Today’s People's Daily editorial
contrasts with remarks made by
China's Premier Wen Jiabao, seen
here, who said in a speech in
August that economic
achievements were in danger of
being lost without more political
reform. Photographer: Nelson
Ching/Bloomberg
People's Bank of China governor
Zhou Xiaochuan said in
Washington on Oct. 10. It may
take two years for the inflation
rate to fall below 3 percent,
from a 22-month high of 3.5
percent in August. Photographer:
Joshua Roberts/Bloomberg
China’s economic data for
November showed growth is
withstanding government curbs
and extra measures may be
needed to tame the highest
inflation rate in more than two
years.
Industrial-output gains
accelerated to 13.3 percent last
month from a year earlier,
exceeding economists ’ median
estimate, a statistics bureau
report showed in Beijing
yesterday. Consumer prices rose
a more-than-forecast 5.1
percent, the most since July
2008.
The world’s fastest-growing
major economy is maintaining
momentum after an interest-rate
increase in October, curbs on
energy consumption and a
crackdown on real-estate
speculation. So far, officials have
held off on the rate increase
predicted for this weekend by
firms including UBS AG. Instead,
the central bank boosted
lenders ’ reserve requirements on
Dec. 10.
“With both inflation and growth
figures surprising on the upside,
Beijing can and will focus on
fighting inflation whole-
heartedly, ” said Qu Hongbin, an
economist at HSBC Holdings Plc
in Hong Kong. An “immediate”
increase in rates is likely and
lenders ’ reserve ratios may keep
climbing, Qu said.
China’s leaders pledged tonight
to give a greater priority to
stabilizing prices in 2011 and
better manage liquidity, in
comments reported by the
Xinhua News Agency after an
annual conference in Beijing to
set economic policy guidelines.
Curbing Investment
The government will also seek to
prevent officials “blindly” starting
investment projects as the
government ’s next five-year plan
takes effect, Xinhua said.
London-based Capital Economics
Ltd. said Dec. 10 that a rate
increase after the economic
policy meeting “cannot be ruled
out.” The Politburo has already
announced that the nation will
officially switch next year to a
tighter, “prudent” monetary
stance.
Besides industrial output, urban
fixed-asset investment also grew
at a faster pace, climbing 24.9
percent in the first 11 months of
2010 from a year earlier, the
report showed. Retail sales
gained 18.7 percent in November
from a year earlier.
Bank of America-Merrill Lynch
economist Lu Ting said that
industrial-production growth
may settle at about a 13 percent
annual rate, satisfying policy
makers and leaving “more room
to fight against CPI inflation and
asset bubbles. ”
Inflation Target
Inflation for the first 11 months
was 3.2 percent, more than the
government ’s full-year target of
3 percent. Producer prices
climbed 6.1 percent in
November, more than any of 28
economists surveyed by
Bloomberg News had estimated.
China, which overtook Japan as
the world ’s second-largest
economy in the second and third
quarters, lags behind Asian
countries including Malaysia and
South Korea in boosting
borrowing costs.
November’s consumer prices
rose by more than the 4.7
percent median forecast of
analysts. In October, inflation
was 4.4 percent. Yesterday ’s data
leaked ahead of the
announcement, with the
Economic Information Daily
reporting the inflation number
on Dec. 10.
“Inflation is shaping up to be the
primary challenge facing policy
makers in coming months, and it
makes sense for them to bring
out the big guns, ” Brian Jackson,
a Hong Kong- based analyst at
Royal Bank of Canada, said
before yesterday ’s data. Tools
may include a faster pace of
yuan appreciation, as well as
higher rates by year-end, he
said.
Food Costs
Food prices rose 11.7 percent in
November from a year earlier,
the most in more than two years,
and residence-related costs such
as charges for water, electricity
and rent were also a key driver
of inflation, the statistics bureau
said. Overall consumer prices
rose 1.1 percent from the
previous month.
The jump in producer prices
topped analysts ’ median forecast
of a 5.1 percent increase. Costs
of manufacturers ’ raw- materials
such as cement, steel, fuel and
cotton have surged, a survey of
purchasing managers indicated
Dec. 1.
The benchmark one-year deposit
rate stands at 2.5 percent, less
than the annual pace of
inflation, and the lending rate is
5.56 percent. The Shanghai
Composite Index of stocks has
fallen 10 percent from a Nov. 8
high, extending this year ’s loss to
13 percent, on concern tighter
monetary policy will cut
economic growth and profits.
On Dec. 10, the central bank
announced a 50 basis point
increase in reserve ratios,
effective Dec. 20. A basis point is
0.01 percentage point. That
move may lock up about 350
billion yuan ($53 billion),
according to Barclays Capital
Asia Ltd.
Price Controls
Besides monetary policy, Wen is
using administrative tools, such
as sales of state food reserves, to
cool prices.
Signs of inflationary pressure
have included McDonald ’s Corp.,
the world’s biggest restaurant
chain, pushing up prices, citing
rising costs. The southwestern
city of Kunming has imposed
temporary price ceilings on “daily
necessities,” telling retailers such
as Wal-Mart Stores Inc. and
Carrefour SA to report any
planned price rises.
Cash flowing into the economy
from trade, foreign direct
investment and bets on gains by
the yuan has added to a
domestic credit boom in
exacerbating inflation risks. The
trade surplus was $22.9 billion in
November and, in addition,
banks extended a more-than-
estimated 564 billion yuan of
local-currency loans.
Broad money supply, or M2,
rose last month by 19.5 percent,
the fastest gain in six months, the
People ’s Bank of China reported
Dec. 10. M2 has surged 55
percent over the past two years
and outstanding yuan-
denominated loans have climbed
to 47.4 trillion yuan, 60 percent
more than in November 2008.
Officials are seeking slower credit
growth and economists,
including at Societe General SA,
expect the government to set a
lower loan ceiling for 2011 than
this year ’s target of 7.5 trillion
yuan.
Inflation may have peaked in
November and will probably
soften this month as “price
intervention” takes effect and
the impact of earlier price
increases washes out of year-on-
year comparisons, Wang Qing, a
Hong Kong-based economist at
Morgan Stanley, said in Dec. 6
note.
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