HONG KONG — China’s government, increasingly worried about soaring inflation, plans to continue tightening its money supply and will probably raise interest rates again within the month.
That is the forecast of economists and bankers with knowledge of policy makers’ views, who insisted on anonymity because of the political and diplomatic sensitivity of Chinese monetary policy.
Inflation lately has caused friction in China’s mighty export machine. Now, Beijing’s efforts to fight inflation, through higher interest rates and tighter restrictions on bank loans, could begin to slow segments of China’s domestic economy slightly — particularly the breakneck pace of investment in new factories, office buildings and apartment complexes.
That, in turn, could weaken demand for industrial materials like steel and copper that depend heavily on Chinese purchases.
And yet, the tighter-money policies and higher interest rates could be good news for Chinese consumers, whose spending China has been counting on for its next wave of growth — not only to help balance the country’s export-dominated economy but to enable more of the nation’s 1.3 billion citizens to share in its prosperity.
For one thing, a slowdown in speculative construction could slow or even temporarily reverse the long rise of Chinese real estate prices, as 15 million people a year pour into the cities.
And while much of the construction spending, and the loans that fuel it, involve state-owned companies, households in China are typically savers, not borrowers. They pay for most cars and other large purchases with cash. Even for new homes, they typically borrow half or less of the purchase price.
So far, consumers frequently hold large bank deposits that earn interest rates well below the inflation rate. Higher interest on savings accounts, if the new policies allow, would only improve consumer purchasing power.
Much of China’s inflation is being fueled by the extraordinary growth in its money supply, broadly measured as so-called M2, which has soared a total of nearly 53 percent in the last two years. That is largely a result of the country’s aggressive monetary and fiscal stimulus program in 2009 and early 2010, as Beijing essentially printed money in response to the global financial crisis.
NEW YORK TIMES
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