Premier Wen Jiabao said Sunday Chinese people should be proud of their country's economic performance and the basket of economic stimulus measures had proven effective, but he readily admitted the economy had problems.

In an exclusive interview with Xinhua, Wen said China would stick to the pro-growth economic policies, while taking more measures to curb property speculation and maintain consumer prices at a reasonable range.

He acknowledged the Chinese economy could have been better "if our bank lending had been more balanced, better structured and not on such a large scale."

Wen also dismissed foreign pressure to allow the Chinese currency yuan to appreciate, saying demand for yuan appreciation, along with trade protectionism, was aimed at checking China's development.

CHINESE SHOULD BE PROUD

"The past year has been a breathtaking period," Wen said, recalling his inspection tours to places outside Beijing over last winter.

In Shenzhen and Dongguan, two major cities in south China's export heartland of Guangdong, many enterprises faced big difficulties after the financial crisis, he said.

Sluggish overseas demand had led to a wave of factory closures and layoffs in coastal manufacturing regions, including Guangdong, Zhejiang and Jiangsu, which caused a sudden slowing of growth of China's export-oriented economy. More than 20 million migrant workers had returned home late last year.

In the last quarter of 2008, GDP growth slid to 6.8 percent year-on-year, sharply down from 9 percent in the previous quarter.

"Our mood was very heavy. We didn't know how much this disaster (the financial crisis) could hurt the Chinese economy or how long it would last," said Wen.

Under such circumstances, the government adopted decisive policies and measures, he said, referring to the basket of economic stimulus measures, featuring the 4-trillion-yuan (585.6 billion U.S. dollars) investment plan, which was adopted on Nov. 5 last year.

"We have stabilized the economy and employment and maintained social stability over the past one year, which is a comfort to me," he said.

GDP grew 8.9 percent year on year in the third quarter this year, accelerating from 7.9 percent in the second quarter and 6.1 percent in the first. For the first three quarters, GDP grew at an annualized rate of 7.7 percent.

Other recent key economic indicators, such as industrial output and electricity consumption, showed China's economic recovery was accelerating and broadening.

According to the National Bureau of Statistics, industrial output, which measures the activities of almost 430,000 large industrial enterprises (those with an annual revenue exceeding 5 million yuan, or 732,000 U.S. dollars) nationwide, jumped 19.2 percent year on year In November. In the first 11 months, the growth rate was 10.3 percent.

"The financial crisis is not yet over..., but our work so far indicates that our (measures) are effective. People across the country should be proud of it," Wen said.

TOO EARLY TO GRADE PERFORMANCE

While China's economy began to recover, Wen said it was too early to grade economic performance as the financial crisis was not over yet and much more work was required.

Citing credit growth as an example, Wen admitted China might need to "pay some price and run into some unexpected difficulties" in tackling the global financial crisis.

"It could have been better if our bank lending had been more balanced, better structured and not on such a large scale," he said.

The moderately loose monetary policy, which the government adopted in November last year, spurred the surge in new lending.

In the first 11 months of this year, new loans hit 9.21 trillion yuan, an increase of 5.06 trillion yuan year on year, far exceeding the full year target of 5 trillion yuan the government set in March.

Wen said the State Council had noticed the problem in the middle of the year and moved to correct it. "It has been improving in the second half."

Credit expansion was one of the "unexpected difficulties" China had encountered in dealing with the worst crisis in decades, Wen said.

The State Council had to learn from past experience, detect problems and make persistent efforts to fight the crisis effectively, he said.

He admitted the State Council had time in the second half of the year to calmly reflect on the problems arising from the emergency response to the economic crisis.

CONCERNS OVER RISING HOUSE PRICES

Wen said he had noticed the criticism of Chinese Internet users of soaring property prices, and pledged to crack down on illegal activities that inflated prices. He also promised another chat with netizens ahead of the annual Parliament session in March next year.

"As the property market is recovering rapidly this year, housing prices in some cities are rising too fast, which deserves 'great attention' of the central government," he said.

"We will crack down on illegal moves, including hoarding of land and delaying sales for bigger profits," he said.

Wen's comments echoed repeated government calls to curb speculation as housing prices in major Chinese cities rose 5.7 percent year-on-year in November, fueled by growing demand, speculative deals and easy credit.

Wen said the government's tools in stabilizing prices were taxes, interest rates and land policies.

He said the government would expand construction of affordable housing projects for low-income families and speed up the renovation of "shanty towns", providing preferential funding, land and tax policies.

Wen said the government would increase supply of smaller medium and low price homes, continue to support home buyers, and curb speculation to allow the healthy development of the real estate sector.

Statistics from Goldman Sachs showed that over the past six years, the housing price hikes had outpaced income rises by 30 percentage points in Shanghai and 80 percentage points in Beijing.

In Beijing, the housing price per square meter is seven times the average monthly salary.

The soaring home prices had prompted fears that a property bubble was forming. The central government was taking measures to deflate the bubble.

OVERCAPACITY

Amid increasing concerns of industrial overcapacity, Wen said the 1.18-trillion-yuan investment planned by the central government for 2009-2010 had not been and would not be spent on any industrial projects.

"The central government has spent 590 billion yuan this year mainly on affordable housing projects, infrastructure construction in rural areas, improving people's livelihoods, environmental protection, technological reform and building necessary infrastructure, such as the Beijing-Shanghai high-speed railway and major highway networks," he said.

"Industrial overcapacity has been a global issue, which fundamentally results from less demand and a shrinking market," Wen said.

In China, industrial overcapacity was also a result of the long-existing problem of an imbalanced economic structure, he said.

In October, 10 government departments jointly warned that China's economic recovery could be hampered by chaotic expansion, especially in the steel, cement, plate glass, coal chemical, polycrystaline silicon and wind power equipment sectors.

"To resolve the problem of overcapacity, the most important thing is to take economic, environmental, legal and, if necessary, administrative measures to eliminate outdated capacity and, in particular, restrict the development of high-energy-consuming and polluting industries with excess capacity," Wen said.

STICKING TO PRO-GROWTH POLICIES

Wen said China would maintain its pro-active fiscal policy and moderately loose monetary policy to buoy the economy in 2010 as many uncertainties persisted at home and abroad.

Averting the trend of falling global demand remained difficult, and "economies of some countries are starting to pick up, but fluctuations are still possible," Wen said.

"China's economy has been on track for recovery. However, the economic performance and operations of enterprises still mainly rely on support from government policies."

In November last year, the government shifted the fiscal policy from "prudent" to "pro-active" and the monetary policy from "tight" to "moderately loose" to expand domestic investment and demand to stimulate the economy.

"To withdraw macro-economic policies too early will likely ruin the efforts made before and reverse the economic development," Wen said.

However, his government would adjust macro-economic policies in line with the changing economic situation and study issues arising during implementation of such policies.

China would gear more investment to social welfare, technical innovation and energy conservation and emission cuts next year, he said.

PRESSURE FOR RENMINBI APPRECIATION DISMISSED

Wen said China would not yield to pressure for the appreciation of its currency, the yuan or renminbi, in any form.

"A stable Chinese currency benefits the international community."

Some countries demanded yuan appreciation while practicing trade protectionism against China, said Wen, adding that these were aimed at checking China's development.

"They (some countries) create trade barriers in various ways, putting great pressure on Chinese export-led enterprises," Wen said.

"China will work with other countries to curb trade protectionism and push forward the Doha Round of trade negotiations," Wen said.

Figures from the Ministry of Commerce showed that at the end of November, 19 countries and regions had launched 103 trade-related investigations against Chinese products. Both the number of the cases and the money involved was at record high.

In the first 11 months, China's foreign trade totaled 1.96 trillion U.S. dollars, down 17.5 percent from the same period last year.

Exports stood at 1.07 trillion U.S. dollars, down 18.8 percent year on year, and imports at 893.02 billion U.S. dollars, down 15.8 percent, according to the General Administration of Customs.

China should adjust its export structure and improve the quality of products to maintain export share in the international market, Wen said.