Chinese Inflation Kaboshes Rates Cut

By: Dr. Mike Campbell

In life, everything is relative. By the standards of the rest of the industrialised world, growth in the world’s second largest economy, China, is nothing short of miraculous, but by their own standards, it is giving cause for concern. The official socio-political system in the People’ Republic of China is, of course, communism which, in principle, treats everybody the same, frowns on private possessions and personal wealth and holds Western capitalism in disdain. But as George Orwell had it, some animals are more equal than others.

There is an emergence of a very wealthy sub-class in China which, no doubt, provokes envious stares and quizzical expressions from the rest of the workers. China recognises the importance of an entrepreneurial class and has found a pragmatic way of reconciling their existence as being for the good of the masses in the larger scheme of things. However, with a vast population that has yet to see any real benefits from China’s emergence as a global economic superpower, the Chinese cannot afford to take any risks that inflation will cause popular unrest.

Fuel and food prices pushed Chinese inflation above the projected level last month by 3.6% year-on-year, rather than the predicted rise of 3.3%. The official target rate for the year is set at 4%. The economy grew at 8.9% in the final quarter of last year compared to the comparable figure for 2010. Whilst this growth is very impressive in comparison to the levels seen in competing economies, it is the poorest level of performance China has seen in two years. This had led to expectations that the Chinese authorities would continue to ease fiscal policy to stimulate growth. Authorities had relaxed the amount of capital that banks had to hold on reserve such that there could be more supply of money to the business sector. However, the inflation figures make this unlikely since any easing could fuel inflation.

Dr. Mike Campbell
Dr. Mike Campbell is a British scientist and freelance writer. Mike got his doctorate in Ghent, Belgium and has worked in Belgium, France, Monaco and Austria since leaving the UK. As a writer, he specialises in business, science, medicine and environmental subjects.