China can endure inflation up to 6 percent – experts

Posted on Apr 28, 2011 in AllEconomic News
With the present GDP growth rate between 9 percent and 10 percent, China can bear an inflation rate up to 6 percent, but should make greater efforts to increase people’s incomes, experts said at the Seventh China Private Enterprises Investment and Development Forum over the weekend.

“Given its rapid economic growth, China can bear an inflation rate of between 5.5 percent and 6 percent,” Yuan Gangming, a researcher in macroeconomics with the Institute of Economics under the Chinese Academy of Social Sciences (CASS), said at the forum. China’s CPI (Consumer Price Index) and GDP rose 5 percent and 9.7 percent respectively in the first quarter from a year earlier, nearing their average level over the past 31 years.

Liu Yingqiu, director of the Center for Private Economy Studies under the CASS, explained that over the past 31 years, the average CPI growth rate in China was nearly 6 percent, and its GDP growth rates basically fluctuated between 9.87 percent and 10 percent, indicating that China’s development was healthy and balanced.

“Inflation is an inevitable by-product of sustained and rapid economic growth, high employment rate, high income level, and wide social security coverage,” Yuan said. When the growth of CPI and GDP maintains a good balance, consumer price increases cannot be simply considered a bad thing.

Zuo Xiaolei, chief economist at China Galaxy Securities, also believes that an inflation rate of 6 percent is bearable, but she noted at the same time that it does not mean everyone can accept the 6 percent inflation since not everybody has enjoyed a nearly 13 percent income growth. Low-income people, especially those who live on social security, have seen little, if any growth in their income.

Therefore, it is very important to build a sensitive subsidy mechanism. The Chinese government formed such a mechanism before the National People’s Congress (NPC) and Chinese People’s Political Consultative Conference (CPPCC) this year, in hopes of providing subsidies to low-income people promptly when the inflation reaches a certain level.

The three economists agree that the most reasonable range for the annual CPI growth rate in 2011 will be 3 percent to 6 percent. As for the annual GDP growth rate, the range will be between 9 percent and 9.5 percent.

via China can endure inflation up to 6 percent – experts – People’s Daily Online.