China's Wen sees struggle to control inflation

Premier Wen Jiabao signalled for the first time that China would struggle to meet its 4 percent inflation...

Chinese flag. Picture: Eyewitness News

Premier Wen Jiabao signalled for the first time that <place w:st="on"><country-region w:st="on">China</country-region> would struggle to meet its 4 percent inflation target this year.

Wen, who is travelling in Europe, was quoted by Hong Kong media on Monday as saying that while he sees the Chinese economy growing above 8-9 percent this year, it was hard for <place w:st="on"><country-region w:st="on">China</country-region> to keep inflation under 4 percent in 2011.

"<country-region w:st="on">China</country-region>'s financial situation will still be among the best in the world this year, with economic growth kept above 8-9 percent, and CPI controlled under 5 percent," Wen told Hong Kong television media during the <country-region w:st="on">England</country-region> leg of his <place w:st="on">Europe tour.

Although Wen's latest comments are not as upbeat as his remarks on Friday when he said <country-region w:st="on">China</country-region>'s inflation is firmly under control this year and should cool steadily, they are unlikely to alter investor bets on <place w:st="on"><country-region w:st="on">China</country-region>'s monetary policy outlook.

Many economists have long expected China to breach its inflation target for the year given that the inflation rate is well above the 4 percent mark since January, and is expected to peak at 6 percent in June or July.

A Reuters poll of economists in June showed a median forecast for <place w:st="on"><country-region w:st="on">China</country-region> to increase benchmark lending and deposit rates by another 25 and 50 basis points respectively this year.

Copper prices lost ground on Monday on concern that inflation pressures may prompt top buyer <place w:st="on"><country-region w:st="on">China</country-region> to tighten credit further and persistent worries about the euro zone debt crisis.

Judging by a recent stream of comments from <city w:st="on">Beijing, the market's bias towards tighter policy in <place w:st="on"><country-region w:st="on">China</country-region> appears to be in step with that of the Chinese government.

Vice Premier Li Keqiang said on Saturday that fighting inflation is still <country-region w:st="on">China</country-region>'s top priority, effectively rebutting arguments among some investors that <place w:st="on"><country-region w:st="on">China</country-region> may hurt its growth if it over-tightens policy at a time when its economy is already easing.

Wen also took a stab at worries that China's economy risks a hard landing on Friday when he said China is "fully capable" of keeping its economy growing briskly.

Writing in an opinion piece in the Financial Times, Wen said: "There is concern as to whether <place w:st="on"><country-region w:st="on">China</country-region> can rein in inflation and sustain its rapid development. My answer is an emphatic yes.

<place w:st="on"><country-region w:st="on">China</country-region>'s central bank on its part has made clear that its focus is squarely on inflation.

It raised banks' required reserve ratio to a record 21.5 percent earlier this month, hours after official data showed China's inflation quickened to a 34-month high of 5.5 percent in May.