Slower growth under higher interest rate in China 2011?

08:08, December 01, 2010      

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As 2010 draws to a close, many economists, institutional investors and analysts are sharing their predictions on China's economy for the coming year. They say China's economic growth may slow, and that there's still room for interest rate hikes.

Analysts say China's economic growth will slow in 2011. But the big picture may quite different from this year's.

Yuan Yi, Chief Analyst of Shenyin &Wanguo Securities said "The pace of development will be slower. But, we predict the quarterly growth pace will gain momentum in 2011, rather than this year's continuously slowing pace."

Another analyst holds a similar opinion. He thinks there will be strong inflationary pressure, because of unbalanced liquidity in the market and inflation expectations. But he adds inflation is not a bad thing.

Tao Dong, Chief Economist of Credit Suisse First Boston, Non-Japan Asia said "We need to adjust our attitude. The 2 percent inflation period has passed. We need to adapt to the inflationary pressure, which is the result of rising salaries and agricultural product prices."

They also share their view on the possible interest rate hike.

Tao Dong said "I believe China will speed up the raising of interest rates in the first half of next year. The rate could be raised by between 100 to 150 basis points. I think it's unavoidable."

Analysts add, although the required reserve ratio is already high, there's still room for a further increase. That's because the government needs to control foreign exchange reserve, inflation, and liquidity. Overall, China's monetary policy is expected to transfer from loose to steady.



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