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Inflation a worry in China's growth efforts

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1 Inflation a worry in China's growth efforts on Fri May 07, 2010 8:52 am


Published May 7, 2010

Inflation a worry in China's growth efforts

Consumer price inflation may average 4%, surpassing govt's target of 3%, it says

(BEIJING) China should have no difficulty achieving 9 per cent economic growth this year but needs to beware of mounting inflation, a statistics official said yesterday.
Faster price rise: Economists expect the rate of rise in consumer prices in China to quicken in coming months

Gross domestic product (GDP) expanded 8.7 per cent in 2009 thanks to massive monetary and fiscal stimulus, and most independent economists expect an acceleration in 2010, especially after first-quarter year-on-year growth of 11.9 per cent.

The World Bank, for example, has forecast GDP growth of 9.5 per cent.

It will be 'no big problem' for China to grow 9 per cent this year, Pan Jiancheng, deputy director of an analysis unit under the National Bureau of Statistics, told Reuters.

Speaking on the sidelines of a conference, Mr Pan said the government should emphasise the quality of growth by improving the structure of the economy rather than the pace of growth.

He also said consumer price inflation could average as much as 4 per cent in 2010, surpassing the government's target of 3 per cent. Consumer prices rose 2.4 per cent in the year to March, but economists expect the rate to quicken in coming months.

Wang Xiaoyi, a deputy head of the State Administration of Foreign Exchange, agreed that the economic outlook this year was better, but he cautioned that the foundations of recovery were not yet solid.

Growth was still being mainly driven by policy stimulus and China had yet to tap its full potential for consumption growth, Mr Wang told a separate forum.

Like Mr Pan, Mr Wang said Beijing needed to take account of rising inflationary expectations. To that end, policy must be more flexible.

China also needed to step up monitoring of hot-money inflows to prevent speculative capital from inflating asset bubbles.

'Overall, in 2010 cross- border capital inflows will continue to increase on strengthening expectations for yuan appreciation, an interest rate gap between China and abroad and also rising asset prices,' he said.

Fear of an influx of speculative capital is one reason China has been reluctant to permit the yuan to resume a path of gradual appreciation. The currency has been pegged near 6.83 per dollar since mid-2008 to help Chinese exporters ride out the international credit crunch.

Mr Wang said global economic prospects had improved and the risk of a double dip in the United States had greatly decreased. On the other hand, recovery in Europe was uneven.

'Sovereign debt risks in Greece, Portugal, Spain and Ireland are increasing and could possibly spread to other eurozone countries,' he said.

Greece's debt woes give China reason to proceed cautiously with currency reform, but, barring a crisis that shakes Europe, should not stand in the way of a resumption of appreciation, government advisers told Reuters on Wednesday.

Echoing the World Bank and the Asian Development Bank, Mr Wang said the biggest risk for Asia as a whole was a surge in capital inflows, which could inflate asset bubbles. -- Reuters

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