wars and the Fed's demise).
Yesterday, in the same press conference, Zhou's deputy in charge of trade currency said that there will be no further growth of the value of the Yuan, as in recent months. At the same time, he said that "we will continue with the reform to have an exchange-rate regime that is more market-based."
And as he spoke, the central bank, the People's Bank of China, lowered its daily peg for the currency, the renminbi, to the dollar, and it fell to its lowest point in seven weeks. The renminbi has fallen 0.5 % this year after gaining 4.7 % last year.
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