While the Western central banker might reach for his interest rate lever at a vexing time like this, Beijing appeared to ready to resort to tried-and-true controls.
There was lots to be vexed about. The warning followed news that urban fixed asset investment grew 24.5% in January and February – that increase coming on the back of wild spikes in some segments: investments in coal mining jumped 148%, utilities 59% and oil refining 46%. However, foreign direct investment (FDI) declined 7% year-on-year in February, to US$3.9bn. Analysts say the drop could be a sign that the investment rush following China's WTO entry in 2001 is abating.
In a speech at Beijing's Tsinghua University, Ma Kai, the minister in charge of the National Development and Reform Commission, echoed the PBOC's sentiments, suggesting the central government might tighten credit to prevent further squeezing of energy supplies and transport services – sectors that buckled in late 2003 and early 2004, inducing Beijing to introduce stringent credit controls earlier.
Heated talk of over heating notwithstanding, the PBOC insisted it would not get into frequent Western-style rate adjustments to dampen or encourage activity, Governor Zhou Xiaochuan contending that China, as a developing economy, did not have predictable cycles. "From the point of view of interest rates, we can't even say what cycle we're in," he said.
Zhou, in fact, was giving his response to a suggestive question about the US Federal Reserve's recent federal funds rate increase (to 2.75%). But he would not bite.