China’s Attempts at Fighting Inflation

Despite raising interests three times since October and increasing the amounts of deposits banks should hold in reserve, People’s Bank of China Governor Zhou Xiaochuan has emphasized the importance of controlling interest rates when fighting rising consumer prices. Even though China has undertaken several tightening efforts, inflation has continued to run in China at its highest levels in about two years. Chinese government officials have called this their biggest issue for this year. Analysts such as Credit Suisse economists Dong Tao and Christiaan Tuntono have said that even with the recent tightening measures, government has yet to get prices under control. This seems to indicate the stage for another rate increase, even though the U.S.A. has been calling for Beijing to tame prices by letting the Yuan strengthen more quickly. Inflation is dogging many of the world’s emerging economies, but the reason it is affecting China so much comes from an explosion of credit originating from China’s state-run banks’ effort to stabilize the economy amid the recent global recession.

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