China Growth May Cool in Boost for Wen’s Inflation Campaign
April 14, 2011, 4:45 AM EDTBy Bloomberg News
(Updates with new loan and M2 data in second paragraph.)
April 14 (Bloomberg) -- China’s growth probably slowed in the first quarter, helping to defuse the risk of overheating in an economy where inflation is estimated to be running at its fastest pace since 2008.
The government will report tomorrow that gross domestic product rose 9.4 percent from a year earlier, according to the median estimate in a Bloomberg News survey of 25 economists, down from last year’s peak rate of 11.9 percent. Data today showed that new loans were 679.4 billion yuan ($104 billion) in March and M2 money supply rose 16.6 percent from a year earlier.
A deceleration in the world’s second-biggest economy would help address inflation that billionaire investor George Soros warned this week is “somewhat out of control” in the aftermath of a record credit boom and higher commodity prices. Premier Wen Jiabao will need to use a stronger currency and some further increase in interest rates to help rein in prices, analysts said.
“Policy makers would welcome some slowdown,” said Dariusz Kowalczyk, a Hong Kong-based economist at Credit Agricole CIB. “With price levels still elevated for the time being, however, that’s likely to invite some tightening measures,” he said, predicting the central bank will boost banks’ reserve ratios this month and increase borrowing costs by the end of June.
Overtaking Europe
The yuan traded at 6.5307 per dollar as of 4:15 p.m. in Shanghai after touching a 17-year high of 6.5298. China’s foreign-exchange reserves, the world’s largest, topped $3 trillion for the first time, according to central bank data released today.
Economic growth was an annual 9.8 percent in the fourth quarter of last year. China’s share of the global economy may surpass Europe’s in five years and approach the U.S.’s in a decade, Reserve Bank of Australia Governor Glenn Stevens said in New York yesterday.
Separate figures tomorrow will show consumer prices climbed 5.2 percent in March from a year before, the median forecast indicates.
Bank of America Merrill Lynch said today that an increase in banks’ reserve requirements may be “imminent,” after Wen described liquidity as ample in comments published by the official People’s Daily.
Property Prices
China’s cabinet said yesterday that rising property prices in many cities and increasing inflation expectations are key concerns as the nation wrestles with the aftermath of a record 17.5 trillion yuan ($2.7 trillion) of lending over 2009 and 2010.
Investors have signaled confidence that China’s economy will achieve a so-called soft landing, with inflation being brought under control without arresting the expansion. The Shanghai Composite Index advanced 7.8 percent in the past three months, as the MSCI Asia Pacific Index slid 2.6 percent.
Quarter-on-quarter GDP figures will be released by the statistics bureau for the first time tomorrow. Citigroup Inc. calculates that growth may have cooled to 8.8 percent from 10 percent in the fourth quarter after monetary tightening and curbs on home purchases. The bank cites estimates of seasonally adjusted annual rates.
The International Monetary Fund says the nation still hasn’t escaped overheating risks, warning in its semiannual economic outlook this week that “an abrupt slowdown of economic activity in China, perhaps following a credit and property boom and bust cycle, would adversely affect the whole region.”
Inflation Pressure
“The moderation in growth will help relieve inflation pressure but it is still too early to be complacent now,” said Chang Jian, a Hong Kong-based economist with Barclays Capital, who previously worked at the World Bank and Hong Kong Monetary Authority. “Tightening measures should be maintained to anchor inflation expectations.”
Rising real-estate valuations and inflation have raised stress on the banking system, which will at some point require government help, Andrew Colquhoun, head of Fitch Ratings’s Asia- Pacific sovereign unit, said in a statement two days ago. Fitch cut its outlook for China’s AA- local-currency sovereign rating to “negative” from “stable” this week, and Colquhoun said it’s “not inconceivable” banks’ total bad-debt ratio will reach 30 percent.
Among the economic data scheduled for release tomorrow is industrial output growth, forecast to slow to 14 percent in March from a 15 percent year-on-year pace in February. Urban fixed-asset investment may have expanded by an annual 25 percent in the first quarter, while retail sales growth accelerated to 17 percent from 16 percent in March, survey medians show.
Soros on Yuan
China’s expansion this year may be bolstered by a government plan to build 10 million units of low-cost housing. Climbing profits are stoking capital spending by companies.
Exports of $152 billion in March were close to the record of $154 billion set in December. A surge in imports caused a trade deficit in the first quarter, highlighting both strength in domestic demand and the jump in commodity costs that is adding to price pressures.
“It would be very advantageous to allow the currency to appreciate as a way of controlling inflation,” Soros, chairman of Soros Fund Management LLC, said at a conference in Bretton Woods, New Hampshire, on April 10. “The authorities missed that opportunity. You now have inflation somewhat out of control, and causing some serious danger of wage-price inflation.”
--Victoria Ruan, Zheng Lifei. Editors: Paul Panckhurst, Ken McCallum
To contact Bloomberg News staff on this story: Victoria Ruan in Beijing at vruan1@bloomberg.net; Zheng Lifei in Beijing at lzheng32@bloomberg.net
To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net
