Saturday, April 5, 2008

Balance inflation and growth: China's dilemma

The main topics of Paulson(U.S. Treasury Secretary)'s visiting to China must be more than issues involved with appreciation of RMB. Facing coming financial crisis, Paulson will be more concerned by 1) how to push China accelerate to open her financial market to meet Wall Street's requirements, 2) making sure China would not dump her assets in dollar.

Beijing's own problems are as many as, if not more than, Paulson's. At the beginning of this April, the State Council of China announced the key points of Y2008 economic work. The targets of macro control was somewhat weird: to prevent the economy from being overheated while preventing it from slowing down. The paradox implied that Beijing held a mixed and obscure propect to China's economy.

The real problem in front of China is a mixture of high inflation-low growth(possible). In the short term, the mixture may be relieved by the ease of two factors: 1, the drop of the prices of bulk commodities(say oil) and 2, the harvest of China's agriculture in this summer. The People's Bank of China(PBoC) announced that they would continue the tightened monetary policy, which would be adjusted in response to changes in the domestic and world economies. With the release of more and more data on Q1Y2008, a clearer picture may appear.

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