I’m with Wall Street Journal. Inflation has become an acutely-felt problem in China’s society. We have seen that rising commodity prices and housing prices have exerted direct impact on the day-to-day lives of the ordinary Chinese people. I would like to ask: how do you evaluate the measures that the central government has adopted to fight inflation. And what new measures will the government take to combat inflation in the future? Will the government consider letting the RMB appreciate faster in fighting inflation?
Inflation is like a tiger, once set free it will be very difficult to bring the tiger back into its cage. I believe that the current inflation we are witnessing is actually a global issue. Let’s take a look at the international environment in this respect. Some countries have pursued a quantitative easing monetary policy, and that has caused drastic fluctuations in exchange rates in some major currencies and the global commodity prices. This has not only affected one place or region in the world. Actually, we have seen an around 2% inflation rate in European countries. In the past few months, the global grain prices have risen by 15%. And the situation in some northern African and western Asian countries has driven up global oil prices, and that price has hit over $100 per barrel. The imported inflation has had a big impact on China and it is a factor that is not easy to control. At the same time, we have also witnessed a structural inflation in China due to rising labor cost and rising prices of primary goods. We must pay very close attention to this problem and take strong steps to address it. I have often said that inflation including rising consumer and housing prices affects the immediate interests of the people. That is why the government has given top priorities to curbing inflation for its macroeconomic control this year.
I have explained the measures that we will adopt to control inflation and manage inflation expectations in my Government Work Report in great detail, so I will not repeat the measures here. I just want to emphasize that the government has the confidence that it will be able to anchor inflation expectations. In November last year, China’s consumer price index rose by 5.1%. With our hard efforts, we managed to bring it down to 4.6% the next month that is December last year. We still face difficult situation in the first half of this year, I’m sure that you are well aware of the carry-over effects on the CPI. In January this year, the CPI rose 4.9% and stayed at the same level in February. But we have a strong carry-over effect, standing at 3.7%. Therefore, we must not take this issue lightly. We have taken the following measures to manage inflation expectations: First, we will continue to develop production, in particular agricultural production to ensure sufficient supply; Second, we improve the distribution system, in particular we will enhance the weak links in agricultural product distribution; And third we will mainly make use of economic and legal instruments to manage the market and maintain good market order. We will continue to take persistent efforts to manage the inflation expectations. Our measures to bring down the rising housing prices are three-fold: First, we must mop up excess liquidity. That is actually important for both controlling the housing prices and the consumer prices because that will help us eliminate the monetary conditions for surging consumer and housing prices; Second, we will make use of a fiscal taxation and financial instruments to adjust market demand; And third, we must intensify the responsibility of local governments in these aspects. Local governments must assume their due responsibilities for controlling consumer and housing prices. That include the governors of provinces will take responsibility for the supply of staple foods and the mayors will be responsible for the supply of vegetables. And in terms of bringing down surging housing prices, it is the local governments that will assume the general responsibility.
You have a keen interest of in the appreciation of Chinese RMB. I would like to say that we will continue to pursue our reform of the Chinese RMB exchange rate regime. Actually we have taken three major steps in pushing forward this reform since 1994. And since 1994, the real effective exchange rate of the Chinese Yuan has appreciated by 57.9% against the dollar. Our practice has been to de-peg the Chinese yuan from the US dollar and we pursue a managed and floating exchange rate, RMB exchange rate regime on the basis of market supply and demand and with reference to a basket of currencies. We will continue to make the RMB exchange rate more flexible in line with the changes in market supply and demand. At the same time, the appreciation of the Chinese currency should be a gradual process because we must bear in mind its impact on the Chinese businesses and our employment situation. We must ensure overall social stability in this process. Thank you!