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January 12, 2010

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Home » Business » Economy

Report: need for stricter policies

THE Chinese government needs to tighten monetary policies to prevent the economy from overheating and inflation from rising too fast, according to an official report.

China's gross domestic product may expand as much as 16 percent this year if the government continues with strong stimulus measures as it did last year, the Chinese Academy of Social Sciences wrote in a report in the China Securities Journal yesterday. But inflation will rise and a property bubble may occur, the report said.

Backed by an easy monetary policy, China's housing prices have already risen rapidly, which increases risks of a slump over the middle and long term, it said.

Urban housing prices rose in November by the most in 16 months. The prices in 70 major cities across the nation climbed 5.7 percent in November from a year ago.

"The bigger the property bubble, the heavier impact a burst will generate on the economy, so we suggest the government carry out a tighter monetary policies this year rather than 'appropriately loose,'" said Yao Zhizhong and He Fan, economists at the academy.

The report noted that if China carries out fiscal and monetary stimulus moderately, the GDP is expected to rise 11.6 percent this year and inflation may climb 2.9 percent. It also warned that inflation will accelerate to 4.8 percent in the fourth quarter of this year. However, a complete halt of the stimulus will cause the GDP to grow only 7.7 percent this year, the report said.


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