12.02.07, 6:54 PM ET

BEIJING (XFN-ASIA) – The government will tighten monetary policy further in a bid to prevent economic overheating and head off rising inflation, the head of China’s economic planning agency said.

National Development and Reform Commission director Ma Kai said in a speech posted on the Ministry of Commerce’s website Sunday that the government ‘clearly understands’ the problems of overly rapid investment growth, the large trade surplus and rising inflationary pressure and will respond in turn.

‘The government will adopt monetary policy tightening while continuing with prudent fiscal policies … adjust the market supply and demand for major goods to prevent fast price rises,’ he said.

‘Preventing economic overheating and overall inflation are top priorities of macro-economic control,’ Ma said, reiterating the conclusion of the Politburo meeting last weekend.

Ma’s wording is a departure from a government formulation adopted at a State Council meeting held in early June, when it said that ’stable monetary policy will be moderately tightened.’

That, in turn, marked a change from Beijing’s previous commitment to maintaining ‘prudent monetary policy.’

The new wording could suggest a change in tack as Beijing moves to tackle consumer price inflation which is growing at the highest rate in a decade, along with evidence that economic activity is reaccelerating.

Ma’s speech was delivered at a conference of Chinese and Japanese officials, an unusual platform to unveil a change in the government’s policy stance.

The adoption of the previous formulation during the June meeting was followed by an interest rate increase in each of the three following months, an unprecedented burst of monetary-policy activity by the Chinese central bank.

The People’s Bank (nasdaq: PBCT – news – people ) of China had been expected to raise interest rates for what would have been the sixth time this year following the release of official economic data last month.

Ma also said that China’s economic growth is expected to remain essentially the same rate as last year’s revised 11.1 pct expansion. He said that both fiscal revenue and enterprise profits are expected to grow by over 30 pct.

Xie Fuzhan, head of the statistics bureau, said last month that China’s economy is expected to grow by 11.5 pct this year.

Finance minister Xie Xuren told the same conference that the government will use a combination of monetary policies to strengthen its control of money supply and lending activity to fight overheating and inflation.

‘We will continue to follow the principals of initiative, control and gradualism in further improving exchange rate flexibility and increasing the independence of monetary policy,’ Xie said, reiterating a long-standing government line.

Xie also said that the government is studying allowing foreign governments to issue yuan-denominated bonds in China, but did not provide further details.

The World Bank’s International Finance Corp and Asian Development Bank have both issued yuan ‘Panda’ bonds in China following government approvals in 2005.

http://www.forbes.com/markets/feeds/afx/2007/12/02/afx4395277.html

Diversify Your Income

Join Our Newsletter – FREE Report “10 Reasons Gold Has Farther to Run”

This entry was posted on Monday, December 3rd, 2007 at 8:42 am and is filed under Archived. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.