China's Premier Wen Jiabao has vowed to step up the country's fight against inflation, increasing the likehood of further interest rate rises that could threaten the strength of a global economic recovery.
Mr Wen's pledge to curb inflation came as new government figures revealed that measures already taken are leading to a slowdown in manufacturing growth.
Speaking on a trip to supermarkets in Inner Mongolia over the weekend, Mr Wen said: "The central government has taken a slew of steps to stabilise prices. We will put it higher up on our agenda."
Chinese inflation is at the highest rate for more than two years – 5.1pc – sparking fears in the government of social unrest as the price of food soars. China raised interest rates for the second time in three months on Christmas Day, lifing them 0.25 to 5.81pc.
Policymakers have also raised the amount of money banks must keep in reserve in an effort to restrain bank lending that has powered the economy but also driven up prices.
However, a clampdown by China on inflation threatens to slow the growth of the domestic and global economy, which has been heavily reliant on the strength of the world's second largest economy. Stock markets around the world slid after the country raised interest rates over Christmas.
A survey by the state-affiliated China Federation of Logistics and Purchasing (CFLP) shows manufacturing expansion eased in December, with the Purchasing Managers Index falling from 55.2 to 53.9.
The decline – based on a survey of 820 companies – was the first in five months and economists have attributed the slowdown to the government's inflation policies.
Although any measurement above 50 represents growth, the PMI survey also showed slowing expansion in new orders, which fell to 55.4 from 58.3, and output, from 58.5 to 57.5.
"This suggests a very strong tightening force at work which could be the tightening in financial conditions which has been more than we previously expected," Goldman Sachs said.
On December 31, the central bank governor Zhou Xiaochuan pledged to keep prices "basically stable" this year with a shift to a "prudent" monetary policy from the "moderately loose" stance taken as the country tried to drive growth.
His tone was markedly different from 12 months ago, when he earmarked "defeating the international financial crisis" as the crucial task.
The bank chief's comments were supported by Mr Wen, who in a rare radio appearance faced callers angry about rising prices. "I can tell everybody, the government has complete confidence in tiding over this difficult stage," he said.
The price of basic foods has doubled in some parts of China and there are fears that a freezing winter could drive prices up further. High inflation has been driven by aggressive lending by banks following the financial crisis and Beijing's ¥4 trillion (£389bn) spending programme.
However, a subindex by the CFLP of input prices for raw materials, energy and supplies fell sharply to 66.7 in December from 73.5 in November, indicating that policies to stabilise prices have met with initial success. Ken Peng, an economist at Citigroup said: "I do not see much risk of a sharp economic slowdown."
Source: www.telegraph.co.uk
No comments:
Post a Comment