By Rob Delaney
Sept. 30 (Bloomberg) — China may ease limits on mortgages and business loans instead of lowering interest rates, as a global slowdown threatens to pull economic growth below 9 percent, according to Fan Gang, an adviser at People’s Bank of China.
“Given the current level of inflation, it’s hard to imagine too many steps in terms of monetary policy,” Fan said in an interview yesterday in Toronto. “We expect more relaxation of other kinds of policies” to spur access to home mortgages and credit for smaller companies. China may also boost export tax rebates for some manufacturers as it has done recently for textile producers, Fan said.
Fan’s comments reflect debate over how much the central bank can cut interest rates to prevent an export slowdown and a global credit crisis from undermining the world’s fastest-growing major economy. China cut borrowing costs for the first time in six years on Sept. 15 and lowered the amount of reserves that smaller banks must set aside.
The central bank reduced the one-year lending rate to 7.20 percent from 7.47 percent, and lowered the reserve-requirement ratio for smaller banks to 16.5 percent from 17.5 percent.
“We are going through an adjustment period, so growth could fall to around 9 percent” in 2009 and stabilize between 8 percent and 9 percent thereafter, Fan said.
China’s economy, the world’s fourth largest, expanded 10.1 percent in the three months to June 30, slowing for a fourth quarter.
Central bank governor Zhou Xiaochuan said this month that unlike other government departments, the central bank’s main concern was inflation, which cooled to 4.9 percent in August, the slowest pace since June 2007.
Zhou also said this month that there is a risk that inflation may rebound.
The fallout from loose lending practices in the U.S. will prompt China to curb some of its market changes and seek trade accords within Asia rather than support any global pact, Fan said earlier yesterday at a conference in Toronto.
“The American model should be modified in a significant way, and we expect the American model to be modified in a significant way,” Fan said in a panel discussion sponsored by the Financial Times. “We will turn more to the European model; more on financial discipline and less with the securitized instruments.”
Fan also said “total liberalization of the capital account is still not on the immediate agenda.”