Ad­viser: Chronic in­fla­tion will plague China for decade

Shanghai Daily - - BUSINESS -

CHINA’S in­fla­tion, al­ready at a three-year high, is “most likely chronic” and will re­main a prob­lem over the next decade, Li Daokui, an aca­demic ad­viser to the Peo­ple’s Bank of China said yes­ter­day. The cen­tral bank, which has raised bor­row­ing costs four times since Oc­to­ber, needs to in­crease in­ter­est rates fur­ther to com­bat price gains, Li, a pro­fes­sor at Ts­inghua Univer­sity, said at a con­fer­ence in Bei­jing. Li, 47, said he was giv­ing his view as an aca­demic.

China is wrestling with price in­creases driven by higher food, fuel and la­bor costs. Premier Wen Ji­abao said last week that the govern­ment may fail to meet its in­fla­tion tar­get of 4 per­cent this year even as ef­forts to stem gains have worked and that the overall price level will drop steadily.

“High in­fla­tion pres­sure will be a long-term struc­tural is­sue for China, mainly driven by cost-push fac­tors such as ris­ing wages, en­ergy and re­sources prices,” said Chang Jian, a Hong Kong-based econ­o­mist with Bar­clays Cap­i­tal, who pre­vi­ously worked at the World Bank. “The na­tion may face a sit­u­a­tion over the next decade where in­fla­tion hov­ers around 4 to 5 per­cent a year while the econ­omy grows at 7 to 8 per­cent.”

In­fla­tion ac­cel­er­ated to 5.5 per­cent last month and may top 6 per­cent in June, ac­cord­ing to banks, in­clud­ing China In­ter­na­tional Cap­i­tal Corp and Mizuho Se­cu­ri­ties Asia Ltd. The bench­mark one-year lend­ing rate is 6.31 per­cent, and the de­posit rate is 3.25 per­cent.

“China needs to cor­rect the sit­u­a­tion of neg­a­tive real in­ter­est rates so an­other three to four rate in­creases are needed by the end of 2012 to change that,” Chang said.

The bench­mark one-year de­posit rate has lagged be­hind con­sumer price gains for more than one year.

The cen­tral bank has paused for 12 weeks in rais­ing in­ter­est rates, the long­est gap since in­creases be­gan in Oc­to­ber, as of­fi­cials gauge the econ­omy’s strength amid a slow­down in the US and a debt cri­sis in Europe.

In­fla­tion will be a long-term prob­lem in China due to changes in the struc­ture of the econ­omy, Li said.

Wages of “blue col­lar” work­ers have kept ris­ing, push­ing up man­u­fac­tur­ing costs, while prices of agri­cul­tural prod­ucts rise as farm work­ers mi­grate to the cities, he said.

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