Thursday, 28 January 2010 23:00

The Potential Effects of Remnibi Appreciation on China's Economy

A quick discussion note for paying subscribers.

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.

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.

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
, 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.

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

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

“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
, 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.

Last modified on Thursday, 28 January 2010 23:00


  • Comment Link shaunsnoll Monday, 01 February 2010 10:25 posted by shaunsnoll

    I see the basis of strengthening their currency but if I were in charge there I'd pull back on the banks hard and then WEAKEN the currency to get exports reved up.....

  • Comment Link Mark Hankins Friday, 29 January 2010 21:22 posted by Mark Hankins

    There must be something a little off-putting about following an economist executed by Stalin...

  • Comment Link shaunsnoll Friday, 29 January 2010 12:40 posted by shaunsnoll

    very rare to hear about Kondratieff Mark. I certainly agree though.

  • Comment Link Mark Hankins Friday, 29 January 2010 11:28 posted by Mark Hankins

    Looks like it's the Kondratieff / Kondratiev winter of our discontent...

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