Premier Wen vows to tighten property market
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The State Council, or China's Cabinet, on Wednesday pledged to continue the country's prudent monetary policy to rein in soaring prices while maintaining macro control over the runaway property market.
To keep the economy on track this year, the country needs to properly coordinate the relationship between its monetary supply and structural overhaul, and check inflation, Premier Wen Jiabao said while presiding over an executive meeting of the State Council.
At the meeting, Premier Wen stressed the importance of keeping prices stable and pledged to further efforts to rein in runaway home prices. He said that the economic environment at home and abroad remains extremely complicated, with many unstable and uncertain factors, such as high unemployment rates in major economies, soaring fiscal deficits and the lingering sovereign debt crisis.
"The exchange rates of major international currencies fluctuated wildly and prices of food, oil and other commodities kept increasing on global markets, spreading inflationary pressure from emerging markets to developed economies," Wen said.
Wen said that the world economy has thus far failed to return to a pattern of normal growth, with new changes emerging, including unrest in North Africa and the Middle East as well as the massive earthquake, tsunami and nuclear crisis in Japan.
Domestically, Wen said, the Chinese economy still faces major problems, with huge pressure on the implementation of the ongoing macro control policies. Prices continue to surge rapidly, the public's inflationary expectations have strengthened, and housing prices keep rising in most cities despite a shrinking sales volume.
"We must keep our minds clear and make good preparations for possible difficulties and risks," Wen said.
PRUDENT MONETARY POLICY PLEDGED
In the meeting, Premier Wen stressed the importance of continuing the country's prudent monetary policy, saying it is "a direction that must be adhered to" for the current macro control efforts.
The People's Bank of China (PBOC), or the central bank, raised benchmark interest rates twice and hiked banks' reserve requirement ratios three times this year to tighten lending amid price increases nationwide.
The growth of the broad money supply (M2) is now approaching the target set by the government's macro control policies, but more efforts should be made to maintain the trend as the broad force that triggered macro control remains unchanged, he said.
China's broad money supply, which covers cash in circulation and all deposits, rose 15.7 percent over the previous year to 73.61 trillion yuan by the end of February. The February growth rate was 9.8 percentage points lower than the same period last year. The PBOC is expected to release the March lending figure on Friday.
Wen said that China's banking system's liquidity is still "quite ample" compared to "normal levels and reasonable demands", as suggested by the "low level" of interbank interest rates in the country.
The huge foreign exchange surpluses held by Chinese banks also expand China's monetary base, he noted. According to China's capital control requirements, the PBOC could sell Chinese currency for foreign exchange assets from commercial banks as part of its foreign reserve to keep the yuan's exchange rate basically stable, thus releasing liquidity into the country's banking system.
"Under such circumstances, we need to sustain and stabilize our macro economic policies and make them more targeted, more flexible and more effective," he said.
Wen emphasized that China would remove the monetary base of inflation through open market operations, the use of tools such as adjustment of the reserve requirement ratio and interest rate, improvement of the Renminbi exchange rate formation mechanism, and boosting the flexibility of the yuan's exchange rate.
"We need to skillfully handle the relationship between promoting economic growth and curbing inflation," he said.
INFLATION CONTROL TOP PRIORITY
The Chinese Premier said keeping the price levels basically stable was the primary and most urgent task for the government's macro control this year.
The Consumer Price Index (CPI), a main gauge of inflation, rose 4.9 percent in January and February. Many economists expected the CPI figure to shoot up above 5 percent in March, even as high as 5.6 percent, exceeding the government's full-year inflation control target of 4 percent.
The National Bureau of Statistics will release the March CPI figure and other economic data on Friday.
"Judging from the inflation situation in the first quarter, we are still under great pressure of price hikes," Wen said, adding, "We should never lower our guard."
Wen expected inflation pressure to continue in the coming months due to soaring commodity prices on global markets, higher food and housing prices, and more labor costs.
Wen also stressed that price levels are still under control, citing factors such as a good grain harvests for seven consecutive years and the oversupply of industrial products.
To keep inflation from worsening, the State Council would control the money supply, boost production and supply and enhance supervision over activities that force an increase in prices in domestic markets, he said.
TIGHTENING OF HOUSING MARKET TO CONTINUE
As for the hot property market, the Chinese premier said some signs showed the real estate market in China is cooling thanks to the government's tightening measures.
The State Council has adopted a series of measures since January 2011 to stop home prices from rising excessively. The measures included raising down payment requirements and banning third-home purchases.
Housing developers and would-be homebuyers are still in a seesaw game right now, since prices of ordinary commercial houses remain too high, compared to the public's expectations, Wen said.
He ordered local governments to increase the market supply of affordable homes and ordinary commercial houses for middle- and low-income people while clamping down on speculative demands.
To offer more houses that are affordable for the public, the central government has allocated 103 billion yuan for the construction of 10 million affordable housing units this year.
"Our goal of tightening the housing market is to basically balance market demand and supply, make housing structures and prices reasonable and, as always, restrict purchases for speculative or investment purposes," he said.
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