Economic challenges 'will be met'

By Xin Zhiming (China Daly)
Updated: 2008-01-14 06:59

Senior monetary and financial officials said Sunday that the country is capable of charting economic growth along a stable and sustainable path despite unprecedented challenges.

Macroeconomic regulation and monetary policy are the main tasks facing the nation, Yi Gang, the newly-appointed deputy governor of the People's Bank of China, said at a financial forum.

However, a market-oriented economy has almost taken shape and the legal framework is improving, which will help market mechanisms play a bigger role in anchoring the economy, he said.

Li Yong, vice-minister of finance, said fiscal and monetary authorities will better cooperate to tackle such challenges as inflation risks, fast growth in fixed-asset investment, excess liquidity as well as the reform of resource pricing.

"The issue of excess liquidity will not be fully resolved in the short term ... (and) the room for further raising the interest rate is smaller given the changes in the US dollar," Li told the same forum held by the Institute of Finance and Banking and the Chinese Academy of Social Sciences.

The US cut key interest rates late last year and is expected to further reduce cost of money to revitalize the financial market battered by the spreading subprime crisis. But as the interest rate gap between the Chinese and US currencies narrows, there may be more capital flowing into China, analysts said.

Last year, the central bank raised the interest rate six times and the reserve requirement ratio 10 times to mop up liquidity and fight inflation as the consumer price index hit 6.9 percent in November, a 11-year high.

Despite the challenges, Yi said the market mechanism is working better to reflect the supply-demand relationship and helping the economy reach a point of equilibrium.

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