MercoPress. South Atlantic News Agency

China to pursue “prudent monetary policy” in 2007

China will continue to pursue a prudent monetary policy in the coming months, aiming to keep the Yuan exchange rate stable at a reasonable and balanced level, said Monday China's Central Bank in Beijing.

China would further improve its monetary policy, making it "more scientific and more effective in preserving the stability of the Yuan" according to a meeting of the monetary policy commission of the People's Bank of China. The monetary policy commission usually convenes at the end of each quarter to discuss the macro-economic situation and make suggestions about monetary policy for the coming months. Last week the Central Bank anticipated a slowing of China's breathtaking economic growth next year from 10.5% to 9.8% with inflation probably picking up because of rising energy and grain costs, "but prices will ease as overseas investments and exports moderate". Inflation estimate for 2007 is in the range of 2%, compared to 1.4% in 2006. The Chinese Central Bank estimates are based on a world economy expanding 5% in 2006 and 4.8% in 2007 with no major changes in interest rates. Exports are forecasted to continue expanding during the first half of next year, based on a strong overseas demand, but will tend to moderate in the second half as a consequence of new regulations regarding less generous tax returns on foreign trade. Another issue considered by Beijing authorities is the possible increase of protectionist attitudes in United States and a slower growth of the US economy. Imports on the other hand could accelerate in 2007 with a stronger Yuan, helping to limit its soaring trade surplus which is so irritating for China's main partners such as the US and the European Union. In the first few months of next year, China is expected to restrict loan growth to a "reasonable pace and optimize loan structure", said the Central Bank. Basically monetary policy will be guided to expand domestic consumption, prevent investment from growing too fast, and promote international accounts balance. As to foreign direct investment FDI in China, the 2006 final figure is estimated to be in the range of 60.3 billion US dollars, according to the Ministry of Commerce. Preliminary statistics do not include investment in the banking, securities and insurance sectors. Last year, China saw a slight decline of 0.5% in its FDI. Sources with the Ministry of Commerce said China was facing increasingly fierce international competition for foreign investment. The ministry said China would continue to be the top destination for foreign investment among developing countries but the annual volume is expected to remain around 60 billion US dollars in the next five years. Besides Chinese costs are increasing because of a stricter environment protection regulations and higher salary levels. China's Ministry of Commerce also suggested that the sustained growth period should be used to channel more foreign direct investment into higher value-added technology-intensive and service sectors. Actually investment in the last twelve months to October, in service industries including real estate, information technology, distribution, tourism, and architecture, surged 14.6% to 11 billion US dollars while in manufacturing industries it declined 6.8% to 34 billion US dollars.