Home Business China is concerned about inflation – but it’s not the top priority

China is concerned about inflation – but it’s not the top priority

A man wearing a mask walks past the headquarters of the People’s Bank of China, the central bank, in Beijing, China, as the country is hit by an outbreak of the new coronavirus, February 3, 2020.

Jason Lee | Reuters

BEIJING — While investors around the world fret over inflation, China’s central bank has more problems than rising prices to worry about.

Central banks worldwide have kept monetary policies easy and interest rates lower in a bid to support growth in the wake of the coronavirus pandemic last year, and China is no exception.

Now as consumer and producer prices climb, investors are on edge as they try to discern if central banks will be raising interest rates.

But the People’s Bank of China — and economists parsing its statements — are not as worried about inflation, or expecting much monetary policy change as the country faces more pressing risks.

In its report on first quarter monetary policy released late Tuesday, the central bank focused on how the foundation for China’s economic recovery is not solid.

“Residents’ consumption is still constrained and investment growth is insufficient,” the report said, according to a CNBC translation of the Chinese text. The PBOC added that smaller, privately run businesses still face difficulties, and ensuring employment remains a great challenge.

China keeps rates steady

High employment pressure

We think a hasty withdrawal of stimulus policies will also bring about new financial risks.

Ligang Liu

chief China economist, Citi Research

Separately, data out Wednesday showed loan growth slowed more than expected in April, which some economists said reflected credit tightening.

“We think monetary conditions have likely tightened, but overall credit policy remains supportive for a more balanced recovery of the real economy, considering the relatively robust medium-term and long-term loan growth,” said Bruce Pang, head of macro and strategy research at China Renaissance.

“The sharper-than-expected slowdown in short-term loan issuance in April may also (be) due in part to regulators’ increased scrutiny on the illegal use of business and consumption loans for property financing,” he said.

Risks in real estate

Real estate is one of the primary areas of investment — and speculation — in China. In an attempt to keep price gains from getting out of hand, authorities have tried to act cautiously.

The People’s Bank of China said in its first quarter monetary policy report that house prices must be kept stable, and emphasized that houses are for living, not speculation.

Although markets appear to believe China will accelerate its exit from policies implemented in the wake of the coronavirus pandemic, there isn’t a strong case right now for the central bank to do so, Ligang Liu, chief China economist at Citi Research, said in a statement.

“Financial fragility has increased, represented by the enlarged property bubble, elevated debt level, and enhanced default risk,” Liu said. “We think a hasty withdrawal of stimulus policies will also bring about new financial risks.”