China leaders emphasize fighting inflation

BEIJING Sun Dec 12, 2010 7:27am EST

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BEIJING (Reuters) - China will ratchet up efforts to quell inflation in 2011 while pushing forward economic restructuring to help sustain robust growth, state media said on Sunday after the close of an annual policy-setting conference.

The Central Economic Work Conference, chaired by President Hu Jintao, reaffirmed a shift to a "prudent" monetary policy from the previous "appropriately loose" stance announced by the Communist Party's ruling body last week.

The change in wording, coupled with heightened concerns over inflation, could pave the way for a more aggressive course of interest rate increases and lending restrictions, analysts say.

"The priority is to actively and properly handle the relation between maintaining steady and relatively fast economic growth, economic restructuring and managing inflation expectations," state media said, citing a statement from the conference.

"Strategic economic restructuring will be accelerated and stabilizing price levels will be given a more prominent position."

Beijing is trying to promote the role of domestic consumption, to reduce the economy's reliance on exports.

The leadership pledged to put a lid on liquidity in the banking system fueled by rising capital inflows and to guide more bank loans into the real economy, according to state media.

China's inflation soared past forecasts to a 28-month high in November and showed signs of spreading beyond food prices, putting pressure on the government to tighten policy.

Other economic data issue on Saturday should have given the Chinese government the confidence to intensify its tightening, because all signs point to impressive growth momentum in the world's second largest-economy.

On Friday the central bank raised banks' reserve requirements for the third time in a month to mop up excess cash in the economy. The jump in inflation suggested that more resolute action was needed.

"Current macro control measures are a bit looser. So the key is to watch how strongly it is implemented early next year," said Dong Xian'an, chief economist with Industrial Securities in Beijing.

STABLE YUAN

China will take steps to control mounting local government debt, a legacy from the government's massive stimulus unveiled in late 2008 to counter the global crisis.

The conference also pledged to keep gradually raising government purchasing prices for grains, to encourage farmers to continue planting those strategic crops.

After several years of strong harvests, planners fear there is little room to further raise grains output.

Chinese leaders reiterated their longstanding policy of keeping the yuan "basically stable" at a reasonable and balanced level next year.

"We will further improve the yuan exchange rate formation mechanism and keep the yuan exchange rate basically stable at a reasonable and balanced level," state media said.

Beijing has been under foreign pressure to let the yuan rise at a faster clip to help rebalance the global economy.

The yuan has gained 2.4 percent since its depegging from the dollar in mid-June.

(Editing by Lucy Hornby and Louise Heavens)

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Comments (3)
bkhjon wrote:
Historically, inflation eroded the purchasing power of PEOPLE aka joes and janes the working class. China is fighting inflation while US is promoting inflation, per QE2. Given the zero interest rate in the US, savers are the victims.

Dec 12, 2010 8:47pm EST  --  Report as abuse
bkhjon wrote:
China is fighting its inflation. Hopefully Chinese drivers will pay lower gas prices. On the other hand, Benanke is promoting inflation. Now we have to pay over $2.9 vs less than $2 a year ago for the same gallon of gas.

Dec 12, 2010 9:26pm EST  --  Report as abuse
vksaini wrote:
In any economy inflation can be linked to many factors that cause. If a government prints currency unrelated to set norms the purchasing power of same unit will go down. It can be linked further to shortage of supply of goods & services while demand is on the increase. To tinker with interest rates to arrest inflation is not a permanent solution it simply leads the movement money from low interest to higher interest zones or with individual to spend instantly where interest rate is zero and save for future where interest rate is more than inflation rate or is equal to it to neutralize its effect on savings. How China happens to tackle its inflation in coming times remains may part a lesson for U.S.?

Dec 12, 2010 11:57pm EST  --  Report as abuse
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