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Premier: Economy on Healthy Track

Premier Wen Jiabao said Wednesday that China's overall economic situation is fine at present, as the government's macro economic control efforts have taken effect.

China's economy has maintained a rapid growth, with economic efficiency improving in a stable manner, China Central Television quoted Wen as saying.

"The overly-rapid growth of investment has been curbed. The increase of money supply and credit has slowed down, and the destabilizing, unhealthy factors in economic operations have been checked to some extent," he said.

The country's foreign trade has witnessed a constant rise and the government's financial revenue has reported a sharp increase.

"All these have shown that the macro economic control policies and measures adopted by the central authorities are timely, correct and effective," Wen said.

However, problems still exist in the operation of the economy, he said.

The supply of coal, electricity and oil, and the country's transportation capabilities are still under strain judging from demand, he said. The scale of investment is still larger than normal, so macro-control work cannot be relaxed, he said.

According to the National Bureau of Statistics, China is capable of avoiding severe economic inflation.

The series of measures taken by the government to cool the economy has had a positive impact on the country's market prices, the bureau said Wednesday.

"The growth momentum of the market prices ebbed in May," it said.

Producer prices rose only 0.2 percent in May compared to April, the bureau said. The growth rate was 0.6 percentage points higher than the previous month.

The consumer price index (CPI), policy makers' key inflation gauge, dropped 0.1 percent in May compared with April.

These figures suggest the central government's macro-control measures are working, the bureau said.

However, some major problems have yet to be solved, it said.

Products such as coal, electricity and oil are still in short supply, while investment levels remain high.

"The prevention of market price hikes remains a priority task for the country," the bureau said.

Yuan Gangming, a senior economist with the Chinese Academy of Social Sciences, said the government urgently needs to raise interest rates, as the country's CPI rose further to 4.4 percent in May.

"The government should adjust the interest rate," he said.

Presently, the benchmark one-year bank deposit rate is set at 1.98 percent.

People are losing out when they save their money in banks because of low interest rates, he said.

Low interest rates also impact on people's consumption behavior, he said.

Governor Zhou Xiaochuan of the People's Bank of China said the central bank will follow the CPI movement closely.

If the inflation rate keeps rising to more than 5 percent, leading to a negative lending rate, the central bank would consider raising lending interest rates from the current 5.3 percent, he said.

"If the CPI growth caused a negative lending rate, which enables corporations to make money even after they pay back the principle and interest, the central bank will consider raising interest rates," he said.

A negative lending rate would enable corporations to store raw materials, and would thus drive the inflation rate up further, he said.

Wang Zhao, a senior researcher with the State Council Development Research Center, said it was necessary for the government to raise the renminbi interest rate now.

"The government should take more market measures, not administrative measures, to prevent an overheating economy," he said.

Market measures are beneficial for promoting competition, he said.

But Qi Jingmei, an economist with the State Information Centre, said there is no big significance in raising the renminbi interest rate, since the macro-control measures had taken effect.

"If the government raises the interest rate, it will turn prices in another direction," she said. "The economy might become cool."

(China Daily June 17, 2004)

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