Official: China may face heavy inflation pressure

Updated: 2011-04-12 20:39
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BEIJING- China is expected to face great inflationary pressure in the future due to higher costs and an abundant global money supply, a senior Chinese official said in an article published Tuesday.

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China's present inflationary situation is severe and hard to handle despite the rise in the consumer price index being more modest than in previous rounds, said Vice Minister of Finance Li Yong, in an article published on the ministry's website.

He said China's efforts in energy conservation, environmental protection, resources price reform and workers' wage increases will cause cost-driven inflationary pressure.

China is now in the process of economic restructuring, and increasing prices due to higher costs during the period will be a long-term process, he said.

He said inflation in China is also the result of excessive global liquidity from loose monetary policies adopted by developed nations, China's lending expansion and a pile-up of outstanding foreign exchange funds.

China's consumer price index (CPI), a main gauge of inflation, rose 4.9 percent year on year in February, the same level as in January. The CPI data for March is scheduled to be released this week and is estimated to show a rise above five percent.

Li also said that the US proposal to limit countries' current account imbalances is a political tool, in addition to the exchange-rate issue, meant to contain China's economic development.

"The external imbalance is a sensitive issue in terms of the rights of China and other developing nations to grow and to have room to grow," he said.

Li said China's economy faces the risk of price hikes and slower growth this year due to slower exports growth, restrained consumption and investment uncertainties.

He expected "relatively great pressure" for China's exports this year due to a stronger yuan and a deteriorating foreign trade environment.

Depreciation of both the US dollar and the euro will hamper China's exports growth and make its management of foreign exchange reserves more difficult, he said.

He warned that the euro-zone debt crisis is likely to worsen and expand, adding that the possibility of some debt issuers will default can not be ruled out.