In the new language of the post-crisis world, US$1 trillion is a "moderate" amount of money. That is the message from the People’s Bank of China (PBoC), which said yesterday that it would target "moderate" loan growth in 2010 to support "relatively fast" economic growth. Economists estimate that new loans will reach US$1 trillion this year.
Of course, the distortion of the word "moderate" (适度) isn’t new. Throughout 2009, Chinese officials unfailingly labeled their monetary policy "moderately loose" as money supply and loan growth figures shot to ever-greater heights. US$1 trillion may be moderate in comparison, but the choice of words should fool no one.
The central bank’s statement does little to reassure those looking for a clear indication of a stimulus exit strategy. It was never going to be easy for Beijing: As we argued earlier this week, China’s fate remains tied to the global economy, and a weak recovery elsewhere could force Beijing to choose between controlling inflation and keeping industries healthy.
By maintaining strong lending growth through 2010, China may in fact be worsening the long-term outlook. Everywhere we looked in 2009, we saw loans being used inefficiently: being diverted into stocks and property, and being used to increase capacity in areas of the economy already suffering from chronic excesses. In many cases, loans masked underlying problems rather than fixing them.
This year is unlikely to be much different. To Beijing’s credit, it has said it will strictly control new projects, and ensure that money is sent to completing projects already approved. However, with US$1 trillion in loans to monitor, its ability to closely watch how they are being used will be limited.
It’s understandable that the PBoC doesn’t want to hit the brakes too quickly. Delaying too long, however, could have more than "moderate" implications for the economy.