China cautious about side effects of anti-inflation measures

14:58, November 25, 2010      

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China's efforts to curb inflation must not come at the cost of economic growth and stock market, which is why the central bank has been very cautious about interest rate hikes, according to the Overseas Edition of People's Daily Wednesday.

It is a big challenge to balance maintaining steady, fast economic growth with stepping up economic restructuring and curbing inflation. And that is where China is now and will be even in a longer period of time in the future. China's recent actions, such as squeezing the excessive liquidity on the market and raising the ratio of commercial banks' deposit reserves, show the government's cautiousness about any side effect that can be brought about by interest rate hikes.

The stock market, as the best place to absorb liquidity, can benefit from a healthy economy with a reasonable price level. Given that, policies on curbing inflation can boost the stock market. Investors should keep confident, rather than overreact, to those policies.

Inflation is regarded as the biggest risk facing China's economy. The State Council has announced 16 measures to stabilize the prices on the market, including guaranteeing sufficient supply, cracking down on speculative manipulation of prices and subsidizing the low-income groups.

However, there is concern that those efforts may hurt the economic growth of the country. The sharp fluctuation on the stock market recently has made that concern evident.

The National Development and Reform Commission has ensured the public that China, with a good grain harvest and more than sufficient industrial capacity, is well-equipped to keep the prices stable.

By Li Jia, People's Daily Online


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