苏州迈锐宝xl价格:New Year starts with a bout on inflation

By Li Hong


China’s monetary tightening is for real and will be accelerated in 2011 as economic growth has solidified in the past 18 months, making the country again a magnet of torrid inbound investments.

That the overseas hot money keeps thronging to China, at a pace of more than $30 billion per month, lately, is a verification that the country has cast the global financial crisis and the Great Recession aside, and is about to lead the world to new economic heights.

The road could be bumpy, with unknown and unconventional “traps” lying ahead. The scarlet word for the first year of China’s 12th Five-Year Plan is preventing INFLATION.

As the U.S. Federal Reserve has unleashed an unprecedented “quantitative easing” policy, the People’s Bank of China should be prepared to resort to an equally unprecedented “quantitative tightening” in order to attain a balance or equilibrium.

Other major emerging economies, including India, Brazil, Indonesia, Russia and South Africa, are expected to actively control credit supply and rising inflation on their lands. For China, the world’s No 2 economy, the policy makers should have the courage to push real deposit interest rates, now at about negative 2 percentage points, into positive territory.

In the meantime, the People’s Bank of China, with the approval of the State Council, needs to resolutely implement the “storage pool” theory, by raising the banks’ reserve requirement ratios (RRR) by 2-3 percent points in 2011 to mop up more excess liquidity from the economy and prevent equity bubbles from forming and expanding.

Only when the flood of foreign money is captivated and kept in the pool, it won’t cause hyper-inflation and run havoc with the economy.

On February 9, the very first work day following a 7-day Chinese Spring Festival holidays, China raised interest rates by lifting the one-year deposit rates to 3 percent and one-year lending rates to 6.06 percent. It is the third rise since October. Barring a lessening of inflation pressures or a measurable tapering-off of inbound hot money in the coming months, Beijing is to use both quantitative and price tools to up the notch on inflation.

Though the central bank has raised the RRRs for China’s biggest commercial banks to level the record high of 19 percent, the lenders issued more than 1 trillion yuan of new loans in January 2011. The current of credit line, if not controlled, will soon match last year’s 7.95 trillion yuan, and is expected to handily bring about another year of high economic growth topping 10 percent.

Some have been advocating for another year of double-digit GDP growth for China, fed by strong domestic investment and export shipment, however, “exuberance” buoyed by Greenspan-style low rates has been proved to be untenable. (The whole world is waiting to see where Bernanke’s zero-rate and QE will lead.)

A seemingly sizzling economy, relying on high-flying housing and stock prices, is not healthy and mostly perilous, just like a car steered by a man on alcohol driving on the fast lane. Equity bubbles are heroin taking that has seen the big ups and downs of some Western economies.

To prevent property and stock market bubbles in China, or in a sense, to prevent hot money from hording and speculating Chinese equities, effective government oversight and adequate capital control are suggested.

We all are happy to see the central government in Beijing at the end of the year took resolute measures to cool property market, including stern restrictions on purchasing second and more homes, and trial levying of property taxes in Shanghai and Chongqing, although the rates are deemed too lenient.

Premier Wen Jiabao said to a group of rural residents in Shandong Province on February 3, the New Year’s Day on the lunar calendar: The No 1 job of importance for 2011 is to stabilize prices. And, that means more and harsher tightening by his government.