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Economy Watch
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May 13 Updates
| China’s inflation hastens and lending increases
It is reported that China’s inflation accelerated and lending surges in April. New lending had topped economists’ estimates and property prices rose to a record high underlining the threat of overheating in the economy.
According to the Bloomberg News, China’s consumer prices rose 2.8 percent in April from a year ago, the fastest rate in 18 months, and property prices increased 12.8 percent. The statistics bureau revealed that new lending has reached 774 billion yuan ($113 billion).
Brian Jackson, a Hong Kong-based strategist at Royal Bank of Canada said, “Price pressures have been building throughout the economy, strengthening the case for higher interest rates and a stronger yuan. China is at risk of overheating, with spot fires breaking out in various parts of the economy.”
According to 30 economists surveyed by Bloomberg News, the gain in consumer prices compared with a 2.4 percent increase in March. Producer prices jumped 6.8 percent, also topping estimates, today’s release from the statistics bureau showed.
Credit Growth
The Chinese government aims to contain inflation at 3 percent and prevent property bubbles after record credit growth drove an economic rebound. Investors are concerned stimulus withdrawal and a slowdown in construction could stifle growth after an 11.9 percent expansion in the first quarter.
Industrial production rose 17.8 percent in April from a year ago, after an 18.1 percent gain in March, according to 11 May’s records. That compared with economists’ median forecast for an 18.5 percent gain.
Investment
It is also reported that urban fixed-asset investment rose 26.1 percent and retail sales increase 18.5 percent in the same period in 2009. The gain in producer prices was the biggest in 19 months and more than economists’ 6.5 percent median estimate.
Developers Guangzhou R&F Properties Co. and China Overseas Land & Investment Ltd. are reporting slowing sales as the government intensifies the crackdown on property speculation, April prices rose 12.8 percent, the most since data began in 2005.
Lending
“The double-dip risk in the world economy is likely to be reduced to a minimum,” central bank adviser, Li Daokui expressing his personal view of the European aid plan. “China’s growth rate is not a problem this year, and the main policy focus should be on preventing excessive gains in asset prices and liquidity.”
The central bank said that China faces increasing risks to “price stability,” citing loose global monetary conditions, rising commodity prices and the world’s recovery. Rising labor, resource and environmental costs in China may push up prices, it added.
According to Bloomberg News, China International Capital Corp. reduces its estimate for China’s economic growth this year to 9.5 percent from 10.5 percent, citing property tightening measures and overseas “uncertainties.” Adjustments to interest rates and changes to currency policy may be delayed, the investment bank said.
Europe’s Rescue Package Liberates China’s Asset Prices
It is reported that European policy makers unveiled a loan package worth 750 billion euros ($962 billion), with the support of International Monetary Fund on 10 May, to stop debt crisis that threatened to damage confidence in the euro.
Europe’s rescue package will free Chinese officials’ focus on containing asset prices and inflation rather than worrying about the global recovery, according to central bank adviser, Li Daokui.
From a personal view, Li added that “the double-dip risk in the world economy is likely to be reduced to a minimum. And China’s growth rate is not a problem this year, and the main policy focus should be on preventing excessive gains in asset prices and liquidity.”
According to the Bloomberg News, Europe’s measures to counter the debt crisis, includes a loan package of almost $1 trillion for nations under attack from speculators, are strong medicine that will remove “any concern” across financial markets, Li said.
China central bank revealed on 10 May that threats to price stability in the nation are increasing and inflation may accelerate on commodity and labor costs. In a quarterly monetary-policy report, the central bank said that while Europe’s crisis adds “uncertainty” to the global recovery, the threat of a second slump has lessened as major economies make gains.
Cooling China
The euro rallied and global stocks climbed, once the plan to end the debt crisis was revealed. Officials have left interest rates unchanged and retained the yuan’s peg to the dollar.
China’s economy expanded 11.9 percent in the first quarter from a year ago, the fastest increase in almost three years, on fiscal stimulus and an exceptional expansion in credit. Exports rose more-than-forecast 30.5 percent in April from a year ago according to the customs bureau data.
China should continue to strengthen liquidity management and control inflationary expectations, without elaborating on the measures that should be used. In 2010, the nation has raised banks’ reserve requirements three times, sold bills to soak up cash and targeted a 22 percent reduction in new lending from last year’s record of 9.59 trillion yuan ($1.4 trillion), said Li.
Property Prices
It is reported that property prices rose by a record 11.7 percent in March from a year ago, prompting the government to strengthen the crackdown on speculation, which has included suspending loans for third- home purchases and raising mortgage rates and down-payment requirements for second-home purchases.
Consumer prices gained 2.7 in April from a year ago, approaching the government’s targeted maximum of 3 percent for the year, according to the median estimate in a Bloomberg News survey of economists.
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