China to Take `Forceful
China's Premier Wen Jiabao pledged to take “forceful'' steps to damp inflation at an 11-year high, a sign that overheating remains the government's main concern even as financial-market turmoil threatens global growth.
The government's 4.8 percent inflation target for 2008 will be “difficult'' to achieve, Wen said today at his annual press conference given at the end of the National People's Congress meeting in Beijing. China will tackle soaring prices with “appropriate and forceful'' measures, he said.
Stocks tumbled on concern China's battle against inflation will slow its economy just as a recession looms in the U.S., the other main engine of global growth. Central bank Governor Zhou Xiaochuan said today there was scope to further raise interest rates and increase reserve ratios for commercial lenders.
“Fighting inflation remains the top priority for the Chinese government and there's room for more tightening,'' said James Liu, who helps oversee about $1 billion at APS Asset Management in Shanghai. “A slowing Chinese economy won't be good for Asian neighbors as it will affect demand,'' he said, citing commodities.
China's benchmark CSI 300 Index was 6 percent lower at 2:08 p.m. in Shanghai, reversing an earlier gain.
`Balance Point'
“We need to find the balance point between economic growth and inflation,'' Wen said. Rapid price increases since late 2007 have caused “great difficulties'' for low-income households and are now the “top concern'' among Chinese people, he said.
Consumer prices in China jumped 8.7 percent in February from a year earlier on food costs and supply disruptions caused by the worst snowstorms in half a century. The economy expanded 11.4 percent in 2007, the fastest pace in 13 years.
“China's economy is facing trouble now, because of domestic inflation and the U.S cash advance http://payday-nofax.com. subprime issue,'' said Wu Kan, who manages the equivalent of $41 million at Dazhong Insurance Co. in Shanghai. “It will be difficult for us to see a growth rate of 10 percent or 11 percent this year.''
The government was maintaining its 4.8 percent inflation target for 2008 “because it helps stabilize consumer expectations,'' Wen said. “When prices soar, expectations can be more horrifying than the increases.''
Chinese policy makers will need to use a package of measures to tackle inflation, Zhou told reporters in Beijing today. He said there was room to tighten all monetary policy tools including interest rates and reserve ratios.
Interest Rates
“The timing, scope and choice among different options requires skill,'' said Zhou, whose tenure at the central bank was re-confirmed by the National People's Congress yesterday. “It depends on our adjustments and wisdom.''
The People's Bank of China increased interest rates six times in 2007 and lifted the amount of money commercial lenders must set aside on 11 occasions to a record 15 percent.
China will have to raise lending and deposit rates at least once this year, according to a March 12 survey of 12 economists by Bloomberg News. The country's one-year key lending rate is at a nine-year high of 7.47 percent, while the deposit rate is at 4.14 percent, half of the February inflation rate.
The central bank is hoping for “positive real interest rates,'' Zhou said today.
The government was “confident'' it would be able to combat inflation with the appropriate policies, Wen said. “We still have 150 million tons to 200 million tons of grain reserves, and most industrial goods are still in oversupply.''
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