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The speed limit on China’s inflation

Scott Tong Feb 19, 2008
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The speed limit on China’s inflation

Scott Tong Feb 19, 2008
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Scott Jagow: We all know China’s economy is growing fast — a scorching 11 and a half percent last year. But the question is: What’s the speed limit? Because today, China said inflation is now higher than 7 percent. Scott Tong reports from Shanghai.


Scott Tong: When the speeding car that is China runs too hot and inflation tops 7 percent, a yellow warning light flashes on the economic dashboard.

So says Jun Ma of Deutsche Bank in Hong Kong. In the past, he says, that’s when consumers have started to expect inflation.

Jun Ma: We actually found quite a few cases of panic buying or stockpiling by consumers for things that they don’t want. And that itself will drive further inflation.

For weeks now, the government has deployed price controls to try to calm things down.
That’s good for buyers of food and energy. But not for sellers.

Ma A lot of companies’ margins will be squeezed, leading to a lower incentive for further investments — fairly damaging to the economy.

An economy whose exports are growing the way they used to, thanks to a weaker United States. The hopeful scenario is Chinese inflation is temporary, and only cooking up the food sector.

In Shanghai I’m Scott Tong for Marketplace.

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