Economists say the government should accelerate tax reform, narrow the price gap in home and overseas markets and expand investment on infrastructure construction to bolster growth when domestic inflationary pressure was abating.

China's fiscal income jumped 28.4 percent to 4.4 trillion yuan (US$642.3 billion) in the first eight months, which paved the way for the tax reform, said Gao Peiyong, deputy director of Institute of Finance and Trade Economics at the Chinese Academy of Social Sciences.

He gave the reduction of corporate income tax as an example, saying it may help alleviate the companies' financial burden and support their growth.

Key problem

"It is the best time to carry out such reform because the government has abundant capital and the spending needs to address the key problem," said Gao.

China's top decision makers have fine-tuned the key policies from curbing inflation to support growth after the country's gross domestic product slowed to 10.1 percent in the second quarter from 10.6 percent in the first three months and 11.9 percent last year.

Swiss financial firm UBS lowered its forecast for China's GDP growth next year to 8 percent from 8.8 percent, signalling a weaker outlook for economic expansion.

Meanwhile, inflation has shown a clear downward trend in August when the Consumer Price Index, a major inflation gauge, eased to 4.9 percent from 8.7 percent in February.

The CPI growth may drop to between 2 and 3 percent next January if food prices don't rebound and it may turn negative next May because of falling commodities and oil prices, said Frank Gong, a JPMorgan Chase economist.

Yang Zhiyong, another economist with the academy, said it was time to correct the price differences of products on the domestic and global markets.

"Price controls are not good to the long-term economy and may become a hurdle to the development of companies dominant in the industry," said Yang, who added that the falling prices of raw materials overseas meant it was a good time for the change.

Oil prices on the global market fell below US$94 a barrel last week after reaching a record US$147.27 a barrel in July.

Another economist suggested the government should spend more on improving infrastructure, which laid the foundation for further economic expansion. Stephen Green, of Standard Chartered, said the possible stimulus moves were "not just a question of how much money to spend, but how to spend it."

(Shanghai Daily October 7, 2008)