One of the more memorable sound bites from China’s annual policy review, which closed on Monday, was the description by Wen Jiabao, the prime minister, of inflation as a tiger that “once set free will be very difficult to put back into its cage”. Lending data continues to suggest that the tiger is not just uncaged, but pacing about.
New loans were Rmb534bn in February, about double the pre-crisis run rate. Total system-wide loans outstanding rose to just shy of Rmb49,000bn at the end of the month, more than double the total of February 2007. Rampant credit growth is not a menace, in itself, as growth in deposits has more than kept pace. But what is worrying is the behavioural effect. The annual consumer price inflation rate was 4.9 per cent in both January and February, exceeding the government’s 4 per cent target. Property, meanwhile, continues its relentless march upwards. Prices of new homes rose in January from a year earlier in all but two of 70 cities monitored by central planners. Households, fearing shrinking purchasing power, are keeping more cash close at hand. Over the course of last year the share of household savings locked up in time, rather than demand, deposits fell from 62 per cent to 60.
The central bank has tried to dampen spirits with three increases in interest rates and five rises in reserve requirements since mid-October. But these are manifestly ineffectual dabs at the brakes. The Conference Board’s economic index for China, a measure of current activity spanning raw-material supplies to construction, increased 1.4 per cent in January, after gaining a revised 0.1 per cent in December. In other pronouncements at the National People’s Congress premier Wen talked of the importance of China reining in its credit and investment-led growth. As yet, there is no evidence of that.