Yuan's ascent to weaken and price controls likely to be relaxed Beijing is expected to continue to battle inflation by keeping monetary conditions tight this year but, in a sign it is growing increasingly concerned about an economic slowdown, it is likely to slow the rate of the yuan's appreciation and loosen some price controls. Top government officials are due to meet later this week to discuss changes to the policy, which has been in place since the beginning of the year to damp runaway inflation. A source close to the National Development and Reform Commission (NDRC) said the central government would probably allow the yuan to appreciate more slowly and relax controls on fuel price increases. The strengthening yuan has been a burden for exporters because it cuts their competitiveness on world markets. Fuel price controls have affected earnings of refiners and caused widespread energy shortages. Beijing is walking a policy tightrope, struggling to control soaring prices while maintaining economic growth at a pace that will continue to create jobs in the world's most populous nation. NDRC head Zhang Ping said yesterday economic growth slowed in the first half but the pace was still within a range acceptable to the government. The economy expanded 10.4 per cent year on year in the first half, Reuters quoted two official sources as saying. The pace was slower than the 10.6 per cent growth recorded in the first quarter and 11.9 per cent for the whole of last year. Official figures will be released tomorrow. Beijing has made combating inflation a priority since inflation hit an 11-year high of 4.8 per cent last year. The central bank has tightened lending to the property sector, raised interest rates and asked commercial banks to set aside a record amount of cash as reserves. The NDRC source said the mainland would slow the pace of the yuan's appreciation to provide breathing space for exporters. Economists expect the yuan to appreciate about 4 per cent against the US dollar in the second half of the year, compared with a gain of more than 6 per cent in the first six months. NDRC officials will meet senior officials in other government departments later this week to discuss the new policy settings. 'The government is right to keep the tight monetary policy in place as inflationary pressure is persisting,' said China International Capital Corp chief economist Ha Jiming. However, Mr Ha said fuel prices should be raised by between 30 and 40 per cent over the next 12 months to bring them in line with international levels. China, like other developing nations in Asia, caps fuel prices to protect the poor. In its first price increase in eight months, Beijing last month raised retail prices of fuel by up to 18 per cent. Even after the increases, domestic prices for petrol, diesel and jet fuel are respectively 31 per cent, 38 per cent and 30 per cent below international import parity prices. To offset the rising cost of crude oil for state refiners, Beijing grants them billions of yuan in subsidies. Mr Ha said the central bank was expected to maintain tight credit controls by increasing the amount of money banks were required hold in reserve. Lehman Brothers economist Sun Mingchun forecast an additional rise of 250 basis points in the reserve ratio by the end of this year. Tao Dong, the chief economist at Credit Suisse, said there would probably be policy relaxation in selected areas, but he declined to be more specific. 'Credit is likely to be loosened in some areas,' Mr Tao said. 'The central government's stance towards the property sector has changed subtly. 'It doesn't want to see a property market bust and is concerned about social stability.'