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China Briefings

Reports on China issued by Samsung Economic Research Institute

China Business Intelligence No. 187

China Business Intelligence No. 187

Samsung Economic Research Institute Beijing Office

Jan. 14, 2011

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For fear of an influx of hot money, the Chinese government has taken a passive stance towards interest rate hikes despite growing inflationary pressure. A series of minute adjustments seem to be unable to rein in the prolonged growth in inflation and government measures have made a small dent in vegetable prices while other food prices have continued to rise. Since the CPI in early 2010 exceeded the target 3 percent, if the government failed to bring the level of deposits and lending and interest rates to a reasonable level through rate hikes, the CPI for 2011 will not fall below 4 percent. In 2011, the Chinese government should take care of the top two risk factors: inflation and property bubbles. Monetary adjustments and fine-tuning foreign exchange policies will be frontloaded in 2011. And interest rate hikes aimed at monetary tightening policies and a yuan appreciation are expected to be carried out in the first half of the year.

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