Money

IMF warns of economic risks from credit and asset bubbles

By Wang Xing and Chen Jia (China Daily)
Updated: 2011-04-13 10:05

BEIJING - China's economic growth is facing increasing pressure from credit and asset bubbles, with inflation in the country projected to hit 5 percent this year, the International Monetary Fund (IMF) said in its latest report.

The nation's economic growth is expected to remain robust at 9.6 percent this year, after growing by 10.3 percent in 2010, the organization also said. And the economic engines are increasingly shifting from public to private demand.

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In its latest World Economic Outlook, published on Monday, the IMF said credit and asset price behavior is disconcertingly hot in China.

It said that although the government has taken measures such as increasing banks' reserve requirements and raising interest rates to fight inflation, credit growth remains high compared with the run-ups to previous credit booms and busts.

"There are mounting concerns about the potential for steep corrections in property prices and their implications," the report warned.

Inflation has been one of the major concerns for both consumers and the government, since a series of economic stimulus packages after the global financial crisis unleashed trillions of yuan in liquidity into the market.

Last week, China's central bank announced it was raising interest rates for the second time this year. The move came as the nation's Consumer Price Index (CPI) surged 4.9 percent in February, surpassing the government's target of 4 percent. Wang Qing, an economist with Morgan Stanley in Hong Kong, said in a recent research note that China's CPI is expected to grow 5.2 percent in March.

"Fighting inflation will be the main goal for the Chinese government. And there is no need for Chinese policymakers to be concerned that economic growth may slow down owing to price surges in crude oil and the global commodity markets," said Qu Hongbin, chief China economist at HSBC Holdings Plc in Hong Kong.

China has raised the reserve requirement ratio of banks nine times since the beginning of last year to soak up excess liquidity in the market.

At last month's annual session of the National People's Congress, Chinese Premier Wen Jiabao said that inflation is a great concern for most Chinese people and that taming inflation is the government's "top priority" in 2011.

The IMF warned on Monday that China's price pressures, which started in a narrow range of food products, have now widened to other sectors, and noted that inflationary trends are also becoming evident in other developing economies in Asia.