China's economy faces big headwinds though cooling inflation is giving the government more leeway to manoeuvre monetary policy, Premier Wen Jiabao was quoted by state media as saying on Wednesday. Wen's comments followed a raft of data last week that suggested China's economy has not stabilised despite two interest rate cuts this year, as export growth, factory output and retail sales further weakened in July.
Investors worry the world's second-largest economy could post its weakest showing since 1999 with growth of just 8 percent this year, and expect the government to cut interest rates by 25 basis points at least once more in 2012. "The downward pressure on our economy is still big and the difficulties may last for a while," Wen said during a two-day visit to the coastal export province of Zhejiang, which started on Tuesday, where he met representatives of domestic and foreign companies.
It is customary for Wen and other officials to visit export towns during economic downturns to do some on-the-ground research. Their visits sometimes precede policy changes by the government. Wen was quoted by state television as saying falling consumer prices give Beijing more leeway to manoeuvre monetary policy. China's headline consumer inflation fell to a 30-month low of 1.8 percent in July from June's 2.2 percent.
China started tweaking its policies late last year and accelerated the pace recently, cutting interest rates twice, in June and early July, fast-tracking investment projects and encouraging energy-efficient consumer spending. Wen said the government must focus on employment in the latest economic slowdown, a frequently expressed concern of the stability-obsessed ruling Communist Party. "When the economy is facing difficulties, we must pay attention to employment and make it a priority to boost employment," he said.