Guessing the price of prudence
The Politburo's announcement that the mainland would move to a 'prudent' monetary policy - which could see more interest rate rises and lending curbs to stem inflation - contained no figures. That leaves the financial markets to guess how prudent officials will turn out to be.
Xu Biao , an analyst with Chian Merchants Bank, was quoted as saying the policy, announced on Friday, meant banks would be ordered to lend no more than 6.5 trillion yuan (HK$7.5 trillion) next year, compared with this year's target of 7.5 trillion yuan. But Lin Songli, an economist with Guosen Securities, said keeping the loan quota under 7 trillion yuan would be very difficult. He said monetary policy could be loosened in the second half of next year if there were signs economic growth was slowing.
China Business News reported that the Communist Party may convene its central economic work conference this coming weekend. The conference will set the tone for economic policy next year. However, some observers said until Premier Wen Jiabao delivers his government work report to the next annual session of the National People's Congress - usually held in the first week of March - no one could know exactly which way the central government would lean on policy.
Flooding the economy with money is no longer an option given that the central government is trying to tackle fast-rising food prices that are hitting people on low incomes.
'Both global and domestic conditions have shown remarkable changes,' said Xia Bin , a central bank adviser, at a recent conference.
'While the economy has now been stabilised, prices have kept rising, showing [there is] more than enough liquidity. We have thus reached the point where we must make a return to a prudent monetary policy.'
Although Beijing cannot let inflation run out of control, He Jun , chief economist of consultancy firm Anbound, said government projects could not be cancelled simply because there was inflationary pressure. 'Don't forget 2011 will be the first year of the 12th five-year plan. There are a large number of projects ... waiting to be started or to get their follow-up funding,' he said.
Economists noted that, while the Politburo announced a tightening of monetary policy, it made no change to the mainland's 'proactive fiscal policy'. That implies the government will continue to play the role of leading investor in the economy.
Some economists suggested that matching monetary tightening with such a fiscal policy would require a complex balancing act not only between growth and inflation, but also on the trade front, between China and the world economy.
Liu Yuanchun , deputy dean of Renmin University's school of economics, recently warned that the prospects for next year were mixed, even though the mainland had emerged from the shadow of the global crisis.
For that reason, Liu said 'room for flexibility' was needed in macro- economic policy.
Tighter controls
Interest rate rises and lending curbs are likely to be imposed
The amount - a drop of 1 trillion yuan - that one economist forecast banks will be limited to lending next year: 6.5tr yuan
