Balancing act ahead for China

China should strike a delicate balance between the fight against inflation and healthy economic development, Morgan Stanley economist Wang Qing said yesterday.

"The Chinese authorities are walking a fine line between avoiding significant economic slowdown and tackling inflation," Wang said.

The government raised domestic fuel prices by 18 percent last month - a hard decision when the global economic slowdown posed a threat to China's growth and the country was battered by higher food prices.

Wang said normalizing energy prices in China would likely replace currency appreciation as the primary driver in helping China's growth to rebalance in the next 12 months.

"Unlike yuan appreciation that tends to be disinflationary, energy price normalization is inflationary, so the policy challenge is to strike a delicate balance between supporting growth and preventing the second-round effect of 'cost-push' inflation by successfully anchoring inflation expectations," Wang said. He anticipated no major shift in exchange rate policy.