China's CPI rises 2.7% in Feb., page 1

China's CPI rises 2.7% in Feb.

www.china.org.cn

China's consumer price index (CPI), a main gauge of inflation, rose 2.7 percent year on year in February, the National Bureau of Statistics announced Thursday.

Food prices rose 6.2 percent last month year on year, with non-food prices rising 1 percent from a year earlier.

The figure was 1.2 percentage points higher than January's figure, partly due to the Lunar New Year holiday falling in February this year, a time when Chinese spend a lot of money on food, alcohol, cigarettes and gifts

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How could China be facing major inflation in a contracting, recessionary world market?

China's central Committee (CCP) decided last year to inject huge amounts of money back into their domestic economy in the form of easy bank loans. This was done to maintain businesses and postpone labor layoffs at a time of shrinking world demand for Chinese products.

The bank loans injected an incredible amount of money into an already overheated economy, wages increased and money was available to be spent on relatively scarce Chinese every day commodities. The result is seen in these CPI increases reported in national China news.


All real estate prices increased all over China but especially in certain coastal areas. Thus China faces a serious real estate bubble. If the CCP tightens its monetary policy it will threaten the bubble, should it break as it did in the west, the CCP will face insurrection at all levels! Unhappy Chinese will turn out everywhere and challenge the CCP policies of current leader HU.

Hu's term is over in 2012 and his chosen successor (by Hu's predecessor Jiang) is Xi. And while Hu and Xi have similar economic goals the present turmoil will insure that the next 2 years will bring constant surprises and changes.

www.china.org.cn
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[edit on 11/3/10 by plumranch]

reply to post by plumranch

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I didn't see the percentage or figure of the bad loans or projected bad loans they may have to sweep under the rug.

reply to post by SLAYER69

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I didn't see the percentage or figure of the bad loans or projected bad loans they may have to sweep under the rug.

Good point!

The official figure is about 15% but the critical estimates are much higher in the ranges of 25% or higher. We only get CCP figures so the rest is conjecture but the reason for higher estimates of debts already or about to default is due to the system. The CCP makes its estimates on the conservative side because it can, the Chinese economic system by nature is very volatile and inflatable right now and worst of all the old loans were often made based on who you know not on good economic principles (the good old boy system) and this is not likely to change in this top heavy Chinese system.

Originally posted by plumranch
How could China be facing major inflation in a contracting, recessionary world market?

The bank loans injected an incredible amount of money into an already overheated economy, wages increased and money was available to be spent on relatively scarce Chinese every day commodities. The result is seen in these CPI increases reported in national China news.

BEFORE THE BELL: US Stock Futures Lower On China Inflation Worries

U.S. stock futures slipped Thursday on worries that China, the engine of the world economy, may have to slam the brakes to combat accelerating prices.

S&P 500 futures fell 2.2 points to 1143.50 and Nasdaq 100 futures lost 2.5 points to 1916.20. Futures on the Dow Jones Industrial Average sank 14 points.

U.S. stocks edged higher Wednesday, with government-backed financials American International Group Inc. (AIG) and Citigroup Inc. (C) extending gains, and technology companies also performing well. The blue chip Dow Jones Industrial Average rose fractionally but the S&P 500 gained 0.5% and the Nasdaq Composite rose 0.8%.

Driven by a jump in food prices, Chinese CPI climbed 2.7% in February. Lending by Chinese banks rose 700.1 billion yuan ($102.5 billion) in February, while money supply as measured by M2 was up 25.5%.

"Today's monetary and inflation data out of China do not make for comfortable reading," said Diana Choyleva, of Lombard Street Research.

"Given the force of the monetary expansion, it is highly likely that the People's Bank of China will have to tighten too much because it left it too late."

reply to post by Misoir

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So what could this mean exactly? Could inflation in China get out of control? And if so how would it affect the U.S.?

There are a lot of people worldwide that are predicting a collapse. Few thought that the Japanese were headed for collapse in the '80s but look what happened in the '90s. I don't see any way out for the Chiese as the world economy, the engine that drives China is not recovering quickly and not likely to in the near future. Meanwhile China is loaning out more and more money to support their waning businesses. If they pull back too fast on the lending to cool their inflation, many more loans will be forced to default hastening a correction.

Most economies become powerful by building their domestic economies first and then going for the world market. IMHO China is far to dependent on the cyclic world markets.

China's Hu and the CCP can dictate economic reform and correction and have usually been able to pull it out. Again, change is on the horizon.

reply to post by Misoir

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If inflation is the problem, do what the US does and export it. People are going to start buying up reminbi denominated assets and paper as a result of this. What we are likely to see is the Chinese opening up more and more of their market to foreign invesment in order to control inflation. The US did this with the Japanese in the early 1990s and arguably saved us from what could have been an inflationary depression.

History repeats itself. But our own history tells us that exporting inflation can only last a little while.

reply to post by projectvxn

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What we are likely to see is the Chinese opening up more and more of their market to foreign invesment in order to control inflation. The US did this with the Japanese in the early 1990s and arguably saved us from what could have been an inflationary depression.

Possibly, but now the foreign investor has more of a choice, he can go to other Asian markets to invest or set up a business most likely India. Chinese inflation has caused labor expenses to increase greatly so Chinese labor is not the bargain it once was making foreign investors look elsewhere.

reply to post by plumranch

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But it is ripe for foreign invesment in yuan bonds. Their investment would help control inflation in the end and they would get a handsome return come maturity date. I think China did this on purpose.

reply to post by projectvxn

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And they will be forced to open up their currency markets. Which will give rise to the yuan. Which will cause China to have greater spending power for the upcoming resource war.

reply to post by projectvxn

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But it is ripe for foreign invesment in yuan bonds.

Chinese Bond Sale Tests Global Demand

Not a hot item!

China started selling yuan-denominated sovereign bonds in Hong Kong for the first time on Monday, testing international demand for its currency with the $879 million issue as it moves to widen the yuan’s exposure and appeal to markets abroad.

The higher yields in Hong Kong — compared to mainland yields of 1.82 percent on two-year bonds, and 2.31 percent for three-years — should also help shore up demand.
In July, China made three government bond sales, and fell short of its targets each time.

What has changed, why is it ripe? The Hong Kong issues this September went for 2.25% for 2 year bonds. China's CPI went up 2.7% in February. Hard to make money when you are locked in at 2.25% unless you know the yuan is tanking! But if it is going under you may not get your pay off in 2 years due to possible default.

And Chinese banks are facing a lot of default these days!

reply to post by plumranch

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So basically it means the US will have to find a new country to do massive trade with and sell our debt to. I think it will be India.

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