Inflation, lending accelerate in China

China’s inflation accelerated, bank lending exceeded estimates and property prices jumped by a record, increasing pressure on the government to raise interest rates and let the currency appreciate.
Consumer prices rose 2.8 percent in April from a year earlier, the fastest pace in 18 months, and property prices jumped 12.8 percent, the statistics bureau said in statements last week. New lending of 774 billion yuan, or $113 billion, announced by the central bank, was more than any of 24 economists forecast.
China should focus on preventing excessive increases in asset prices and liquidity after Europe’s almost $1 trillion loan package reduced the risk of another global slump, central bank adviser Li Daokui said last week.
“Price pressures have been building throughout the economy, strengthening the case for higher interest rates and a stronger yuan,” said Brian Jackson, a Hong Kong-based strategist at Royal Bank of Canada. “China is at risk of overheating, with spot fires breaking out in various parts of the economy.”
The Shanghai Composite Index as of May 11 had slid 21 percent since November, a sign analysts say is a bear market.
The increase in consumer prices compared with 2.4 percent in March and the 2.7 percent median estimate of 30 economists surveyed by Bloomberg News. Producer prices jumped 6.8 percent, also topping estimates, last week’s release from the statistics bureau showed.
The jump in property prices in 70 cities was the biggest since data began in 2005, defying a government crackdown on speculation that intensified last month.
Statistics bureau spokesman Sheng Laiyun said that while April’s inflation was “mild” and not broad-based – largely reflecting food and residential-related costs including rents – the nation faces significant pressure for bigger price gains. Causes include liquidity, commodity costs and a low comparative base last year, he added.
Europe’s debt crisis may spread even after the rescue plan unveiled last week, which could lead to “positive and negative” effects by restricting demand for exports while damping commodity prices, Sheng said.
China’s government aims to contain full-year inflation at 3 percent and avert property bubbles after record credit growth drove an economic rebound. Investors are concerned stimulus withdrawal and a slowdown in construction could choke off growth after an 11.9 percent expansion in the first quarter. Retail sales growth accelerated to 18.5 percent in April from a year earlier as prices rose. Chen Xiao, the chairman of Gome Electrical Appliances Holdings Ltd., the nation’s largest electronics retailer by stores, said last week that sales are “strong,” bolstered by government subsidies for purchases.
The gain in producer prices was the biggest in 19 months and exceeded economists’ 6.5 percent median estimate. In March the costs of goods as they leave the factory rose by 5.9 percent.
Industrial production rose 17.8 percent in April from a year earlier, below economists’ estimates and down from 18.1 percent in March. M2, the broadest measure of money supply, grew 21.5 percent, slowing from 22.5 percent.
Urban fixed-asset investment climbed 26.1 percent in the first four months from the same period in 2009, easing from 26.4 percent in the first quarter.
China International Capital Corp. last week cut its estimate for China’s economic growth this year to 9.5 percent from 10.5 percent, citing property tightening measures and overseas “uncertainties.” Adjustments to interest rates and currency policy may be delayed, the investment bank said.
Developers Guangzhou R&F Properties Co. and China Overseas Land & Investment Ltd. are reporting slowing sales as the real estate crackdown intensifies. Besides tightening rules for second and third-home purchases, China has increased banks’ reserve requirements three times this year, withdrawing cash from the financial system.
Still, policymakers have left benchmark interest rates and the yuan’s peg to the dollar unchanged.
“The double-dip risk in the world economy is likely to be reduced to a minimum,” Li, the policy adviser, said in an interview in Beijing, expressing his personal view of the European aid plan. “China’s growth rate is not a problem this year, and the main policy focus should be on preventing excessive gains in asset prices and liquidity.” •