A high-level meeting of the Community Party of China (CPC) held on December 5 set the tone for China's economic policy next year.

The Central Committee's Political Bureau members, chaired by Hu Jintao, general secretary of the Central Committee and president of China, officially decided to shift from proactive to prudent fiscal and monetary policies "to conform with changes in China's macroeconomic situation and consolidate the achievements of macro-control."

The meeting was held to analyze the current economic situation and plan for economic work next year. Other decisions included improved coordination between various macro-control policies and proper control of total economic output "to promote steady and relatively fast economic growth" in 2005.

According to participants, agriculture and farmers' issues will remain the top priority of the Party next year. Support to agriculture and rural economic expansion "will be further enhanced to promote rises in grain production and farmers' income."

Another important task in the coming year will be adjusting the economic structure in line with domestic and international market situations and with an eye to improving core competitive power. Investment in fixed assets will be kept in check by strictly controlling land and credit supply.

Politburo members also agreed to promote resource conservation consciousness throughout the nation and accelerate the development of a "recycle economy."

Building up employment and the reemployment of laid-off workers and improving social security are high on the Politburo's list of things to do.

Plans also include stimulating consumption and creating concrete safeguards for the fundamental interests of the people, speeding development in the realms of science and education, and balancing the relationship between reform and development and protecting social stability.

Participants to the meeting pointed out that economic achievements did not mean that all problems had been eliminated. The Chinese economy faces challenges that "urgently need to be dealt with," they said.

Growth in grain production and farmers' income is still somewhat tenuous. Meanwhile, the over-investment trend lingers on, together with some "other deep-rooted problems hindering healthy economic growth."

China's proactive fiscal and monetary policies have been in place since 1998. Analysts say that the shift is now being made to forestall volatility.

The proactive fiscal policy has resulted in seven years of stunning economic growth, but by early this year the economy was showing signs of excessive investment and overheating in some sectors, while inflationary pressures were on the rise.

"A prudent policy is the logical choice to curb overheating of the economy, maintain steady development and improve the efficiency of the economy," said Hang Lin, associate research fellow with the Institute of Macroeconomics under the Chinese Academy of Social Sciences.

More Measures Needed to Narrow Rural, Urban Gap

To keep the issues of rural and agricultural development and farmers' income growth the top priority is crucial to creating sustainable development of the Chinese economy. At a recent top-level meeting to analyze the current economic situation and plan for economic work next year, Chinese authorities made clear their resolution to further enhance agricultural and rural economic development and to promote growth in grain production and farmers' income. The Chinese Government has taken a series of macro-control policies and measures to rein in excessive investment growth in some overheating industrial sectors this year. Meanwhile, the agricultural sector has performed better than most people would have expected. Not only has the country's summer grain output increased for the first time in four years, the whole year's target of 455 million tons now also appears within reach. The bumper harvest bears full testimony to the effectiveness of supportive policies like agriculture tax reductions as well as direct subsidy for grain production. A more important factor that underpins Chinese farmers' rising enthusiasm in grain production is that the government has refrained from stepping in to cap grain price hikes. Though soaring grain prices have contributed significantly to the creeping inflation, policy-makers have resisted the attempt to intervene, allowing prices to genuinely imply the market's supply-demand situation. So far, the country's grain prices have soared by about 30 per cent over the previous year. As a result, for the first time in more than a decade, farmers' income growth is expected to exceed that of urban residents this year to narrow the development gap between rural and urban areas. In comparison with the recovery of agriculture, excessive investment growth in some industrial sectors has drawn most of the attention from policy-makers. A combination of administrative measures and market tools have enabled the government to quickly and effectively bring down excessive investment growth. Central authorities have decided to continue to control investment on fixed assets by strictly controlling land and credit. Such efforts are needed for the country's pursuit of steady and relatively fast economic growth. But to address those underlying causes behind investment fever, the government needs to make efforts to deepen reform of the country's economic system. Sustainable economic growth will entail bold market-oriented reforms in all sectors of the national economy.