The Chinese economy seems again picking up momentum, so the government must remain alert to a new round of overheated economic activities, said Morgan Stanley chief economist Stephen S. Roach.

Stephen S. Roach arrived in Beijing the second day after the central bank announced its move to raise mortgage-lending rates and cut interest rates for excess reserve for commercial banks. When asked his comments on this act, Roach down played it by describing it as one of the measures the government works out this year to curb excessive investments.

Actually, Roach was much surprised by figures just published by the State Statistics Bureau: during the first two months of 2005 China's industrial output value increased 16.9 percent over the same period of the previous year. In his view, the Chinese economy apparently gathered momentum in the past two months, which seemed having steadily slowed down in 2004.

The sharp increase of industrial output value in the first two months of last year (19.4 percent) was a primary reason for the government to declare the economy as being overheated. To cool it down the government put out a series of tightening regulatory measures, and we have reason to believe they were effective as the figure dropped to 14.4 percent upon 2004 yearend. Judging from import and retailing sales statistics published at 2005 beginning, we could even say the growth of domestic demands also showed signs of being slowed down.

It's necessary for China to further strengthen macro-regulation, Roach said. As the economy regains momentum, more regulatory measures are expected from the government this year. If other conditions remain unchanged, these measures could help to remove inflation worries on the market and therefore potentially be a piece of good news for the bond market.

By People's Daily Online