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 per cent in April from a year earlier, the fastest pace in 18 months, and property prices jumped 12.8 per cent, the statistics bureau said in statements today. New lending of 774 billion yuan ($113 billion), announced by the central bank, was more than any of 24 economists forecast.
Asian stocks fell, with the local benchmark index entering into a bear market, and oil and copper slumped on concern the government will move to cool the fastest-growing major economy. 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 yesterday.
“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.”
Stocks slump
The MSCI Asia Pacific Index reversed a gain of as much as 0.7 per cent to trade 1 per cent lower at 118.91 as of 4:02 pm in Hong Kong. The Shanghai Composite Index fell 1.9 per cent to close at 2,647.44, the lowest in almost a year. It has slid 21 per cent since November, a sign analysts say is a bear market.
Copper futures on the London Metal Exchange fell to $7,003.50 a metric ton and crude oil decreased 0.9 per cent to $76.15 a barrel in New York, paring an earlier 0.8 per cent gain.
Non-deliverable yuan forwards rose 0.1 per cent, indicating that the government will scrap a peg to the dollar and let the currency gain 2.3 per cent in the next year.
The increase in consumer prices compared with 2.4 per cent in March and the 2.7 per cent median estimate of 30 economists surveyed by Bloomberg News. Producer prices jumped 6.8 per cent, also topping estimates, today’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 yesterday, 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 per cent 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 per cent expansion in the first quarter.
Retail sales growth accelerated to 18.5 per cent 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 yesterday that sales are “strong,” bolstered by government subsidies for purchases.
Producer Prices Soar
The gain in producer prices was the biggest in 19 months and exceeded economists’ 6.5 per cent median estimate. In March the costs of goods as they leave the factory rose by 5.9 per cent.
Not all of today’s indicators pointed up.
Industrial production rose 17.8 per cent in April from a year earlier, below economists’ estimates and down from 18.1 per cent in March. M2, the broadest measure of money supply, grew 21.5 per cent, slowing from 22.5 per cent.
Urban fixed-asset investment climbed 26.1 per cent in the first four months from the same period in 2009, easing from 26.4 per cent in the first quarter.
UBS AG economist Wang Tao said loans are typically higher at the start of each quarter and the latest figure doesn’t put the government’s target of limiting lending to 7.5 trillion yuan this year in jeopardy. Economists’ median estimate for April was 585 billion yuan and the previous month’s lending was 510.7 billion yuan.
Economic Growth
China International Capital Corp yesterday cut its estimate for China’s economic growth this year to 9.5 per cent from 10.5 per cent, 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, policy makers 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.”
