About the Post

Author Information

China’s ’07 inflation may exceed 4.4%

Nov consumer prices likely at 6.5%, the highest in a decade

(BEIJING) China’s 2007 inflation may exceed 4.4 per cent, driven mainly by rising food prices, China’s banking regulator said.

‘We will focus on preventing the structural rise in prices from transforming into overall inflation,’ Liu Mingkang, chairman of the China Banking Regulatory Commission, said at a conference organised by Caijing magazine yesterday in Beijing. ‘Next year, the government will take a series of measures to stabilise prices of goods, including pork, food and cooking oil.’

Mr Liu’s comments underscore the Chinese government’s move to set new growth and inflation targets next year, as prices soar beyond state control. China’s November consumer prices may have risen 6.5 per cent, according to the median estimate of 21 economists in a Bloomberg News survey, the highest level in more than a decade, adding pressure on the central bank to raise interest rates a sixth time this year or let the yuan rise faster.

The pressure of economic overheating is still ‘very large’ and the central government will continue with measures to curb excess liquidity and rapid asset price growth, Mr Liu said yesterday without elaborating.

China on Dec 8 ordered banks to increase reserves by the most in four years, three days after the government said it would shift to a ‘tight’ monetary policy among measures to cool the world’s fastest-growing major economy.

Starting Dec 25, the central bank will require lenders to put aside a record 14.5 per cent of deposits, up from 13.5 per cent.

China’s economy, the world’s fourth largest, expanded 11.5 per cent in the third quarter from a year earlier.

China’s banks must enhance their risk management policies and ‘learn’ from the experience of US financial institutions in their exposure to sub-prime lending, the Chinese bank regulator said.

‘Risk control is very important for the financial sector, especially in the light of lessons learnt from exposure to subprime loans,’ Mr Liu said. ‘The turbulence from the sub-prime lending crisis is not over.’ The Industrial & Commercial Bank of China, the country’s largest bank by value, wrote off about US$58 million of investments in US mortgage-backed securities in the third quarter.

The regulator said it won’t interfere with Chinese banks’ plans to expand overseas. ICBC last week won shareholder approval to pay US$5.6 billion to buy a 20 per cent stake in South Africa’s Standard Bank. The Chinese lender, armed with enough cash to buy JPMorgan Chase & Co, has announced acquisitions in Indonesia, and Macau in the past year, and is buying a stake in a Thai Bank.

Meanwhile, China’s factory gate prices jumped 4.6 per cent in the year to November, overshooting forecasts by a wide margin and fuelling concern that inflation could pose a stiffer challenge than many anticipated.

Producer price inflation registered a 27-month high less than a week after China’s top leaders said a main goal for next year was to prevent inflation, hitherto concentrated in food prices, from spreading more widely in the economy.

The leap in the producer price index (PPI), which surpassed forecasts of a 3.4 per cent rise, sets the stage for today’s consumer price data.


Source: Bloomberg, Reuters (Business Times 11 Dec 07)

No comments yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: