China NPC Underlines Inflation Focus

Business, China, Company Strategy, Economics, Europe, Japan, US

The course of true love never runs smooth…..Happy China couples get divorced and then plan to remarry in order to avoid new property tax

Chinaweddingpic.jpg

Source of picture: Quirky China News/Rex Features

 

By John Richardson

China will see “large inflation pressure in the second half of the year,” said a People’s Bank of China official on the sidelines of the National People’s Congress (NPC).

But he believed that the official target of 3.5% inflation for 2013, lower than the 4% target set for last year, could be met if swift action was taken to control money supply.

To this end, outgoing premier Wen Jiabao announced during the NPC that a 13% growth target for money supply had been set for 2013 compared with 12% last year.

The NPC was thus used to further underline what Beijing made clear last week: A new tightening phase.

The renewed battle against inflation is not expected to any time soon require an increase in interest rates or bank-reserve requirements.

This is, perhaps, good news given that both of the above measures badly dented petrochemicals demand growth from April 2011 until Q2 2012.

A problem, however, as The Wall Street Journal points out is that “central banks around the world are easing policy and keeping interest rates at extraordinarily low levels. Many Chinese commentators argue that this global easing is pushing up inflation in China as speculative capital flows in, chasing higher returns.”

The policies of the Federal Reserve, the European Central Bank, and more recently the Bank of Japan, are all odds with China’s renewed battle against inflation.

The developed world seems likely to throw more, rather than less, liquidity at its economic growth problem.

This could force China to take more severe measures to bring the rising cost of living under control. Plus, of course, there is a risk to international relations.

Meanwhile, the clampdown on the 10,000 lb inflationary gorilla in the corner of the Chinese room – the property sector – has led to a jump in the divorce rate.

The 20% property tax is to apply to second properties bought by married couples. But, if the couples separate they can buy one home each and thus avoid the tax. They can then remarry.

Property sales have also jumped ahead of the introduction of the tax because, as the Financial Times points out, property is central to the Chinese economy “with vast amounts of the population’s wealth tied up in the values of their homes”.

There are two risks here, which are:

1.) The government fails to rein in the property sector because of other innovative efforts to avoid new regulations This might be good news for growth in the short term, but will worsen inequality and the scale of the potential correction if the bubble eventually bursts.

2.) The government succeeds and in so doing, GDP growth is lower in 2013 than the official 7.5% target.

PREVIOUS POST

Death By A Thousand Cuts

06/03/2013

By John Richardson COST cutting and disciplined operating rates have been two of...

Learn more
NEXT POST

It Is Now Down To Seven Guys In A Room

11/03/2013

 Source of picture: China Daily   By John Richardson The famous invest...

Learn more
More posts
Drone attack on Saudi oil facilities: Substantial investment required to avoid a repeat
16/09/2019

The views expressed below are personal and do not express the views of ICIS Here is a another blog p...

Read
President Trump can only cause major economic damage by beating China, unless he has a time machine
12/09/2019

The views in this blog, are, as always, my own personal views and don’t reflect the views of I...

Read
Unsustainable boom in China auto market ends as sales of new vehicles move permanently lower
08/09/2019

By John Richardson THERE IS a big temptation when making forecasts of becoming too excited about the...

Read
Global PP demand could be 81.5m tonnes less than forecast in 2019-2028 as China Debt Supercycle ends
05/09/2019

By John Richardson SOME PEOPLE argue that despite the rapid rise in Chinese consumer debt over the l...

Read
China economic stimulus and PP: How global demand could have been 71m tonnes smaller
04/09/2019

By John Richardson CHINA came to the rescue of the global economy in 2009. This wasn’t for altruis...

Read
Hong Kong an example of rising political risk and the end of easy growth
02/09/2019

This blog expresses my opinions and not those of ICIS By John Ricuardson THE UNREST in Hong Kong wor...

Read
China imposes trade-war tariffs in US LDPE and raises tariffs on HDPE and LLDPE
27/08/2019

By John Richardson DON’T SAY I didn’t tell you. As I predicted, China has levied trade-war tarif...

Read
President Trump’s “better off without China” tweet not supported by the data
24/08/2019

The opinions in this blog post are, as always, my own and do not reflect the views of ICIS   By...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more