China top banker says fighting inflation priority

[September 26, 2011]  SHANGHAI (AP) -- China's central bank chief said Monday that policies aimed at dousing inflation will be kept in place and urged European nations to act to resolve the region's protracted debt crisis.

People's Bank of China Governor Zhou Xiaochuan also said Beijing has to remain flexible as it strives to keep growth on track and steer clear of a "hard landing" for its economy, which is still growing at about 9 percent.

"There has been no major change in China's overall economic situation, so there is no need for a fundamental change in the monetary or fiscal policies," Zhou said in an interview with the financial paper China Business News.

With inflation still hovering near a three-year high of over 6 percent, China's big challenge is in coping with the massive liquidity unleashed by recession-fighting spending sprees both at home and abroad, Chinese officials say.

Zhou said it was too soon to discuss next steps for helping nations that use the euro common currency out of their predicament.

"The first step depends on the eurozone countries" carrying out anti-crisis measures agreed on by their leaders in late July that are still awaiting final votes from parliaments.

"Before that, we can study options, but it is too early to say how to do the next step," Zhou said. "First is to look at the choices and decisions in Europe."

The so-called BRICS grouping of leading emerging economies -- Brazil, Russia, India, China and South Africa -- said last week they were ready to act through the International Monetary Fund and other financial institutions to help stabilize the world economy.

But the BRICS financial chiefs, gathered for World Bank and IMF meetings in Washington, gave no details.

Chinese officials attending the meetings downplayed any expectations for Beijing to act as a "white knight" by using its massive foreign exchange reserves to help rescue insolvent governments and financial institutions.

"Major developed countries should, as soon as possible, present a clear and credible medium-term adjustment strategy to boost market confidence," Zhou said in remarks posted on the central bank's website.

Gao Xiqing, who heads the sovereign wealth fund China Investment Corp., rebuffed suggestions his institution might be able to rescue the troubled European economies.

"As a company, we are responsible for maintaining a certain profitability, so we can't just go to Europe and save someone. We have to protect ourselves," the financial website Caixin cited Gao as saying.

Zhou downplayed the possibility of a widening of China's own difficulties due to the excessive borrowing by local governments.

Chinese local governments have borrowed heavily to build subways and other infrastructure. That lending soared after Beijing ordered massive stimulus spending to fend off the 2008 global crisis.

Many question whether the projects will eventually pay for themselves. But Zhou described most of the borrowing as "cost-effective."

"China's current debt ratio is not high. It is in a controllable range," he said. "Of course, we do not rule out risks for some projects, but they will not cause systemic problems," he said.

[Associated Press; By ELAINE KURTENBACH]

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