Economic Recovery

Slower but better

(China Daily)
Updated: 2010-10-22 15:21

A moderate deceleration in China's economic growth from earlier this year is widely expected and much desired. Yet, rising consumer inflation has proved far more difficult to predict and thus prevent.

With the country's growth for the full year set to exceed 10 percent, Chinese policymakers should focus on taming inflation, which has already hit a two-year high of 3.6 percent in September.

Latest statistics show that China's rapid growth slowed to 9.6 percent in the July-September quarter, down from 10.3 percent in the second quarter and 11.9 percent in the first.

Given the Chinese government's efforts to steer economic expansion to a more sustainable level, the ongoing gradual easing in growth is clearly in line with most forecasts.

Though some observers were concerned that such a slowdown might make a dent in global recovery, as China has less demand for imports from the rest of the world in the short term, most agreed that slower, but more balanced, growth in China would be of bigger benefit to the global economy in the long run.

For the Chinese government, which has been trying to gradually normalize fiscal and monetary policies following the massive stimulus program that powered a V-shaped recovery, the latest growth picture is surely a much-desired outcome.

However, consumer prices are rising at their fastest pace in nearly two years, which is far from reassuring. Even China's central bank has just activated the first interest rate hike in nearly three years.

Earlier this year some officials confidently predicted that inflationary pressures would subside in the second half of the year to well under the official 3 percent target. That may not be a far cry from official statistics, which point to a 2.9-percent rise in consumer inflation for the first nine months over the previous year.

Related readings:  China's GDP grows 9.6% in Q3, inflation picks up  CPI increase sparks worries  Heading off inflation  Interest rate hike no cure for inflation: expert

Nevertheless, such official confidence is not widely shared by the public, especially low-income families, which have disproportionately borne the brunt of food-led inflation.

In fact, there is little sign that the country's consumer inflation has already peaked, after widespread flooding and unusually hot weather during the summer wiped out some crops.

It is logical to assume that inflation driven by shortages of vegetables and other food items will ease as supplies recover, but, while consumer inflation is still accelerating, it is unwise to take that for granted.

Admittedly, the current level of inflation is still relatively easy for the Chinese economy to handle. But some debt-laden rich countries' attempts to reflate their way out of recession means that Chinese policymakers must be as vigilant as their peers in other emerging economies to prevent the excess inflow of foreign capital from fueling domestic inflation.

Moreover, China's pursuit of inclusive growth in coming years also calls for a tight control over inflation. Otherwise it will only make the poor even poorer.