The three-day Central Economic Work Conference concluded yesterday with a pledge to shift monetary policy from "prudent" - an approach followed for the last decade - to "tight".

The conference, an annual event initiated more than a decade ago, serves as a crucial mechanism for the central government to make economic policies.

To better regulate domestic demand and balance international payments, various monetary instruments should be used to manage liquidity and strictly control the size of loans and frequency of credit extension, it was decided at the conference.

The central bank has this year already raised interest rates five times and the reserve requirement ratio for banks nine times.

With a prudent fiscal policy and a tight monetary policy, the country will be able to achieve the two key goals in the coming year - to prevent rapid economic growth from overheating, and structural price rises from becoming entrenched inflation, the meeting said.

"A tight monetary policy will help curb overheating in asset markets, including equities and real estate, and curb price rises," Cao Honghui, an economic researcher with the Chinese Academy of Social Sciences (CASS), said.

China has been implementing a prudent monetary policy since 1997. From 1998 to 2002, the central bank increased money supply to counter deflationary pressures.

From 2003 till now, monetary policy was tightened to help address changes in economic development, including rapid growth in credit extension, investment and foreign exchange reserves.

"The new policy reflects the accurate judgment of the central government on the current economic situation, which is under pressure from further price rises and unduly fast loan growth," said Peng Xingyun, a senior researcher with the research institute of finance affiliated to the CASS.

The consumer price index (CPI) rose to a decade-high 6.5 percent in October; and observers said the key gauge of inflation would have most likely risen to a new high in November.

In the first 10 months, loans were 10 percent more than the amount for the whole of last year.

By the end of October, money supply growth was 18.47 percent, 1.53 percentage points higher than the end-2006 level. Fixed-asset investment growth in urban areas was 0.2 percentage points higher than the year-earlier level.

Yu Yongding at the CASS' research institute of world economy and politics, said a 4 percent growth in the CPI is tolerable to a country. If it is higher, it would send a signal to the central bank to adopt a tight monetary policy.

The CPI is expected to be around 4.5 percent for this year, according to the CASS' latest forecast.

The central government called for "moderately tight money supply" on the basis of prudent monetary policy in June, the first time it used the word "tight" for monetary policy since 1997.

Observers believe the country will continue to face high inflationary pressure next year.

The meeting also agreed on the following:

significantly increase expenditure on social security, healthcare, education and housing.

strictly check credit growth to promote a balance between foreign exchange spending and earnings.

rigorously examine new projects before they are approved.

take "forceful measures" to curb price increases and increase production of necessities, including grain, edible oil and meat.

promote innovation.

Xinhua - China Daily

(China Daily 12/06/2007 page1)