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Economist

Is inflation or deflation a greater threat to the world economy? Should policymakers focus more on structural adjustments or aggregate demand?

In China, time to tighten

He Fan our guest wrote on Jun 1st 2010, 17:20 GMTINVESTORS

in the global market may begin to worry about deflation, but in China, inflation is still the major concern. There are clear signals of overheating. The GDP growth rate climbed to 11.9% in Q1 2010. For a country which has significant surplus labour, China is now facing an acute labour shortage. Remember, the labour market for migrant workers in China is the most “liberal” one in the world, and this market is more reliable for diagnosing the macroeconomic situation than official statistics.

The root reason for the inflationary pressure is ultra-loose monetary policy. China launched a massive stimulus package to spur the domestic economy in late 2008, but the lion's of share of these public investment projects have been fueled by bank loans. Money flows into infrastructure projects, and also the property market. In the first month of this year, housing prices in Beijing increased by 20%. Faced with mounting public pressure, the government took all kinds of measures to stop the further increase of housing prices. It has had some temporary success. But guess what: the price for garlic and mung beans started to soar. Recently, the stock market tumbled, out of fear of a more stringent policy adjustment. But investors will soon realise that they have overeacted, and there is no other place to put their money. Then, all the money will flow back, and a stock market bubble may follow the housing bubble.

The best choice is further tightening of monetary policy, say, an increase in the interest rate of 27 basis points. The Chinese government is hesitating, because they are concerned about the turmoil in Europe. But if they wait too long, CPI may rise to above 4% in Q3, and by then, it will be too late, and too painful to turn around.

http://www.economist.com/economics/by-invitation/guest-contributions/china_time_tighten

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何帆

何帆

738篇文章 27天前更新

上海交通大学安泰经济与管理学院教授。1971年出生于河南省荥阳县。1996和2000年毕业于中国社会科学院研究生院,分别获得经济学硕士和博士学位。1998年至2000年在美国哈佛大学进修。中国社会科学院研究生院、山东大学等高校经济学博士生导师。其他学术和社会兼职包括:中国世界经济学会副秘书长、财政部、中国人民银行、商务部等政府部门顾问、中国经济体制改革研究会公共政策研究所常务理事、北京大学、厦门大学等高校兼职教授、世界经济论坛(达沃斯)青年全球领袖、亚洲社会青年领袖,央视今日观察评论员等。主要研究领域包括:中国宏观经济、国际金融和国际政治经济学。

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