China sets 2012 fiscal, monetary strategy

As the global economy continues to grapple with the aftershocks of the European and U.S. crises, all eyes are on the outlook for the world's second-largest economy. China is expected to maintain prudent monetary and proactive fiscal policy next year. Policies are expected to be fine-tuned as needed, in accordance with the changing needs of the economy. China’s central government announced it would maintain its proactive fiscal policy and prudent monetary policy in 2012. It notes though, those policies will be fine-tuned when needed. And that may very well be the case in the new year. The world’s second-biggest economy faces headwinds from the lingering European debt crisis, and a cooling property market at home. All this may prompt the government to ease monetary policy further, to sustain growth. Li Yang, deputy director of Chinese Academy of Social Sciences said: "It’s the same wording in terms of the "prudent" monetary policy, but we will see adjustments in terms of perspective, emphasis, flexibility and even direction for the next year. In fact, we’ve already seen minor adjustment over the past two months." China switched to its "prudent" monetary policy at the end of 2010, from a "moderately loose" stance during 2010. It was a prelude the country’s campaign this year to bring down inflation and curb housing prices. The People’s Bank of China last month cut the reserve requirement ratio for banks, for the first time since 2008. That’s freed up cash to support economic expansion as Europe’s debt crisis dampens overseas demand and the domestic property market slows. Housing prices in most Chinese cities have fallen, as government policies aimed at cooling the property market start to take effect. Figures show that new home prices in 49 out of 70 Chinese cities dropped in November. The central bank had hiked reserve ratios to a record high, to prevent excess lending from creating asset bubbles and stoking inflation. China’s inflation cooled to the slowest pace in 14 months in November. Ba Shusong with State Council’s Development Research Center said: “The "prudent" monetary policy in 2011 was targeted at inflation. But the "prudent" policy in 2012 might promote structural adjustments in order to maintain stable economic growth. So, the emphasis has changed." China’s economy expanded 9.1 percent in the third quarter, slowing from 9.5 percent in the previous three months. Inflation eased to a 14-month low of 4.2 percent last month, from a three-year high of 6.5 percent in July. Export growth also slowed to the weakest pace since 2009 in November. Meanwhile, the proactive fiscal policy stance has been in effect for several years, and is seen by analysts as indicating a mildly stimulative fiscal policy with moderate budget deficits. Looking ahead, China is hoping to balance efforts to ensure stable and relatively fast economic growth, while adjusting the economic structure and regulating inflationary expectations next year.