China's banking commission said Thursday that continuing the implementation of the State's recent macroeconomic policies and further improving banks' risk management remain its top priorities for the rest of the year.

At its half-year meeting that ended Thursday, the China Banking Regulatory Commission (CBRC) Chairman Liu Mingkang said there was a need to "appropriately evaluate" the achievements of the government's macroeconomic policies.

Last month's economic data showed those policies are having some effect, he said. "The economy is heading towards the goals that have been set. The overall situation is good."

"The task of macroeconomic management remains arduous. We must maintain our confidence in macroeconomic management and continue to implement those policies well," Liu said.

Senior Chinese officials have been saying recently the State's macroeconomic moves are yielding noticeable results and this year's economic targets are still achievable, soothing worries that one of the world's fastest-growing economies may suffer an abrupt slowdown if the government has to take further tightening moves to cool down the frenzied investment and credit growth.

Key economic indicators including fixed investment, money supply and industrial production slowed their pace noticeably in May. The rapid growth in those areas has prompted worries the Chinese economy is overheating.

Broad money supply M2, which covers cash in circulation and all deposits, rose by 17.5 percent on a year-on-year basis in the first five months of the year to 23.48 trillion yuan (US$2.8 trillion) at the end of May, down 1.6 percentage points from a month earlier.

Loans growth also showed an obvious slowdown. Outstanding renminbi loans grew by 18.6 percent from a year earlier to 17.06 trillion yuan (US$2.05 trillion) at the end of May, down 1.3 percentage points from April, while last month's new loans dropped by more than 50 percent from a year earlier to 113.2 billion yuan (US$13.6 billion).

Many observers expect the central bank to raise interest rates later this year should earlier monetary policy moves, mainly three increases in bank reserve requirements, fail to contain the continued rapid growth in bank lending and fixed investment since last year.

But at its second-quarter meeting earlier this month, the People's Bank of China's monetary policy committee agreed that the State's macroeconomic measures have produced obvious results.

It pledged to use multiple monetary policy tools to adjust the liquidity of financial institutions to avoid major fluctuations in economic growth.

The rapid increases in loans, many flowing into overheated sectors like steel and cement, have heightened the risk of creating new bad loans in China's banking sector.

The CBRC has taken a string of measures since the middle of last year to contain lending risks, warning banks of potential risks and tightening supervision on their lending operations.

The commission has also made tremendous efforts recently to drive home to banks that following the macroeconomic measures are in their own best interest.

Some banks as well as their borrowers are believed to be betting they could make profits from new investments in red-hot sectors, although the government has been warning serious overcapacity will eventually bring prices down and their investments may shrink.

The CBRC's regulatory moves are paying off, Liu said. Despite rapid loan rises since the second half of last year, total non-performing loans (NPL) at major Chinese banks, largely excluding credit cooperatives, decreased by 24.5 billion yuan (US$2.9 billion) in the first three months of this year, while the NPL ratio dipped by nearly 1 percentage point.

"The facts show that banking supervision has played its role in macroeconomic management," Liu said.

The official said banks' risk management has improved over recent months, and their lending behavior is becoming increasingly prudent.

The CBRC would urge banks to take the initiative to tackle "new situations" that have emerged in the banking industry during this round of macroeconomic management, he said, stressing the need to prevent bank losses so as to uphold the public confidence in the banking system and protect depositors' interests.

The commission will also enhance supervision of small and medium-sized banks in the next few months, and keep a close eye on and tackle appropriately "various risks," Liu said.

(China Daily June 25, 2004)