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)
