SINGAPORE: China's economy risks significant volatility if the inflation rate remains high, according to an article, titled "Rising Inflationary Risks Rattle China," that Standard & Poor's Ratings Services recently published.
"The risk has risen that high inflation will lead to a policy over-reaction, triggering economic volatility," said Standard & Poor's credit analyst Kim Eng Tan in a statement March 14.
"Policy makers could implement large changes in China's monetary and direct policy tools to bring down inflation, resulting in significant fluctuations in economic output. This scenario could unfold if economic planners become anxious that inflation concerns are delaying key projects in the 12th Five-Year Plan."
"China's wage rates, food and real estate prices have all climbed steeply in the past year, driven by the economic stimulus. The rise in prices of property and food items has worried policy makers.
"We foresee higher risk of a policy over-reaction if inflation spreads to non-food items and stays stubbornly high," said Tan.
"Our base-case scenario, however, is that China (AA-/Stable/A-1+) will see high single-digit economic growth this year."
Tan said S&P expects robust investment and consumption growth to keep China's real GDP growing at more than 9% in 2011 on the back of the strong momentum coming into 2011.
Interest rates were likely to rise and the renminbi could appreciate by as much as 7% in 2011 against the US dollar, particularly if export growth remains healthy and labor shortage continues in coastal regions, he said.
"The risk has risen that high inflation will lead to a policy over-reaction, triggering economic volatility," said Standard & Poor's credit analyst Kim Eng Tan in a statement March 14.
"Policy makers could implement large changes in China's monetary and direct policy tools to bring down inflation, resulting in significant fluctuations in economic output. This scenario could unfold if economic planners become anxious that inflation concerns are delaying key projects in the 12th Five-Year Plan."
"China's wage rates, food and real estate prices have all climbed steeply in the past year, driven by the economic stimulus. The rise in prices of property and food items has worried policy makers.
"We foresee higher risk of a policy over-reaction if inflation spreads to non-food items and stays stubbornly high," said Tan.
"Our base-case scenario, however, is that China (AA-/Stable/A-1+) will see high single-digit economic growth this year."
Tan said S&P expects robust investment and consumption growth to keep China's real GDP growing at more than 9% in 2011 on the back of the strong momentum coming into 2011.
Interest rates were likely to rise and the renminbi could appreciate by as much as 7% in 2011 against the US dollar, particularly if export growth remains healthy and labor shortage continues in coastal regions, he said.
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