China's priority for economic policy in the second half will be to maintain growth at a healthy clip while fighting inflation, the top leadership of the ruling Communist Party said on Friday. The conclusions of a meeting of the Politburo mark a departure from the tone of similar statements earlier this year, in which the government emphasised the need to keep the economy from overheating.
The Politburo said in a statement that China was facing increasing difficulties in maintaining economic growth, and that the government would keep macroeconomic policy steady and consistent to steer the economy. The Politburo said that the government needed to enhance its "fiscal and financial" adjustment measures, but did not specifically refer to maintaining the "tight" monetary policy stance outlined earlier this year.
The statement did not mention exchange rate policy or whether Beijing would carry out changes to trade policies, but it said it wanted to maintain stable growth in its trade. It added that the instability created by the current global financial crisis, as well as natural disasters such as the devastating Sichuan earthquake, had not affected the underlying growth drivers of the world's fourth-largest economy.
But it noted that increasing global uncertainties loomed on the horizon, and that it would require particular skill in navigating those fresh challenges. The statement from the country's top leadership on the position of inflation in its list of concerns falls against the backdrop of an increasing debate among policy makers and economists on how far to go in seeking to stem price rises.
Consumer prices rose by 7.1 percent in the year to June. That marked an easing from the near 12-year high of 8.7 percent in February, but it remains well above the government's official target for the year of 4.8 percent. Thanks to tighter credit policies and weaker global demand, China's annual growth slowed to 10.1 percent in the second quarter from 10.6 percent in the first quarter and 11.9 percent for the whole of 2007.
A number of economists have said recently that China should not err too far on the side of fighting inflation, which they caution could lead to an overly sharp slowdown in the economy. The overseas edition of the official People's Daily joined in the debate on Friday, saying China should fine-tune its macro-economic policies to strike a balance between fighting inflation and preventing a sharp economic slowdown.
Su Ning, a vice governor of the People's Bank of China, said on Friday that he was confident China would maintain sound economic growth during the rest of this year, underlining the government's confidence that it can avoid a hard landing.
Speaking to reporters, Su said that the slight slowdown in the first six months of the year was in line with government expectations. "The economic performance in the first half was in line with the macroeconomic control policy goals made at the beginning of the year," he said.
UBS on Friday reaffirmed its forecast of 10 percent GDP growth this year. But the bank lowered its forecast for China's gross domestic product growth in 2009 to 8.8 percent from 9.5 percent, citing a weaker global outlook and slower export-related investment.
Li Chao, spokesman for the central bank, said on Friday that monetary policy would have to consider structural and sectoral issues, but he added the central bank could not effect changes to the economic structure on its own. "You need industrial policies, fiscal policies and trade policies to move together," Li said.