Price threat makes 2010 difficult year

China’s central bank said rising inflation will complicate management of the world’s third- largest economy in 2010 after record lending sparked a jump in property prices and added to overcapacity in some industries.
The government will ensure “balanced” lending and continue fiscal stimulus as policy makers seek to cement a recovery that started last year, the People’s Bank of China said in a report on its Web site today.
Chinese bank shares trading in Hong Kong are heading for their worst month in a year on concern government efforts to rein in lending will slow the world’s fastest-growing major economy. The central bank today reiterated a pledge to maintain sufficient credit while adding that money-supply growth is adding to inflation pressures.
“Inflation may spiral if monetary policy isn’t proactive,” said Liu Li-Gang, an economist with Australia & New Zealand Banking Group Ltd. in Hong Kong. “It’s a major risk facing the economy this year,” Liu said, adding consumer prices may rise 6.7 percent this year if left unchecked.
The central bank cautioned today that the trade environment is “deteriorating” because of a weak global recovery and intensifying protectionism.
Gains in the property market are fueling inflationary expectations and rising commodity costs and adjustments to Chinese resource prices may stoke inflation, the central bank said. “It has become more difficult to maintain price stability” and prevent systematic financial risks, it said.
- Bloomberg