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Wen Says China’s Slowdown, High Prices Add to Policy Challenge

Chinese Premier Wen Jiabao said slowing growth and elevated prices are adding to the difficulties the government faces in helping manage the world’s second-biggest economy.

The nation will keep its export policies such as tax rebates “basically stable” next year and the government will mainly use fiscal spending to support “structural tax cuts” and to improve people’s lives, Wen was cited as saying in a statement posted on the central government’s website yesterday. “The current economic growth momentum is generally sound, but we are also facing many new situations and problems,” Wen said.

China will maintain prudent monetary and proactive fiscal policy next year and policies will be fine-tuned as needed in accordance with the changing situation, the ruling Communist Party said after an economic work meeting last week. A lingering European debt crisis and a cooling domestic property market may prompt the government to ease policy further to sustain its expansion pace.

“This is a sign of policy initiatives to support growth next year as the external environment remains weak while domestic demand may suffer from slowing housing construction,” said Dariusz Kowalczyk, a senior economist at Credit Agricole CIB in Hong Kong. “China seems to be preparing for a prolonged downturn in the U.S. and the euro zone by boosting domestic demand and focusing on exposure to emerging markets.”

Domestic Demand

Regions that are highly reliant on exports should try to stimulate domestic demand and explore domestic or emerging markets, Wen was cited as saying during a tour to eastern China’s Jiangsu province.

The nation needs to “rectify” financial orders and banks should address the problem of unreasonable fees and additional conditions attached to loans because many enterprises are suffering from excessive credit costs, Wen said, without elaborating.

China’s gross domestic product expanded 9.1 percent in the third quarter, slowing from the 9.5 percent in the previous three months. Inflation eased to a 14-month low of 4.2 percent last month from a three-year high of 6.5 percent in July.

Export growth slowed to the weakest pace since 2009 in November, a development that Wen said reflects a “grim” situation facing China.

The People’s Bank of China last month lowered the lenders’ reserve requirement ratio for the first time since 2008, freeing cash to support the economic expansion as Europe’s debt crisis damps overseas demand and the domestic property market cools.

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