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UPDATE 2-China says to keep accommodative economic policy

Published 12/07/2009, 06:40 PM
Updated 12/07/2009, 06:42 PM

* Beijing reaffirms monetary stance, vows flexibility

* Analysts see room for tweaking as economy strengthens

* Government makes no mention of exchange rate policy

By Zhou Xin and Simon Rabinovitch

BEIJING, Dec 7 (Reuters) - China surprised no one on Monday by concluding its key economic planning meeting with a pledge to stick to the pro-growth policies adopted more than a year ago to counter the shock of the global financial crisis.

The country's top leadership left the door open for changes by saying they would enhance the flexibility of policy, but they made clear that their top priority would be the promotion of domestic consumption.

China will continue its "proactive" fiscal policy and "appropriately loose" monetary stance in 2010, the government said after the close of the Central Economic Work Conference.

The annual meeting, chaired by President Hu Jintao and attended by top officials from central and provincial governments, echoed the ruling Communist Party's decision-making Politburo, which declared last month that China would not change the basic tone of its policy. [ID:nPEK1730]

"There's no real difference with what the market was expecting. The overall macro-economic policy direction will not change," said Shi Lei, an analyst at Bank of China.

The economy is thought to have strengthened further in November, with continued improvement in industrial output and retail sales running parallel to a return to positive annual inflation for the first time since January. [ID:nTOE5B601G]

With China cruising again near double-digit growth, the government gave some indications of willingness to tug at the reins, saying that it wanted to see a reasonable pace of loan growth after a surge in credit this year.

It also hinted that nothing was set in stone.

"While keeping the consistency and stability of macro-economic policies, we should work hard to increase policy flexibility," the government said in a statement carried by the official Xinhua news agency.

TWEAKS

Still, analysts expect little more than tweaking of policy through tools such as open market operations over the next few months, as policymakers wait to see whether exports hold up and private investment can pick up the baton from government-led spending.

"Although the government said it would stick to its economic policy stance, we think it will further increase the flexibility of its policies," said Xing Ziqiang, an economist at China International Capital Corp in Beijing.

But in a sign that the government is in no rush to tighten, it appeared to reduce its emphasis on controlling inflation. In October, Beijing had declared that managing inflationary expectations would rank alongside the promotion of growth as a leading priority.

While inflation was not left out from the closing statement, it was mentioned only once:

"We should handle well the relationship between maintaining economic growth, adjusting the economic structure and managing inflation expectations to further strengthen the momentum of economic recovery."

The reference to structural adjustment referred to Beijing's strategy of increasing the role of domestic demand and reducing its reliance on exports and related investment.

As part of such reforms, the government would make it easier for rural migrant workers to settle in cities, Xinhua said.

A system of residence permits, known as "hukou", currently prevents many migrant workers from enjoying social services in their adopted cities, discouraging them from staying there long-term.

EXPORTS AND YUAN

But Beijing also had assurances for exporters. The government said it would push to increase exports next year, while also trying to promote more balanced trade through increased imports.

China's yawning trade surplus has been a growing source of friction with the United States and the European Union, whose leaders have insisted that Beijing should let the yuan strengthen to achieve a fairer balance.

The Chinese government made no mention of its exchange rate policy in the statement after the Central Economic Work Conference.

The only official mention of the yuan on the day came in an essay published by a government researcher in a newspaper published by the Ministry of Commerce.

Lifting the value of China's currency would hurt, not help, global economic recovery and threaten the country's own financial and trade health, said the essay, which appeared in the Chinese-language International Business Daily. [ID:nTOE5B5027] (Additional reporting by Jason Subler, Aileen Wang and Shanghai Bureau; Editing by Tomasz Janowski)

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