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Strategies & Market Trends : China Warehouse- More Than Crockery -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (2710)	2/24/2004 2:20:51 PM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

In China, inflation fears resurface Keith Bradsher NYT Tuesday, February 24, 2004 HONG KONG Further evidence emerged Monday that the Chinese economy might be overheating, as the producer price index rose 3.5 percent in January from a year earlier and state-controlled media said the central bank was considering an increase in interest rates. Citing three Chinese economists, one of them in the government although not with the central bank, the semi-official China Daily said in an article on the cover of its business section that, "there is a possibility that China might raise interest rates this year to counter continually rising consumer prices and investment growth." While China Daily serves as Beijing's mouthpiece on issues involving Taiwan and Hong Kong and on diplomatic affairs, its business and economic coverage sometimes shows a little independence from government policies. A central bank spokesman told Bloomberg News that no rate increase was planned. But the broaching of the subject of an interest-rate increase, together with the increase in producer prices, nonetheless underlines the growing debate in China over whether the country faces a serious threat from inflation. The consumer price index in China rose at an annual pace of 3.2 percent in January for the second month in a row, a sign that, at the very least, the deflation that China suffered until late last year seems to have ended. Hong Kong, which is now part of China but maintains considerable autonomy in its economic system, released separate figures on Monday showing that prices had begun rising slowly again after bottoming out last autumn. Rising prices for food, clothing and other goods imported from China have played a substantial role in reversing deflation in the territory. In a research report on Monday, Hong Liang, an economist at Goldman Sachs, said that sharp increases in the price of food, the biggest single component by far of China's consumer price index, "is reflective of rising inflation expectations" instead of changes in the actual supply of food. The official New China News Agency quoted Yao Jingyuan, the chief economist of China's National Bureau of Statistics, as saying that inflation would stay under control at its current level. China is struggling to prevent higher inflation from following the brisk growth in its money supply during the past two years. Determined to prevent the yuan from appreciating against the dollar even as foreign investment pours into the country, the People's Bank of China, China's central bank, has been issuing yuan to buy dollars on a massive scale. Last August, after China raised the amount of money that banks must set aside as reserves, the pace of increase in the money supply did slow slightly. But it continues to expand at an annual pace of 18 percent, twice the rate of economic growth. China has a labyrinth of interest-rate regulations, with separate rates for various kinds of loans, for deposits and for bonds. The China Daily article did not say which rates might be adjusted. But a move to raise the allowable rates for commercial loans would be consistent with recent government warnings to banks to limit the issuance of further loans to fast-growing sectors of the economy like property development and steel manufacturing. The alternative to tightening monetary policy would be to allow an increase in the value of the yuan, also known as the renminbi. Chinese leaders seemed to hint at a conference on Feb. 10 and 11 that they might accept small adjustments to the currency's value, saying that they wanted exchange rates to be "rational" and "basically stable," without reaffirming the current peg at 8.28 to the dollar. A Chinese economist with ties to the leadership in Beijing said that one possibility would be to peg the yuan to a basket of other currencies, with the basket initially set to be roughly equal in value to the current peg. But if the dollar continues its rise of the last several trading days, then pegging the yuan now to the dollar plus several other currencies, instead of just the dollar, would cause the yuan to rise more slowly than leaving the current arrangement in place. The New York Times iht.com