Curbing credit expansion
Lan Xinzhen

CHINA’S tight monetary policy, adopted late last year, faces serious challenges at the beginning of 2008. According to the People’s Bank of China, the central bank, January witnessed record-high credit growth with a total of 803.6 billion yuan ($112.1 billion) of new loans. The broad money supply, or M2, jumped 18.94 percent in January year on year, the biggest surge since May 2006. Both the growth in bank loans and the M2 have outpaced market expectations. Of the newly added loans, medium- and long-term loans achieved record highs, both for households and enterprises. Lin Zhaohui, an analyst with Guotai Jun’an Securities Co. Ltd., said these were signs that loan expansion had picked up momentum. At the end of last year, the Chinese Government pledged to cap credit increases in 2008 under 3.6 trillion yuan ($502.1 billion). However, the first month has gobbled up 22.3 percent of the target, further increasing pressure on its tight monetary policies for the rest of the year. The central bank pointed out that the continuous acceleration of credit growth will further undermine the stability of the macro-economy and the healthy operation of financial institutions.
Quarterly controls
The central bank has given its explanation for the robust credit growth: Tight credit control policies beginning in the fourth quarter last year have contributed to a pile up of contracted loans, most of which were released in January. Central bank statistics show that the combined lending growth of last November and December had dropped by 271.8 billion yuan ($37.9 billion) over the previous year. As a result, a lot of commercial banks delayed their new loans until the beginning of this year, resulting in a firm rebound in credit growth in January. For some, this is not a convincing reason for the surge in credit growth. Gao Huiqing, Director of the Development Strategy Division with the Economic Prediction Department under the State Information Center, holds a different opinion. What really matters is that the central bank has imposed quarterly credit quotas on lenders instead of on the usual yearly basis, Gao said.
In the past, banks distributed more loans in the first quarter because longer loan maturities would generate more profits. Regarding the current quarterly controls, lending in the first month of the quarter is apparently their preference. Another factor is that bank creditors can relieve pressure on themselves by fulfilling their credit targets at an earlier date. Gao also noted that the credit escalation in January was partly affected by the Spring Festival and the disastrous winter weather across southern, eastern and central parts of China. Since the Spring Festival fell in February this year, enterprises were compelled to procure loans in January, and some borrowed ahead to ensure cash supplies for February and March. At the same time, the central bank made calls for relief of areas hit hard by winter snowstorms. The central bank and the “Big Four” state-owned commercial banks have lent nearly 10 billion yuan ($1.4 billion) as part of these efforts.
Withdrawal symptoms
The phenomenal January credit statistics have added even more motivation for China to tighten its monetary stance. On February 14, the central bank made this year’s first move of open-market operation, coinciding with the release of January financial data. It issued 195 billion yuan ($27.2 billion) of central bank bills of different maturities, striking near a one-year record high. Among the newly issued central bank bills, compared to the previous issuance, three-year and one-year bills soared from 23 billion yuan ($3.2 billion) and 60 billion yuan ($8.4 billion) to 90 billion yuan ($12.6 billion) and 75 billion yuan ($10.5 billion), respectively. Only three-month bills registered a decline, down from 45 billion yuan ($6.3 billion) to 30 billion yuan ($4.2 billion).
This move can be read as a tone setter for credit control in the first half of 2008. It is expected that tighter control over credit amounts will be adopted in the short and medium term. Amid uncertainties of new interest rate hikes, this will serve as a major policy measure for the long term. According to Yin Zhongli, a researcher with the Institute of Finance and Banking, Chinese Academy of Social Sciences, the central bank will rely more on administrative and window guidance, aside from issuing central bank bills. “Window guidance may be more conducive with an instant effect,” said Yin. As a mild and non-enforceable tool of monetary policy, window guidance refers to advice given by the central bank regarding the credit conduct of commercial banks. In the first half of 2004, the central bank and the China Banking Regulatory Commission put a tight grip on credit expansion through window guidance to commercial banks. At that time, the advice effectively helped curb credit explosion and optimize the credit structure.
Instituting countermeasures
The central bank has obviously felt pressure from the lending fever. On February 10, four days ahead of the release of January’s statistics, its Shanghai headquarters raised five requirements for Shanghai commercial banks that also apply to their counterparts across the country. As required by the central bank, financial institutions must craft credit outlines in line with macro-economic controls and balance the credit coordination of the banks and clients with the overall interests of the macro-economy. Credit support must also be skewed toward small and medium-sized enterprises, independent innovation, energy conservation and environmental protection, and employment expansion. More efforts are also demanded to improve rural financial services and intensify investments to tackle the three issues concerning agriculture, countryside and farmers. “Rational lending of the commercial banks is backed and encouraged by the central bank,” said Yin. Commercial banks are not supposed to put their own interests ahead of the general financial climate. All financial institutions are being called on to consolidate liquidity management, pay close heed to changes in the capital market, get an active handle on savings deposit diversion, prepare themselves for the liquidity changes at special moments like IPOs (initial public offerings) and prevent liquidity risk.
The central bank has also prodded financial institutions to beef up the transformation of their profit-making models. Amid cutthroat competition and the need for pressing credit tightening, the central bank is focusing on the innovation of the credit business, services and products. Improvement of profit sustainability will count on shrinking credit assets and expanding non-credit assets and non-interest income. Meanwhile, controls over property credit were highlighted by the central bank, including enforcement of the property control policies, oversight over loan flows and prevention of new risks resulting from relaxation of lending requirements. The Shanghai headquarters of the central bank also warned against changes in the external economic climate, especially the impact from economic turbulence in developed countries, on the export growth of China, and the performance of domestic exporters. Financial institutions should closely monitor the business of concerned enterprises, their repayment, as well as changes to the balance of payments and renminbi exchange rate. Enterprises are encouraged to strengthen risk management of the exchange rate with financial derivatives such as currency forwards. “These requirements will bring about a more noticeable slowdown of direct lending,” added Yin.
Financial Data
Money Supply
By the end of January, the outstanding balance of broad money supply (M2) totaled 41.78 trillion yuan ($5.8 trillion), up 18.94 percent year on year, 2.2 percentage points higher than the end of 2007. The narrow money supply (M1) recorded a balance of 15.49 trillion yuan ($2.2 trillion), representing a yearly increase of 20.72 percent, 0.33 percentage points lower than the end of 2007. The balance of money in market circulation amounted to 3.67 trillion yuan ($511.9 billion), up 31.21 percent over the previous year. Renminbi loans By the end of January, the outstanding balance of loans denominated in renminbi and foreign currencies of all financial institutions gained 17.53 percent to 28.67 trillion yuan ($4 trillion), among which renminbi loans contributed 26.97 trillion yuan ($3.8 trillion), a yearly rise of 16.74 percent, or 0.64 percentage points higher than at the end of 2007. January recorded a lending growth of 803.6 billion yuan ($112.1 billion), or 237.3 billion yuan ($33.1 billion) higher than one year earlier.
Renminbi deposits
By the end of January, the outstanding balance of deposits denominated in renminbi and foreign currencies of all financial institutions increased 13.96 percent to 40.25 trillion yuan ($5.6 trillion). The outstanding balance of renminbi deposits reached 39.16 trillion yuan ($5.5 trillion), posting an increase of 15.12 percent compared with one year earlier, 0.95 percentage points lower than the end of last year. Renminbi deposit increased 224.4 billion yuan ($31.3 billion) in the first month, 240 billion yuan ($33.5 billion) lower than the previous year.

(The Daily Mail-Beijing Review  Articles Exchange Item)



Unforgivable behaviour, inadmissible evidence
Morris Davis

TWENTY-Seven years ago, in the final days of the Iran hostage crisis, the CIA’s Teheran station chief, Tom Ahern, faced his principal interrogator for the last time. The interrogator said the abuse Ahern had suffered was inconsistent with his own personal values and with the values of Islam and, as if to wipe the slate clean, he offered Ahern a chance to abuse him just as he had abused the hostages. Ahern looked the interrogator in the eyes and said, ‘We don’t do stuff like that.’ Today, Tom Ahern might have to say: ‘We don’t do stuff like that very often.’ Or, ‘We generally don’t do stuff like that.’ That is a shame. Virtues requiring caveats are not virtues. Saying a man is honest is a compliment. Saying a man is ‘generally’ honest or honest ‘quite often’ means he lies. The mistreatment of detainees, like honesty, is all or nothing: We either do stuff like that or we do not. It is in our national interest to restore our reputation for the latter.
Some accounts of detainee abuse in the war on terrorism are overblown, but others are not. After humiliating prisoners at Abu Ghraib by forcing them to strip naked and lie in a pile like a stack of firewood or simulating the drowning of detainees to persuade them to talk, we can no longer say we ‘don’t do stuff like that’. The disclosure last month of a manual for Canadian diplomats listing the United States as a country where prisoners might face torture, referring specifically to Guantànamo Bay, Cuba, was an embarrassment on both sides of the border. During the Gulf War in 1991, the Iraqi armed forces surrendered by the tens of thousands because they believed Americans would treat them humanely. Our troops reached the outskirts of Baghdad in 100 hours and suffered fewer than 150 combat-related fatalities in large part because of these mass surrenders.
Would it have been different if the perception of us as purveyors of torture and humiliation existed back then? Would tens of thousands of Iraqis have put down their weapons if they believed they were going to be humiliated, abused or tortured, or would they have fought? Had they chosen to fight, the war would have lasted longer and cost more and casualties would have skyrocketed. Our reputation in 1991 as the good guys paid dividends and supported our national interests. We can start by renouncing cruel, inhuman and degrading treatment of detainees and unreservedly committing to uphold the Detainee Treatment Act, which passed Congress in 2005 but was diluted by a presidential signing statement. We must also reaffirm our adherence to the UN Convention Against Torture, which the Senate ratified in 1990. Just as important, we need to come to grips with the practice known as waterboarding, the simulated drowning of a person to persuade him to talk. There was some progress recently: The CIA’s director, General Michael Hayden, told Congress that the practice may be illegal under current law; the director of national intelligence, Michael McConnell, told a reporter, ‘Whether it’s torture by anybody else’s definition, for me it would be torture’; Attorney General Michael Mukasey, after being asked if waterboarding would be torture if done to him, said that ‘I would feel that it was’; and Congress passed a law forbidding the CIA to use waterboarding and other harsh techniques.
That a few others in positions of power still find it so difficult to admit the obvious about waterboarding is astounding. We can never retake the moral high ground when we claim the right to do unto others that which we would vehemently condemn if done to us. My policy as the chief prosecutor for the military commissions at Guantànamo was that evidence derived through waterboarding was off limits. That should still be our policy. To do otherwise is not only an affront to American justice, it will potentially put prosecutors at risk for using illegally obtained evidence. Unfortunately, I was overruled on the question, and I resigned my position to call attention to the issue — efforts that were hampered by my being placed under a gag rule and ordered not to testify at a senate hearing.
At a senate hearing in December, the legal adviser for the military commissions, Brigadier General Thomas Hartmann, refused to rule out using evidence obtained by waterboarding. Afterward, Senator Lindsey Graham, who is also a lawyer in the Air Force Reserves, said that no military judge would allow the introduction of such evidence. I hope Graham is right about military judges, and it is unfortunate that any might be put in a position where he has to make such a decision. Regrettably, at a Pentagon news briefing announcing that Khalid Sheikh Mohammed, the alleged mastermind of the 9/11 attacks, and five others had been charged and faced the death penalty, Hartmann again declined to rule out the use of evidence acquired through waterboarding. Military justice has a proud history; this was not one of its finer moments. That is not to say those subjected to waterboarding get a free pass. If the prosecution can build a persuasive case without using the coerced ‘confession,’ then whether a defendant endured waterboarding is immaterial in determining guilt or innocence.
There are some bad men at Guantànamo Bay and a few deserve death, but only after trials we can truthfully call full, fair and open. In that service, we must declare that evidence obtained by waterboarding be banned in every American system of justice. We must restore our reputation as the good guys who refuse to stoop to the level of our adversaries. We are Americans, and we should be able to state with conviction, ‘We don’t do stuff like that’.

—Khaleej Times




Does West’s security hinge on victory in Afghanistan?
Hassan Tahsin

THE 44th European security conference in Munich last month concluded with a pressing call to bring about an atmosphere of creative and constructive debate in the North Atlantic Treaty Organization (NATO). While the motto of the latest conference was “A World in Disarray — Shifting Powers — Lack of Strategies,” the conference ended, apparently, leaving the world wondering if the conference has succeeded in ending the disarray within the NATO, let alone bringing security to the rest of the world.
A close scrutiny of the deliberations at the conference gave the foreboding that the NATO was on the fast track to its dissolution. That is, if the United States did not stop imposing its whims on the European members. The Munich Conference on Security Policy (German Münchner Konferenz für Sicherheitspolitik) is an annual conference on international policy, held in the Hotel Bayerischer Hof in Munich, Germany. The conference was founded in 1962 by German publisher Ewald-Heinrich von Kleist-Schmenzin under the title Wehrkundetagung. Each year, some 250 participants from 40 countries present their views on the development of trans-Atlantic relations as well as European and global security. The participants in the conference included US Defense Secretary Robert Gates, Russia’s First Deputy Prime Minister Sergei Ivanov and Cabinet-level officials from various countries. The focus on a general strategy debate at the beginning of the conference quickly shifted to the relevance of continued engagement of the international community in Afghanistan including the role of the NATO. The US lashed out at some members, particularly Germany, saying they lacked commitment in the Afghanistan war. German Foreign Minister Frank-Walter Steinmeier and Defense Minister Franz Josef Jung, had emphatically fended off all criticism of Germany’s role in Afghanistan.
Apparently to cool down the miffed German side, Robert Gates condescended to say at one point that he did not point a finger at Germany at all, explaining that the request for more commitment in Afghanistan had been issued to all the members of the trans-Atlantic alliance. However, the US defense secretary warned of a rift developing within NATO if the row over burden sharing in Afghanistan went on. He said that some allies ought not to have the luxury of opting only for stability and civilian operations, thus forcing other allies to bear a disproportionate share of the fighting and dying. Meanwhile, there are growing indications of a change in NATO’s strategy in Afghanistan. The failure of the US-led NATO forces in making any headway in Afghanistan had prompted French Defense Minister Herve Morin to declare that the problem of reconstructing Afghanistan could not be resolved purely by military means.

—Arab News