INFLATION IN CHINA

INFLATION THREATENS CHINA'S STABILITY

Slower growth in China and a boost in domestic consumption will have lasting consequences for food prices, raising the prospect of social unrest, argues Renaissance Capital's Charles Robertson.

Rupert Walker

FinanceAsia, March 10, 2011

This week at the annual meeting of the National People's Congress in Beijing, attention has been focussed on the intention of China’s policymakers to shift the country’s economy from capital investment and exports towards domestic consumption.

If the emphasis were to shift, then the problem of global imbalances might be partly resolved and income disparities in China reduced. The economy might become more balanced, less prone to property bubbles, less vulnerable to wasteful projects, less susceptible to corruption, and less exposed to social tensions.

Unfortunately, that might not be enough. The problem, says Charles Robertson, global chief economist at Renaissance Capital, is the size not the quality of China’s economic growth.

China’s 12th five-year plan (for 2011 to 2015) targets an annual growth rate of 7%, down from 8% in its previous five-year plan. This compares to the 10.3% actual average growth during 2000 to 2010.

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