China’s Wen Jiabao Foresees ‘Relatively Difficult’ First Quarter

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China’s Wen Jiabao Foresees ‘Relatively Difficult’ First Quarter

By Sophie Leung

Jan. 4 (Bloomberg) -- Chinese Premier Wen Jiabao said business conditions may be “relatively difficult” this quarter and monetary policy will be fine-tuned as needed.

“We see downside pressure on our economy and elevated inflation at the same time,” Wen said during a two-day trip to Hunan province, according to a statement on the government’s website yesterday. “We also face problems of weakening external demand and rising costs for companies.”

Economists at Barclays Capital and Bank of America Corp. say the central bank will cut lenders’ reserve requirements before a weeklong Chinese New Year holiday starts on Jan. 23, the second reduction since 2008. The ruling Communist Party is shifting focus to supporting growth rather than damping inflation as Europe’s debt crisis threatens to curb exports.

“The government is closely monitoring the downside risks to growth,” said Chang Jian, a Hong Kong-based economist at Barclays Capital. “With an expected deceleration in property investment and exports, we expect to see more weakness in industrial activity.”

Nomura Holdings Inc. said last month that China’s economic expansion may decelerate to 7.5 percent in the three months through March from 9.1 percent in the third quarter, as export growth slows and the government’s campaign to check property prices damps investment.

‘Social Harmony’

The government seeks to stabilize growth and consumer prices to “promote social harmony,” Wen said. He spoke during meetings with executives including Sany Heavy Industry Co. Chairman Liang Wengen and Zoomlion Heavy Industry Science and Technology Co. Chairman Zhan Chunxin, according to the government statement.

Inflation in China eased to 4.2 percent in November from a year earlier, the slowest pace in 14 months. Even so, price gains exceeded the government’s 2011 target of 4 percent every month in the first 11 months of last year.

China’s money supply has “structural issues” and one can’t simply say that there is too much or too little lending or sufficient or insufficient liquidity, Wen said. The government will tighten or loosen policies according to the needs of different industries, he said.

China will continue to focus on rebalancing growth, restructuring the economy and increasing consumer and investment demand to support the “real economy,” he said.

“Priority will be given to key projects and projects under construction, and we will limit industries suffering from overcapacity, those that cause heavy pollution and are energy intensive,” Wen said, reiterating existing government policy.

The steel industry should upgrade technology and restructure through reorganizations and mergers to reduce excess capacity, he said, according to the government statement.

Wen also said China must continue to develop high-speed rail in spite of last July’s crash in the eastern city of Wenzhou that left 40 people dead and 172 injured.

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