BEIJING - China
concluded its three-day high-profile Central
Economic Work Conference on Wednesday with a
pledge to shift its monetary policy - or control
of money supply in the economy - from "prudently
expansionary", an approach it has followed for the
past 10 years, to "tight".
The conference,
an annual event initiated more than a decade ago,
serves as a crucial mechanism for the Central
Committee of the Chinese Communist Party (CCP) and
the State Council, the cabinet, to make policies
toward the country's economy.
Although
China will tighten its monetary policy, through higher
interest rates and other
measures, it will maintain a "prudent" fiscal
policy for the coming year. Fiscal policy refers
to government borrowing, spending and taxation.
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 has raised interest rates
five times and reserve requirement ratio for banks
nine times so far 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 high-speed
to overheating, and to prevent consumer 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),
told Xinhua.
China has been implementing a
prudently expansionary monetary policy since 1997
to stimulate economic growth after the Asia
financial crisis. From 1998 to 2002, the country
increased money supply to counter deflationary
pressure. From 2003 to 2007, the monetary policy
began to tighten 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 CASS's Institute of Finance and Banking,
told Xinhua.
The country's consumer price
index (CPI) rose a decade-high 6.5% in October,
well above the government-set alarm level of 3%.
Observers in Beijing said the major inflation
indicator will most likely rise to a new high in
November.
Yu Yongding at CASS's Institute
of World Economics and Politics said that 4% 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.
Lending and
the increase in money supply are picking up pace.
In the first 10 months, yuan loans were 1.1 times
the amount for the whole of last year. By the end
of October, money supply growth was 18.47% year on
year, 1.53 percentage points higher than the
year-end level of 2006. Fixed-assets investment
growth in urban areas was 0.2 percentage points
higher than the year-earlier level. The
Chinese government called 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 believe 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.
Professor Song
Guoqing of Peking University 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.
Observers said it was
noteworthy that while the monetary policy went
tighter, the fiscal policy would remain prudent.
"Considering the 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 Professor Zhu Qing, of Remnin
University's business school.
The State
Information Center forecast China's gross domestic
product (GDP) growth at 11.4% for the whole of
this year and at 10.8 to 11.3% for 2008. According
to its prediction, the country's CPI will rise
4.7% this year, 2.9 percentage points higher than
the previous year, and go up 4.5% for next year.
The exports will increase by 25.7% and imports by
20%, with the trade surplus forecast at US$268
billion, some $90.5 billion more than the 2006
level.
The center said 8.9 trillion yuan
(US$1.2 trillion ) was invested in fixed assets in
urban areas in the first 10 months of this year,
up 26.9% on the same period of last year. The
growth has stayed at around 20% for 78 months, the
center said, predicting the pace at 25.5% for the
whole of this year and 23.5% 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.
The conference
pledged China would further promote the
establishment of free trade zones with other
countries and enhance bilateral and multilateral
economic cooperation next year. It also advocated
the creation of new ways for foreign investment
and better use of the money.
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