The consumer price index (CPI), the main gauge of inflation, rose 7.7 percent last month, marking its first significant drop since last year, the National Bureau of Statistics (NBS) said on Thursday.

The CPI rose 8.5 percent in April, up from 8.3 in March and down from the 12-year high of 8.7 percent in February.

However, while inflation was decelerating, prices would remain high this year, and the situation might trigger further tightening and price reforms involving energy and resources, said analysts.

CPI to drop further

The CPI would continue to fall for the rest of the year with declining food prices, according to the China International Capital Corp (CICC).

The rate of increase in food prices, a major driver behind China’s high inflation, dropped 2.2 percentage points to 19.9 percent in May.

As stocks of live pigs and the yield of rape vegetables increased, the trend would likely to continue because of increasing supplies and an expected bumper harvest.

China has since last year introduced a series of incentives, including direct subsidies and government-funded insurance, to boost agricultural production.

Li Huiyong, an analyst with Shenyin Wanguo Securities, said that the devastating earthquake in Sichuan Province on May 12 had a limited impact on food prices as the grain and pork output in the quake regions accounted for a tiny portion of the nation’s total.

Liang Hong, chief China economist with Goldman Sachs, said the easing in May might mark a start of prices softening during the remaining period of the year if the government stuck to tight monetary policies.

The People’s Bank of China (PBOC), the central bank, ordered a full percentage point rise in the reserve requirement ratio on Saturday to enhance liquidity management and tame inflation. The larger-than-expected hike followed 14 increases in the reserve ratio and six interest rate hikes since last year.

This move dashed market hopes the PBOC would relax monetary policy as the economy faced a worrisome slowdown on weaker export growth and the impact of several crises, from the worst blizzards in five decades earlier this year to last month’s 8.0-magnitude quake.

Prices to remain high

Inflation also eased because of the high base of comparison from late last year, but absolute prices would continue to climb all through the year, said Hu Yuexiao, an analyst with Shanghai Securities.

“The inflation situation is still very grim and the CPI is set to exceed the government target of 4.8 percent for 2008,” said Hu.

The Bank of China (BOC) forecast the CPI will rise 8.3 percent in the second quarter and 6.8 percent the whole year.

The quake would not change economic fundamentals, but the massive investment required for reconstruction might add new inflationary pressures, the leading commercial bank said.

The acceleration in the producer price index (PPI) in May might lead to a rebound in the CPI sometime later this year as producers pass the higher costs on to consumers, analysts said.

The PPI surged 8.2 percent in May on higher costs of energy, resources and labor, after gaining 8.1 percent in April, the NBS said on Wednesday.

This also deepened worries that higher factory-gate prices might lead to more worrisome broad-based price rises, in contrast to the current structural hikes mainly caused by food.

“The pressures for broad-based price rises are still the biggest risk for the macro-economy,” the central bank said in a report published early the month.

More tightening, price curbs?

Chinese authorities still needed to stick to a tight monetary policy and raise interest rates “at a proper time,” following the reserve hike on Saturday, to more effectively curb inflation, the BOC said in a research report released on Tuesday.

Rate hikes would help to end negative interest rates to become one of the most effective weapons against inflation, the report noted.

The central bank, however, has refrained from boosting interest rates this year, fearing that could attract more overseas speculative funds after the sharp rate cuts in the United States.

With difficulty in reaching a consensus on rate hikes, the PBOC would use more bill sales, reserve ratio increases and administrative intervention to curb excess liquidity and inflation, the report added.

The trade surplus, although shrinking in recent months, continued to pump a huge amount of liquidity into the banking system, partly blamed for price surges.

To curb inflation and support post-quake building, the National Development and Reform Commission (NDRC), the top economic planning agency, ordered on Wednesday temporary price controls on construction materials such as steel, cement, timber and glass.

Earlier the year, the NDRC ordered similar steps for basic necessities ranging from grain, edible oils, meat, milk and eggs to liquefied petroleum gas.

The decelerating inflation might offer an opportunity for lifting some price controls, including raising fuel prices, in the second half of the year, CICC added.

Price controls have managed to limit the inflationary surge, but they were also widely said to have cut corporate profit growth or even caused losses and made businesses unwilling to increase output, which in turn fanned inflation.

The sex ratio at birth in rural areas is 122.85:100, higher than the national average of 119.58:100, as compared with the normal sex ratio of 103 to 107:100, according to Zhang Weiqing, National Population and Family Planning Commission director.

By 2020, males aged between 20 and 45 are forecast to be 30 million more than females in the country, he said at a rural population and family planning conference in the Henan Province capital.

Rural families still have a preference for boys as agricultural production currently relies mainly on laborers, according to Zhang.

China will continue to crack down on illegal prenatal sex selection and will try to help people discard traditional ideas of a preference for boys, the official said.

Spokesman Liu Jianchao made the remarks when asked to comment on US Department of Defense’s recent announcement of planning to sell 3 sets of Patriot II anti-missile equipment upgrade systems and affiliated equipments worth of $939 million to Taiwan.

China firmly opposes to arms sales by the US government to Taiwan, and had already raised strong objection and solemn representations to the United States, said Liu, noting that this has been a consistent and clear stance of China.
China urged the United States to take actual actions to carry out the three China-US joint communiques, honor its commitment made to China on the issue of Taiwan, and stop sending any misleading signals to the separatist forces seeking for Taiwan Independence, Liu said, affirming that China reserved rights for taking further measures.

Regardless of China’s solemn stance and firm opposition, the United States took wrong actions in a row to sell the the P-3C anti submarine warfare aircraft, the Patriot II antimissile equipment upgrade systems and other advanced weapons, Liu said.

Such wrongdoing severely violated the US government’s commitments made to China in the joint communique signed between the two countries on August 17, 1982, rudely interfered in China’s internal affairs, endangered Chinese national security and peaceful unification, also disturbed the improvement and development of China-US relations, Liu stressed.

Noting that the Taiwan situation is highly complicated and sensitive, Liu said Chen Shui-bian’s obstinate promotion of a “referendum” on Taiwan’s bid to enter the United Nations, seeking membership in the UN under the name of Taiwan as well as other separatist activities attempting for Taiwan independence seriously threatened the peace and stability across the Taiwan Straits.

The CPI, a key gauge of inflation, grew 6.2 percent in September.

Food prices, up 17.6 percent year-on-year, are the major factor behind the resurging CPI. Prices of fresh vegetables rose sharply in October, too – nearly 30 percent year-on-year. And that is a new trend.

Surging prices prompted concerns that an interest rate hike might be imminent. Analysts, however, reassured the high inflation rate would not persist and instead it would slow down to become modest next year.

Repercussions of a possible interest rate hike was felt on the Shanghai Composite Index, too, which fell 0.57 percent yesterday to end at 5158.

The interest rate has already been raised five times this year, but analysts widely expect the central bank to announce another hike in the short term to curb inflation.

Premier Wen Jiabao visited some Beijing families on Monday to solicit their opinion over rising prices. He said options are open and the government will take all-round measures to tackle the problem.

“The severe weather in some regions – floods and typhoons – may have caused the supply of vegetables to drop,” said Zhu Baoliang, a senior economist with the State Information Center.

Prices of meat and poultry jumped 38.3 percent and edible oil was dearer by 34 percent.

Although some food prices remain high, they have eased a bit month-on-month, showing a stabilizing trend, Zhu said.

In September, meat and poultry prices rose 43 percent, while edible oil was costlier by 34.5 percent.

Some economists are worried that the current trend of price rise may spill over to the broad economy, but Zhuang Jian, a senior economist with the Asian Development Bank, said it is unlikely. He, however, said prices will not drop significantly this year or the next.

“The current high CPI and food prices, however, will not persist either,” he said.

This year may see a CPI growth of about 4.5 percent, while it is expected to be a “modest” 4 percent next year, Zhuang said.

As a sign of the easing trend, analysts said, the core inflation, or the non-food price index, stood at 1.1 percent in October.

Rate hike

The market is bracing for another interest rate hike in the short term as the CPI regained momentum in October.

Shen Minggao, chief economist with the Citigroup in Beijing, said: “At least one more rate hike of 27 basis points is expected so that the gap between the one-year deposit rate and the annual CPI is narrowed… If inflation persists, the risk for more rate adjustment will rise.”

Although the rising interest rate for the yuan will narrow its gap with the dollar’s interest rate and may bring in more capital to cash in on the expected rise of the Chinese currency, Zhuang said it’s more important for policymakers to stabilize domestic inflation expectations.

“The possibility of another interest rate hike, therefore, cannot be ruled out.”

By Xin Zhiming, China Daily

The China Banking Regulatory Commission (CBRC) convened a meeting yesterday with State-owned commercial banks, and put brakes on credit growth.

According to the central bank’s statistics on monetary credit released yesterday, the October growth of renminbi loans from China’s financial institutions slowed to 136.1 billion yuan (US$18.32 billion), the lowest monthly increase this year.

However, the loan increase in the first ten months totaled 26.03 trillion yuan, up 17.66 percent year-on-year.

CBRC chairman Liu Mingkang vowed earlier to bring the whole-year credit growth below 15 percent. To meet the goal, commercial banks have been given only 85 billion yuan for lending in the rest of the year.

The paper quoted an industry insider as saying although commercial banks’ credit policy tends to be tight at year-end, the 15-percent goal is still hard to achieve.

The source anticipated financial regulators to impose more credit tightening measures or give specific instruction to the banks, as well as convene similar credit meetings to improve loan control.

Either way, with the central bank’s ninth hike of banks’ reserve requirement ratio this year, more liquidity pressure will force commercial banks to slow the pace of lending, the source said.

Apart from being an accomplished performer, this guy is also well versed in the art of scaremongering. With a perfectly straight face, he would make statements along these lines:

“Milk is for cows, not people, therefore drinking milk is bad for your health……a sweet potato a day keeps cancer away…….the banana skin is where all its nutrition is, so if you are going to eat banana, you may as well eat rotten banana skins……heating food with a microwave oven will reduce its nutritional content by 97%, so don’t do it…….I’ve read 700 thesis proving that eating animal protein will cause cancer……”

It takes only one sentence to promote a fallacy, but to refute one requires much more than that. In any case, the time allocated to me was barely enough to refute one, maybe two, of the fallacies he promoted, so I could only hope that the audience were able to see through all the fallacies. Although it takes specialist knowledge in biological science and medicine to specifically refute his fallacies, the ridiculousness of these statements should not escape anyone with some common sense.

However, these fallacies have managed to capture the imagination of people on both sides of the strait. A guide to healthy living written by “the doctor” has been topping the sales charts for months, and as a result many have switched from a diet of milk and meat to some sort of “detox diet” that could well cause malnutrition. A presentation by “the doctor” would drive local sales of sweet potato and “anti-cancer” vegetables up a few notches. Is this because of his impressive title or accomplished performance skills? Did he somehow connect with the collective psyche of the masses? Or is this about something else altogether?

An emphasis on the maintenance of health and wellbeing and the sheep syndrome are both enduring characteristics of the Chinese people. Once in a while, a magic portion that promises to cure all diseases will whip the country into a frenzy. We’ve already seen crazes such as injection of chicken blood, cultivation of black tea fungus, practice of qigong and the consumption of various so-called health products. But then, crazes in the past were grassroots efforts with no originator as such, and followers of the craze often had to expand significant effort to seek credibility from the scientific establishment and government agencies. What we are seeing now are crazes driven by brands build around personalities and “alternativeness”. Instead of building credibility through scientific research, their proponents often openly discredit the scientific establishment through their “alternativeness” claim.

I suppose times have changed. In this day and age, espousing alternativeness is nothing to be ashamed of. As mainstream society evolves and authorities of the past become irrelevant, contempt for the mainstream and all that embodies authority may yet, indeed, be trendy.

Even science, once seen as the embodiment of truth as well as the most objective and reliable academic discipline, is now considered by modern China to be a laughing stock. Academics, members of the “intellectual elite” and “opinion leaders” are more than willing to label those who seek to approach questions of science with scientific reasoning and rigour as “scientific ideologues” or simply “superstitious”.

Whilst science cannot provide the answer to every question, it is crucial to our understanding of it, especially when it comes to questions pertaining to health and wellbeing. A writer of some renown once asked if the masses who did not understand chemistry and the human body’s response to poisoning would have difficulty grasping with the fact that arsenic is poisonous? The fact that he used such an extreme example illustrates that perhaps he could also do with some lessons on scientific reasoning. Whilst arsenic’s poisonous properties are obvious for all to see, those whose poisonous properties are not as obvious and does not manifest itself as readily as arsenic can only be identified through scientific research. For example, scientific researches have shown that many Chinese herbal medicine long thought to be non-poisonous are actually highly poisonous.

On the other hand, scientific researches have also debunked urban myths on the poisonous properties of certain things. Indeed, those with specific scientific knowledge in this field can easily explain urban myths such as “if the bugs can’t eat food genetically modified to be pest resistant, how can they possibly be edible by humans”.

The thinking of mainstream society is not necessarily founded upon logic and reason and is, by its very nature, dynamic. However, mainstream science is founded upon solid evidence and change can only occur when even stronger evidence to a different direction is presented. In other words, “extraordinary claims require extraordinary evidence”. As a result, whilst mainstream science may not be correct all the time, it is more likely than not to be correct. Mainstream science is the consensus of outstanding analytical minds based on the comparison of a wide range of evidence, not the unsubstantiated postulation of some persuasive individual.

Therefore, until mainstream science is proven incorrect, it’s best to accept it as the truth. It would be unwise to believe an alternative view simply because mainstream science may have gotten it wrong. Entrusting one’s body to experiment with “alternative medicine” and “alternative nutrition” may well hurt one’s health as well as the hip pocket. If science can’t be relied upon, then what can?

But then, this is the age of fakes. In a country where those with an appreciation for science makes up only a few percent of the population and sensationalism reigns over logic and reason, even the worst fake products and most ridiculous theories will not have difficulty finding a large, receptive audience. Moreover, the eyeball driven media and judiciary are more than happy to offer a helping hand. Those who expose the fallacies and frauds committed in the name of science can expect to be convicted of defamation by a judge stating that “Science is developmental, truth is relative. Therefore, no one has the right to accuse anyone else of scientific fraud. In fact, even the word ‘fraud’ is fraudulent”. While the truth is still trying to put on its shoes, the fallacy juggernaut has already traveled the world. As psuedoscience and anti-science bask in its glory, science can be found in a dark corner, quietly licking its wounds.

Kids’ stunts such as these are becoming more common as Olympic fever rises with the approach of next summer’s games. But don’t expect any great outcry. In China, where one-child families are the government-enforced norm, pushing a child to overachieve is a social imperative.

Yang Yang’s grandmother, 55-year-old Jing Xueying, dreams of the boy growing up to be a world champion swimmer. “That’s the dream. I’m working hard here to achieve it … I think my dream will come true,” she told AP Television News at the aquarium where Yang Yang rode a beluga whale named Xiao Qiang.

Meanwhile, Zhang Huimin spent the summer running 40 miles a day from her home on the southern island province of Hainan to Beijing in northern China, her father trailing behind her on an electric bicycle.

And last month, a father in southern China tied his 10-year-old daughter Huang Li’s hands and feet and watched her swim in a chilly river for three hours.

Both men said they were helping their daughters achieve their dreams — one of running in the Olympics, the other of swimming across the English Channel.

“There’s tremendous competition, a lot of pressure for kids to do well at something in China today. It’s something that parents can get pride out of and perhaps make money at,” said Grant Evans, a professor of anthropology at the University of Hong Kong.

Chinese media reports about the feats invariably quote bystanders who wonder whether such activities are dangerous or unhealthy.

But the criticism ends there; children’s rights are only just now starting to creep into the Chinese public consciousness.

“Here in this part of the world, you’ve still got very different ideas about children and their relationship in the family to what you have in America,” Evans said. “The idea that children should have rights over and above their parents is simply culturally foreign.”

The pressure is compounded by China’s family planning rules. Most couples are limited to one child, who must shoulder alone the expectations of parents, grandparents and other adult relatives.

The whale rider, whose real name is Huang Yan but is simply known by his nickname Yang Yang, has been going to the Polar Ocean World Aquarium in his hometown of Qingdao, an eastern Chinese coastal city, for more than four months to swim with Xiao Qiang.

The boy began swimming before he was a year old, and fell in love with the whale after seeing him perform in an aquarium show.

Jing said the boy came home from the aquarium asking if he could play with the whale, so she approached aquarium officials.

At first they were worried for his safety, “But after discussions among aquarium managers, they decided to try it and discovered that little Yang Yang was a strong swimmer,” said Mu Peng, the aquarium’s publicity director.

Xiao Qiang’s trainers aren’t completely sold on the idea.

“When Yang Yang goes in the water, we have special people watching him,” trainer Zhong Tao said. “We can’t allow a person who isn’t normally around animals to get in there because what if something happens? People and animals are different.”

He said an angry beluga is apt to attack, but Yang Yang’s grandmother said she isn’t worried. Yang Yang was scared at first, she said, “But he and Xiao Qiang played a little and he got over his fear and now they’re good friends.”

Also, she said she was reassured by a TV program she saw about belugas that have rescued people at sea.

Yang Yang’s mother has noticed that swimming with the whale has made her son more loving toward animals. She takes him to the aquarium as much as possible but just wants him to grow up healthy, study hard and become a “useful” person one day.

“He’s our baby and we want him to grow up normally, but being with Xiao Qiang is a big happiness for him,” Wu Youyan said.

It’s hard to say whether the 4-year-old with a distinctive buzz-cut knows he’s a celebrity. Most of his answers to reporters consisted of “mmm” while twisting his T-shirt.

But Yang Yang did say he was at ease with the whale.

“He doesn’t bite,” he explained.

By Anita Chang, Associated Press

After hesitating last week before another milestone, the benchmark Shanghai Composite Index today broke 6,000 points, in time with this morning’s opening session of the 17th National Congress of the Communist Party of China (CPC).

The index, having for the first time surpassed the 5,500-point mark the day prior to the week-long national holiday, gained another 500 points in just six trading days beginning October 8.

Total turnover of the stocks in the major indices was 268.9 billion yuan, the second largest since the holiday after last Friday’s 308.8 billion yuan.

Opening higher at 5,934.78, the Shanghai index fluctuated at the beginning and fell to a 5,866.13 point low. Then it turned up again to just below the critical line. In the afternoon, after the congress called a break, it geared up and broke the 6,000-point, remaining above it for the rest of the day. The index closed at 6,030.09, 162.82 points or 2.15 percent higher than last Friday, and a few points down from the day’s high of 6,039.04.

Of the A shares listed in Shanghai, 350 went up, 424 closed down and 69 ended flat, indicating another lift of index by large-cap heavyweights. Baoshan Iron and Steel climbed 10.03 percent to lead 31 stocks hitting the maximum growth cap of 10 percent, topping the gainers list.

China Unicom, with the largest trading volume, rose a stunning 9.97 percent to 11.69 yuan. China Shenhua Energy, with the largest transaction value, stumbled to become another “100-yuan share,” falling 1.36 percent to 90.87 yuan.

The Shenzhen Component Index, tracking the Shenzhen Stock Exchange lacking of index-driven large-cap stocks, lost 46.54 points or 0.24 percent to 19,088.66. After opening lower at 19,084.83, it went through the day within a range of between 18,745.68 and 19,199.35.

Of the A shares, 276 closed up, 293 dropped and 82 remained unchanged. The largest trader China Vanke fell almost 5 percent to drag the index down.

Stocks in the construction, food and finance sectors were particularly strong today. Bank shares moved up modestly with Bank of Communications on the top with a 3 percent rise, and contributed the most to the index growth due to their heavy weights in the market. CITIC Securities moved up 1.58 percent on news of its newly acquired license as a qualified domestic institutional investor.

China Construction Bank (CCB), which issued 9 billion A shares last month, will join the major indices tomorrow. On last Friday’s closing price, the value of floating shares of CCB accounted for 1.1 percent of total worth of all securities listed in the Shanghai bourse, and 0.7 percent of the total market value of the stock market. On the total market value of all shares including locked-up non-tradable shares, CCB weighted 0.4 percent in Shanghai and 0.3 percent in the stock market last Friday.

Lenders must park 13 percent of deposits as reserves from October 25, up from 12.5 percent, the People’s Bank of China said Saturday on its Web site. The required ratio is the highest in almost a decade.

The move is aimed at “strengthening liquidity management in the banking system and checking excessive credit growth”, the central bank said in a statement. Excess liquidity could lead to price hikes and pour more fuel into the sizzling economy.

China’s consumer prices surged 6.5 percent in August from a year earlier, the biggest jump since December 1996. The rate breached the government’s annual 3 percent target for a fourth consecutive month, as food costs soared.

China’s trade surplus jumped 56 percent in September, the customs authorities said Friday, taking it to US$185.65 billion for the first nine months of the year, more than the US$177.5 billion for all of last year.

Money supply is surging as the central bank sold the yuan to buy into the foreign currency brought into the country by the trade surplus. Some of that money is finding its way into stocks, pushing the benchmark CSI 300 Index up 181 percent this year. Money supply rose 18.5 percent in September.

China’s commercial banks lent out 3.36 trillion yuan in the first nine months, surpassing the full-year figure in 2006.

The economy, the world’s fourth largest, probably grew 11.5 percent in the third quarter, the government may announce next week, according to the median estimate of 14 economists surveyed by Bloomberg News. The date for the release of the gross domestic product report hasn’t been set.

Of 20,000 households surveyed in a central bank quarterly report released September 20, a record 61.3 percent said they expect inflation to quicken in the fourth quarter.

“The central bank will continue to give priority to managing inflationary expectations going forward,” Wang Qing, chief China economist at Morgan Stanley in Hong Kong, said before the announcement. “Monetary policy focuses on addressing the risks of economic and asset-price overheating.”

China has taken other action to combat rising prices.

All government-regulated prices have been frozen until year-end and the state has boosted the supply of grains, vegetables and pigs and cracked down on illegal collusive price increases. The central bank has sold bills to soak up cash from the financial system.

Stock and house prices have gained as households shifted money from low-yielding bank deposits. Household savings fell 41.8 billion yuan in August from the previous month. Housing prices jumped 20.8 percent in Shenzhen and 12.1 percent in Beijing in August.

“The special bank card service enables migrant workers in the current 14 provincial regions to withdraw money at rural co-operatives near home after they deposit it at a bank in the city where they work and is a key way to improve financial service in rural areas,” said the central bank’s deputy governor Su Ning.

China has more than 120 million rural migrant workers who bring back hundreds of billions of yuan to their homes every year.
“In Anhui last year, 10.4 million migrant workers from the province brought back home a total income of nearly 120 billion yuan (15.98 billion US dollars),” said Huang Haisong, vice governor of Anhui.

However, an inadequate rural remittance system that fails to provide convenient, safe and rapid money transfer have forced many of them carrying cash on the journey home.

The pilot service was initiated in Guizhou in December 2005. By the end of this August, card transactions for the migrant workers in the 14 provincial areas chalked up over 1.02 billion yuan, with a monthly rise of 24.7 percent.

The central bank asked all the Chinese banks that issue the cards to reduce the service charge from one percent to 0.8 percent for cash withdrawals by migrant workers from February 1, 2007. The ceiling charge for each transaction has been lowered from 50 yuan to 20 yuan.

“The country will ensure the rehabilitation of rivers and lakes as water pollution remains serious,” said Zhou Shengxian, director of the State Environmental Protection Administration (SEPA), at a forum on the prevention and control of water pollution.

In the next ten years, all proposed projects involving heavy metal or organic pollutants discharges into rivers and lakes in rehabilitation would be rejected, said Zhou.

Projects that may discharge nitrous or phosphorous substances into closed or semi-closed water bodies would also be banned.

Industries with serious pollution and energy consumption, including paper-making and alcohol, would be severely limited and unqualified manufacturing devices would be eliminated, said Zhou.

The SEPA called on companies and local governments to set up reasonable and strict monitoring systems for pollutant discharges and to upgrade equipment for sewage treatment in cities and towns.

“Serious water pollution has been an obstacle to the healthy development of society,” said Zhou. “We should be more determined and devoted to the rehabilitation of rivers and lakes.”

According to a recent draft amendment to the Water Pollution Prevention and Control Law, those who discharge pollutants to drinking water sources will be fined 100,000 yuan (13,000 U.S. dollars) to 500,000 yuan.

Statistics from the SEPA show 21,340 chemical plants were located around rivers and lakes and in the first half of this year the amount of chemical oxygen demand rose by 0.24 percent year-on-year.

Zhou said 300 million rural Chinese had no access to safe drinking water.

Source: Xinhua

The move aims to encourage pig raising, while pork continues to be in short supply and the price remains high, and increase farmers’ income, the ministry said.

Counties are classified as major live pig suppliers if they have an average annual supply of 600,000 to 800,000 pigs, according to the ministry.

The funds will be used mainly for the reconstruction of pig farms, the purchase of thoroughbred pigs and vaccinations.

The major live pig suppliers will be monitored by the government and the use of the funds will be supervised jointly by the Ministry of Finance and the Ministry of Agriculture.

China has suffered from a short supply of pork and ensuing price hikes, which contributed significantly to continuous rises in the country’s consumer price index. The key inflation gauge rose 6.5 percent in August, much higher than the government target of three percent.

Source: Xinhua

The central bank raised interest rates for the fifth time this year on Friday as part of its continuing efforts to arrest the rising inflation graph and prevent the economy from overheating.

The benchmark one-year lending and deposit rates will be raised by 0.27 percentage points from September 15, the People’s Bank of China, the central bank, said on its website.

That means the one-year lending rate will increase from 7.02 percent to a nine-year high of 7.29 percent, and the deposit rate will rise from 3.6 percent to 3.87 percent.

The last interest rate hike was on August 21.

“The move was predictable,” BNP Paribas Peregrine Securities chief economist Chen Xingdong said. “Over the past months, the central bank has been trying to check the rising prices of consumer products, which now is the biggest concern of the government.”

The consumer price index (CPI), a key gauge of inflation, rose to 6.5 percent in August, driven mainly by rising food prices and the highest since December 1996.

The supply of money grew 18.09 percent in August, exceeding the central bank’s annual target of 16 percent for the seventh consecutive month. And urban fixed-assets investment rose 26.7 percent in the first eight months of the year.

“These figures in aggregate suggest a continuous strong growth momentum in the real economy amid excess liquidity,” JP Morgan Securities (Hong Kong) chief economist Frank Gong said.

Given the latest macro developments, analysts said Friday’s interest rate increase might not be the last this year. The central bank could raise it again in October, Chen said, while Gong forecast one more increase of 0.27 basic points by the end of the year, followed by another in the first quarter of next year.

Chen, however, felt Friday’s interest rate hike will have very limited impact on the property and stock markets. “Even after the interest rate increase, the real deposit rate remains in negative territory. Since people still fear higher inflation in the following months, they will invest more in stocks or the property market,” Chen said.

But China Jianyin Investment Securities Co senior analyst Li Zhikun disagreed. Given the series of money tightening moves, fixed-assets investment will finally be curbed, he said. This in turn could slow down public companies’ growth prospects and help cool down the stock market in the long run.

Source: Zhang Ran, China Daily

China will bring the United States to the World Trade Organization (WTO) for the first time over its countervailing and anti-dumping measures on Chinese-made coated paper.

The Chinese delegation to the WTO has notified its US counterpart on Friday, asking for consultation over the issue, according to a statement the Ministry of Commerce published on the website.

It marks the first time that China individually seeks a resolution under the dispute settlement system of the WTO since it joined the global trade body in 2001.

If the two parties failed to reach an agreement through consultation, China can ask the WTO to establish a panel for the settlement of the dispute.

Vice-Commerce Minister Gao Hucheng said the US violated the WTO rules by conducting both countervailing and anti-dumping investigations against Chinese products, because they involved double taxation calculations, according to earlier media reports.

The US Department of Commerce said on May 30 it was slapping additional preliminary anti-dumping duties of up to 99.65 percent on coated paper imports from China. The decision came in the second of two cases brought by Ohio-based paper manufacturer NewPage Corp against imports from China, the Republic of Korea and Indonesia.

In the earlier case, the US Department of Commerce announced on March 30 it would impose preliminary countervailing duties on glossy paper from China, ranging from 10.9 to 20.35 percent.

The decision shifted its usual practice of the past 23 years by treating China – which is classified as a non-market economy – the same way as other US trading partners are treated in disputes involving government subsidies.

The US coated paper imports from China rose to US$224 million in 2006 from US$29 million in 2004. The paper is used in art books, high-end magazines, textbooks and annual reports.

Since last November, the US has launched dual investigations against five types of Chinese imports – glossy paper, pipes and tubes, welded steel pipes, laminated woven sacks, and off- road tires.

Source: China Daily

China will unveil financial policies changes to support overseas investment of domestic companies, Zhou Xiaochuan, governor of the People’s Bank of China (PBOC), said Saturday.

The central bank will scrap unnecessary controls on foreign exchange reserves to fund local firms’ outbound investment, Zhou told a forum at the 11th China International Investment and Trade Fair opened in Xiamen, a coastal city in East China’s Fujian Province.

“We will remove unnecessary restrictions on reviewing sources of foreign exchange funds, as well as on foreign currency purchase and profit remittance,” he said. “We will also allow domestic firms to use their own foreign exchanges or buy foreign funds with local currency yuan to invest abroad.”

The governor noted the central bank will explore ways to buy shares in foreign banks so as to provide more convenient financial services for the overseas operations of domestic businesses.

“We encourage them to raise capital through various means including bank loans, stock listings and bond sales,” he said, adding their domestic operations can provide warrants for the fundraising once they get official go-ahead.

Zhou acknowledged that PBOC has long been taking vigorous efforts to cultivate and develop the foreign currency markets during the past few years.

He added, “We will crank up efforts to develop more products on the foreign currency markets to help companies evade risks brought about by the changes in market exchange rates and interest rates.”

“The central bank will also strengthen research on the business and legal environments in global regions where it enjoys bilateral tech cooperation agreements or funds with the regional bank institutions.”

China sees negative interest rates as the inflation climbs mainly due to food price hikes, prompting more people to transfer their bank deposits to the red-hot stock markets for higher earnings.

China’s one-year benchmark deposit rate reached 3.60 percent after a 0.27 percentage points rise starting from August 22, the fourth rise this year.

But the consumer price index, the main gauge of inflation, may exceed the ten-year high of 5.6 percent in July, said Bi Jingquan, vice head of the National Development and Reform Commission.

Direct investment in HK stock market

China has finished at least half of the preparations for the local residents’ direct investment in Hong Kong stock market, Zhu Min, vice president of Bank of China (BOC), said Saturday.

“The preparations go smoothly, but there are still many technical problems yet to be addressed,” Zhu said on the sidelines of the Inaugural Annual Meeting of the New Champions hosted by the World Economic Forum in China’s northeastern coastal city of Dalian.

“It takes a lot of time to prepare new softwares and investors education and train staff members. However, we have no plan to delay it,” he told Xinhua.

The State Administration of Foreign Exchange announced on August 20 the mainland individuals would be able to directly buy HK shares through BOC’s Tianjin branch amid efforts to cut the country’s huge forex reserve and excessive liquidity.

“Tianjin is the only pilot city. It’s hard to say if the program will expand to other cities in the future,” Zhu noted in response to earlier media reports saying the program would be expanded to many other cities and be launched in early September.

“The program will not have big impact on the sales of qualified domestic institutional investors products as the latter have already been given go-ahead to invest in almost all the global equity markets,” he said.

US banking giant Citibank announced at the meeting it has been approved by the China Banking Regulatory Commission to open a branch in Dalian later this year, its eighth in China and the first in the country’s northeastern areas.

“With its infrastructure and outstanding support for foreign investment, the thriving city of Dalian represents a key city for Citibank’s expansion plans in China,” said William Rhodes, chairman of Citibank NA, at the meeting.

Citibank is among several major international banks that are ramping up presence in China, particularly after the country fully opened its banking sector to foreign banks in December last year to fulfill its WTO commitment.

Among other business leaders brought together by the three-day meeting, many said that business prospects in China are good.
Craig Barrett, chairman of the US computer chip maker Intel Corp said at a panel session on Saturday, “The Chinese market is huge. It is the second largest computer market place and the largest communications market in the world. There is a huge opportunity for both homegrown and international software companies.”

Barrett later attended a ground-breaking ceremony of a computer chipset plant in Dalian, the corporation’s first in Asia with a record investment of US$2.5 billion.

At the beginning of the Inaugural Annual Meeting of the New Champions, dubbed Summer Davos, Chinese Premier Wen Jiabao pledged to maintain the country’s fast growth while tackling such problems as trade surplus, environment issues and energy consumption.

“We are confident that with enhanced macro-regulation, the giant ship of the Chinese economy will continue to surge ahead steadily,” Wen said.

Sir Martin Sorrell, chief executive of the UK-based advertising giant WPP Group Plc, said choosing Dalian as the host for the Summer Davos is a recognition of China’s economic achievements, and more importantly, the Chinese economy will be sustainable and there are immense potentials.

“We will definitely redouble our efforts in China, including time and investment,” said Sorrell.

Source: Xinhua

This year’s consumer inflation is likely to exceed the central bank’s target of 3 percent, a top official said Wednesday.

“Given the relatively high inflation in the first seven months of the year, even if we step up control measures now, the consumer price rise will still probably be above 3 percent for the whole year,” Su Ning, vice-governor of the People’s Bank of China (PBOC), told a news conference in Beijing Wednesday.

“The central bank is paying close attention to changes in prices and will take further macroeconomic control measures to keep prices stable,” Su said.

Spurred by surging food prices, the consumer price index, a key gauge of inflation, hit a 10-year high of 5.6 percent in July, up from 4.4 percent in June. The average inflation in the first seven months rose 3.5 percent year on year.

Food prices, which make up about a third of the inflation basket, rose 15.4 percent year on year last month. Prices in the first seven months rose 8.6 percent from the same period last year.

In a report to the Standing Committee of the National People’s Congress, Ma Kai, minister of the National Development and Reform Commission (NDRC), said the government will take a slew of measures such as encouraging pig raising and increasing grain and vegetable supplies, to curb inflation.

“The government will also strengthen monitoring of prices and step up efforts to crack down on price cartels and illegal price rises,” the minister said.

In an effort to curb inflation, the central bank last week raised interest rates for the fourth time this year. The benchmark one-year deposit rate is now 3.6 percent while the one-year lending rate is 7.02 percent.

“I expect the central bank to raise interest rates for the fifth time at the end of October,” Li Zhikun, senior analyst at China Investment Securities Co Ltd, told China Daily.

Li estimated inflation in August to be above 6 percent due to the continuing rise of food prices, and forecast that inflation for the full year will likely to be around 4.2 percent.

Jun Ma, China economist at Deutsche Bank in Hong Kong, also estimated August inflation at round 6 percent; and believes the likely timing of the next rate hike will be in the second half of September.

Source: Zhang Ran, China Daily

The central parity rate of the yuan, also known as Renminbi (RMB), stood at 7.5505 yuan to one U.S. dollar on Wednesday, gaining 40 basis points from Tuesday’s reference rate of 7.5545 to the greenback.

It is the 56th time since the beginning of this year that RMB reached a new high against the U.S. dollar. It climbed 2,582 basis points, or 3.365 percent, from 7.8087 yuan to one U.S. dollar posted on the last trading day of 2006.

Compared with the same period of last year, the yuan was revalued 5.525 percent higher.

The accumulative appreciation since July 21, 2005, when China discontinued yuan’s peg to the greenback, has reached 9.557 percent.

Market observers said the more-than-one-month-long downward adjustment of the Chinese currency was due partly to appreciation of the U.S. dollar, as investors turned to safer U.S.-dollar-denominated assets after the world financial regime was jittered by the subprime mortgage woes in the United States.

Mounting demand for foreign-currency-denominated loans at home also accounted for the downward revaluation of Renminbi, the observers believed.

In the coming months, the observers predicted, the yuan would continue to appreciate at a slower pace but move upward and downward within a bigger range.

Interest rate gap for U.S. dollar at home and abroad and different interest rates for credit extension denominated by localand foreign currencies would be important factors behind the yuan’s movement, the observers added.

On Wednesday, the yuan also gained ground against the euro and the British pound, but lost 799 basis points from the previous trading day to reach a central parity rate of 6.6206 yuan against 100 Japanese yen.

Source: Xinhua

Chinese Vice-Premier Zeng Peiyan has pledged to improve the country’s efficiency in utilizing water resources in an all-around way.

In his written message to an international forum themed on the sustainable use of water that opened in Beijing on Tuesday, Zeng said China is stepping up efforts to build a resources-efficient and environment-friendly society.

Officials from nine countries and regions as well as international organizations attended the ministerial forum on infrastructure development in the Asian-Pacific Region.

The Chinese government will make greater efforts to save water resources and protect water environment, by introducing advanced water-efficient technology and equipment, Zeng said in the message.

The government encourages non-governmental investors to invest in the construction and operation of sewage plants, according to Zeng.

He called for win-win and common development in the Asian-Pacific Region by further strengthening technological cooperation, sharing managerial experience, increasing personnel exchange, and searching for new thinking, new mechanism and new methods in the fields of infrastructure construction and sustainable development.

Source: Xinhua

China, the world’s largest tobacco producer and consumer, will ban all forms of tobacco promotion by January 2011.

A ban on tobacco advertising has been in place since 1996, but firms have managed to sidestep the rules and promote their brands in other more subtle ways such as sponsoring sporting events, or using their logos without mentioning “cigarettes” on television, radio and in newspapers and magazines.

Xu Guihua, vice-president of China Tobacco Control Association, made the landmark announcement on Monday at a seminar in Guangzhou, capital of Guangdong Province. She said the country is committed to fulfill its obligations to the World Health Organization (WHO) Framework Convention on Tobacco Control.

China formally became a member of the convention last January.

Xu said the nation lags behind other countries in efforts to control the use of tobacco, and the biggest problem is the lack of national regulations banning smoking in public areas.
To date, fewer than half the cities have framed rules on smoking bans in some public spaces. Efforts to ban smoking in other areas such as karaoke parlors and restaurants have been stifled by unwilling owners and managers who fear a loss of business.

Figures from the Ministry of Health show that China has an estimated 350 million smokers, almost a third of the world’s 1.1 billion smokers.

Cigarette makers spent more than 1.6 billion yuan (US$212 million) to promote their brands last year, according to China Youth Daily.

In 2005 the government collected 240 billion yuan in tobacco taxes.

According to the WHO convention, tobacco products must carry prominent health warnings on the packaging.

This measure needs to be implemented within three years from when China signed the convention.

Within five years, China must fulfill it commitment to comprehensively ban all forms of tobacco advertising, promotion and sponsorship.

Last year, authorities found there were 231 instances of tobacco promotion considered illegal. The violators were fined a mere total of 1.23 million yuan.

A senior official from China’s State Tobacco Monopoly, who did not want to be named, said the administration was “actively taking measures” to fulfill its obligations to the convention.

Regulations to further control tobacco promotion on the Internet were expected shortly, he said.

Despite a willingness to cooperate, the official said tobacco producers were lawful enterprises, and it was not fair to “butcher the industry”.

“There is market demand for tobacco, people can choose if they smoke or not,” he told China Daily.

He said tobacco firms are using scientific and technological improvements in tobacco products to “lower” the harmful effects of smoking.

However the WHO has long argued there is no way to make smoking healthier.

Yang Yan, a researcher with Chinese Center for Disease Prevention and Control, said 12 percent of deaths in China are caused by tobacco related illnesses, and by 2025, that figure will climb to 33 percent.

Source: Xie Chuanjiao, China Daily

“Tax declarations by these firms should be evaluated in detail,” the State Administration of Taxation said on Monday.

“The bank accounts of these firms, their cash flows and the welfare extended to their employees will be closely monitored in order to make their tax declarations more accurate.”

A weak tax monitoring system and low-awareness of payments have hindered the tax watchdog.

“The new move will help narrow the widening income gap in the country. At present about 70 percent of the tax comes from average-income earners,” An Tifu, a finance expert with Renmin University of China, said.

The move will improve the system of personal tax declarations after it was made mandatory in 2005.

In future all firms whose employees annual tax exceeds a combined total of more than 300,000 yuan (US$40,000) must declare this by the end of 2008, while firms whose employees’ total tax liabilities are less, must make declarations by 2009.

“With the taxation authority now lacking information about how many people are liable to tax on wages earned, this method is a way forward,” An said.

The taxation watchdog will analyze and evaluate information regularly to tackle problems in the tax system.

The authorities will also monitor a person’s stock market profits, and those buying luxury homes.

At the beginning of this year the tax authority required all people earning more than 120,000 yuan a year to declare their incomes before March.

More than 1.6 million people declared their incomes by April, generating a 28 percent increase in personal tax revenue in the first half of this year compared to the same period last year.

“The personal income declaration campaign, which has proved successful, has provided us with the necessary experience to launch our new drive in requiring all firms to declare their staffs’ personal income tax,” the authority said.

But experts said the tax bureaus need more supportive measures to implement the new rule.

All firms should pay their wages and welfare benefits in cash and not in kind through gifts to prevent tax evasion, An said.

Source: Wu Jiao, China Daily

Mounting inflationary pressure and public concerns about further price rises have led the government to impose tougher punishments on price manipulators.

The economic planners have warned against manipulating market prices, saying the revised regulation against price irregularities is ready for the approval of the State Council.

“To punish such wrongdoings, we plan to increase the fine,” said Zhang Manying, deputy director of pricing supervision department of the National Development and Reform Commission (NDRC) yesterday at an online discussion.

But Zhang didn’t reveal the ceiling of penalty in the revised regulation. Currently, the maximum fine is 300,000 yuan (US$39,735) in a single case.

The new regulation, when approved, will impose tougher punishments on industrial associations if they illegally increase prices.

The fresh warning to industry associations comes after the China branch of the International Ramen Manufactures Association was found to have colluded to manipulate prices of instant noodles. The NDRC ordered the association to undo the damage and issue a public explanation on the impact of its action.

Urging them to find a balance between helping member companies to earn bigger profits and protecting the interests of the industry as well as the consumers, the NDRC had earlier said some industry associations had abused the power vested in them by member companies.

Zhang said local pricing authorities should continue efforts to crack down on food producers and sellers who try to raise food prices to an unreasonable level, and urged pricing departments to work hard to stabilize the food market.

The campaign, mainly targeting food manufacturers, wholesale and retail firms, will overhaul prices for daily foods like grain, cooking oil, meat, poultry, eggs and milk.

As prices of consumer goods, especially food and meat, hit 10-year highs last month, the central government is treating inflation as the biggest obstacle to sound development.

“We won’t tolerate any price manipulation and irregularities,” said Zhang.

Zhang did not forecast when the rising pork and other meat prices could be brought down to normal levels. They are widely expected to be reined within this year.

But meat demand will go up as weather gets cooler, students go back to campus and festivals and celebrations such as Mid-Autumn Festival and National Day holiday approach.

Source: Fu Jing, China Daily

The draft law on recycling economy of China, made to boost sustainable development through energy saving and reduction of pollutant discharge, was deliberated for the first time by lawmakers on Sunday.

The draft law was submitted to the 29th session of the Standing Committee of the National People’s Congress (NPC), China’s top legislature, for the first reading.

The draft stipulates governments at all levels should make plans on the development of circular economy, establish systems to control energy use and pollutant emission, strengthen management on companies with high energy and water consumption, make policies to divert capitals into environmentally friendly industries.

The draft also introduces reward and punishment systems for companies, encouraging them to develop recycling economy and making them responsible for the recycling of their products.

“China has been facing serious environmental and resources problems during the economic development since the 1980s, which were mainly caused by the low resources efficiency”, said Feng Zhijun, vice chairman of the NPC Environmental Protection and Resources Conservation Committee.

He said the average energy consumption per unit product for high-energy-consuming industries, such as steel, electric power and cement in China was 20 percent higher than the advanced international level.

The committee started to draft out the law on recycling economy in December, 2005 and collected more than 1,000 suggestions from relevant government departments, colleges, and local people’s congresses this year to perfect the draft.

Source: Xinhua

China’s long-awaited new Appraisal Law is expected to come out next year, Guangzhou Daily reported, citing Yan Fei, general secretary of the Guangdong Automobile Dealers Association.

The Appraisal Law was first drafted by the Ministry of Finance in early 2005, aiming at managing the appraisal industry and standardizing appraisers’ professional training.

Beginning this year, Guangdong’s second-hand car appraisers will register or be censured at the Guangdong Automobile Dealers Association.

Currently, appraisers can directly register with the association right after they pass the national examination, which is organized by the China Automobile Dealers Association. However, they will now be required to have an additional two years’ working experience in the appraisal industry and pass additional examination on general knowledge.

In the first half this year, over one million second-hand vehicles were sold nationwide, up 21.94 percent year-on-year, according to the Ministry of Commerce. Guangdong Province accounted for 206,400 of the vehicles sold, up 47.96 percent compared with a year before and topping among all provinces and municipalities.

As the growth of the second-hand automobile market explodes, the appraiser for second-hand cars has turned into a hot occupation, and therefore calls for strengthened management.

Source: Hao Zhou

The bank plans to issue 1.2 billion A shares on the Shanghai Stock Exchange, it said in the draft prospectus submitted to the China Securities Regulatory Commission (CSRC) for approval.

The yuan-denominated shares would account for 19.27 percent of its enlarged capital after Shanghai listing, and the shares of the lender were valued at 1.96 yuan per share before going public.

The bank did not reveal how much it aimed to raise from the IPO, however, earlier reports said it hoped to raise about 13 billion yuan (1.7 billion U.S. dollars) on the domestic equity market.

It said the raised fund would be used to boost its capital adequacy ratio and its capabilities of risk control and profit making.

The lender said it would launch an H-share IPO “at an appropriate time” after its A-share listing. The detailed plan of Hong Kong listing, including the pricing and timing, is yet to be approved by its shareholders, according to the prospectus.

Bank of Beijing reported a net profit of 550 million yuan (72.4million U.S. dollars) in the first quarter this year with its assets totaled 263.98 billion yuan (34.7 billion U.S. dollars) by the end of March, and its capital adequacy ratio stood at 13.23 percent and non-performing loan ratio at 3.34 percent.

The Dutch banking and insurance group ING holds a 19.9 percent stake in the bank as the largest shareholder. The International Financial Corporation holds a five percent stake as the fourth largest shareholder.

Established in 1996, the bank currently has a registered capital of 5.03 billion yuan (661.8 million U.S. dollars).

The CSRC has allowed two city commercial banks, namely Bank of Nanjing and Bank of Ningbo, to list shares on the Shanghai bourse in July, which raised a combined 11.07 billion yuan (1.46 billion U.S. dollars).

Other city commercial banks, including Bank of Shanghai, Bank of Tianjin, Hangzhou City Commercial Bank and Bank of Chongqing, also announced plans to raise funds by going public. There are 114small city commercial banks in operation in China.

Source: Xinhua

China has returned more than 24 million hectares of farmlands to forests since 1999, according to a national conference on forestry work held on Saturday.

China started the nationwide campaign of returning farmlands to forests in 2000, involving 124 million farmers of more than 32 million households in 25 provincial areas.

The campaign has contributed to more than 60 percent of the country’s newly-made forest areas in recent years, according to the conference.

Farmers who were affected by the campaign had also received subsidies and grains, with subsidies accounting for almost 10 percent of farmers’ average annual income.

The government will earmark another 200 billion yuan (US$26.41 billion) to the campaign in the coming years, making the total investment reach 4.3 trillion yuan.

A special fund will also be established to consolidate the achievements of the campaign.

China has planted 53.3 million hectares of forests in the past 58 years, more than any other country in the world, with forestry coverage rate rising from 8.6 percent to 18.2 percent, according to the State Forestry Administration.

China will continue implementing key projects in forestation, including returning farmlands to forests and grasslands and preserving natural forests, with the aim of increasing forestry coverage to 20 percent by 2010.

Source: Xinhua

China’s long awaited Anti-monopoly Law is expected to be passed next week, requiring foreign companies to go through both anti-monopoly and national security checks when merging with or taking over Chinese enterprises.

“As well as anti-monopoly checks stipulated by this law, foreign mergers and acquisitions of domestic companies or foreign capital investing in domestic companies’ operations in other forms should go through national security checks according to relevant laws and regulations if the cases are related to the issue,” the latest version of the draft said.

The adjustment was to make the regulation clearer, Jiang Qiangui, deputy director of the Law Committee of the National People’s Congress (NPC) told the ongoing session of the NPC Standing Committee on Friday when submitting the bill for consideration. The previous version only said foreign investors’ mergers and acquisitions of domestic companies should go through national security checks.

She said the draft law was “ready for adoption”. The draft is expected to be put to the vote next week and, if it is passed, is expected to take effect on August 1, 2008.

The requirement for a national security check was added to the draft as a result of increasing foreign mergers and acquisitions in the country.

The number of foreign mergers and acquisitions only accounted for 5 percent of all forms of foreign direct investment in China before 2004. The figure increased to 11 percent in 2004 and to almost 20 percent in 2005.

The draft also added a provision, saying, “Companies that can provide evidence to prove they have no dominant status in the market should be cleared of monopolistic charges.”

Learning from the experiences of a number of Western countries, China’s draft Anti-monopoly Law not only prohibits monopoly agreements and abuse of a dominant market position, but also the abuse of administrative powers to exclude and restriction competition, said Wang Xiaoye, a senior researcher at the Chinese Academy of Social Sciences.

The Anti-monopoly Law was first drafted in 1994 and submitted for its first review in June 2006. It was submitted for its second review in June this year.

Source: China Daily

China will continue to liberalize its capital account, but it is necessary to control the pace at which it is opened, Yi Gang, assistant governor of the People’s Bank of China, told a financial forum on Friday.

“China will resolutely push for the opening of the capital account, which is always a set agenda,” he was quoted by Bloomberg as saying. “But we need to control the pace of the opening in an orderly manner.”

Mainland people were allowed on Monday to directly trade stocks in Hong Kong for the first time under a pilot program started in Tianjin’s Binhai New Area.

Analysts expect the program to expand to more cities and individual investors to be allowed to invest in more international markets.

“It opened a small window for outbound individual investment,” said Yi Xianrong, an economist with the Chinese Academy of Social Sciences. “The window is set to be opened wider.”

But Yi Gang warned that managing the capital account could be difficult because many foreign-exchange inflows are mixed with money remitted back to China by overseas Chinese.

Yi Gang also said China needs positive real deposit rates, according to Bloomberg.

His remark has been interpreted as a sign that the monetary authority may be planning to raise interest rates this year to keep pace with inflation.

Some international investment banks have predicted that the central bank would raise the interest rate one more time at most this year.

It raised the rate on both deposits and lending on Tuesday – the fourth increase this year – pushing up the one-year savings rate to 3.6 percent and the benchmark lending rate to 7.02 percent.

Although the hikes were aimed at cooling off the country’s blistering economic growth and slowing down fixed-assets investment and lending, they will also help ease the negative deposit rates, said Hu Shaowei, a senior economist with the State Information Center.

Depositors have been suffering from negative real interest rates since inflation hit 5.6 percent in July, a 10-year record.

“We must prevent real deposit rates from sliding into negative territory over an extended period,” Yi Gang said. “That would distort and harm the economy.”

China should continue to curb excess financial liquidity, boost domestic consumption, adjust its economic structure and allow capital outflows in an “orderly” way to prevent economic risks, Yi Gang said.

Source: Xin Zhiming, China Daily