This article explains the pressures China is facing regarding its high inflation rate. Finally after months of inflation, it appears that there may be hope for a slow down of rising prices.
Firstly, due to droughts and other weather conditions, food prices rose 11% in the past year. By chance, the northern region finally got some rain, and so the crop is probably going to be much larger and healthier, which will decrease food prices.
Secondly, the money supply has been growing much faster than the Chinese government's targeted rates. In February, there was some evidence of a slowdown that much more accurately reflected the government's expectations.
Lastly, the huge amount of credit being given out has seemed to decrease. The problem appears to be that while it seems that the amount of credit is decreasing, the truth may be that banks are just finding ways to hide it in other accounts. This is a definite problem and could effect the government's prediction making abilities because they do not have full and perfect information.
3 comments:
China's economy is for sure over heating for years. The inflation in China is a big problem that Beijing has to face. Over heating economy is more likely to have bubble, and China should be careful of that.
Having an economy that is growing at such a fast pace can be both good and bad. The unfortunate part of a fast growing economy is that there will be a time where it is growing too fast. China needs to be careful to not over produce and slow down the demand of emerging markets.
Chinese government is famous for its strict control over economy and money supply in particular. One of the major goals of Chinese government is to keep its trade surplus with other economies. For trade surplus you need weak currency on international arena while domestically the currency should be strong enough for people to afford goods and services. Hence, I don't think Chinese government will easily let its currency fluctuate. I would expect more regulation of banking sector from Chinese government in the near future.
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