Does China need to further tighten its macro-control measures? How can China strike a balance between economic growth and lower inflation? Can China realize its goal of preventing excessive price rise in the second half of this year? Liu He, vice-minister of the Office of the Central Leading Group of Financial and Economic Affairs, offered answer to questions such as these in an interview given to People's Daily. Following are excerpts of that interview.

Q: President Hu Jintao recently said the government should "keep the policy stable" and "fine-tune the policy when necessary". What's the implication of these comments?

A: As for keeping the policy stable, I think there are several aspects. First, there is no need to further tighten the marco-control measures. Given the economic environment, the current measures are already appropriate.

We need to maintain the policies to create a transparent and stable internal environment for enterprises so that they can actively respond to market signals. Moreover, we need to observe the external environment, which has undergone drastic changes over the past year and is still in turmoil. At the moment, we should not rush more tightening measures.

Moreover, we have seen the need for "adjustment". The impact of macro-control measures on businesses of different sizes, locations and industries are varied. So far, the small and medium-sized enterprises (SMEs) seem to have been influenced more severely.

The adjustment should focus on the following areas: First, we should address the credit crunch suffered by SMEs and encourage more lending to those enjoying a competitive edge. We can adjust the tax rebate for some labor-intensive industries to maintain a stable growth of the export sector. We also need to streamline the pricing mechanism for energy and resource products. It's necessary to adjust their prices and correct price distortion.

Q: After the statistics bureau released the first-half figures, there were concerns the Chinese economy is at a turning point. What's your opinion?

A: This year's economic environment has been very complicated and challenging. There have been a slew of unexpected changes in the global economy. In the first half, China's GDP expanded 10.4 percent. In terms of China's potential economic growth rate, this speed is still fast and is in line with the aim of macro-control policies.

Meanwhile, domestic consumption is contributing increasingly to overall economic growth. If we compare China with other nations, the growth momentum is still good. Actually the world economy is suffering from stagflation and 53 developing countries are battling double-digit inflation. Historically speaking, the era of low costs and high growth has come to an end for China and an economic restructuring is unavoidable.

In the second half, exports will continue to slow down while consumption will remain stable and investment drop slightly. The whole-year economic growth will be around 9.5 to 10.4 percent.

Q: Do you think it's possible to curb excessive inflation by the end of the year?

A: First of all, we should identify the main reason of the inflation. It's largely due to the depreciation of the US dollar, which triggers price rises of primary goods. For us, the key to deal with inflation is to stabilize our policy, ensure supply, subsidize the poor and adjust prices.

We should also tame the public's inflation expectations. We should not be afraid of price rises as the adjustment of some underpriced products is unavoidable. But it's possible for inflation to moderate in the second half as oil price is falling and domestic agricultural supply is recovering. Inflation may well ease by the end of the year.

Q: The government has said it will try to strike a balance between stable economic growth and lower inflation. How do you think this can be achieved?

A: To pursue sound and fast development, we shouldn't sacrifice development to curb inflation, and vice-versa. In the second half, we need to push forward reforms in the financial sector.

Presently, SMEs are usually the first victims of credit tightening measures. This reflects the rigidity of China's financial system. Moreover, we need to push forward reforms of the pricing mechanism for energy and resources products.

(China Daily August 5, 2008)