Wednesday, May 23, 2012

China Acts Cautiously Amid Slower Growth

News Analysis: China acts cautiously amid slower growth 2012-05-22 19:41:49

BEIJING, May 22 (Xinhua) -- China currently faces a similar growth dilemma to that four years ago during the global financial crisis, but this time policymakers are responding more cautiously.

During an inspection tour last week, Premier Wen Jiabao reiterated the government's intention of keeping its proactive fiscal and prudent monetary policies, but said it was a priority to stabilize growth.

The statement came after GDP growth in the world's second largest economy eased to a nearly three-year low in the first quarter, and risks dipping further on weak economic data in April.

Wen called for efforts to implement structural tax reduction policies, and direct more credit to the real economy and small- and macro-sized firms.

He urged government departments to improve consumption boosting measures, ensure construction of key projects, and allow private capital to be invested in the railways and energy sectors.

Wen also requested local authorities to strictly carry out property tightening measures and build more affordable housing for low-income earners.

Wen's remarks hinted that the government will more carefully ease its credit controls than in 2008 when it hurriedly injected 4-trillion-yuan (635 billion U.S. dollars) into the economy. This time the government will look to set up more structural boosting programs to help the economy regain strength, analysts said.

Pan Xiangdong, chief economist with Galaxy Securities, said the central bank will be bolder and faster in fine-tuning the monetary policy.

"But the monetary policy will stay prudent on the whole in the short run, and it's not realistic to adopt a large scale loosening," Pan said.

The government spent the last two years trying to cap inflation. However, now dampened global demand, together with government tightening efforts, has dragged down economic growth.

The People's Bank of China has slashed banks' reserve requirement ratio three times to boost lending over the past six months, after hiking the ratio six times and interest rates three times earlier last year.

Zong Liang, deputy general manager of the strategic development department with the Bank of China, said the central bank's policy should stay consistent, otherwise the risks for economic fluctuations will increase.

More policies targeted at speeding up infrastructure investment and domestic consumption, the two key drivers of the economy, are expected, according to analysts.

In addition to government spending, private investment will play a role in the recovery. Both the Ministry of Railways and the Ministry of Health recently issued guidelines to allow private capital to enter the railway and health sectors.

Zhang Hanya, a researcher with the Academy of Macroeconomic Research of the National Development and Reform Commission, said more industries, including the telecommunications, energy and some manufacturing sectors, will soon publish similar guidelines.

Moreover, the reform to replace turnover tax with value added tax, which aims to reduce duplicate taxation, is expected to be expanded in more provinces, according to the Ministry of Finance. Shanghai, the reform pilot, has applied to expand the reform to more industries.

Editor: Lu Hui

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