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China to stay course, with flexibility
Published on: 2010-01-29
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DAVOS, Switzerland—Chinese Vice Premier Li Keqiang said China will maintain its existing economic policies this year but will increase policy flexibility to manage inflation expectations.

Speaking Thursday at the World Economic Forum here, Mr. Li said that while China's economy faces a complex environment this year, its long-term upward trajectory remains in tact despite the recent global crisis.

The speech marked the highest-profile international appearance for Mr. Li, who is widely considered the heir apparent of Premier Wen Jiabao. While he addressed issues ranging from domestic economic reforms to global governance, Mr. Li avoided sensitive topics such as the yuan's value and growing trade frictions between China and the U.S.

Mr. Li said that to achieve more sustainable economic growth, his government needs to strike a balance among promoting fast growth, readjusting economic structure and properly managing inflation risks.

Mr. Li noted that China's consumer prices have started rising again but said Beijing will continue its proactive fiscal policy and moderately easy monetary policy, the government's standard language for its efforts to pump the economy with generous lending. Mr. Li said Beijing needs to make such policies "better targeted and more flexible in response to new circumstances."

Li's comments are mostly a reiteration of Beijing's current assessment of its economy, but the reference to inflation and policy flexibility highlights the authorities' subtle shift toward a slightly tighter monetary policy.

China's resurgent growth is in part a product of the government's massive stimulus package, mainly supported by record levels of lending by state banks last year that stoked domestic construction and consumption. China's gross domestic product expanded 10.7% in the fourth quarter from a year earlier, bringing full-year growth to 8.7%. That came in above the government's targeted 8% growth and well above many economists' estimates.

Underscoring the inflation risks posed by last year's credit surge, consumer prices in December rose 1.9% from a year earlier, accelerating sharply from the 0.6% rise in November, which followed nine months of declines.

Showing growing concerns over rising inflation pressure, China has in recent weeks moved to withdraw liquidity from the financial system. In recent days, state-owned banks have been instructed to temporarily suspend lending. The moves have sent jitters around international markets since China has become the engine of growth for a still-struggling global economy.

Commenting on China's future growth model, Mr. Li suggested the country needs to look inward. "China's domestic market has huge potential," Mr. Li said. "We will strive to expand domestic demand, especially consumer demand."

Addressing a largely Western audience, Mr. Li also said China will remain committed to further opening up its economy and market, describing different nations as "passengers on the same boat."

Describing different nations as "passengers on the same boat", Mr. Li also urged the promotion of a more open global market.

"In the past year or so, countries have voiced opposition to trade protectionism. However, protectionist practices in various manifestations have kept emerging," he said. "This is what the international community should firmly fight against."

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