Inflation will be the biggest challenge for China next year

Liao Qun (Citic Bank's chief economic/strategic Division for China) in 2011, China's economy will continue to grow at a rapid pace in the turmoil of the global economy and financial markets, with a growth rate of only 0.7% to 9.4% per cent this year, with inflation rising to 3.8% per cent.　　In the new year, the Chinese government will face three major challenges. The New Year's government faces a series of challenges, the most serious of which will be curbing inflation. The already excess liquidity, coupled with the hot money shocks brought about by the US Federal Reserve's QE2, has led to a surge in inflationary pressures in China. The increase in the consumer price index would be higher than the earlier forecast of 3% per cent or below, with pressure coming mainly from a further increase in domestic liquidity, an upward trend in food and agricultural by-product prices, rising commodity prices in the international market, rising import prices and accelerating wage growth.　　Under the threat of QE2 hot money to accelerate inflows, the pressure on asset inflation will be even greater.　　Given the slow pace of global economic recovery, the QE2 of the dollar and the devaluation of competitive currencies by other countries and the rise in trade protectionism, coupled with a higher base of comparison, the prospect of a New Year's export outlook for China is hard to be optimistic and poses a second major challenge for the government. The third big challenge for the government is to control the rate of appreciation of the renminbi. The central government should not only consider foreign voices, but also according to the needs of China's national conditions, so will continue to pursue the principle of gradual appreciation of the renminbi. How to properly control the rate of appreciation of the renminbi in this situation will be a major problem for the central government next year.　　The renminbi will appreciate at a faster rate of 3% to 5% a year than previously expected, with the renminbi appreciating at 4% to 6% per cent against the dollar in 2011. The fourth big challenge next year comes from the regulation of the real estate market. In recent years, China's real estate prices have risen so fast that many middle-and low-income earners, especially young people, have failed to buy their own property, creating social contradictions. So the government is absolutely right to regulate the real estate market. (Morning paper reporter Liu Zhifei finishing)