CHINA needs to save less to boost consumption and narrow the trade surplus, said People’s Bank of China Governor Zhou Xiaochuan.

“The government has pledged to boost consumption and cut the surpluses in the trade and capital accounts,’’ Zhou said at the Lujiazui Financial Forum in Shanghai on Saturday. That “requires that we reduce the current high savings ratio,” he said.

China’s trade surplus is pumping cash into the world’s fastest-growing major economy, threatening to stoke inflation that jumped to an 11-year high of 8 percent in the first quarter. April’s trade gap was about US$16.8 billion, according to figures derived from Ministry of Commerce data released Friday.

Zhou didn’t refer to the role of currency appreciation in slowing export gains. Growth in China’s overseas shipments has cooled this year as economies around the world weaken and the U.S. skirts a recession.

China has conflicting targets, the central banker said. “On the one hand, we need to boost consumption to adjust the economic growth structure, but on the other hand we also need to prevent excessive demand from fueling inflation,” Zhou said. “We need to balance those targets so that more savings are spent, while the spending doesn’t add too much pressure for inflation.’’

The household savings rate needs to fall, Zhou said.

China’s overall savings rate as a proportion of gross domestic product climbed over the past five years to about 51 percent from about 40 percent, according to a May 5 report by Jonathan Anderson, an economist with UBS AG.

The increase reflected increased company earnings from the growth of heavy industry, Anderson said.

In his speech, Zhou highlighted the interdependence of global economies and referred to contradictions between the policies of central banks.

World liquidity was excessive and injections of money to revive credit markets had added to the problem, he said.

The United States was loosening its monetary stance just as emerging markets were tightening to combat inflation, the central banker said.

China has raised the proportion of deposits that lenders must set aside as reserves to a record 16 percent this year. The central bank has kept interest rates on hold, wary that increases will attract inflows of foreign capital.

The world’s fourth-largest economy expanded 10.6 percent in the first three months of 2008 from a year earlier, the ninth straight quarter of growth of more than 10 percent.

China would increase agricultural supplies to cool inflation, Zhou said. Food costs have driven this year’s surge in consumer prices. (SD-Agencies)