Bloomberg News

China May Need to Fine-Tune Policy This Quarter, Wen Says

February 13, 2012

(Updates with economist’s comment in the fourth paragraph.)

Feb. 13 (Bloomberg) -- Chinese Premier Wen Jiabao said the nation needs to start “fine-tuning” economic policies this quarter, the first indication of a timeframe for an adjustment he has pledged since October.

Economic circumstances in January and the first quarter deserve attention, Wen told business executives last week in Beijing as he sought opinions on a government report, the official Xinhua News Agency reported yesterday. “We have to make a proper judgment as early as possible when things happen and take quick action,” Wen was cited as saying by Xinhua.

Wen’s remarks may fuel speculation that the government will soon ease policy further to preserve growth in the world’s second-biggest economy after weaker exports and slower lending last month. The nation’s expansion may be cut almost in half if Europe’s debt crisis worsens, a scenario that would warrant “significant” fiscal stimulus from the government, the International Monetary Fund said in a Feb. 6 report.

“It seems like Wen is getting ready to offer some stimulus to the economy after weaker data for January,” said Dariusz Kowalczyk, a senior economist at Credit Agricole CIB in Hong Kong. “It may suggest a high likelihood of a policy move in February or March. We expect a reserve ratio cut to be one of the measures announced soon.”

Kowalczyk said officials may also enact additional pro- growth measures such as boosting lending and government spending and lowering taxes.

Refraining from Cut

The central bank has refrained from lowering the reserve ratio since a cut in December, by 50 basis points to 21 percent, that was the first reduction in three years.

Tim Condon, chief Asia economist at ING Financial Markets in Singapore, said he’s surprised there haven’t been any more reserve ratio cuts this year, and he still forecasts reductions of 200 basis points for 2012. “Monetary policy has turned more accommodative at the end of 2011 and that appears to be persisting in 2012,” he said.

The Ministry of Commerce is studying measures for stabilizing foreign trade growth through easing funding pressures on companies, boosting fiscal-policy support and keeping the local currency’s exchange rate stable, Minister Chen Deming said during a trip to eastern Anhui province, according to a statement on the ministry’s website yesterday. Chen said last week in a written response to questions from Bloomberg News that January exports “cannot make us optimistic.”

Exports, Imports Drop

China’s exports and imports fell for the first time in two years in January and new lending last month was the lowest for a January in five years, government reports showed last week, adding to signs growth is weakening.

Overseas shipments fell 0.5 percent and imports declined a more-than-forecast 15.3 percent from a year earlier in a month that had four fewer working days than January 2011 because of the Chinese New Year holiday, the customs bureau said Feb. 10. Banks extended a lower-than-estimated 738.1 billion yuan ($117 billion) of new yuan-denominated loans last month.

China won’t waver on its real-estate curbs, which aim to bring home prices to a “reasonable level,” Wen said without elaborating. Although market mechanisms should play a fundamental role in the property market, the government will maintain restrictions to ensure fairness and stability, he said.

The eastern city of Wuhu yesterday said it will suspend a decision to ease property curbs, three days after its announcement. The People’s Bank of China last week pledged to ensure first-home buyers can get loans as a crackdown on speculation threatens to trigger a slump in the property market.

To cope with economic hardships this year, the government will “offer support to the real economy,” especially the development of small and micro companies, Wen said, according to the Xinhua report. It will also relax restrictions on private capital and support private enterprises, Wen said.

--Zhang Dingmin, Zheng Lifei. Editors: Scott Lanman, Lily Nonomiya

To contact Bloomberg News staff for this story: Bloomberg News in Beijing at dzhang14@bloomberg.net

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


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