Tuesday, March 15, 2011

This Is What Adjustment Looks Like (An Ongoing Series)

. Tuesday, March 15, 2011

Wen Jiabao gave a long press conference at the end of China's national legislative conference, at which the new five year plan was approved. Some highlights:

Its strategy promises a surge in government spending on domestic security and social programs like medical insurance, but offers little in the way of legal, political or banking reform. One principal goal, the government has said, is to lessen economic dependence on factory exports and build up innovation and domestic consumption.

Mr. Wen described the war on inflation as the government’s top priority. Figures released three days earlier showed that consumer prices rose 4.9 percent in February compared with the same month a year before, the latest in a series of indications that China’s economy is beginning to overheat.

The prime minister partly blamed international factors for the soaring costs, among them spiking oil prices because of the unrest in the Middle East and North Africa. He also pointed to looser monetary policy in the United States, where the Federal Reserve had expanded monetary supply in recent months — a policy known as quantitative easing — in an effort to assist the economy. ...

Mr. Wen promised that the increase in the renminbi’s value would continue. But he added: “It should be a gradual process because we must bear in mind its impact on Chinese businesses and the employment situation.”

He stressed that China’s five-year target of a 7 percent annual rise in the gross domestic product should not be considered low, insisting, “it will not be easy for us to achieve.”


High Chinese inflation + nominal remnimbi appreciation = fairly significant real exchange rate appreciation.

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This Is What Adjustment Looks Like (An Ongoing Series)
 
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