China likely to continue tight monetary policy: CICC

10:28, July 02, 2011      

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China will continue its tight monetary policy for the rest of the year but the possibility of a hard landing for the economy is slim, a Chinese economist has said.

Although the country's economic growth has started to slow, inflation remains stubbornly high, which means the monetary policy should remain tight in the short run, Peng Wensheng, the chief economist of the China International Capital Corp (CICC), was quoted as saying by China Daily on Saturday.

China's consumer price index, a main gauge of inflation, accelerated to 5.5 percent in May, the highest level in 34 months and well above the government's target ceiling of 4 percent.

Peng said he expected another one or two rises in the benchmark interest rates this year to curb inflation.

The country's manufacturing sector expanded at its slowest pace in 28 months in June, with the Purchasing Managers Index (PMI) falling 1.1 percentage points month-on-month to 50.9 percent, according to the China Federation of Logistics and Purchasing (CFLP).

The lower-than-expected PMI has raised concerns that China's economy is facing an increased possibility of a hard landing if monetary policy remains tight.

The risk of a hard landing is small "as China's ongoing process of modernization and urbanization will continue to support economic growth for at least the next three to five years," Peng said, adding that the economic slowdown will be a gradual process instead of a one-time sharp decline.

He expected the economic growth to slow to 8.4 percent for the fourth quarter but it will remain as high as 9.2 percent for the entire year.

Source: Xinhua

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