Tuesday, October 21st, 2014

China Economy No. 1 Worry is Threat of Inflation

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Does Beijing Have The Guns To Stymie Inflation?

Does Beijing Have The Guns To Stymie Inflation?
About: China’s economy, Chinese stocks, China economy, China Stock, China Stock Market, People’s Bank of China, China’s financial system Bookmark and Share

Talk of inflation is rarely a positive topic, but as it pertains to China, the mere mention of inflation is downright toxic. Consider that while China’s economy is still flourishing, Chinese stocks have been lackluster this year, hampered by Beijing’s efforts to tighten monetary policy in a bid to prevent the real estate market from overheating.

The People’s Bank of China has shown a willing to blunt property prices while maintaining pro-growth policies and one of doing just that is by raising reserve ratio requirements, which the central bank has now done three times this year.

The reserve requirement was bolstered to 16.5% from 14.5% just this weekend, removing $44 billion from China’s financial system in the process.

China Economy No. 1 Worry is Threat of Inflation

Xie Xuren, China’s finance minister, has admitted that “the foundation of China’s economic recovery is not very solid,” according to a Bloomberg News report.

Xie went onto to say China wants to maintain a loose monetary policy and a pro-growth fiscal policy, so an interest rate hike is probably off the table, at least in the near-term. In other words, the PBOC would prefer to eschew harsh inflation fighting methods in favor of a more docile approach.

Property prices rose by almost 12% in March, but Beijing is aiming to reduce loan growth in China this year by as much as 22%. In addition, down payment requirements for first-time home buyers and real investors have been significantly raised, but only time will tell if these actions are enough to keep inflation at bay.

Comments

2 Responses to “China Economy No. 1 Worry is Threat of Inflation”
  1. I have always learned that inflation is an increase in the money supply (money in circulation). Higher prices for goods and services are not inflation. They ofter a result of inflation. Washington seems to have doubled the greenbacks in circulation since 9/1/08 and now plays the old game of massaging published inflation numbers.. Is the PRC doing the same thing?

  2. admin says:

    I do not believe that the PRC is massaging its inflation statistics or any other numbers to put a false shine on the economy. I have often seen the reverse: Beijing estimates lower growth than any other forecaster in the world and then surprises to the upside. China seems to put great importance on statistical accuracy (although the same cannot be said of provincial governments).

    Thanks for your question.
    Jim Trippon
    Editor
    China Stock Digest
    http://www.chinastockdigest.com

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