LONDON/BEIJING (Reuters) - China Premier Wen Jiabao sounded his most upbeat note this year on Beijing’s fight against inflation, saying he expects price pressures to decline steadily even as the country keeps up its brisk economic growth.
In an opinion piece published in Friday’s edition of the Financial Times newspaper, Wen wrote he was “confident price rises will be firmly under control this year,” and that China is “fully capable of sustaining steady and fast economic growth.”
Wen’s remarks came as he kicks off a visit to debt-stricken Europe and is a timely response to investor worries that China, in its struggle to tame near three-year high inflation, could over-tighten monetary policy at the expense of economic growth.
“There is concern as to whether China can rein in inflation and sustain its rapid development,” Wen wrote. “My answer is an emphatic yes.”
“China has made capping price rises the priority of macroeconomic regulation and introduced a host of targeted policies. These have worked,” he said.
“The overall price level is within a controllable range and is expected to drop steadily.”
But some analysts said it was too early for China to declare victory in its fight against inflation, and warned investors against thinking that Wen was signaling an imminent change in monetary policy.
Ting Lu, an economist at Merrill Lynch-Bank of America, argued Wen might have deliberately sounded so positive as he knew he was addressing foreign readers of the Financial Times.
In Chinese culture, there is a tendency to play up one’s achievements when speaking to the outside world, and swing the pendulum the other way to emphasize challenges when speaking to one of your own, Lu said.
“Readers should read the article with some grain of salt,” he said. “Despite these positive messages from Wen, it could be wrong to expect the Chinese government to change its policy stance soon.”
Lu said he still expects China to raise interest rates once more this year. That is roughly in line with market forecasts for a 25-basis-point rise in benchmark lending rates, and a 50-basis-point increase in deposit rates.
On the global economy, Wen said it was recovering from the turmoil seen in the financial crisis, but said many uncertainties remained and that the recovery was fragile.
He pointed to uneven global growth, stubbornly high unemployment in developed economies, mounting debt risks and inflationary pressures.
“While the shock of the crisis has yet to end, new risks have emerged,” Wen wrote. “The world must co-operate closely to meet the challenges.”
STILL EYEING RATE RISE
Wen’s latest remarks on China’s inflation were a marked shift from his comments in March when he warned about rising price expectations, and likened inflation to a tiger that is hard to cage once it is let out.
China’s inflation ran at a 34-month high of 5.5 percent in the year to May, and is expected to quicken to 6 percent in June or July.
That would be well above China’s 2011 inflation target of 4 percent, which Wen did not mention on Friday.
Some analysts have noted, however, that China’s official inflation target is among some malleable objectives that the central bank can breach. For instance, Beijing has for years trounced its official economic growth target of 8 percent.
Given wages in China are expected to climb in coming months and a stubbornly buoyant property market that has kept house prices at record highs, economists doubted China can rest easy in its anti-inflation campaign anytime soon.
“Inflation may peak in June or July, but there are many underlying factors that could push up prices such as labor cost and agricultural product inflation,” said Hua Zhongwei, an analyst with Huachuang Securities in Beijing.
Still, shares in Hong Kong and Shanghai bounced on Friday morning after Wen's remarks on inflation. China shares have been among the worst performers in Asia this year on persistent worries of further policy tightening to combat price pressures..HK
Reporting by Paul Hoskins in LONDON, Koh Gui Qing and Zhou Xin in BEIJING; Editing by Jacqueline Wong
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