05/11/2010, 00.00
CHINA
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Inflation rising slowly, expected to climb faster

Prices rise 2.8 per cent in April, highest jump in 18 months, but less than economy growth. Experts believe it could reach 5 per cent, warning that credit and real estate sectors must be kept under watch for potential bubble. Yuan remains an issue.
Beijing (AsiaNews/Agencies) – Mainland consumer prices rose 2.8 per cent in the year to April, the highest since October 2008.  The authorities harbour optimism the economy will continue to grow whilst inflation will be contained, but experts warn about a potential bubble in the real estate and banking sectors. In the meantime, the revaluation of the yuan, which Beijing opposes at least for now, continues to be a major issue for world capitals.

Experts continue to warn against the danger of inflation, but most think that 2.8 per cent is within acceptable bounds. Food prices rose 5.9 per cent in April from a year earlier, whilst non-food prices rose 1.3 per cent.

Industrial production rose 17.8 percent in April from a year earlier, a figure that some find unconvincing because producer prices rose 6.8 per cent in April, indicating that inflation will likely climb faster in the coming months.

Real estate prices in major cities rose 12.8 per cent on year in April, the National Bureau of Statistics said, marking the biggest year-on-year rise for a single month since the survey was widened to 70 cities in July 2005.

However, “The trend of excessively fast rising residential property prices in some cities has been curbed, sparking a wide, positive response in society,” Qi Ji, vice-minister of housing and urban-rural development, said.

Mainland authorities have in fact adopted a number of measures in recent weeks to prevent the property market overheating; they include new curbs on loans for third home purchases and higher minimum down payments on second homes.

The fear is that the real estate demand coupled with record low interest rates on bank loans might cause a real estate bubble, with unpredictable consequences.

Meanwhile, prices should rise with inflation topping 5 per cent, this according to Dong Tao, chief regional economist for non-Japan Asia at Credit Suisse.

Banks should hike interest rates on loans in response to economic recovery to slow down demands for loans. New bank lending in April reached 774 billion yuan (US$ 113.3 billion), higher than the 570 billion expected.

Experts agree that banks will be cautious to avoid negative effects on economy recovery.

This has been encouraged by the People's Bank of China, which has raised banks' required reserves three times this year and stepped up drainage of cash via open market operations.

Caution is also dictated by greater uncertainty due to the Greek debt crisis and the problems faced by the euro-zone, especially as it affects China’s export-oriented industries.

Indeed, analysts note that as good as figures may be, the main Shanghai index has fallen nearly 22 per cent since August of last year.

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