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China economy facing most difficult year: Wen
2008-03-18
China's economy faces its most difficult year yet due to a US-led global economic downturn and the ravages of inflation at home, Chinese Premier Wen Jiabao said Tuesday. In a closing press conference at the annual parliamentary meeting, Wen said his government faces the conflicting tasks of trying to create jobs through fast-paced economic growth while also battling inflation and excessive investment and credit. "I am afraid that this year could be the most difficult year for the Chinese economy," Wen told journalists. "It is difficult because of the uncertainties both inside and outside the country." China's economy boomed at an 11.4 percent clip last year, with inflation rising 4.8 percent for the year. Prices continued to climb to a near 12-year monthly high of 8.7 percent in February. Wen's government has targeted eight percent economic growth for 2008, while vowing to maintain inflation at 4.8 percent for this year. "China is a developing nation of 1.3 billion people, so we must maintain a certain speed of economic development to resolve the employment pressures," Wen said. "To obtain these goals we need to address the problems of unstable, uncoordinated and unsustainable economic development." Inflation has emerged as a key political concern in a country where sharp price rises have traditionally stoked unrest. Wen said China was concerned about the falling US dollar and the state of the US economy, but reiterated that domestic conditions would determine the nation's monetary and fiscal policies. "I am paying great attention to the world economy, I am especially deeply worried about the US economy," Wen said. "What I'm worried about is that the US dollar continues to depreciate. When will we see it hit the bottom? What kind of monetary policy will the US take and what direction will its economy take?" The US subprime loan crisis was not only driving down the dollar, but also interest rates and stock markets around the world, Wen said, all the while pushing up the price of oil to over 100 dollars per barrel. With China increasingly interlinked with the global economy, a world economic downturn would impact domestic growth, he said. "I am deeply aware that this is a big challenge to China, but I can tell everyone that China's economy is fundamentally sound," he said. "The tight monetary and prudent fiscal policy that China is carrying out stems from China's actual situation, mainly characterised by excessive growth in investment, overly fast growth in the money supply and credit and a trade surplus rising too fast." China has been under pressure from trading partners like the United States to let its currency appreciate, saying its current value makes Chinese exports more competitive abroad, hurting the exports of other countries. Wen said that over the past two or more years, the Chinese yuan had appreciated 15 percent against the dollar and in recent months the pace had been faster. Further adjustments to China's interest rate and foreign exchange rate would only come after the potential benefits and harms of such moves were fully understood, Wen said. Following his remarks, China's central bank announced it would raise its reserve ratio a half percentage point to 15.5 percent on March 25. The rise in the reserve ratio, the amount of money that commercial banks must hold in reserve, was aimed at mopping up excess liquidity in the economy, the bank said. "Wen is saying that inflation is still the number one priority, but we also sense a deeper concern over the global economic situation compared to earlier," said Li Wei, a Shanghai-based economist for Standard Chartered. "He is saying they will watch and wait on interest rate hikes or the further appreciation of the yuan. This seems to be the mood of the government, they don't want to rush into things."
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