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)

Multimedia

Audio
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

Video Analysts: Beijing Parade a 'Bazaar' of Stolen Technology

Show commemorating victory over Japan in World War II involved long, medium and short range missiles, a range of tanks and 200 fighter aircraft More

Bernie Sanders Surge Reflects US Shift on Socialism

Although most analysts say it is unlikely he will get the Democratic nomination, Sanders' campaign opens up questions and issues that are otherwise marginalized More

Video On IS Frontline, Kurdish Fighters Ready for Offensive

Peshmerga soldiers say although they need more heavy artillery, they are poised to take the fight to the Islamic State extremists on their turf More

This forum has been closed.
Comments
     
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.
Drowned Migrant Toddler Photo Triggers European Outragei
X
Henry Ridgwell
September 04, 2015 11:36 AM
The harrowing picture of a drowned three-year-old Syrian boy washed up on a Turkish beach appears to have galvanized Europe’s leaders into doing more to address the refugee crisis. France, Germany and Italy issued a joint call Thursday for compulsory quotas of refugees for all EU states. But there were chaotic scenes in Hungary as police tried to force migrants off a train heading for Austria. Henry Ridgwell has more. And a caution, some of the images in this report may be disturbing.
Video

Video Drowned Migrant Toddler Photo Triggers European Outrage

The harrowing picture of a drowned three-year-old Syrian boy washed up on a Turkish beach appears to have galvanized Europe’s leaders into doing more to address the refugee crisis. France, Germany and Italy issued a joint call Thursday for compulsory quotas of refugees for all EU states. But there were chaotic scenes in Hungary as police tried to force migrants off a train heading for Austria. Henry Ridgwell has more. And a caution, some of the images in this report may be disturbing.
Video

Video Russians Observe 11th Anniversary of Beslan School Attack

This week, Russians have been observing the 11th anniversary of the attack by Islamic militants on a school in Russia's North Caucasus region that killed more than 330 hostages, including 186 children. The three-day siege and massacre that started on September 1, 2004 took place in Beslan, a town in the republic of North Ossetia, and is one of the bloodiest terrorist acts ever in Russia. VOA's Mike Richman reports.
Video

Video Native Americans Debate: Father Serra, Saint or Sinner?

Pope Francis will canonize an 18th century missionary to Spanish California during a papal visit to the United States this month.  But some Native Americans have criticized the elevation to sainthood of the missionary priest, Junipero Serra. VOA's Mike O’Sullivan has more from Los Angeles.
Video

Video Calais School Offers Another Face of Europe’s Migrant Crisis

Europe is facing mounting criticism over how it’s handling its biggest migration crisis since World War II. But not all Europeans believe building walls or passing repressive policies are the answer. A school for migrants in the French port city of Calais, is opening doors and building bonds across nationalities. VOA's Lisa Bryant reports.
Video

Video Kurdish Fighters on IS Frontline Ready for Offensive

Finger on the trigger, the Kurdish Peshmerga soldier stared across the dust at a village taken over by Islamic State extremists. The Kurdistan’s Khazir frontline, just 45 minutes from the Islamic State stronghold of Mosul. And at this point, the militants were less than two kilometers away. VOA's Sharon Behn reports.
Video

Video China Announces Troop Cuts at WWII Parade

Chinese President Xi Jinping Thursday announced plans to cut the world’s largest military force by 300,000 troops. The announcement was made during a massive military parade to commemorate victory over Japan in World War II. The event was shunned by most Western leaders and for some is raising fresh concerns about China’s military ambitions. VOA’s Bill Ide has more from Beijing.
Video

Video Russia-Japan Relations Cool as Putin Visits China for WWII Anniversary

Russian President Vladimir Putin is in Beijing for commemorations of the 70th anniversary of China's WWII victory over Japan. Putin is expected to visit Japan later this year, but tensions between Tokyo and Moscow over islands disputed since the war, and sanctions over Ukraine, could pour cold water on the plan. VOA's Daniel Schearf reports.
Video

Video Yemen ‘on Brink of Disaster’ as Medical Shortages Soar

Aid agencies warn Yemen is on the brink of humanitarian disaster – with up to half a million children facing severe malnutrition, and hospitals running out of basic medicines. There are fears Yemen's civil war could escalate as the coalition led by Saudi Arabia tries to drive back Houthi rebels, who seized control of much of the country earlier this year. Henry Ridgwell reports.
Video

Video Apps Helping Kenyan Businesses Stay Ahead of Counterfeiters

Counterfeit goods in Kenya cost the government as much as $1 billion each year in lost tax revenues. The fake goods also hurt entrepreneurs who find it hard to carve out a niche in the market and retain customers. But as Lenny Ruvaga reports from Nairobi, information technology is being used to try to beat the problem.
Video

Video Nobel Prize Winner Malala Talks to VOA

Nobel Peace Prize winner Malala Yousafzai met with VOA's Deewa service in Washington Sunday to talk about women’s rights and unveil a trailer for her new documentary. VOA's Katherine Gypson has more.
Video

Video War, Drought Threaten Iraq's Marshlands

Iraq's southern wetlands are in crisis. These areas are the spawning ground for Gulf fisheries, a resting place for migrating wildfowl, and source of livelihood for fishermen and herders. Faith Lapidus has more.
Video

Video Colombians Flee Venezuela as Border Crisis Escalates

Hundreds of Colombians have fled Venezuela since last week, amid an escalating border crisis between the two countries. Last week, Venezuelan President Nicolas Maduro ordered the closure of a key border crossing after smugglers injured three Venezuelan soldiers and a civilian. The president also ordered the deportation of Colombians who are in Venezuela illegally. Zlatica Hoke reports.
Video

Video Rebuilding New Orleans' Music Scene

Ten years after Hurricane Katrina inundated New Orleans, threatening to wash away its vibrant musical heritage along with its neighborhoods, the beat goes on. As Bronwyn Benito and Faith Lapidus report, a Musicians' Village is preserving the city's unique sound.
Video

Video In Russia, Auto Industry in Tailspin

Industry insiders say country relies too heavily on imports as inflation cuts too many consumers out of the market. Daniel Schearf has more from Moscow.
Video

Video Scientist Calls Use of Fetal Tissue in Medical Research Essential

An anti-abortion group responsible for secret recordings of workers at a women's health care organization claims the workers shown are offering baby parts for sale, a charge the organization strongly denies. While the selling of fetal tissue is against the law in the United States, abortion and the use of donated fetal tissue for medical research are both legal. VOA’s Julie Taboh reports.

VOA Blogs