China faces tough bat­tle on in­fla­tion: econ­o­mist

The Pak Banker - - Company& -

BEI­JING: In­fla­tion in China is more broad-based and stub­born than many econ­o­mists had ex­pected, forc­ing the cen­tral bank to rely on a mix of tight­en­ing mea­sures to rein in prices, Gao Shan­wen, chief econ­o­mist at Essence Se­cu­ri­ties, said on Mon­day at the Reuters China In­vest­ment Sum­mit.

In an in­ter­view with Reuters, Gao pointed to wor­ry­ing signs that China's con­sumer in­fla­tion is spread­ing be­yond food, with pro­duc­tion costs soar­ing in some sec­tors.

"Main­stream econ­o­mists are not on enough of a high alert for this round of in­fla­tion. It will last a long time and re­cur now and then," he said.

"Peo­ple think in­fla­tion is caused by short­ages in farm goods, but there are some other fac­tors be­hind it, which has not been given enough at­ten­tion," he said.

Chi­nese lead­ers gave greater promi­nence to the fight against in­fla­tion in their state­ment on Sun­day at the end of the Cen­tral Eco­nomic Work Con­fer­ence, an an­nual meet­ing at which they chart pol­icy for the com­ing year.

China of­fi­cially raised banks' re­quired re­serves for the third time in a month on Fri­day.

Gao said the Peo­ple's Bank of China would use a com­bi­na­tion of higher in­ter­est rates, banks' re­serve re­quire­ments and faster yuan ap­pre­ci­a­tion to try to put a lid on prices.

The PBOC may have to raise in­ter­est rates three times from now to the end of 2011 and in­crease re­serve re­quire­ments 4-5 times, while let­ting the yuan ap­pre­ci­ate 4-5 per­cent, he said.

China will prob­a­bly tar­get new lo­cal cur­rency lend­ing of 7 tril­lion-7.5 tril­lion yuan in 2011, he said, higher than the other re­cent es­ti­mates rang­ing from about 6.5 tril­lion to 7 tril­lion yuan. -PB News

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