A well-known Chinese economist called for another interest rate hike as the economy steamed ahead at the fastest pace in a decade in the second quarter of the year despite a series of austerity measures.

 

"First-half economic expansion showed the last interest rate increase was too small," Zhang Shuguang, a macroeconomics professor at Beijing Tianze Economic Research Institute, told Xinhua.

 

China announced at the end of April a 0.27 percentage point hike in the benchmark one-year loan interest rate to raise the borrowing cost as part of its effort to curb an investment binge and prevent economic overheating.

 

Regulators have also tightened bank credit by other means and imposed curbs on real estate investment in an effort to rein in excessive spending.

 

But official figures showed the investment-driven economy still surged 10.9 percent in the first six months, with a growth of 11.3 percent in the second quarter, the fastest in a decade.

 

The central bank has left the deposit rate unchanged at a time when Chinese residents have been putting too much of their money into banks. That is in line with the government's hope that consumer spending should contribute more to economic growth.

 

Zhang called the decision "improper", arguing that Chinese banks are already better off, enjoying a much bigger difference -- exceeding three percentage points -- between the loan and deposit rates than their foreign peers.

 

With funds available for lending, domestic banks would be prompted instead to boost loans in pursuit of profits as the rate difference would widen, he said.

 

(Xinhua News Agency August 16, 2006)