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UPDATE 2-China reaffirms pro-growth policy for 2010

Published 11/27/2009, 05:35 AM
Updated 11/27/2009, 05:39 AM

* No step back from pro-growth fiscal and monetary policies

* China to stress fight against climate change in 2010

* No mention of yuan by Communist Party (Adds quotes)

BEIJING, Nov 27 (Reuters) - China gave no sign on Friday that it was planning an early exit from its stimulus policies, pledging to stick with a pro-growth stance in 2010 to cushion the fallout of the financial crisis.

A meeting of the Communist Party reaffirmed the relatively loose monetary setting and active fiscal policy adopted a year ago as the crisis reached its peak, but said there was a need to implement policy flexibly.

The party's decision-making Politburo pledged to make growth more stable, more sustainable and more balanced, the official Xinhua news agency reported.

To that end, China would promote sustainable domestic demand, especially consumption and private investment, increase imports and encourage companies to invest abroad, according to the website of CCTV, the main state television channel.

"Our primary task in economic work must be maintaining stable, relatively fast development, adhering to an active fiscal policy and appropriately relaxed monetary policy," CCTV said in a summary of the meeting.

Qing Wang, an economist with Morgan Stanley, said the announcement was consistent with his view that China will return to a more moderate pace of lending growth in 2010. But it is unlikely to raise interest rates or banks' required reserve ratios before the middle of the year.

"The super-loose policy stance is to normalise but remain generally supportive in 2010," he said in note.

The summaries of the meeting made no reference to managing inflationary expectations, which the State Council, or cabinet, said last month had become a priority. That omission struck some as a sign that Beijing was even more committed to maintaining its stimulus policies.

"This indicates that the government is confident that the overall price level will be controllable next year, and that inflation is a relatively distant risk for the economy," said Qi Jingmei, an economist with the State Information Centre, a government think-tank.

Also notable by its absence was any mention of the yuan, China's currency. The United States, the European Union and the International Monetary Fund have all recently identified the currency as being undervalued and, as such, a contributing cause of the economic imbalances at the heart of the crisis.

China's sole comment about the yuan on Friday came from Chen Deming, the commerce minister, at a press conference in Paris. A stable yuan was conducive not just to China's economic recovery but also to the global recovery, he said.

The 25-member Politburo, chaired by President Hu Jintao, the head of the Communist Party, judged that the conditions for growth were favourable in many respects but said China still faced "many difficulties and contradictions".

Faced with changing conditions, China needed to improve the focus and flexibility of its policies, the Politburo concluded.

"In particular, we must pay greater attention to improve the quality of and returns from economic growth," CCTV reported.

Premier Wen Jiabao has consistently lamented the lop-sided, unsustainable nature of growth, which is driven by investment, heavy industry and exports.

China is striving to pass the baton of growth to domestically oriented sectors of the economy, including services, which consume fewer resources and do less damage to the environment.

The meeting came a day after China announced it was aiming to reduce the amount of carbon dioxide produced for each yuan of national income by 40 percent to 45 percent by 2020 compared with 2005 levels.

In keeping with that goal, China would step up construction of big projects related to energy conservation and environmental protection as part of a drive to deal "actively" with climate change, Xinhua said. (Reporting by Langi Chiang, Chris Buckley, Aileen Wang and Simon Rabinovitch; Writing by Alan Wheatley; Editing by Jan Dahinten) ((simon.rabinovitch@thomsonreuters.com; +86 139 0111 6692; simon.rabinovitch.reuters.com@reuters.net)) ((If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com))

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