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Wen signals policy fine-tuning
Global Times | February 14, 2012 00:28
By Song Shengxia
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China needs to start fine-tuning its economic policies in the first quarter, Premier Wen Jiabao said in remarks published by State media yesterday, boosting speculation of monetary policy relaxation in the near future due to concerns over a slowdown in the domestic economy.

"We should pay close attention to the economic situation in January and the first quarter. We should see things early and take quick action. Pre-emptive measures and fine-tuning should start from the first quarter," Wen was quoted by the Xinhua News Agency as telling a government meeting over the weekend.

Wen's remarks came as a slew of data released over the weekend pointed to a continuous slowdown in the economy and fueled expectations that monetary policy loosening is imminent. 

Exports fell 0.5 percent year-on-year to $149.94 billion in January, the first decline in more than two years, while imports plunged 15.3 percent to $122.66 billion.

Chinese banks extended 738.1 billion yuan ($117 billion) of new yuan-denominated loans last month, down 288.2 billion yuan year-on-year.

The market had earlier expected the government to cut reserve requirement ratio (RRR) before the Chinese New Year last month, but the central bank chose to use open operations to inject liquidity into the financial market to boost the economy.

"Currently, the government is holding back on RRR cuts given the still high inflationary pressure and net inflow of foreign exchange," said Lu Zhiming, an economist at Bank of Communications.

"The government won't make a big policy move immediately since the Chinese New Year distortions will make them wary of acting in haste. They are likely to combine the data of January and February before deciding whether the current moderate policy easing will be intensified," Lu said. 

"There is a high possibility that the central bank may cut RRR next month when February data comes out, and there may be more RRR cuts in the first half of the year since an early macro-policy adjustment as suggested by Premier Wen will create room for the economy to improve in the later part of the year," said Li Xunlei, chief economist at Shanghai-based Guotai Junan Securities.

Wen also said the government will offer support to the real economy, especially the small- and micro-sized companies, and lift restrictions on private capital to assist private enterprises.

"Since it is still difficult for the small- and micro-sized companies to get loans, the policy fine-tuning in the quarter is likely to focus more on cutting taxes and increasing lending for the small businesses," Lu told the Global Times.

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