Under-anticipated
First-quarter economic indicator growth compared 30
25 20 15 10 5 0
GDP CPI Actual
PPI Last Source: ANZ, National Bureau of Statistics
ences, the leading public government think-tank. “But companies need money to expand.” Te desire to expand is understand-
able, but the desire of industries like real estate and construction are proving big headaches for China’s economic manag- ers. But the drive to sustain growth comes from a powerful and entrenched constit- uency that has grown accustomed – per- haps even addicted – to policy stimulus, which explains why the central govern- ment’s reaction to inflation seems so half- hearted at times. Liu noted that while the government is not without options, it will have diffi-
Prod Ind FAI
Retail Sales
Market expectation M2
culty simultaneously implementing tar- geted policies to support growth in key sectors, easing consumer inflation, and all the while avoiding the doomsday scenario of widespread manufacturer loan default.
Trade barrier
It’s not just China’s problem. Rising Chi- nese producer prices are already spilling into the export markets, another risk to global recovery. “Te US import price index from China has risen already,” said Wei. “All the international companies are saying that import costs from China have increased by 20%.” However, while there is concern, there
is not yet cause for panic. Interest rate hikes will filter down into the economy slowly over the course of the year and cool growth. And the pain of PPI increases is unevenly distributed. Not all input prices are going up at the same rate, and not all sectors make equal use of different inputs. But businesses on the receiving end of in- creasing PPI – and trading partners that have grown overly dependent on China keeping costs low – have a rough patch ahead until Beijing gets the policy mix- ture in better tune.
China Economic Review • May 2011
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