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London/Beijing - China Premier Wen Jiabao sounded his most
upbeat note this year on Beijing's fight against inflation, saying he expects
price pressures to decline steadily even as the country keeps up its brisk
economic growth.
In an opinion piece published in Friday's edition of the
Financial Times newspaper, Wen wrote he was "confident price rises will be
firmly under control this year", and that China is "fully capable of sustaining
steady and fast economic growth".
Wen’s remarks came as he kicks off a visit to debt-stricken
Europe and is a timely response to investor worries that China, in its struggle
to tame near three-year high inflation, could over-tighten monetary policy at
the expense of economic growth.
"There is concern as to whether China can rein in inflation
and sustain its rapid development," Wen wrote. "My answer is an emphatic yes."
“China has made capping price rises the priority of
macroeconomic regulation and introduced a host of targeted policies. These have
worked," he said.
"The overall price level is within a controllable range and
is expected to drop steadily."
But some analysts said it was too early for China to declare
victory in its fight against inflation, and warned investors against thinking
that Wen was signalling an imminent change in monetary policy.
Ting Lu, an economist at Merrill Lynch-Bank of America,
argued Wen might have deliberately sounded so positive as he knew he was
addressing foreign readers of the Financial Times.
In Chinese culture, there is a tendency to play up one's
achievements when speaking to the outside world, and swing the pendulum the
other way to emphasise challenges when speaking to one of your own, Lu said.
"Readers should read the article with some grain of salt,"
he said. "Despite these positive messages from Wen, it could be wrong to expect
the Chinese government to change its policy stance soon."
Lu said he still expects China to raise interest rates once
more this year. That is roughly in line with market forecasts for a
25-basis-point rise in benchmark lending rates, and a 50-basis-point increase
in deposit rates.
On the global economy, Wen said it was recovering from the turmoil seen in the financial crisis, but said many uncertainties remained and that the recovery was fragile.
He pointed to uneven global growth, stubbornly high
unemployment in developed economies, mounting debt risks and inflationary
pressures.
"While the shock of the crisis has yet to end, new risks
have emerged," Wen wrote. "The world must co-operate closely to meet the
challenges."
Still eyeing rate rise
Wen's latest remarks on China's inflation were a marked
shift from his comments in March when he warned about rising price
expectations, and likened inflation to a tiger that is hard to cage once it is
let out.
China's inflation ran at a 34-month high of 5.5% in the year
to May, and is expected to quicken to 6% in June or July.
That would be well above China's 2011 inflation target of
4%, which Wen did not mention on Friday.
Some analysts have noted, however, that China's official
inflation target is among some malleable objectives that the central bank can
breach. For instance, Beijing has for years trounced its official economic
growth target of 8%.
Given wages in China are expected to climb in coming months
and a stubbornly buoyant property market that has kept house prices at record
highs, economists doubted China can rest easy in its anti-inflation campaign
anytime soon.
"Inflation may peak in June or July, but there are many
underlying factors that could push up prices such as labour cost and
agricultural product inflation," said Hua Zhongwei, an analyst with Huachuang Securities
in Beijing.
Still, shares in Hong Kong and Shanghai bounced on Friday
morning after Wen's remarks on inflation. China shares have been among the
worst performers in Asia this year on persistent worries of further policy
tightening to combat price pressures.
