Cover editorial, from issue no. 344, December 3rd 2007
Original article: [Chinese]

In a November 27th meeting, the Political Bureau of the Communist Party of China (CPC) Central Committee announced that it would prioritize preventing economic overheating, and what it calls “structural inflation” from deteriorating. After this, it is easy to predict that these will become the main topics of China’s imminent central economic conference.

The annual economic conference attempts to diagnose the economy and clarify the following year’s policy focus. In past years, China has maintained rapid growth above 10 percent. This can be attributed to the government’s solid grasp of the economy and effective macro-control policies.

But today, excess liquidity, overheating investment, and the massive trade surplus have yet to be completely dealt with, and stock and real estate bubbles are threatening to interact with each other. With downturn risk growing in the global economy and the Federal Reserve reducing interest rates, the Chinese government has no choice but to spend more time on macro-policy next year.

In recent years, policy adjustments sought to prevent economic over-heating, and both monetary and administrative policies seemed aimed at solving short-term problems. But today, it's clear that China must engage more those problems that are longer-term.

For example, due to inflation fears, certain government agencies slowed down the reform schedule for resource prices. But suppressing those prices through administrative control led to an imnbalance between supply and demand. The short-term problems seem to be solved, but long-term consequences will undoubtedly accumulate and intensify. The petroleum shortage that emerged in recent months is one example of the obscured, but serious, downside to price manipulation and market interference.

Everyone has witnessed how, over the past few years, the government has adopted a series of policies to put the brakes on a rapidly growing economy. Having been left with a tangled net of natural resource prices, inconsistencies in authority by central and local financial agencies, tax burdens being spread unequally among differently owned enterprises, and long-delayed reforms some felt might cause social unrest if implemented too quickly, policymakers are now hopeful to find more effective polices that won’t contradict each other as they have before.

The Party's politburo has demanded that reforms, especially those in the most critical sectors, be given more prominence. We agree, and looking forward, it’s time to compromise short-term interests and carry out those which will improve the overall economy.