Tight monetary policies raise risk of bankruptcies

Since last October, China has raised interest rates four times and lifted the reserve requirement ratio nine times.

China's tightening monetary policies are increasing the risk of bankruptcy for credit-tight companies and raising the spectre of unemployment, a renowned economist said on Sunday.

"If any people dare to say the current money supply in China has not returned to a normal level, I want to ask what will be a normal level," Li Yining, a member of the National Committee of the Chinese People's Political Consultative Conference, told the Global Think Tank Summit in Beijing.

Li said there were already signs of growing bankruptcy due to a broken capital chain, which gives rise to unemployment and holds back private businesses from the market.

He said China should not tighten monetary policies further, emphasizing that banks should not be ordered to put more money aside as reserves.

China has been tightening its monetary policy to curb credit-driven inflation. Since October, China has raised interest rates four times and lifted the reserve requirement ratio nine times.

China's lending has been on the wane. In the first five months, new yuan loans totaled 3.6 trillion yuan (US$555 billion), down 12 percent from the same period of last year.

In May, banks extended 551.6 billion yuan, 100.5 billion yuan less than a year ago.

The tightening stance has hurt smaller companies as they find it difficult to get loans and triggered complaints among lenders.

Three quarters of overseas banks in China said tighter policies have curbed their loan business and had a negative impact, a PricewaterhouseCoopers report said last week.

The second two-day international summit was organized by the China Center for International Economic Exchanges, a non-governmental research and consulting organization.