Economist: Inflation May Hit China Early

飞雪寒冰

Inflation may slap China before striking the United States in coming years, according to the chief economist at China International Capital Co.

Ha Jiming cites the Chinese government's loose monetary policy, declining fiscal revenues and fluctuating pork prices as inflation triggers that may send prices higher as early as 2010.

The consumer price index (CPI) is likely to rise 3.5 percent to 5 percent next year, and between 3.3 percent and 5.1 percent in 2011, according to Ha's analysis. His predictions are based several factors including liquidity, overcapacity, commodity prices, and prices of domestic agricultural products including pork.

Rising prices in China would exceed what Ha expects in the United States: CPI rates expected to climb 0.5 percent to 1.3 percent next year, and between 1.1 percent and 3.1 percent in 2011. He said it will take some time for the latest round of loose monetary policy in the United States to trigger inflation.

China's current monetary policy is more expansionary than U.S. policy, Ha said, adding that large increases in money supply have always led to inflation in China in the past.

飞雪寒冰

Although China's central bank has not cut interest rates as dramatically as the U.S. Federal Reserve, he said, Chinese commercial banks have written a large number of government-backed loans.

While the U.S. economic growth rate has slowed to 2 percent, from a range of 3 to 3.5 percent over the past two decades, China's exports have fallen remarkably. Meanwhile, Ha said, China's competitive edge over other developing countries has weakened due to a dramatic increase in labor costs.

Moreover, the economist said China -- like other emerging countries with an investment-driven economy -- is easily affected by commodity price increases.

As a major importer of commodities such as soybeans and crude oil, Ha said, China's production costs are closely linked to world commodity prices. But developed countries are not as vulnerable as China to commodity price fluctuations.

Currently, pork prices are depressed and farmers may react by reducing their livestock herds to encourage higher prices. Thus, Ha said, pork prices may surge next year.

飞雪寒冰

Although China's central bank has not cut interest rates as dramatically as the U.S. Federal Reserve, he said, Chinese commercial banks have written a large number of government-backed loans.

While the U.S. economic growth rate has slowed to 2 percent, from a range of 3 to 3.5 percent over the past two decades, China's exports have fallen remarkably. Meanwhile, Ha said, China's competitive edge over other developing countries has weakened due to a dramatic increase in labor costs.

Moreover, the economist said China -- like other emerging countries with an investment-driven economy -- is easily affected by commodity price increases.

As a major importer of commodities such as soybeans and crude oil, Ha said, China's production costs are closely linked to world commodity prices. But developed countries are not as vulnerable as China to commodity price fluctuations.

Currently, pork prices are depressed and farmers may react by reducing their livestock herds to encourage higher prices. Thus, Ha said, pork prices may surge next year.

飞雪寒冰

The central government's ability to subsidize consumers and adopt price controls has been weakened by hefty spending this year, Ha said. The government's deficit is rising due to a 4 trillion yuan stimulus program and declining fiscal revenues, undermining the government's ability to curb inflation through subsidies, he said.