China signalled a shift in its monetary policy on Wednesday, saying it would abandon a decade-long "prudent" policy for a "tight" one with an eye to controlling growth and keeping inflation in check.
The change in rhetoric, reached at an annual economic planning conference of top leaders that closed on Wednesday, signifies a heightened sense of urgency about preventing the world's fourth-largest economy from overheating.
The central bank has already raised interest rates five times and banks' reserve requirements nine times this year to prevent a wave of liquidity that is entering the economy through its trade surplus from feeding into goods and asset price inflation. The economy expanded by 11.5 percent from a year earlier in the third quarter, and annual consumer price inflation hit a decade-high 6.5 percent in October.
Still, analysts said that while the tone may have shifted, Beijing was likely to maintain a fine-tuning approach. "It's more of a shift in the mentality among decision makers," said Dong Tao, Credit Suisse's chief China economist. "China's credit policy and interest rate policy are shifting gears to a little bit more of a tightening bias."
The economic priorities for 2008 call for monetary policy to play a greater role in controlling the economy, with a focus on preventing overheating and acute inflation, the official Xinhua news agency said. Notably, Xinhua pointed to efforts to strictly control the volume of lending as one of the tools Beijing would use to bring better balance to its international payments and keep domestic demand in check.
That corresponds with what economists have described as an increasing emphasis over the past few weeks on measures to control the volume of credit as opposed to the price of money, prompting many of them to push back their forecasts for when the central bank will next raise interest rates.
Coming on the heels of the Communist Party's five-yearly Congress held in October, at which a new Party leadership was unveiled, the work report represents the first official economic policy roadmap agreed by China's new top leadership. Both President Hu Jintao and Premier Wen Jiabao gave speeches at the meeting, Xinhua said.
The central bank released its own statement on implementing the meeting's conclusions, saying it would tighten monetary policy in 2008 with an eye to better balancing the country's international payments and promoting "good but rapid" growth.
The government would take "forceful measures" to keep inflation in check and step up the production of grains, edible oils, meat and other products that are in short supply, Xinhua cited the work report as saying. Rocketing food prices have been the main reason behind the recent spike in inflation.