Thursday, 28 January 2010 23:00

The Potential Effects of Remnibi Appreciation on China's Economy Featured

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In Bloomberg: China Central Bank Says Price Threat Is Complicating Management of Economy

Jan. 29 (Bloomberg) -- China’s central bank said rising inflation will complicate management of the world’s third- largest economy in 2010 after record lending sparked a jump in property prices and added to overcapacity in some industries.

The government will ensure “balanced” lending and continue fiscal stimulus as policy makers seek to cement a recovery that started last year, the People’s Bank of China said in a report on its Web site today.

Chinese bank shares trading in Hong Kong are heading for their worst month in a year on concern government efforts to rein in lending will slow the world’s fastest-growing major economy. The central bank today reiterated a pledge to maintain sufficient credit while adding that money-supply growth is adding to inflation pressures.

“Inflation may spiral if monetary policy isn’t proactive,” said Liu Li-Gang, an economist with Australia & New Zealand Banking Group Ltd. in Hong Kong. “It’s a major risk facing the economy this year,” Liu said, adding consumer prices may rise 6.7 percent this year if left unchecked.

The central bank cautioned today that the trade environment is “deteriorating” because of a weak global recovery and intensifying protectionism.

Gains in the property market are fueling inflationary expectations and rising commodity costs and adjustments to Chinese resource prices may stokeinflation, the central bank said. “It has become more difficult to maintain price stability” and prevent systematic financial risks, it said.

Raising Interest Rates

Still, a sufficient food supply and overcapacity in some industries may limit price gains, the report said.

“Inflation is gaining pace and the sooner the central bank raises interest rates, the easier it will be for them to manage inflation expectations,” said Xing Ziqiang, an economist at China International Capital Corp. in Beijing. Xing expects consumer prices to rise 1.8 percent this month from a year earlier, peaking at 4.5 percent mid-year.

Average property prices in 2009 were 21 percent higher than in 2007, during the previous housing boom, the central bank said.

Read 5613 times Last modified on Friday, 29 January 2010 06:20
Reggie Middleton

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