SOS: The Chinese textile industry has suffered because of the global
economic downturn and a stringent domestic monetary policy

The central bank report said it had enhanced the flexibility of the renminbi exchange rate policy by letting the currency fluctuate in accordance with major world currencies. In the first half of this year, the central parity of the renminbi against the U.S. dollar once reached 6.8591, while the lowest was 7.2996, and the biggest single day renminbi gain was 0.35 percent. The renminbi appreciated on 74 trading days and depreciated on 45 during 120 trading days, showing the full flexibility of the Chinese currency.

Zhou Maoqing, a research fellow at the Chinese Academy of Social Sciences, noted that the renminbi's appreciation was within a reasonable range. He said the renminbi's flexibility must be kept at a stable speed in accordance with macroeconomic stability, employment, performance and supervision of the financial system, the sustainability of companies and foreign trade. In the meantime, the government had to take into account how the renminbi's flexibility would affect currencies in neighboring countries and regions and the world economy. Therefore, the government should not permit drastic fluctuations in the renminbi's exchange rate, Zhou said.

Decreasing housing loans

The overall balance of commercial housing loans stood at 5.2 trillion yuan ($761 billion) at the end of June, a 22.5- percent increase year on year. The growth rate was 2 percentage points lower than the end of June last year, representing a decline for the seventh consecutive month.

Among the balance of property loans, the total balance used for real estate development was 1.95 trillion yuan ($286 billion), up 17.7 percent year on year, while the growth rate was 8 percentage points lower than the year earlier period.

"Though the growth slowed down, the total money invested in property was still too high," He said.

Figures from the National Bureau of Statistics showed 260 million square meters of housing worth of 1 trillion yuan ($146 billion) were sold in the first half of this year, down 7.2 percent and 3 percent, respectively, year on year. The sale of commercial floor space in Beijing, Sichuan and Guangdong dropped 47.1 percent, 22.7 percent and 20.3 percent, respectively.

Housing prices stayed high, even though price growth slowed. In June, property price grew 8.2 percent year on year, while the growth rate was 3.1 percentage points lower than in January. Month-on-month home prices showed a negative increase in 16 cities in June.

"Home price drop might pose risks for property developers," He said.

Let's get loose

Unlike previous central bank reports, the second-quarter monetary report rarely used the phrase "stringent monetary policy." On the contrary, it said the government would maintain the stability and continuity of its current monetary policy. It also said the central bank would mildly readjust macro-control policies according to international and domestic economic situations, so as to achieve a balance between inflation control and fast and sound economic growth.

"It might be an indication that the stringent monetary policy which was carried out in the past two years will be loosened," He said, adding that a loosened monetary policy would stem from a reduction in inflation pressure.

Despite these rosy prospects, domestic enterprises looking for financing are still encountering serious problems. A report issued in July by the National Development and Reform Commission said about two thirds of small and medium-sized enterprises (SMEs) were suffering from financing problems which restricted their development. It also said 66,000 SMEs had shut down because of finance-related problems.

In response, banks have started readjusting loans for companies in trouble. In early August, the central bank allowed commercial banks to increase the loans issued to businesses by 5-10 percent to help agricultural and SME development.

Stable and healthy

The central bank also said in its report that the economy would maintain its steady and relatively fast growth rate in the second half of this year. Although it noted that many uncertainties could affect economic development, it affirmed the economy had continued to maintain its vigorous development momentum thanks to industrialization, urbanization, internationalization, industrial restructuring and growing consumption.

The report said domestic consumption would maintain its fast growth, but it also noted that price surges could negatively affect it. The central bank vowed to rein in surging consumer prices and maintain steady growth in consumption.

He also said shrinking consumer demand and money supply, as well as the decreasing price of agricultural products were all conducive to bringing down consumer prices.

The central bank's report also warned about potential factors that might push up prices. It said large-scale industrialization and urbanization would cause shortages of raw materials, which in turn would drive up prices of other goods. It also said the rising costs of labor would continue to be a big problem for many companies. The central bank cautioned that inflation risk should not be neglected.