Expanding overseas investment will boost competitiveness

Over the past few weeks, overseas investors have watched with unease as the central government prepares to set its economic growth strategies for next year at an annual meeting to be held within two weeks.

There appear to be growing worries that mainland leaders intend to tighten both the fiscal and monetary policies to combat inflation, although the question remains by how much.

The following are several threads which could be useful to make sense of the mainland's economic policies for next year and beyond.

First, the central government is prepared to tolerate higher inflation as part of its efforts to rebalance the economy. Hardly a day goes by without reports of price rises in mainly agricultural products from vegetables to sugar to cotton, as well as central government departments and local authorities announcing measures to boost supply and curb hoarding.

There is already speculation in the official media that the central government is expected to raise next year's inflation target from 3 per cent this year. But concerns over inflation seem overplayed.

Given the nature of the robust mainland economy, the 3 per cent inflation target is too low. More importantly, farmers have benefited handsomely from recent price surges in agricultural products, which is in line with the central government's policy to narrow the income disparity between urban and rural areas.