Further evidence emerged on Monday that the Chinese economy may be overheating, and state-controlled news media said that the central bank was considering an increase in interest rates.
Producer prices rose 3.5 percent in January from a year earlier -- a sharp acceleration from the 1.9 percent advance in November. In one of the many peculiarities of Chinese statistics, no number for December has been released.
The figures added a new reason for concerns about inflation. Citing three Chinese economists, one of them in the government although not with the central bank, the semi-official China Daily said in a cover article in its business section that "there is a possibility that China might raise interest rates this year to counter continually rising consumer prices and investment growth."
While China Daily serves as Beijing's mouthpiece on issues involving Taiwan and Hong Kong and on diplomatic affairs, its business and economic coverage sometimes shows a little independence from government policies. A central bank spokesman said no rate increase was planned.
But the broaching of the subject of an interest-rate increase, together with the reported rise in producer prices, underlines the growing debate in China over whether the country faces a serious threat from inflation.
The consumer price index in China rose at an annual pace of 3.2 percent in January for the second month in a row, a sign that, at the very least, the deflation China suffered until late last year seems to have ended. Goldman Sachs has begun describing China as an exporter of inflation instead of an exporter of deflation.
Hong Kong, which is now part of China but maintains considerable autonomy in its economic system, released separate figures on Monday showing that prices here have begun rising slowly again after bottoming out last autumn. Higher prices for food, clothes and other items brought in from the rest of China have played a substantial role in reversing deflation in Hong Kong.
In a research report on Monday, Hong Liang, an economist at Goldman Sachs, said that sharp increases in the price of food, by far the biggest single component of China's consumer price index, "is reflective of rising inflation expectations" rather than changes in the actual supply of food.
The official Xinhua News Agency quoted Yao Jingyuan, the chief economist of China's National Bureau of Statistics, as saying that inflation would stay under control at its current level.
China is struggling to fend off higher inflation in the face of brisk growth of its money supply. Determined to prevent the yuan from appreciating against the dollar in currency markets even as foreign investment pours into the country, the People's Bank of China, China's central bank, has been issuing yuan to buy dollars on a massive scale.
After China last August raised the amount of money that banks must set aside as reserves, the pace of increase in the money supply did slow slightly. But it continues to expand at an annual 18 percent, twice the rate of economic growth.
The People's Bank has tried to drain some of the extra yuan from circulation by stepping up sales of government bills and notes. But this policy has had little success lately, as investors have been reluctant to buy the debt because the initial interest rate on them is capped, a step demanded by China's finance ministry to limit the cost of financing the national debt.
China has a complex labyrinth of interest-rate regulations, with separate rates for various kinds of loans, for deposits and for bonds. The China Daily article did not say which rates might be adjusted.
But a move to raise the allowable rates on commercial loans would be consistent with recent government warnings to banks to limit new lending in fast-growing sectors of the economy like property and steel.
The alternative to tightening monetary policy would be to allow an increase in the value of China's currency. Chinese leaders seemed to hint at a conference on Feb. 10 and Feb. 11 that they might accept small adjustments to the currency's value, saying that they wanted exchange rates to be "rational" and "basically stable," without reaffirming the current peg at 8.28 to the dollar.
A Chinese economist with ties to the leadership in Beijing said that one possibility would be to peg the yuan to a basket of other currencies, with the basket initially set to be roughly equal in value to the current peg. But if the dollar continued its rise of the last several trading days, then pegging the yuan now to the dollar plus several other currencies, instead of just the dollar, would cause the yuan to rise more slowly than leaving the current arrangement in place.
Tropical Storm Usagi strengthened to a typhoon yesterday morning and remains on track to brush past southeastern Taiwan from tomorrow to Sunday, the Central Weather Administration (CWA) said yesterday. As of 2pm yesterday, the storm was approximately 950km east-southeast of Oluanpi (鵝鑾鼻), Taiwan proper’s southernmost point, the CWA said. It is expected to enter the Bashi Channel and then turn north, moving into waters southeast of Taiwan, it said. The agency said it could issue a sea warning in the early hours of today and a land warning in the afternoon. As of 2pm yesterday, the storm was moving at
DISCONTENT: The CCP finds positive content about the lives of the Chinese living in Taiwan threatening, as such video could upset people in China, an expert said Chinese spouses of Taiwanese who make videos about their lives in Taiwan have been facing online threats from people in China, a source said yesterday. Some young Chinese spouses of Taiwanese make videos about their lives in Taiwan, often speaking favorably about their living conditions in the nation compared with those in China, the source said. However, the videos have caught the attention of Chinese officials, causing the spouses to come under attack by Beijing’s cyberarmy, they said. “People have been messing with the YouTube channels of these Chinese spouses and have been harassing their family members back in China,”
UPDATED FORECAST: The warning covered areas of Pingtung County and Hengchun Peninsula, while a sea warning covering the southern Taiwan Strait was amended The Central Weather Administration (CWA) at 5:30pm yesterday issued a land warning for Typhoon Usagi as the storm approached Taiwan from the south after passing over the Philippines. As of 5pm, Usagi was 420km south-southeast of Oluanpi (鵝鑾鼻), Taiwan proper’s southernmost tip, with an average radius of 150km, the CWA said. The land warning covered areas of Pingtung County and the Hengchun Peninsula (恆春), and came with an amended sea warning, updating a warning issued yesterday morning to cover the southern part of the Taiwan Strait. No local governments had announced any class or office closures as of press time last night. The typhoon
The Central Weather Administration (CWA) yesterday said there are four weather systems in the western Pacific, with one likely to strengthen into a tropical storm and pose a threat to Taiwan. The nascent tropical storm would be named Usagi and would be the fourth storm in the western Pacific at the moment, along with Typhoon Yinxing and tropical storms Toraji and Manyi, the CWA said. It would be the first time that four tropical cyclones exist simultaneously in November, it added. Records from the meteorology agency showed that three tropical cyclones existed concurrently in January in 1968, 1991 and 1992.
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