Chinese Announce Plans To Curb Inflation In 2011

Online, January 18, 2011 (Newswire.com) - Following reports of 10 percent cuts to 2011 bank lending targets, China's Premier Wen Jaibao promised to stop the credit surge at the beginning of this year. The Chinese government is concerned that rapid capital inflows leading to surges in bank loaning will adversely affect their attempts to curb inflation.

In the first week of January alone, Chinese banks dispensed more than $75 billion in new loans. Following an extension of 7.95 trillion Yuan in new loans in 2010 which overshot Beijing's target by nearly 500 billion Yuan, Wen announced that authorities would utilize policy tools focused on reasonable expansion in credit and money supply.

China is also fighting speculation about potential real estate bubbles, and Wen vowed that Beijing would also maintain its campaign to curb speculative housing demand.

According to analyst Alex Schmidt of Devonshire & Douglas Capital Partners, Beijing can only hold onto their undervalued currency so long. "China has been doing everything in their power to prevent their currency from strengthening. It has worked very well for them, but sometime in the near future they just won't be able to continue to fight off inflation."

There is widespread disagreement about monetary policy, particularly between the United States and China. Given the $227 billion trade deficit, strengthening of the Yuan would be particularly beneficial to the Americans. Chinese president Hu Jintao said Monday: "the current international currency system is the product of the past." This statement comes as confirmation that China plans to continue to internationalise its own currency.