The combination of a tight monetary policy and a prudent fiscal
policy will benefit the economy in the long run, says an editorial
in Oriental Morning Post. The following is an excerpt:
It was stipulated in the Central Economic Work Conference last
week that the macro control policies of China will be targeted at
preventing the rapid economic growth from overheating, and
structural price rises from becoming entrenched inflation.
The new policy targets were set according to the prevailing
economic situation.
The consumer price index (CPI) is expected to climb to over 4.5
percent this year, far beyond the original 3 percent estimated by
the authorities at the beginning of the year.
The likelihood of sweeping inflation is boosted by several
factors. The international prices of agricultural produce, raw
materials, and energy are constantly on the rise, which has pushed
up the producer price index in China and is likely to spread to the
rest of the economy. The economy is expected to grow by at least 11
percent this year, posing high inflation pressure. The bubbles in
the securities and the estate markets have also increased liquidity
in the economy.
The central government plans to tame inflation expectation, and
improve the quality of economic growth in 2008, with a tight
monetary policy.
Under such a policy, the money supply will definitely be
reduced. The regular policy tools, like raising the deposit reserve
requirement for banks and raising interest rates will often be
used. And more harsh ones, controlling the growth of bank loans,
stopping the issuance of licenses to new investment projects, will
also be resorted to.
Meanwhile, the fiscal policy will be prudent to prevent possible
economic recession, which is often caused by a tight monetary
policy to curb inflation.
Therefore, a combination of the two polices will, at the same
time, maintain economic prosperity, and check inflation pressure.
It will play a positive role in improving the sustainability of the
economy in 2008 and in the future.
(China Daily December 10, 2007)