China’s consumer price inflation hit 2.8% in April, an 18-month high. And property prices jumped by an annual 12.8%. That’s the fastest pace since nationwide property data was first collected in 2005. Bank lending rebounded last month too, and at the current rate will exceed the government’s target of a 19% annual increase this year. The domestic stockmarket, however, has continued to fall – it’s down 20% this year.
What the commentators said
The price of “virtually everything is on the rise” in China, according to Dong Tao of Credit Suisse. Inflation is heading above 5% and “everybody in China except government economists” has realised it won’t peak in the middle of the year. The government has applied some minor tightening measures, such as hiking banks’ reserve requirements and tightening laws against property speculation. Credit Suisse now reckons a home in Beijing costs 12 years of household income. Tightening has somewhat dampened the stockmarket.
But the government “is too slow”, said Nouriel Roubini of New York University. With the economy “overheating”, it should be “raising interest rates”. So the risk of a nasty slide once tightening does finally occur is growing. Investors ranging from Asia’s Marc Faber and Hugh Hendry of Eclectica are now worried that the credit-juiced economy is heading for a crash.