The Star Late Edition
China to fine-tune policy as needed
BUSINESS conditions might be “relatively difficult” this quarter and monetary policy would be fine-tuned as needed, Chinese Premier Wen Jiabao said.
“We see downside pressure on our economy and elevated inflation at the same time,” Wen said during a trip to Hunan province, according to a statement on the government’s website yesterday. “We also face problems of weakening external demand and rising costs for companies.”
Economists at Barclays Capital and Bank of America said the central bank would cut lenders’ reserve requirements before a week-long Chinese New Year holiday started on January 23.
The ruling Communist Party is shifting focus to supporting growth rather than damping inflation as Europe’s debt crisis threatens to curb exports.
“The government is closely monitoring the downside risks to growth,” said Chang Jian of Barclays Capital. “With an expected deceleration in property investment and exports, we expect to see more weakness in industrial activity.”
Nomura Holdings estimated last month that China’s economic expansion could decline to 7.5 percent in the three months to March from 9.1 percent in the third quarter of last year, as export growth slows and the government’s campaign to check property prices damped investment.
The government aimed to stabilise growth and consumer prices to “promote social harmony”, Wen said. He made the comments during meetings with company executives including Liang Wengen, the chairman of Sany Heavy Industry, and Zhan Chunxin, the chairman of Zoomlion Heavy Industry Science and Technology, according to the website.
Inflation in China eased to 4.2 percent in November from a year earlier, the slowest pace in 14 months. Even so, price gains had exceeded the government’s 2011 target of 4 percent every month of last year.
China’s money supply had “structural issues” and one could not simply say that there was too much or too little lending or sufficient or insufficient liquidity, Wen said. The government would tighten or loosen policies according to the needs of different industries, he said.
China would continue to focus on rebalancing growth, restructuring the economy and increasing consumer and investment demand, he said.
“Priority will be given to key projects and projects under construction and we will limit industries suffering from overcapacity, those that cause heavy pollution and are energy intensive,” Wen said.
The steel industry should upgrade its technology and restructure through reorganisations and mergers to reduce excess capacity. Wen also said the country must continue to develop its high-speed rail industry. – Bloomberg