Expected to hit 6 per cent in June, inflation likely to affect China’s economic growth
Soaring food prices are a source of great concern. In some areas, mid-season harvest forecasts are down, especially rice. Banking institutions are also in trouble as nonperforming loans could cost them billions of yuan.
Beijing (AsiaNews/Agencies) – China’s inflation will speed up this month to 6 per cent (against 5.5 per cent in May), the highest level since July 2008, this according to the National Development and Reform Commission (NDRC), China’s top economic planning agency.
“The overall level of prices remains high and inflation will remain elevated for some months although the overall situation is controllable,” the NDRC said on its website.
China has raised interest rates four times since September, limited bank lending and boosted food supplies without much success.
Even though a 6 per cent rate is already high, inflation has been picking up for several months, especially for foodstuffs, affecting mostly the lower and middle classes. Food prices in fact surged by 11.7 per cent.
Only in the last few days, pork prices jumped 4.8 per cent. Fruit and vegetable prices in the eastern province of Zhejiang spiked by as much as 40 per cent after heavy rains destroyed crops.
Two weeks of torrential rains followed a prolonged drought along the middle and lower reaches of the Yangtze River triggered flooding in 13 southern provinces, with direct economic losses estimated around 35 billion yuan, mostly in the agriculture.
Rice fields have been particularly affected in some regions. Last year in Tianmen (Hubei), mid-season rice accounted for about 70 per cent of all rice planted.
Floods caused serious losses in Anhui and Jiangxi, with more than 100,000 hectares under water.
Aquaculture in Lake Poyang was also hit hard. Fishermen's average income in the first five months of this year dropped by more than 70 per cent from a year earlier as the prolonged drought from January to May.
Inflation could also affect the cost of factors of production with consequences for growth. Economists have recently lowered their forecasts for this year to about 8.5 per cent, down from earlier forecasts of 9 to 10 per cent
Soaring inflation, rising labour costs and mounting local government debt threaten to weaken growth even more over the coming months.
Meanwhile, exports continue to drop, partly because of the impact of the tsunami on Japan, high unemployment in the United States and excessive debt in European nations.
Increasingly, Beijing’s export-oriented development model is being questioned. More and more voices are being raised calling for higher domestic consumption.
At the same time, many Chinese companies are unable to repay loans from state banks. Wang Tao, the chief economist in China at UBS, warned that over the next few years, loans to local government investment companies could result in as much as US$ 460 billion in nonperforming loans.
This, in turn, could trigger mass protest, similar to what occurred recently in Guangdong and elsewhere. Widespread dissatisfaction is turning into mass action, as people show greater readiness to take to the streets to defend their rights since that is the only venue left to them.
“The overall level of prices remains high and inflation will remain elevated for some months although the overall situation is controllable,” the NDRC said on its website.
China has raised interest rates four times since September, limited bank lending and boosted food supplies without much success.
Even though a 6 per cent rate is already high, inflation has been picking up for several months, especially for foodstuffs, affecting mostly the lower and middle classes. Food prices in fact surged by 11.7 per cent.
Only in the last few days, pork prices jumped 4.8 per cent. Fruit and vegetable prices in the eastern province of Zhejiang spiked by as much as 40 per cent after heavy rains destroyed crops.
Two weeks of torrential rains followed a prolonged drought along the middle and lower reaches of the Yangtze River triggered flooding in 13 southern provinces, with direct economic losses estimated around 35 billion yuan, mostly in the agriculture.
Rice fields have been particularly affected in some regions. Last year in Tianmen (Hubei), mid-season rice accounted for about 70 per cent of all rice planted.
Floods caused serious losses in Anhui and Jiangxi, with more than 100,000 hectares under water.
Aquaculture in Lake Poyang was also hit hard. Fishermen's average income in the first five months of this year dropped by more than 70 per cent from a year earlier as the prolonged drought from January to May.
Inflation could also affect the cost of factors of production with consequences for growth. Economists have recently lowered their forecasts for this year to about 8.5 per cent, down from earlier forecasts of 9 to 10 per cent
Soaring inflation, rising labour costs and mounting local government debt threaten to weaken growth even more over the coming months.
Meanwhile, exports continue to drop, partly because of the impact of the tsunami on Japan, high unemployment in the United States and excessive debt in European nations.
Increasingly, Beijing’s export-oriented development model is being questioned. More and more voices are being raised calling for higher domestic consumption.
At the same time, many Chinese companies are unable to repay loans from state banks. Wang Tao, the chief economist in China at UBS, warned that over the next few years, loans to local government investment companies could result in as much as US$ 460 billion in nonperforming loans.
This, in turn, could trigger mass protest, similar to what occurred recently in Guangdong and elsewhere. Widespread dissatisfaction is turning into mass action, as people show greater readiness to take to the streets to defend their rights since that is the only venue left to them.
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See also
Unemployment still high in China
05/08/2009
05/08/2009
