Monday, March 10, 2008

China must control money to tame inflation-lawmaker

China should step up its efforts to control money supply because it is the root source of soaring inflation, a lawmaker who has just stepped down as central bank vice-governor said on Thursday.

Consumer inflation hit an 11-year high of 7.1 percent in January, prompting concerns that price pressures could spread from specific products such as meat and edible oils to the broader economy.

"There are various reasons for inflation. But in essence, it is a monetary phenomenon," said Wu Xiaoling, deputy head of parliament's Finance and Economic Commission.

"So when working to cap inflation, it's very important to control the aggregate money supply," she told reporters on the sidelines of a meeting of China's top political advisory body.

But Wu, who left her central bank post two months ago, also said that curbing money supply alone was not enough to tame price rises.

Restructuring the economy was an indispensable part of any policy mix to address China's inflation, she said.

Beijing should further adjust energy and resource prices to make economic growth more efficient, she added.

China declared in December it would shift to a "tight" monetary policy from a "prudent" stance in order to prevent economic overheating and broad-based inflation.

Dismissing concerns that tight monetary policies might harm China's economic growth, Wu said that slower growth is a sacrifice China has to make in order to control prices.

"As long as economic growth is no lower than 8 percent a year, we are safe to say that the economy has not been hurt at all," she said.

She also urged the government to offer more incentives to big firms to raise funds by selling bonds rather than borrowing from banks. This would leave banks with more money to lend to credit-hungry small businesses that cannot tap bond markets, she said.

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