Chinese Premier Wen Jiabao warned Sunday of "huge downward pressure" on the Chinese economy, in the clearest expression yet of concern at the top of the country's leadership about a sharp slowdown in recent months.
Chinese Premier Wen Jiabao has warned that China faces serious "downward pressures" and added that China will have to adopt aggressive stimulus measures to achieve its 2012 growth target.
Wen's remarks came days after the People's Bank of China cut interest rates for a second time in four weeks, a surprise move which led to speculation that that the Chinese economy is slowing more sharply than expected.
Speaking on the sidelines of a weekend inspection visit to the province of Jiangsu, Wen described China's current economic situation as "generally stable" but said it faces "relatively huge downward pressures."
To remedy it, Wen said:
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"We should increase the strength of policy fine-tuning and maintain a proactive fiscal policy, particularly on improving the structural tax cut policies while continuing to implement prudent monetary policy to effectively settle the structural contradiction between the supply and demand of credit."
As part of its expansionary plans, Wen hinted at tax credits for companies investing in research and development and at the same time urged local businesses to pursue trade with regional markets as alternatives to industrialised economies where protectionist barriers are in place.
He added that China's slowdown is largely due to weak external demand, particularly from Europe, and reaffirmed his government's policy stance on making real estate prices more affordable by curbing real estate speculation.
China's real estate and construction boom has in recent years slowed to a crawl as the government cut back on generous subsidies, piling pressure of China's slowing economic growth.
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In March, China had reduced its 2012 growth target from 8 percent to 7.5 percent - a figure not seen since 1990.
China's economy grew at an annual 8.1 percent in the first quarter, its slowest pace in nearly three years.
Earlier today, China's national statistics board reported that inflation in June slowed to its lowest pace in 29 months - suggesting that the government might have more flexibility with its monetary tweaks.
However, falling prices underlines the risk of faltering demand.
Ren Xianfang, chief China economist for IHS Global Insight in Beijing told the AFP:
"Persistent deflation can be poisonous to the economy, which has already been manifested by continuous weakening of business profits."
China is scheduled to release its second quarter GDP results this Friday and analysts are widely expecting one of the weakest performances in three years.
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The article was first published by Economy Watch.