News / Asia

China Struggles to Tackle Inflation

A customer picks up a plastic bag of peppers at a fruit and vegetable market in Beijing (file photo - 17 Nov 2010)
A customer picks up a plastic bag of peppers at a fruit and vegetable market in Beijing (file photo - 17 Nov 2010)


Heda Bayron

Chinese economic authorities have signaled that fighting rising prices will be their top priority next year.

China's government set an average inflation rate target this year of 3 percent, but some economists expect the rate to top that figure. Last month, inflation rose to 5.1 percent from 4.4 percent in October.

Shen Jianguang, an economist at Mizuho Securities in Hong Kong, expects prices to continue rising.

"Likely November will see the peak of inflation for this year," Shen said. "But actually next year, in the first half, we're probably going to see even higher inflation."

Food prices jumped the most in November, partly because of bad crops and higher costs for transporting them.

At the end of a three-day national economic conference Sunday, the government signaled it would take more steps to tame inflation. No details were mentioned, but authorities could impose price controls on food commodities to help consumers, as they have done in the past.

But what policy makers seem to find harder to tackle is price pressure that comes from the banking side. In the past several months, China has been trying to undo the effects of runaway lending and investment that resulted from its massive economic stimulus package in 2009. That helped drive up prices of property, stocks and basic commodities.

China set a target of 7.5 trillion yuan, or $1.1 trillion, in new loans this year, much lower than it was in 2009. But in the first 11 months of the year, total new loans nearly reached that figure.

Banks have been told to hold more and more of their deposits as reserves to cut back on lending.

Shen says the central bank is likely to take a combination of actions, including more interest rate increases in the next few months and lowering the loan quota for next year.

But he says as long as Chinese savers get less for their money if they keep it in bank deposits than from investing in property or stocks, inflation will remain a challenge.

"We have inflation to 5 percent but the one-year deposit rate is only at 2.5 percent, so the gap is rising," Shen added. "So I think the most important thing is to close the negative interest gap so that people will be more comfortable in putting money in bank accounts rather than trying to find other types of investment vehicles like housing that actually fuel demand and stimulate further inflation."

Stephen Roach, the former head of Asia operations for the investment bank Morgan Stanley and a Yale University professor, says inflation distracts Chinese authorities from making the shift from an export-oriented to a consumption-led economy.

"The longer policy makers wait to address inflation the tougher it would be to deal with the structural issues," Roach said. "My advice is to move quickly and aggressively to deal with inflation so that you can get on with the most important transition in China, which is stimulation of private consumption."

The re-balancing of China's economy has long-term implications in narrowing its surplus with its trading partners, such as the United States, and ultimately in rebalancing the global economy.

Inflation presents not only economic risks, but also political ones in China. A sharp rise in prices for basic goods - such as food and housing could lead to public protests. China political experts say the ruling Communist Party is eager to make sure that does not happen.

But clamping down too hard to fight inflation could slow growth sharply, and lead to rising unemployment - also a political problem.

With the government tightening the amount of money for lending, China's economy is expected to slow in 2011. That too would have implications on economies that trade with China. On Monday, the South Korean central bank governor said he is watching China's inflation and its potential effects in his country.

You May Like

Multimedia Brussels Schools, Metro Reopen Under Heavy Guard

City remains under the highest threat alert level due to what authorities have described as a 'serious and imminent' threat of attack

Video Debt-ridden Refugees Await Onslaught of Lebanese Winter

Aid agencies are attempting to reduce potentially devastating consequences of freezing conditions and snowstorms that killed eight last year, including three Syrian refugees

UN Warns Air Pollution in Asia Pacific Has Rising Cost

Globally some seven million people a year die prematurely due to indoor and outdoor pollution with about 70 per cent of those deaths in region

This forum has been closed.
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
After Paris Attacks, France Steps Up Fight Against ISi
November 24, 2015 3:04 AM
The November 13 Paris attacks have drawn increased attention to Syria, where many of the suspected perpetrators are said to have received training. French President Francois Hollande is working to build a broad international coalition to defeat Islamic State in Syria and in Iraq. Zlatica Hoke reports.

Video After Paris Attacks, France Steps Up Fight Against IS

The November 13 Paris attacks have drawn increased attention to Syria, where many of the suspected perpetrators are said to have received training. French President Francois Hollande is working to build a broad international coalition to defeat Islamic State in Syria and in Iraq. Zlatica Hoke reports.

Video US, Cambodian Navies Pair Up in Gulf of Thailand

The U.S. Navy has deployed one of its newest and most advanced ships to Cambodia to conduct joint training drills in the Gulf of Thailand. Riding hull-to-hull with Cambodian ships, the seamen of the USS Fort Worth are executing joint-training drills that will help build relations in Southeast Asia. David Boyle reports for VOA from Preah Sihanouk province.

Video Americans Sharpen Focus on Terrorism

Washington will be quieter than usual this week due to the Thanksgiving holiday, even as Americans across the nation register heightened concerns over possible terrorist threats. VOA’s Michael Bowman reports new polling data from ABC News and the Washington Post newspaper show an electorate increasingly focused on security issues after the deadly Islamic State attacks in Paris.

Video World Leaders Head to Paris for Climate Deal

Heads of state from nearly 80 countries are heading to Paris (November 30-December 11) to craft a global climate change agreement. The new accord will replace the Kyoto Protocol on Climate Change that expired in 2012.

Video Uncertain Future for Syrian Refugee Resettlement in Illinois

For the trickle of Syrian refugees finding new homes in the Midwest city of Chicago, the call to end resettlement in many U.S. states is adding another dimension to their long journey fleeing war. Organizations working to help them integrate say the backlash since the Paris attacks is both harming and helping their efforts to provide refugees sanctuary. VOA's Kane Farabaugh reports.

Video Creating Physical Virtual Reality With Tiny Drones

As many computer gamers know, virtual reality is a three-dimensional picture, projected inside special googles. It can fool your brain into thinking the computer world is the real world. But If you try to touch it, it’s not there. Now Canadian researchers say it may be possible to create a physical virtual reality using tiny drones. VOA’s George Putic reports.

Video New American Indian Village Takes Visitors Back in Time

There is precious little opportunity to experience what life was like in the United States before its colonization by European settlers. Now, an American Indian village built in a park outside Washington is taking visitors back in time to experience the way of life of America's indigenous people. Carol Pearson narrates this report from VOA's June Soh.

Video Even With Hometown Liberated, Yazidi Refugees Fear Return

While the northern Iraqi town of Sinjar has been liberated from Islamic State forces, it's not clear whether Yazidi residents who fled the militants will now return home. VOA’s Mahmut Bozarslan talked with Yazidis, a religious and ethnic minority, at a Turkish refugee camp in Diyarbakır. Robert Raffaele narrates his report.

Video Nairobi Tailors Make Pope Francis’ Vestments

To ensure the pope is properly attired during his visit, the Kenya Conference of Catholic Bishops asked the Dolly Craft Sewing Project in the Nairobi slum of Kangemi to make the pope's vestments, the garments he will wear during the various ceremonies. Jill Craig reports.

Video Cross-Border Terrorism Puts Europe’s Passport-Free Travel in Doubt

The fallout from the Islamic State terror attacks in Paris has put the future of Europe’s passport-free travel area, known as the "Schengen Zone," in doubt. Several of the perpetrators were known to intelligence agencies, but were not intercepted. Henry Ridgwell reports from London European ministers are to hold an emergency meeting Friday in Brussels to look at ways of improving security.

Video El Niño Brings Unexpected Fish From Mexico to California

Fish in an unexpected spectrum of sizes, shapes and colors are moving north, through El Niño's warm currents from Mexican waters to the Pacific Ocean off California’s coast. El Nino is the periodic warming of the eastern and central Pacific Ocean. As Faiza Elmasry tells us, this phenomenon thrills scientists and gives anglers the chance of a once-in-a-lifetime big catch. Faith Lapidus narrates.

Video Terrorism in Many Forms Continues to Plague Africa

While the world's attention is on Paris in the wake of Friday night's deadly attacks, terrorism from various sides remains a looming threat in many African countries. Nigerian cities have been targeted this week by attacks many believe were staged by the violent Islamist group Boko Haram. In addition, residents in many regions are forced to flee their homes as they are terrorized by armed militias. Zlatica Hoke reports.

Video Study: Underage Marriage Rate Higher for Females in Pakistan

While attitudes about the societal role of females in Pakistan are evolving, research by child advocacy group Plan International suggests that underage marriage of girls remains a particularly big issue in the country. VOA’s Ayesha Tanzeem reports how such marriages leads to further social problems.

VOA Blogs