Bloomberg News

China’s Wen Fuels Easing Speculation With Fine-Tuning Plan

November 02, 2011

(Updates stocks in fifth paragraph.)

Oct. 26 (Bloomberg) -- Chinese Premier Wen Jiabao said that economic policy will be fine-tuned as needed and the industry ministry said it is studying “stimulative policies” for smaller companies as a global slowdown threatens growth.

Officials will make adjustments at a “suitable time and by an appropriate degree,” Wen said in a statement published late yesterday. The Ministry of Industry and Information Technology and other government agencies will work to help small businesses facing difficulties, it said separately in a statement today.

A drop in Hong Kong’s exports reported yesterday highlights the risk that China’s growth will be dragged down by slumping global demand as Europe struggles to solve its debt crisis. Wen’s comments fueled speculation that the government may loosen constraints on lending, with Guotai Junan Securities Co. saying that reserve requirements for smaller lenders may be cut before year-end.

The premier’s statement “supports our view that China’s government is likely to relax credit controls” toward the end of the year, said Wang Qinwei, China economist at Capital Economics Ltd. in London.

The Shanghai Composite Index rose for a third day, climbing 0.9 percent as of 10:31 a.m. local time.

Gross domestic product expanded 9.1 percent in the third quarter from a year earlier, the least in two years. China hasn’t raised interest rates since July, the longest pause since increases began in October last year.

Trade Woes

Hong Kong, a hub for China’s trade, yesterday reported the first decline in exports since 2009 and the city’s government said the outlook for trade is “bleak.”

China will continue to make inflation a top priority, Wen said, after consumer prices rose more than 6 percent for a fourth month in September. The nation needs more policies to support small companies and boost the economy to overcome the global economic crisis, the premier said.

Growth in industrial production and retail sales quickened last month, indicating the world’s fastest-growing major economy is so far weathering the slowdown in developed nations. The preliminary reading of a Chinese manufacturing index released Oct. 24 was the highest in five months.

Inflation is also moderating.

“Recent data make it clearer that inflation is finally moving in the right direction, opening space for policy to be eased,” said Wang, of Capital Economics. The government might cut reserve requirements in early 2012, he said.

--Chua Baizhen, Sophie Leung. With assistance from Zheng Lifei in Beijing. Editors: Paul Panckhurst, Nerys Avery

To contact Bloomberg News staff for this story: Chua Baizhen in Beijing at bchua14@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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