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China economic growth points to possible rise in yuan

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littlekracker


China economic growth points to possible rise in yuan
Written by EDITOR
Wednesday, 21 April 2010

China's economy grew at an annual rate of 11.9% in the first quarter of the year, which experts say could lead to a revaluation of the yuan.
The growth figure was slightly higher than expected, while consumer price inflation was surprisingly low at 2.2%.
"We have got off to a good start this year," a Chinese spokesman said.
The figures have helped to fuel debate among experts about whether the recent fiscal stimulus package could be stoking up problems for the economy.
"There is a lot of talk about overheating," Glenn Maguire, chief economist for Asia Pacific at Societe Generale, told the BBC. "But the classic symptom is inflation."
March's consumer price inflation was 2.4% versus expectations of 2.7%, and producer price inflation was 5.9% versus the expected 6.4%.
"There had been speculation on the back of strong construction data [of] an imminent rate hike," added Mr Maguire. But given the low inflation, he now thinks the next step will be a revaluation of the yuan.
Either policy - a rise in interest rates or an increase in the value of the yuan - could be used to help slow the Chinese economy.
However, China has been under pressure from President Obama to address the yuan, which many commentators say is undervalued and gives the Chinese an unfair advantage in export markets.
But the Chinese refuse to be rushed. "I think, on the exchange rate problem, the biggest headache we face isn't the economic problem, rather it is that this problem is being highly politicised," Chinese commerce minister Yi Xiao Zhun told the BBC.
"China should still maintain stability in the trade policy and exchange rate policy," he added.

Wasted investment?
However, other economists fear that the rush by the Chinese authorities to boost investment spending during the global recession may have been too hasty.
"In the short term you can get as much growth as you are willing to pay for", Michael Pettis, professor at Peking University's Guanghua School of Management, told the BBC.
"[But] it has turned out to be very hard for Beijng to rein in investment spending, especially at the local [government] level," he added.
"The worry is that these seemingly-strong growth numbers may reflect a surge in investing that turns out to be very wasteful in the longer run."

Bubble
Data showed that urban property prices in March grew at their fastest rate in over four years.
Cheap and plentiful loans are helping to push up housing prices and raising fears of a bubble, BBC business reporter Linda Duffin says.
That is why mortgage rates have been raised and a new sales tax on homes has been introduced, she adds.
But the low inflation rate in the first quarter eases pressure on Beijing's policymakers to raise interest rates and cool the boom.
And if the government is successful at keeping growth at a manageable rate, China is likely to overtake Japan as the world's second biggest economy this year, our reporter says.
Li Xiaochao, spokesman for China's National Bureau of Statistics, told reporters in Beijing that the "momentum of national economic recovery" had further expanded and there was "a good foundation for reaching the targets set for the whole year". (BBC)

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