"We are facing a stagflation situation. Shall we care more about growth or about prices" asked Wang Jian, secretary-general of the China Society of Macroeconomics think-tank. He said weakening external demand stemming from the U.S. credit crisis would expose overcapacity at home in 2008, stalling Chinese growth, while the long-term trend of rising prices for land, labour and resources would stoke inflation.
"If we can't handle this properly, it's hard to say whether we'd be able to cope if there is a world recession," said Wang.
Yu Yongding, a researcher with the Chinese Academy of Social Sciences and a former member of the central bank's monetary policy committee, also used stagflation to describe China's economic outlook this year. To some extent, Yu and others are taking liberties with language to make their point. No one actually expect gross domestic product growth, which hit a 13-year high of 11.4 % last year, to fall precipitously. But, as Yu said: "For China, a growth rate of less than 9 percent could be called stagnation, while other countries would regard it as high growth."
Fan Gang, Yu's successor as academic adviser on the monetary policy committee, said growth may dip into single digits in 2008 for the first time in six years. But such a slowdown would be welcome as it would help to relieve inflationary pressures.
"A growth rate of more than 11 percent is certainly too much; even if we come down to 10 percent or 9 percent, it's still high," Fan said in an interview with the portal Sina.com.
"But if you don't adjust now, there will be a crisis when the economy overheats," he said.
Beijing came into 2008 committed to a tighter monetary policy to prevent just such an overheating and to stop inflation spreading from food. The consumer price index (CPI) rose 4.8 percent last year, an 11-year high, due largely to dearer food.
Mounting signs of weakness in the U.S. economy, coupled with temporary disruptions to output at home caused by blizzards, are raising expectations in markets that the People's Bank of China might row back.
But Xia Bin, a researcher with the Development Research Centre, a think-tank under the State Council, China's cabinet, said monetary policy would remain tight.
"The tightening trend ought not to change, but in terms of rhythm and degree, operations should be more flexible," he said. Wu Xiaoling, a former vice governor with the central bank, told the forum that the PBOC had no intention to ease because the risk of broad-based inflation was still serious.