Data show that in the first half of this year, the value of local-currency bank lending was 4.63 trillion yuan, decreasing 2.72 trillion yuan from the previous year.

In particular, the growth rate of lending to individuals in the second quarter has obviously slowed from the first quarter although the combined lending volume during the two quarters still reached 1.74 trillion yuan, higher than the 1.06 trillion yuan of the same period last year. Individual credit is one of the biggest factors behind the country's growing real estate bubble.

For developed countries, finding an exit from relaxed monetary policies is a thorny issue, as appropriate timing, direction and procedure are major factors in the pullout.

At a time when the global economy still faces quite a few uncertainties, policy exit at an earlier date is very likely to cause the initial global economic recovery to slow and even result in a second recession. However, postponing the exit will also likely fuel property bubbles and adds risks to the global financial crisis.

On China's part, its astronomical bank lending of 2009 has produced significant negative impact although it did not embrace a quantitatively relaxed monetary policy like how the United States and Japan did in the wake of the global financial tsunami.

How to effectively control unchecked bank lending and simultaneously avoid causing damage to the country's hard-won economic growth needs skillful policy intervention on the part of China's monetary authorities.

In this regard, the Chinese government has shown its effectiveness by withdrawing from the excessively loose monetary policy, as indicated by declining credit growth in the first half of this year.

China's good economic performance has also been reflected in an advanced real estate sector although the realty industry has endured a spate of harsh measures from the State Council starting mid-April.

The implementation of strict policies has helped curb rocketing property prices and made the overheated property sector to advance in a more scientific and manageable manner.

In the short term, the State Council measures are not expected to backfire too much on the national macroeconomic landscape. Instead, they will help squeeze the real estate market bubble and promote its steady and healthy development, which will contribute much to the sustainable development of the national economy,

Despite facing a raft of uncertainties caused by slowing bank lending growth and industrial output, a declining trade surplus and fixed assets investment in townships, as well as a tumbling domestic stock market and the impact of the sovereign debt crisis in Europe, the sound foundations of steady and sustainable economic development will endure if the central government transforms the real estate market from investment to consumption-oriented, steps up the long-overdue economic and industrial restructuring process and improves the domestic consumption structure.

The author is a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences.

(China Daily 07/20/2010 page8)