Beijing reluctant to tighten monetary policy

08:44, May 17, 2010      

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Chinese Premier Wen Jiabao said that the country faced uncertainties and tough challenges in balancing its economic structural mix, while admitting it is hard to continue to tighten monetary policies to curb inflation.
China must avoid piling on adjustment policies, which carry risks of "negative consequences", amid complex domestic and international conditions, Wen said during his trip to the northern port city of Tianjin.

"At present, the national economy continues to improve, but domestic and external conditions remain extremely complex, and macro adjustment faces many dilemmas," Wen said.

Wen's remarks are taken as a sign of reluctance of Beijing to raise the bank interest rates, though inflation is rising fast in the first 4 months this year.

China is worried about a slowdown in economy in the second half of the year, as offshore demand for Chinese goods will remain weak, especially from Europe, China's biggest trading partner.

China's gross domestic product expanded by 8.7 percent in 2009 as the country weathered the global financial crisis and its economic growth accelerated to 11.9 percent year-on-year in the first quarter of this year.

Consumer inflation, however, has registered steady growth, reaching 2.8 percent in April - the highest in 18 months - while housing prices have continued to soar.

"Policymakers will have to walk a fine line to balance strong growth with stable inflation, and they are likely to do this with further administrative measures rather than tougher measures such as increasing interest rates," said Alaistair Chan, associate economist in the Sydney office of Moody's

As a sign of slowing economic activities, growth of sectors such as steel, cement and electricity is likely to slow in line with fixed investment growth as infrastructure projects like railway lines near completion, Chan said.

"Steps to cool bank lending may also be slowing the rate of new projects."

On the real estate front, the biggest question now is whether the latest property tightening measures will lead to a crash in overall construction and economic growth, said Wang Tao, head of UBS Securities' China Economic Research.

"The answer depends on whether one believes a big nationwide property bubble has built up in China, and what the policies aim to achieve and how they may evolve."

So far, "it is not clear whether the reported drop in housing prices is an early sign of a downturn in the property market", said Chan.

By People's Daily Online


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