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On International Economic Exchange Center (IEEC)
monthly forum held in Beijing on July 20,
the Chinese Communist Party (CCP) walked a fine line
between curbing inflation and economic development.
Economist Cheng Xiaonong, said that
the CCP's misleading economic policy brought China's
unbridled inflation and further worsened the economy.
On the IEEC forum, the CCP claimed to be capable of
containing the Consumer Price Index (CPI) growth within 5%.
Also, they proposed a solution
for the continuous growth of China's economy.
The CCP set an inflation target of 4% earlier this year.
However, since March, the CPI increase exceeded 5%
year-on-year, every month for four consecutive months.
In June, the inflation peaked to 6.4%,
the highest in three years.
The Central Bank of China (CBC) has increased interest
rates five times since October 2010 and increased
its reserve rate eight times, just to curb the inflation.
CCP's Premier Wen Jiabao recently pledged to continue
the current stabilizing monetary policy,
in order to slow down price increases,
while keeping the economic growth smooth.
Economist Cheng Xiaonong suggests that trying to strike
a balance between economic growth and inflation control
will be hard to achieve.
At least for now, the measures they took didn't work.
Chend: Judging from the CCP's and it's financial policy,
it appears that the CBC is reducing the money supply,
in an attempt to curb the real estate bubble from enlarging.
However, the money supply is not reduced, instead,
it is increasing at a very fast pace.
Thus, the CCP and the CBC failed to strike a balance
between economic growth and the inflation.
Cheng Xiaonong likened the CCP's controlling measures
to a "fox walking on ice."
Cheng: The CCP's regulatory policy operates in a
stop-and-go manner, which resembles a fox walking on ice.
The fox walking on ice is cautiously looking around,
listening and worrying if the ice will break under its feet.
It is much like the current macroeconomic regulations
that are in place.
As a result, inflation is on the rise with a notable peak
in June, while the real estate bubble keeps getting bigger.
Cheng believes that China's out-of-control inflation
stems from the CCP's misleading economic policy.
The $3 trillion worth of government bonds issued
in 2008 did give a lift to China's economy,
but it also created the bubbles in
construction of infrastructure and real estate.
Instead lots of foreign investments poured into China, raising
the inflation and further exasperating the real estate bubble.
Cheng: China is now in a dilemma: on one hand,
if the country's inflation is not controlled the lower
and middle classes will not be able to survive for long;
on the other hand, regional government revenues have
sharply decreased due to the curbed real estate market.
The $1.5 trillion in regional government debt will act like
a time bomb, as the economy worsens.
Cheng believes that the CCP may take regulatory measures
in China's stock market, which will be devastated.
Cheng: "The CCP intends to transfer the debts from
regional governments to stock market investors.
Meanwhile, due to the reduced money supply, banks
in China will start to raise money from the stock market.
Large banks will then issue so called "gold shares"
and regional bonds.
Cheng says China's economy will likely worsen
in the near future.
He said that the CBC's reduced money supply
would make it unbearable for real estate companies.
Bad mortgages will increase.
So, all kinds of crises will manifest soon in the future.
In addition, there are many other potential dangers
underlying China's economy.
Cheng suggests that due to the worsening economy,
overseas investors might withdraw from China,
thus further worsening the economy.
NTD reporters Liu Hui, Song Feng and Wang Mingyu
《神韵》2011世界巡演新亮点
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