04/29/2005, 00.00
CHINA
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Inflation creeps up on China's economy

Beijing (AsiaNews/Agencies) – Inflation is rising fast in China. International economy experts are ringing alarm bells because China's GDP growth of 9.5 per cent rate in the first three months of 2005 has stimulated increased investment at a time when a credit crunch is looming on the horizon that is expected to drive up interest rates.

This is happening because of investment inflow and exports that have given the Asian juggernaut the means to invade several foreign markets, starting with textile.

However, China's economy is burdened with structural problems such speculative investments by private investors and banks, inefficient publicly-owned companies and China's inadequate legal environment in areas such as commercial law (ineffective intellectual property protection).

High demand for raw materials like oil, coal and iron is driving upwards the price of finished products and services. The consumer price index in March of this year registered a 2.8 per cent rise over the same month last year, but the rise for manufacturers was 5.6 per cent.

Inflation which peaked last August at 5.3 per cent has dropped only because of government efforts to slow investments. Still, experts unanimously agree the inflation rate is bound to rise even though Beijing "hopes" to keep it near the 4 per cent range, at least in 2005.

In some sectors like real estate a 'speculation bubble' is in the making. In residential neighbourhoods in Beijing and Shanghai a traditional Chinese housing unit (four family dwellings built around an inner courtyard) costs millions of yuan. But according to official figures the average annual income is just shy of 3,000 yuans; in the countryside it drops to just under 1,000 yuans.

Despite that banks are offering easy loans to builders and buyers with everyone counting on rising prices. But it is almost inevitable that the market will 'cool' with devastating effects on buyers, sellers and especially banks.

Chinese Primer Minister Wen Jiabao and his Economy Minister are hoping for greater investments and yet want to curb inflation, not through free market policies, but through dirigiste measures such as higher taxes, 'directives" to banks to control interest rates on loans, building permit restrictions.

Official sources also expect energy demands won't be met in 2005, partly because of lower coal output resulting from international complaints of human and workers rights violations in Chinese mines (6,000 miners died in 2004 in work-related incidents). (PB)

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