Too early to talk about 'exit'?

By Li Hong, People's Daily Online

The speculation is China's economic policy makers will scale back the stimulus and expansive credit policies next year, as Beijing has made it public that one of its top guidelines for economy watch is going to thwart inflation risks, though the effort to solidify growth will continue.

But, it won't be earlier than the mid-year before the State Council, the cabinet, takes genuine measures to curb price rises, many believe, for ensuring a relatively quick development of China's cities and rural regions is always "politically right". No one in this country dares to squander the hard-won "strategic opportunity" for it to come to the top.

The National Bureau of Statistics said gross domestic product galloping 8.9 percent in the July-September period from a year earlier, which has driven quite a few officials beat chests claiming the target of 8 percent yearly growth rate easily attainable.

Amid rising expectations at home and abroad that China's GDP rise would return to double-digit "feverish" growth in the coming years, a level before the crisis struck the world, it is likely few will sway.

So, any talk of "exit strategy" from the proactive fiscal policy and relatively loose monetary arrangement will be booed. Not to mention huge ramifications on the overly sensitive equity market any policy shift will bring. Another abrupt slump of the stock and housing market will harm the economy dearly, many believe.

However, China hasn't avoided the ferocious volatility of "economic cycle" we deem is characteristic of the capitalist countries. In 1992-94, it is struck by a severe inflation running as high as 24 percent for a time, and just prior to the encroachment of the crisis, we were fighting the same beast eroding our daily buying ability. Do we still remember that we ordinary bread-earners could hardly afford eggs and meat, whose prices ran out of the roof?

Premier Wen Jiabao, convening a full-member State Council meeting this week, is right to pinpoint the risk of inflation, once major economies in the world walk out of the worst recession since the Great Depression and pick up momentum to grow. When an economy leaps from 6.1 per cent, to 7.9 per cent and 8.9 percent in consecutive three quarters, it gets the gravity to heat up.

I don't know if open talk of "exit" will crash the equities, but after we have seen tangible investments from the private sector and clearer pattern of vigorous public consumption, a well-measured, perhaps low-profile, reduction in the level of stimulus and bank lending is necessary and feasible to prevent bubbles.

Whereas investment in the first half of the year was overwhelmingly government-led, capital spending by mostly private real estate developers is now soaring in response to the ready availability of credit and growing confidence in the economy.

The statistics bureau reported domestic prices are rising steadily month on month. The consumer price index fell only 0.8 percent in September from a year earlier, which is expected to run into positive territory soon.

The excessively outsize inflation often on the heels of slut years in the past should alert the growth-obsessed leadership and the public that another round of commodity price hikes, be it vegetables and meat, or oil and ore, will hurt this country.