Experts: "Low possibility" for CPI growth in October

10:54, November 10, 2009      

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Entering November, economists have released their estimation for the economic statistics of October, which will be released later this month. Most experts believed that China's industrial added value, investment and consumption data would remain robust, while new bank loans might plunge. CPI and foreign trade data are expected to continue recovery trend, but the possibility for their year on year growth is low.

Domestic demand to remain strong

Industrial Bank Chief Economist Lu Zhengwei, estimated that the total added value for Chinese industrial production would record a year on year growth of 17.3 percent, 3.4 percentage points higher compared with last month, thanks to stable industrial production, rebound of export and last October's low figures.

Dong Xianan, another analyst with the Industrial Bank, predicted that urban fixed asset investment would grow by 33.5 percent in October. Investment in the real estate industry would remain strong in the coming few months and push forward the development of relevant industries, said Dong. "Negative effective interest rate and enterprises' optimistic expectation for the macro economy are also expanding investment demand."

CPI decrease rate narrowing

Liu Shijin, deputy director of the State Council's Development Research Center, said in late October that CPI would enjoy growth in October. However, other experts and institutes seemed to disagree with him.

Bank of Commerce, one of the largest Chinese mainland-based commercial lenders, recently unveiled a report, predicting that China's October CPI would decline by 0.7 percent year on year. Due to falling prices of agricultural products, the CPI decline rate may fail to see a significant contraction in October, although tail-raising factors would drive up CPI by 0.3 percent, said the report.

CPI and PPI growth rate would remain negative in October, said Lu, "but the decrease rate might see a sharp decline." Food prices have been falling in October, according to statistics from the Ministry of Agriculture and the Ministry of Commerce.

"With seasonal rebounding of food prices at the end of the year ,narrowing decrease rate of non-food prices and weakening tail-raising factors, CPI's upward trend will remain," said Tang Jianwei, an economist at the Bank of Communications.

Consumer prices have established a recovery trend, although the rebounding rate is lower than expected. China's CPI will start to grow in 2010, noted Tang. He predicts that next year's CPI growth rate will be around 4 percent.

New bank loans may decline

Domestic banks have been slowing down pace of credit expansion as banking regulators urged risk control and higher capital adequacy ratio. Financial institutes agree that credit data in October would plunge compared with September. New Renminbi-dominated loans are expected to stand at 300 billion yuan (43.95 billion U.S. dollars).

However, considering recovering trade surplus and foreign currency influx, money supply would continue to grow rapidly. M2 (broad money supply) growth is expected to reach 30 percent.

Financing institutes are optimistic about money supply despite falling new loans. Lu predicted that M2 growth rate in October would stand at 29.9 percent, 0.6 percentage points higher than the previous month.

China International Capital Corp. (CICC) said that the central bank may speed up soaking up money in the open market in the coming two months, when base currency would see a sharp rise.

"It may be a mistake of simplistic and mechanistic thinking to predict that there will be inflation in 2010, based on the strong growth of money supply," said Wang Qing, managing director and chief economist of Morgan Stanley Greater China.

As the change of family asset allocation was not included in the money supply data, the speed of money creation was over measured, said Wang. Weak export growth can be used as an alternative indicator for China's output gap and will continue to beat inflation.

By People's Daily Online
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