Some insights in Money Supply: Fiscal tools needed to compensate for tightening: Expert

· Asia, China
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Source / Courtesy: China Daily

BEIJING – China will keep its “prudent” policies in 2012, but it should adopt more fiscal tools to compensate for the slowing money-supply growth and weakening economy, a central bank adviser said on Wednesday.

“Fine-tuning the monetary policies doesn’t change the overall stringent climate … and money supply will grow at around 8 or 9 percent, instead of the double-digit rate of the past few years,” said Xia Bin, a member of the monetary policy committee of the People’s Bank of China (PBOC).

Meanwhile, the central bank is implementing a “differential” reserve-requirement ratio (RRR) policy – each bank will get a different RRR based on its liquidity and leverage level, Xia said at an economic forum in Beijing.

As the stance of the monetary policy remains largely unchanged, the key to a sustainable development lies in the adoption of more flexible fiscal polices, Xia said, adding that there is still much room left in that area, considering China’s current fiscal deficit level.

“Fiscal policies must lean more to strategic industries and smaller businesses, as well as sectors that could help boost consumption, such as social security, health services and education,” he said.

Subsidies for the lower-income group are also important, as inflationary pressure will remain high over the next few years, he added.

The adviser’s comments came amid an increasing appeal for China to relax its tightening policies as the inflation eases, because slowing growth is giving rise to fears of a hard landing in the world’s second-largest economy.

China set the growth goal for its broad money supply (M2) at 16 percent for this year, but the actual speed slowed to 10.9 percent in October, while inflation stood at 5.5 percent.

Many analysts have lowered their estimates of China’s growth rate for next year. The Organization for Economic Cooperation and Development put the number at 8.5 percent, compared with an estimated 9.3 percent in 2011.

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