Chinese Premier Wen Jiabao (溫家寶) 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 yesterday’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 starts 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.”
However, 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.
Lu Ting (陸挺), an economist at Merrill Lynch-Bank of America, said Wen might have deliberately sounded so positive because 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.”
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.
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