Chinese Economy to Stay on Current Course

Wrapping up a top-level economic policy-setting meeting, Chinese officials have said that the country will maintain its 2011 goals into the coming year. Those goals are what the government calls “prudent” monetary policy, a “pro-active” fiscal policy, and stable consumer prices.

Taken as a whole, the policy goals amount to a declaration that China will continue to post growth next year, even if that growth could slide below 9%. The government did not relax further its monetary policies, as some had hoped, but does appear committed to the kinds of flexibility it demonstrated in 2011.

To stem inflation, the government raised capital reserve requirements on its biggest banks several times this year and raised interest rates to slow-down the country’s massive borrowing. The policies appear to have worked, checking inflation to an annualized rate of 4.2% in November, well below October’s rate of 5.5%.

China’s ability to keep a lid on inflation and at the same time grow its economy enough to keep the global economy from hitting a wall will test the limits of the country’s central planners. The government is likely to relax reserve requirements to encourage a little more lending and to appeal to consumers with tax cuts and subsidies to keep inflation in check.