China rate hike looks likely
Gaining pace: Construction workers erecting a new property building in the financial district of Beijing yesterday. Picture: Reuters
Saturday, November 17, 2007
CHINESE urban fixed asset investment gained pace in the first 10 months of 2007, official data showed yesterday, capping a week of strong data that has raised expectations of an interest rate hike.
Fixed asset investment — a key measure of spending on infrastructure, plants and other major projects — rose 26.9 per cent to 8.9 trillion yuan ($1.7 trillion), the National Bureau of Statistics said.
The data marked an uptick from a previously announced 26.4 per cent growth rate in the first nine months of the year, and follows Tuesday's announcement of a 6.5 per cent spike in inflation that matched a decade high set in August.
"We think the government will hike interest rates... to curb inflation," Li Huiyong, an economist with Shenyin Wanguo Securities based in Shanghai, said, adding the hike could occur as early as the weekend.
Other bullish data this week included a record high trade surplus of US$27.1 billion ($39.3 billion). But the inflation figures, which included a 17.6 per cent jump in food prices in October, are causing the most official concern.
China's leaders have become increasingly alarmed in recent months as prices for foods and other staple goods have spiked, raising fears of social unrest in a booming economy where hundreds of millions still subsist on meagre incomes.
The central government in Beijing has already raised interest rates five times this year in a bid to prevent overheating, but the economy surged, expanding by 11.5 per cent in the third quarter.
"It seems previous interest rate hikes have not had any major impact on money supply. Macroeconomic policies so far have not been very effective," said Qiu Qingdong, a Beijing-based analyst with Guodu Securities.
Overall fixed asset investment, as opposed to urban investment, grew 25.7 per cent over the first three quarters. The statistics bureau provided no overall 10-month figure.
It also gave no urban fixed asset investment figure for October alone, but investment bank JP Morgan Chase Bank said data showed it expanded 30.7 per cent from a year earlier, the sharpest monthly increase since June 2006.
"Solid growth momentum in the real economy has shown limited slowing amid excess liquidity conditions in the financial system," it said in a note to clients.
It added that it expected further rate hikes as well as increases in the bank reserve ratio requirement, or the amount of money banks are required to set aside with the central bank. Last week, the ratio was raised a half percentage point to 13.5 per cent, the ninth such move this year.
Chinese stocks retreated Friday as the investment data added to fears of a looming rate hike, with the benchmark Shanghai index closing 0.91 per cent lower. AFP
Fixed asset investment — a key measure of spending on infrastructure, plants and other major projects — rose 26.9 per cent to 8.9 trillion yuan ($1.7 trillion), the National Bureau of Statistics said.
The data marked an uptick from a previously announced 26.4 per cent growth rate in the first nine months of the year, and follows Tuesday's announcement of a 6.5 per cent spike in inflation that matched a decade high set in August.
"We think the government will hike interest rates... to curb inflation," Li Huiyong, an economist with Shenyin Wanguo Securities based in Shanghai, said, adding the hike could occur as early as the weekend.
Other bullish data this week included a record high trade surplus of US$27.1 billion ($39.3 billion). But the inflation figures, which included a 17.6 per cent jump in food prices in October, are causing the most official concern.
China's leaders have become increasingly alarmed in recent months as prices for foods and other staple goods have spiked, raising fears of social unrest in a booming economy where hundreds of millions still subsist on meagre incomes.
The central government in Beijing has already raised interest rates five times this year in a bid to prevent overheating, but the economy surged, expanding by 11.5 per cent in the third quarter.
"It seems previous interest rate hikes have not had any major impact on money supply. Macroeconomic policies so far have not been very effective," said Qiu Qingdong, a Beijing-based analyst with Guodu Securities.
Overall fixed asset investment, as opposed to urban investment, grew 25.7 per cent over the first three quarters. The statistics bureau provided no overall 10-month figure.
It also gave no urban fixed asset investment figure for October alone, but investment bank JP Morgan Chase Bank said data showed it expanded 30.7 per cent from a year earlier, the sharpest monthly increase since June 2006.
"Solid growth momentum in the real economy has shown limited slowing amid excess liquidity conditions in the financial system," it said in a note to clients.
It added that it expected further rate hikes as well as increases in the bank reserve ratio requirement, or the amount of money banks are required to set aside with the central bank. Last week, the ratio was raised a half percentage point to 13.5 per cent, the ninth such move this year.
Chinese stocks retreated Friday as the investment data added to fears of a looming rate hike, with the benchmark Shanghai index closing 0.91 per cent lower. AFP
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