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Monetary policy-deciding gets three new voices

16:51, March 29, 2010

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By Li Hong

Chinese home aspirants gripe about soaring housing prices, banks hope for a dynamic stock market in order to refinance their depleted capital reserve, and Premier Wen Jiabao said he is concerned with both the rising inflation expectation, and a possible "second dip" of the overall economy, meaning the GDP growth relapses into a very low level that we had witnessed when the global financial crisis broke out.

This year is truly a most difficult year to manage soon-to-be the world's second largest economy. As anyone could see the complex composition of a seemingly vibrant domestic economy with a variant global one, accurately gauging economic developing trends will prove to be a pivotal job.

Amid jitters about rising home asset bubbles and freakish recoveries abroad, China made a decision to expand the membership of the Banking Policy Committee under the People's Bank of China, the central bank. For the first time, three renowned economists (instead of previous one) are sitting at the powerful organization which decides on China's interest rates and other major banking policies. The three are: Beijing University economics professor Mr. Zhou Qiren, Qinghua University economics professor Mr. Li Daokui and Mr. Xia Bing, director of the Finance Institute of the State Council's Development and Research Center.

The majority of the 15-member committee consists of top-level central bankers and high-ranking central government officials including the Ministry of Finance, whose positions naturally oblige them to weigh more on achieving "a high growth rate", but, the recruitment of three outspoken economists is prone to make policy deliberations at the table more responsive and balanced. Therefore, it increases the likelihood of meting out the most accurate statement. It is another showing of China's pursuit of The Scientific Development Theory, vigorously sought by President Hu Jintao.

It isn't easy to get to the truth of a running major economy. Despite neighboring countries including India and Australia have ratcheted up their interest rates lately to hedge against inflating prices there, China's central bank has kept its rates intact, obviously worried by uncertainties in Greece, Portugal and beyond, as well as a continuous sagging employment in the United States. The U.S. Federal Reserve's March decision to maintain America's federal funds rate at nearly zero for "an extended period" also weighted on China.

However, China's customers don't buy official stance. Complaints about ever-rising staple grain, meat, vegetable and other grocery prices are getting louder, and, people are boiled over the runaway urban housing prices. In Beijing, Premier Wen Jiabao was enraged, personally, ordering relevant local and central government departments to stop state-owned companies from chasing money by bidding for plotted land for development.

More have pinpointed to the perilous future of a Japan-style economic stagnation, if the policy-makers remain coy to rein in the home market frenzy. Some allege that if the bubble suddenly burst, an astronomical amount of "speculative" funds will evaporate, causing big trouble for the banks.

Some central bankers do not see the danger. Mr Zhu Min, a deputy governor of China's central bank and also a special consultant to the IMF, said in Hong Kong last week that China's homeowners "are not heavily indebted", and provided the country's economy keeps going up, a relatively easy credit support is necessary.

However, Professor Zhou Qiren has been a hawk in curbing inflation. Mr. Zhou said in March that an overly loose fiscal and monetary policy "has a price to pay", and now is "a must" to exit the 2008 policy. Professor Li Daokui has noted that China's economy would almost certain hit a "lofty high", and the central bank needs to consider curbing inflation and equity bubbles. And, Mr. Xia Bing has emphasized on the necessity of "returning monetary policy back to normalcy".

So, when the next monetary policy committee meets, there are at least three economists articulating on behalf of the vast plain customers. The odds are up for the central bank to revise policy.

The articles in this column represent the author's views only. They do not represent opinions of People's Daily or People's Daily Online.

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About this column

After 19 years working for China Daily and its website, Li Hong moved to english.people.com.cn in March 2009.

Li has been a reporter and column writer, mainly on China's economy and politics.

He was graduated from Beijing Foreign Studies University, and once studied in University of Hawaii and the Poynter Institute in Florida.


Gavin Jon MowatGavin Jon Mowat

Gavin Jon Mowat, editor and columnist for People's Daily Online.

As a graduate from Heriot-Watt University in Edinburgh, UK, Gavin came to Beijing 2 years ago to study Chinese.

Enjoying the culture and traditions of the orient so much, Gavin has since left his home in Scotland and is now living and working in China.

Gavin uses his background in writing to share his experiences of China with you at People's Daily Online.

Li HongmeiLi Hongmei

Li Hongmei, editor and columnist of PD Online.