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China to shift to prudent monetary policy next year

Number of visits: Date:2010-12-15

The Political Bureau of the Communist Party of China (CPC) Central Committee agreed in a meeting, chaired by President Hu Jintao, also general secretary of the CPC Central Committee, that the country would continue the proactive fiscal policy next year.

To accelerate the transformation of the economic development pattern should be the main focus of next year's work, and macro-regulation should be "more targeted, flexible and effective," according to a statement issued by the bureau.

In late 2008, China shifted its fiscal policy from "prudent" to a "proactive" stance and eased monetary policy from "tight" to "moderately loose," to counter the global financial crisis.

That came with a 4-trillion yuan stimulus package which largely fund infrastructure construction and improving people's livelihood.

China's decision to implement a moderately loose monetary policy over the past two years was a "special move" to counter the global financial crisis, which should be ended now as the domestic economy's growth has stabilized, said Prof. Zhang Liqing with the Central University of Finance and Economics.

Xia Bin, director of the finance research institute under the State Council's Development Research Center, said shifting to a prudent monetary policy will help promote China's sustainable growth. It is time for change with the domestic economy maintaining its strong momentum and with inflation running at a high level as liquidity from abroad grows.

China's economy grew 9.6 percent year on year in the third quarter this year, slowing from its 10.3-percent increase in the second quarter and 11.9 percent in the first quarter.
The momentum of growth continued to strengthen, as manufacturing activities saw the 21st straight monthly expansion in November.

However, consumer inflation hit a 25-month high of 4.4 percent in October, exceeding the government's target of 3 percent for this year, pushed up by soaring food prices.

New loans in the first ten months of the year totaled 6.9 trillion yuan, slightly less than the government's full-year target of 7.5 trillion yuan. Many financial institutions have estimated November new loans are likely to have exceeded 500 billion yuan.

Broad money supply has exceeded 70 trillion yuan, surpassing the United States to become the world's largest, causing more concern and as the U.S. Federal Reserve moves toward a second round of quantitative easing.

Gao Peiyong, head of the Institute of Finance and Trade Economics under the Chinese Academy of Social Sciences, said China's macro-economic regulations has two goals: maintaining economic growth and curbing the rise in inflation. Maintaining economic growth requires a policy of fiscal expansion while fighting inflation requires tighter monetary policy. The current economic situation demands a combination of the two.

To check money expansion, the People's Bank of China, the central bank, hiked the benchmark interest rates in October and raised the reserve requirement ratio for banks twice in a month, indicating the government's concern about rising inflation.

The government has announced harsh measures, including price controls when necessary, and has cracked down on hoarding and speculation to prevent runaway price hikes.

TypeInfo: Industry News

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