China Faces Growing Inflation Pressure, but Can Control Price Rises.
China faces growing pressure for prices to rise due to food shortages and a credit boom but is confident inflation can be held to its 4.8 percent target this year, financial officials said Thursday.
"We will face increasing pressure for price rises and they need to have our full attention, becuse they have a direct bearing on the performance of our economy," the chairman of China's planning agency, Ma Kai, said at a news conference during the annual session of the national legislature. Inflation "will be the No. 1 item on our agenda," Ma said. "We have the means to achieve the targets."
Analysts are skeptical that Beijing can meet the goal announced by Premier Wen Jiabao on Wednesday after inflation soared to 7.1 percent in January, its highest level in 11 years. Communist leaders worry about possible political fallout from rapid price rises, especially for food, that have battered Chinese consumers and threaten to erode rising living standards. Bouts of high inflation in the 1980s and '90s sparked protests.
Beijing will maintain a tight monetary policy while trying to ensure food supplies, said Ma, who appeared with Finance Minister Xie Xuren and the governor of the central bank, Zhou Xiaochuan. "We will use finance and taxation as leverage to vigorously support production of grain, meat, cooking oil and vegetables, ensure the supply of daily necessities and hold down price rises," Ma said.
Snowstorms that battered China's south in January and early February worsened food shortages, adding to price pressure and prompting analysts to raise their inflation forecasts. Beijing has yet to report February's consumer price index. But at a separate event Thursday, the deputy director of China's statistics agency, Lin Xianyu, told Dow Jones Newswires it is likely to match January's rate.
Deutsche Bank's Jun Ma said February's rate should top 8 percent, while full-year inflation should hit 6.4 percent. "We think the government is too optimistic," Ma said in a report to clients. "We believe that the government is still underestimating the risk of inflation, as it did in the past six months." Monetary policy "remains overly relaxed" and the central bank could raise interest rates once February data are reported, Ma said.
Beijing has hiked rates repeatedly over the past two years to cool a boom in bank lending and investment that helped to drive economic growth to 11.4 percent last year. Chinese planners worry that runaway spending could fuel inflation or ignite a debt crisis.
Zhou, the central bank governor, said there is room for more rate hikes, though he gave no sign whether any are planned. "I believe the room is there," he said. Zhou said recent U.S. interest rate cuts in response to the subprime credit crisis have made China's decisions more complicated. But he said they are "not a major concern for China."
"For a long time to come, we will face this issue of excess liquidity and excess enthusiasm in making investment. We need to constantly make adjustments to curb these trends," Zhou said. "But we cannot curb these trends too hard, or it will backfire and hurt enthusiasm for investment."
Zhou said China's decision to let its currency, the yuan, rise in value against the U.S. dollar since mid-2005 has helped to cool inflation slightly. But he said other policy tools were more effective and the exchange rate should not be seen as an anti-inflation measure. "As for controlling inflation, more importantly we need to look more at domestic policy, such as monetary policy," Zhou said.
The flood of money pouring into China's economy from its swollen trade surplus has strained the central bank's ability to contain pressure for prices to rise. A stronger yuan could narrow the trade gap by making Chinese goods more expensive in dollar terms.
The yuan has been allowed to rise by 16.5 percent against the dollar over the past 2 1/2 years. But critics of Beijing's trade record want a faster rise, and some American lawmakers are calling for punitive tariffs on Chinese goods if it fails to respond. Wen, the premier, promised Wednesday that Beijing would pursue a more flexible exchange rate, but Zhou gave no indication how much faster the yuan might be allowed to rise.
China faces growing pressure for prices to rise due to food shortages and a credit boom but is confident inflation can be held to its 4.8 percent target this year, financial officials said Thursday.
"We will face increasing pressure for price rises and they need to have our full attention, becuse they have a direct bearing on the performance of our economy," the chairman of China's planning agency, Ma Kai, said at a news conference during the annual session of the national legislature. Inflation "will be the No. 1 item on our agenda," Ma said. "We have the means to achieve the targets."
Analysts are skeptical that Beijing can meet the goal announced by Premier Wen Jiabao on Wednesday after inflation soared to 7.1 percent in January, its highest level in 11 years. Communist leaders worry about possible political fallout from rapid price rises, especially for food, that have battered Chinese consumers and threaten to erode rising living standards. Bouts of high inflation in the 1980s and '90s sparked protests.
Beijing will maintain a tight monetary policy while trying to ensure food supplies, said Ma, who appeared with Finance Minister Xie Xuren and the governor of the central bank, Zhou Xiaochuan. "We will use finance and taxation as leverage to vigorously support production of grain, meat, cooking oil and vegetables, ensure the supply of daily necessities and hold down price rises," Ma said.
Snowstorms that battered China's south in January and early February worsened food shortages, adding to price pressure and prompting analysts to raise their inflation forecasts. Beijing has yet to report February's consumer price index. But at a separate event Thursday, the deputy director of China's statistics agency, Lin Xianyu, told Dow Jones Newswires it is likely to match January's rate.
Deutsche Bank's Jun Ma said February's rate should top 8 percent, while full-year inflation should hit 6.4 percent. "We think the government is too optimistic," Ma said in a report to clients. "We believe that the government is still underestimating the risk of inflation, as it did in the past six months." Monetary policy "remains overly relaxed" and the central bank could raise interest rates once February data are reported, Ma said.
Beijing has hiked rates repeatedly over the past two years to cool a boom in bank lending and investment that helped to drive economic growth to 11.4 percent last year. Chinese planners worry that runaway spending could fuel inflation or ignite a debt crisis.
Zhou, the central bank governor, said there is room for more rate hikes, though he gave no sign whether any are planned. "I believe the room is there," he said. Zhou said recent U.S. interest rate cuts in response to the subprime credit crisis have made China's decisions more complicated. But he said they are "not a major concern for China."
"For a long time to come, we will face this issue of excess liquidity and excess enthusiasm in making investment. We need to constantly make adjustments to curb these trends," Zhou said. "But we cannot curb these trends too hard, or it will backfire and hurt enthusiasm for investment."
Zhou said China's decision to let its currency, the yuan, rise in value against the U.S. dollar since mid-2005 has helped to cool inflation slightly. But he said other policy tools were more effective and the exchange rate should not be seen as an anti-inflation measure. "As for controlling inflation, more importantly we need to look more at domestic policy, such as monetary policy," Zhou said.
The flood of money pouring into China's economy from its swollen trade surplus has strained the central bank's ability to contain pressure for prices to rise. A stronger yuan could narrow the trade gap by making Chinese goods more expensive in dollar terms.
The yuan has been allowed to rise by 16.5 percent against the dollar over the past 2 1/2 years. But critics of Beijing's trade record want a faster rise, and some American lawmakers are calling for punitive tariffs on Chinese goods if it fails to respond. Wen, the premier, promised Wednesday that Beijing would pursue a more flexible exchange rate, but Zhou gave no indication how much faster the yuan might be allowed to rise.
No comments:
Post a Comment