China concluded its three-day 2007 Central Economic Work
Conference on Wednesday with a pledge to shift its monetary policy
from "prudent," an approach it has followed for the last ten years,
to "tight."
The conference, an annual event initiated more than a decade
ago, serves as a crucial mechanism for the Communist Party of China
(CPC) Central Committee and the State Council, the cabinet, to make
policies to govern the Chinese economy.
China will maintain a "prudent" fiscal policy for the coming
year.
Various monetary instruments should be used to regulate
liquidity and to strictly control the size of loans and frequency
of credit extension, so as to better regulate domestic demand and
balance international payments, said the conference.
China raised interest rates five times and reserve requirement
ratio nine times this year.
The conference said that with a prudent fiscal policy and a
tight monetary policy, China will be able to achieve "the Two
Prevents" in the coming year: to prevent economic growth developing
from rapid to overheating, and to prevent price rises evolving from
structural to evident inflation.
"A tight monetary policy can develop a progressive effect, which
will help curb the overheating in markets of assets, including
equities and real estate, and then cap price rises," Cao Honghui,
an economic researcher with the Chinese Academy of Social Sciences
(CASS), said to Xinhua.?
China has been implementing a prudent monetary policy since
1997. From 1998 to 2002, the country increased money supply to
counter deflationary pressure.
From 2003 to 2007, the monetary policy began to tighten in order
to help address changes in economic development, including rapid
growth in credit extension, investment and foreign exchange
reserves.
"The new policy reflects the accurate judgment by the central
government on China's current economic situation, which is under
pressure from further price rises and unduly fast loan growth,"
Peng Xingyun, a senior researcher with the Research Institute of
Finance under the Chinese Academy of Social Sciences, told
Xinhua.?????
The country's consumer price index (CPI) rose a decade-high 6.5
percent in October, well above the government-set alarm level of
three percent. Observers here said the major inflation indicator
will most likely rise to a new high in November.
In the first 10 months, Renminbi-denominated loans were 1.1
times the amount for the whole of last year.?
By the end of October, money supply growth was 18.47 percent,
1.53 percentage points higher than the 2006 end level. Fixed-assets
investment growth in urban areas was 0.2 percentage points higher
than the year-earlier level.
Yu Yongding at CASS research institute of world economy and
politics said that four percent was the CPI ceiling that China
could tolerate. If the inflation measurement increased higher it
would send a signal to the central bank that a tight monetary
policy was necessary.
The Central Government urged to "moderately tighten money
supply" on the basis of prudent monetary policy in June 2007, the
first time the central government used the word "tighten" for
monetary policy since 1997.
Observers here believed China would continue to face high
inflationary pressure next year. In international markets, oil
prices would continue their exposure to high volatility and grain
prices would keep rising.
In the domestic market, high food prices, a major contributor to
the country's CPI growth, would likely force up labor costs and
then production cost in different sectors.
Prof. Song Guoqing predicted that a sixth interest rate rise was
around the corner. "Next year, the central bank will likely grant
loan quota to commercial banks quarter by quarter, instead of year
by year, which will better control credit," he said.
?
The observers said it was noteworthy that while the monetary
policy went tighter, the fiscal policy would remain prudent.
"Considering requirements of improving people's livelihood,
major construction projects, economic restructuring and of energy
saving and emissions reduction, the country's fiscal expenditure
will remain huge next year. It is unsuitable for the fiscal policy
to turn to tight," said Prof. Zhu Qing of the business school of
the prestigious Renmin University.
The State Information Center forecast China's GDP growth at 11.4
percent for the whole of this year and at 10.8 to 11.3 percent for
2008.
According to its prediction, the country's CPI will rise 4.7
percent this year, 2.9 percentage points higher than the previous
year, and go up 4.5 percent for next year. The exports will
increase by 25.7 percent, and imports by 20 percent, with the trade
surplus forecast at US$268 billion, US$90.5 billion higher than the
2006 level.
The center said 8.9 trillion yuan (US$1,202 billion) was
invested in fixed assets in urban areas in the first 10 months of
this year, up 26.9 percent on the same period of last year. The
growth has stayed at around 20 percent for 78 months, the center
added, predicting the pace at 25.5 percent for the whole of this
year and 23.5 percent for 2008.
According to the Central Economic Work Conference, China should
fulfill its economic development goals for next year in a steady
manner, so as to maintain the economy on a stable, rapid and
healthy track.
(Xinhua News Agency December 6, 2007)