Beijing will continue to put taming inflation at the top of its agenda by keeping a prudent monetary policy stance, but it will try to avoid any big swings in economic growth caused by excessive tightening, Chinese Premier Wen Jiabao said in comments published on Tuesday.
We must avoid the combination of lagging effects of monetary policy and other factors to cause big impacts on future real economic operation, Wen said in a statement published on the central government Internet portal, www.gov.cn.
It was the most explicit expression of concern from Beijing about signs the world's second-largest economy is slowing.
We must slow down inflation, but we must not allow big fluctuation in economic growth, Wen said.
Tao Wang, economist with UBS in Hong Kong, said Wen's wording showcased the increasing uneasiness of Beijing about economic growth.
It shows the government is becoming more cautious and a bit worried about growth, Wang said. The policies will not become tighter in the rest of the year.
China is scheduled to publish GDP growth for the second quarter on Wednesday, with a slowdown expected from 9.7 percent hit in the first quarter.
China's June inflation hit a three-year-high of 6.4 percent, and local government leaders, executives from steelmakers and power generators, and experts have told Wen that the Chinese economy faces increasing dilemmas.
Wen reiterated that the general direction of China's monetary policy will not change, but said China must fine-tune its policies when necessary.
We must reasonably use various monetary policy tools to make our policies more targeted, Wen said.
Wen added that China will push forward liberalization of its exchange rate and interest rate regimes and enhance management of banks' off-balance sheet assets.
Wen also said China would enhance management of local government debt to gradually address debt risks.
He added that China will keep property control measures to discourage unreasonable housing demand.
Wen made the comments at four meetings in past seven days on China's economic development and future policy moves.
(Reporting by Zhou Xin, Gui Qing Koh and Kevin Yao; Editing by Catherine Evans)