China plans to align fiscal and monetary strategies: ministry

China plans to better coordinate fiscal and monetary policies this year to reduce its trade surplus and mop up excessive liquidity, Vice Finance Minister Li Yong (李勇) said yesterday.

"This year's fiscal policy will focus on structural adjustments and help essentially solve the problem of excess liquidity," Li said at a conference in Beijing. "Monetary policies should focus on quantitative controls to win more time for structural reforms."

China also needs to use administrative measures to tackle these issues, he said, without being specific.

China's money supply grew at the slowest pace in seven months last month, the central bank said on Saturday, after it took measures to cool inflation and prevent the economy from overheating. China may face pressure from Europe and the US to allow faster gains by its currency after the nation's trade surplus surged 48 percent to a record US$262.2 billion last year.

"Fiscal policy can play a bigger role," said San Feng, an economist at the State Information Center in Beijing. "The government this year needs to cut its fiscal deficit and debt issuance for long-term construction projects, and it should lower taxes on sectors affected most by price controls."

The government will adjust resource prices this year to rectify a distorted energy-pricing system and boost domestic spending as its top priority, Li said. Weakness in the US dollar will limit China's ability to raise interest rates and reserve ratios further, he added.

China's central bank has pledged a "tight" monetary policy this year, after six interest-rate increases last year, to curb lending and prevent escalating asset prices.

"We will decisively fight against inflation and implement tight monetary policies," said Yi Gang (易綱), vice governor of the People's Bank of China, at the same conference yesterday. "But we will do it prudently to ensure economic stability."

Consumer prices jumped to an 11-year high of 6.9 percent in November, prompting Premier Wen Jiabao (溫家寶) to announce on Wednesday a freeze on energy and utility price gains in the "near term."

"The government needs to avoid high inflation expectations," said Xu Lin, head of the fiscal and financial department of the National Development and Reform Commission, at yesterday's conference. "If price increases slow down, the temporary measures to curb prices can be eased."

China has set a preliminary target for the full-year inflation rate at 4.6 percent this year and that for annual economic growth at 8 percent, Xu said. Both targets need to be officially set at the sessions of the National People's Congress, or the country's parliament, which are scheduled to be convened in March, he said.