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March 5, 2010

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Major economic issues to be set out

CHINESE lawmakers are likely to discuss several important economic topics including encouraging consumption, income redistribution and restructuring the economy to achieve a better growth model for the country, economists said.

The Third Plenary Session of the 11th National People's Congress will start today and wrap up on March 14. The main tasks of the annual gathering of the lawmakers are to approve the government budget and key policy initiatives for the year and beyond.

"This NPC meeting is critical as it is held in the midst of an economic recovery," said Shen Minggao, a Citigroup economist. "It will be positive to the market if the meeting is able to provide remedies to tackle upside and downside risks."

Xie Dongming, an OCBC Bank economist, also said the NPC meeting will become the focus of global investors as it sets out China's major economic priorities and work this year.

"The meeting will send an important signal on whether the policy focus is shifting away from fiscal stimulus, and also look at the quality of (economic) growth," said Ben Simpfendorfer, a Royal Bank of Scotland economist. "Such a shift is crucial to sustainable growth and to reducing risks of asset bubbles and excess capacity."

Despite the worst global economic downturn since World War II last year, China's gross domestic product grew 8.7 percent in 2009. Economists forecast China's economy to grow between 9 percent and 10 percent this year.

China's massive stimulus package as well as a record 9.6 trillion yuan (US$1.4 trillion) lending extended by banks last year has boosted the economy strongly but they also triggered concerns over asset price bubbles and inflation.

Economists said the NPC meeting is expected to emphasize the current relatively loose monetary policy will remain but more fine-tuning will be done.

"The authorities want to manage policy changes carefully so that these changes will not hurt growth," said Lu Zhengwei, an Industrial Bank senior economist. "Interest rate hikes and the appreciation of the yuan may not be imminent, with the interest rate increase more likely in the June-to-September period," Lu said.

A rise in reserve requirement ratio may follow the NPC meeting, he said.

Simpfendorfer said he expects another reserve hike this month, followed by an increase every two months. China has already raised the reserve ratio twice this year.


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