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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