Int'l speculative capital gambling on China's ag products

16:55, November 09, 2010      

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The prices of some agricultural products have recently been increasing sharply and many experts said that the main reason is the speculation of capital. Due to the increasing domestic inflation pressure caused by the rise in agricultural product prices, experts suggested that the government should strengthen capital controls to strictly control the inflow of foreign capital and tighten the liquidity of domestic capital.

Zuo Xiaolei, chief economist at the China Galaxy Securities, is surprised by the "unreasonable" rise in the price of agricultural products because China had a good harvest this autumn and there is no shortage in the foodstuff supply. Zuo said that since the United States restarted the quantitative easing monetary policy, massive capital entered the international market and raised commodity prices.

Although the prices of most domestic grain products are different from that of foreign countries, it will still be affected. Moreover, as China had also issued much currency in 2009, which led to excessive liquidity, speculative capital began entering the commodity market to speculate on prices.

Yuan Gangming, researcher at the Economic Research Institute under the Chinese Academy of Social Sciences, also said there are currently two main reasons causing the rise in agricultural product prices. On one hand, influenced by price rises in the early days, there is a strong price increase expectation for agricultural products in the market and the suppliers including peasants began raising prices. On the other hand, it is caused by the price increase of a large number of commodities in other countries and the speculation of capital.

Zuo pointed out that administrative measures, particularly capital control, are necessary to curb the rise in prices. The central government must both strictly control the inflow of foreign capital and at the same time tighten the liquidity of domestic capital. Yuan thinks that the central bank is likely to raise interest rates again after its last move in October.

By People's Daily Online


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