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Backgrounder: timeline of China's fiscal and monetary policy
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08:07, December 06, 2007

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China's Central Economic Work Conference closed in Beijing on Wednesday with the headline news that the ten-year prudent monetary policy will be replaced by a tight one in 2008.

China's development in fiscal and monetary policies are as follows:

  -- Prudent fiscal and monetary policies (2005 - now)

The Chinese economy was running at 11.5 percent year-on-year growth in the first nine months this year, and the annual consumer price index was estimated to stand at 4.5 to 4.6 percent, overrunning the warning threshold by more than 1 percent. In face of rapid growth in bank loans, investment and forex reserves, the country is carrying out prudent fiscal and monetary policies to prevent its economy from overheating.

China switched to the current policy at the beginning of 2005, replacing the former proactive fiscal policy. In that year, China reduced the issuance of its long-term National Construction Bonds to 80 billion from 110 billion yuan (about 14.9 billion U.S. dollars) in the previous year, and cut down the fiscal deficit by 19.8 billion to 300 billion yuan (about 40.5 billion U.S. dollars).

-- Proactive fiscal policy and prudent monetary policy (1998 - 2004)

The proactive fiscal policy and prudent monetary policy was adopted in 1998 to counteract the destructive potential of the 1997 Asian Financial Crisis.

China issued a total of 910 billion yuan worth of national bonds (about 131.1 U.S. dollars) over these years and invested the money in infrastructure construction. The move boosted the domestic demand weakened by the financial disaster, and contributed to 1.5 to 2 percent of national output growth each year.

  -- Appropriately tight fiscal and monetary policies (1995 - 1997)

In order to rein in high inflation across the country since 1993, China brought in appropriately tight fiscal and monetary policies. The country saw a drastic surge in fixed assets investment in the latter half of 1992, which was followed by major food price rises in 1993.

After the launch of the new policies, the central bank stepped up efforts to control money supply and finally reduced the consumer price index from 21.2 percent in January to 12.3 percent in August in 1995. The annual price increase was kept under 15 percent and gradually flattened out in the following years.

Source:Xinhua



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