China's Premier Open to Stimulus Steps - New York Times

HONG KONG â€" Premier Wen Jiabao is calling for Chinese economic policies to tilt a little more toward fostering growth, official media reported on Monday, in the latest sign of concern in China about a faltering in the country’s economic expansion.

Speaking during a weekend trip to Wuhan in south-central China, Mr. Wen mostly endorsed existing policies but also indicated a new willingness to countenance economic stimulus.

“We should continue to implement a proactive fiscal policy and a prudent monetary policy while giving more priority to maintaining growth,” Mr. Wen said, according to the official Xinhua news agency.

In April, industrial production in China slackened to its slowest growth in nearly two years, fixed-asset investment grew at its weakest pace in nearly a decade and imports practically stopped growing, all signs of eroding confidence in the business environment. But Chinese officials have said before that they would make sure economic growth at least meets their minimum target of 7.5 percent.

Jing Ulrich, the chairwoman of China markets at JPMorgan, said that the comments made it likely that China would reduce two or three more times this year the minimum reserves that banks must set aside as protection, leaving banks with more cash available to lend. “Premier Wen’s comments indicate we are likely to see further monetary easing in the coming months,” she wrote in an e-mail.

Yet Mr. Wen carefully hedged his remarks, endorsing existing policies but not offering new ones.

He reaffirmed his signature policy of popping the country’s real estate bubble so as to improve the affordability of housing. He even exhorted local authorities to continue tightening real estate regulations.

“We must never allow property controls to suffer a setback, or else our achievements through many years of hard work will come to nothing,” he said, according to state-run radio.

Mr. Wen also strongly hinted that the authorities were not yet worried enough to embark on a repeat of the very expansionary monetary policy and extremely heavy lending by state-controlled banks that pulled China out of the global financial crisis three years ago. Extensive bank lending and a 53 percent increase in two years in the broadly measured money supply has left an overhang of inflation and spiraling home prices that China is still trying to quell.

Mr. Wen mentioned repeatedly over the weekend the importance of fighting inflation and maintaining prudence in monetary policy decisions.

Mr. Wen also reiterated his support for replacing sales taxes with value-added taxes; urging local governments to find ways to help farmers; and encouraging the country’s mostly state-controlled banks to consider lending more to small and medium-sized enterprises, instead of issuing most loans to state-owned enterprises and local government agencies.

“The relationship between maintaining growth, adjusting economic structures and managing inflation must be properly handled," Mr. Wen said in a characteristically non-committal statement.

Todd Lee, a senior director for global economics in the Boston office of IHS Global Insight, an international consulting firm, said that Mr. Wen’s remarks in Wuhan represented a slight shift in the government’s stance toward stimulus, as well as an ongoing wariness of igniting another bubble in real estate prices if inflation reappeaers.

“I think they’re signaling they may be a little more aggressive,” Mr. Lee said. “They’re trying to set this fine balance between maintaining growth and keeping the real estate market under control.”

Investors and economists closely scrutinize the comments of Chinese leaders like Mr. Wen because the country’s top political figures play a crucial role in setting policy on interest rates, bank lending rules and other economic policies. The People’s Bank of China, the country’s central bank, has no political independence, operating at the direction of the cabinet, which Mr. Wen leads.

Investors in mainland China and Hong Kong appeared guarded about the extent to which Mr. Wen’s remarks represented a significant shift in policy. The CSI 300 index of A shares on the Shanghai and Shenzhen stock markets rose 0.5 percent on Monday, while the Hong Kong stock market, increasingly dominated by mainland companies, fell 0.2 percent on Monday.