Debate raging over balance of inflation and growth

(Xinhua)
Updated: 2008-07-07 21:04

BEIJING -- Chinese economists are debating whether it should still be most important to curb inflation when the country faces a cooling economy at the same time.

"The principal goal of macro-economic policies should not be to curb price rises only, but to achieve a proper balance between pursuing economic growth and curbing inflation," said Xia Bin, director of the financial department with the State Council's Development Research Center at a conference here this weekend.

If the government views curbing inflation as the only goal and sharply cools the economy and reduces demand, it will cause huge problems as there are about 10 million new job seekers every year in China, said Xia.

"Besides, stepping on the brakes suddenly, regardless of cost, is not beneficial for the world economy."

Professor Xu Xiaonian of the Euro-China International Business College urged "decisive, resolute" action to prevent "a vicious spiral of inflation.

"In anticipation of inflation, workers will demand higher pay, suppliers will ask for price rises, forcing enterprises to increase product prices, which will in turn stoke expectations for inflation," said Xu.

He suggested interest rate hikes and a larger appreciation of the yuan, the Chinese currency.

However, speeding up the rise of the yuan would worsen the pains for China's export industries, which are already facing a difficult environment, said chief economist Ma Jun of Deutsche Bank Greater China.

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