-Fan Gang, Director of the China National Economic Research Institute and a member of the Monetary Policy Committee of the People's Bank of China.
-Ben Blanchard, Reporter from Reuters' Beijing Bureau
-Stephen Green, Head of Research of Standard Chartered Bank of China
-Anthony Couse, International Director and Managing Director of Jones Lang LaSalle Shanghai
-Long Yongtu, Secretary-General of Boao Forum for Asia
-Li Ruogu, Chairman and President of the Export-Import Bank of China

Hello, and welcome to the Main Talk. I'm your host Pan Xiaoli. The world economy is probably facing its coldest winter in a very long time as the global recession begins to set in. So far the domino effect caused by the US subprime mortgage crisis has caused a financial storm that has swept across the US borders to chaw most of the industrial world. Today, we'll look at some of the hot topics in the review of China's economy in the past year.

Key words: Liquidity, a tight monetary policy

The year 2008 began with optimistic expectations for China following a GDP growth of 11.9 percent in 2007. It was also a time when the impact of the U.S. subprime crisis on global economy was not yet clear. In December of 2007, a key economic meeting, the Central Economic Work Conference, was concluded and mapped out strategies for the coming year. One of the outcomes of the meeting saw the adoption of a tighter monetary policy to curb overheating.

Qin: What economic fluctuations in the second half of 2007, in the several months, changed and promoted the central bank to make such a significant move?

Fan Gang: Actually when the word tightening came up in June, it already showed we got the problem of over liquidity and the inflation. Inflation is a little bit higher now, so that makes people more concern about this over liquidity problem. The money to re-supply is also more than the targeted, 18.4% or something.

Qin: it's getting serious.

Fan Gang: More serious, particularly this trade surplus, capital inflows and then of course the official foreign exchange reserve increased. I think that's the background why the wording becoming more serious.

Key words: CPI, Inflation
 
Rising prices have become the top concern for the Chinese government. The consumer price index, or CPI, in 2007 rose 4.8 percent year-on-year, the highest since 1997 and well above the 3 percent alert level. In January 2008, the monthly CPI rose to a shocking 7.1 percent. This left policymakers with the main task of reining in growing inflation, which in turn affected the real estate and stock markets.

Qin: What about the CPI? People worry about the CPI figure.

Fan Gang: It may stay with us for a while. Say 4%, 5%, because NO.1, oil price continue to be high, and China still adapt to this high price. It's in the cycle of rising prices, and it's partially because of the oil prices, because its bail few production using the corns to produce ethanol. So their demand for this kind of food really increased. So food price will continue to increase. So take these two factors, we called that as import cost pushing inflation. It will continue to be with us for a while.

Qin: Will we continue to see fluctuations in the stock market?

Fan Gang: Actually I would like to see a market fluctuate, not bullish market forever, like Japan. It could be 10 years but then they crashed from 40000 down to 10000 and stay 10000 for 15 years. I don't like to see that kind of curves. I'd like to see the curve fluctuate but in a small scale, but market can move gradually up for longer time, and make more people make money.

Key word: Livelihood

With the approach of 2008, China began to attract a lot of attention from the world. In fact, the cover story of "Newsweek's” 2007 yearly report was emblazoned with the title: "The Rise of a Fierce Yet Fragile Superpower". According to the report, "China as a global power is no longer a forecast but a reality." The title proved to hold some truth as the report also stated that, "As China moves up the value chain, so the gap between rich and poor grows dramatically." The statement clearly indicates the fragile line that China is walking in the country’s surge to the top. Indeed, the gap has been on the minds of Chinese policymakers for some time and is a great concern. During the NPC and CPPCC sessions in March 2008, the Chinese government made a resolution to improve people's livelihoods.

Ben Blanchard: When you look over the last 5 years when Premier Wen Jiabao and President Hu Jintao started these terminals, one of their platforms was how to narrow the growing gap between the rich and the poor. That’s a problem that Chinese government acknowledged there was and is very worried about. At the end of this five-year period, it might be interesting to hear from them what their thoughts on it now, how was the progress being so far and what’s other policy measures they are think about taking. Chinese government acknowledged previously that they needed to keep economic growth to a certain level at about 8 percent per annual in order to guarantee that it can create enough jobs for not just new graduates but also China's floating population, especially the rural population. So I think they will be extremely cautious in slowing down.

Key words: Steady & Fast

In July 2008, the Chinese government decided to put macroeconomic control at the top of its agenda in the second half of 2008. China planned to do this by maintaining steady and fast economic development and stabilizing basic prices. This was seen as a policy shift from the former regulations of preventing overheating. Experts said that the government's macroeconomic controls were effective and that the country's economy was developing as expected. Despite the Sichuan earthquake, figures showed that the country's GDP grew 10.4 percent in the first half over the same period last year. Also, the CPI slowed from a 12-year high of 8.7% in February to 7.1% in June.

Qin: Starting from the beginning of this year, China actually has adopted the tight monetary policy. So how has this been effective so far? We are at the mid point of a year.

Stephen Green: That's a very good question. In some ways, it certainly is tight. If you are a company, a small or medium sized enterprise, it's hard to get credit.

Qin: You feel the impact.

Stephen Green: You feel the impact. However, if you are a large state-owned enterprise with big investment projects, it’s actually you are getting your money for your investments. The longer that policy remains in place, the more long-term damage will occur.

Qin: What do you think is the biggest risk factor for Chinese economy for the second half of the year? Is it still inflation?

Stephen Green: I think it's inflation, and sort of mismanagement inflation. In America, there is a big debate about what to do. Some people say raising interest rates because of inflation, some people say don't. And Europe has the same question. China does as well. This moment in time things are still. We need to control inflation and we shouldn't worry too much about growth slowing down because I don't think it's collapsing. The growth and the system are all slowing down and getting us to a more reasonable and sustainable pace of growth.

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