China faces major inflation problem, stock market down 40% since October

February CPI in China rose 8.7% - now that is an inflation problem. As a point of reference, CPI in the US for February was unchanged, with trailing twelve months inflation at 2.3% in the US (...and morons like Refman claiming that we are in a crisis mode regarding inflation, lol..). China's stock market is down 40% since October. That's a problem. Between their stock market collapse, nasty inflation, atrocious pollution, and recent political violence, they're not smelling too sweet before their worldwide showcase during the Olympics.

http://www.nytimes.com/2008/03/19/business/worldbusiness/19yuan.html?ref=business

China Moves to Stem Inflation and Calm Investors

By DAVID BARBOZA
Published: March 19, 2008
SHANGHAI — Stock prices plummeted in China on Tuesday over inflation fears and growing concerns about the ripple effects of an economic slowdown in the United States. Showing its determination to hold down prices, the Chinese central bank then moved to tighten lending.

Shares on the Shanghai Stock Exchange tumbled nearly 4 percent, with the composite index ending at 3,668.90. The index is down nearly 40 percent from its record high last October. The fall in the Shenzhen composite index was even steeper Tuesday — off 6.6 percent, to close at 1,082.28.

Shares appeared to be recovering somewhat in early trading on Wednesday, after the United States central bank cut interest rates in a bid to rekindle growth.

In Hong Kong, shares rose on Tuesday by 1.42 percent. Other Asian markets, including Japan, Taiwan, South Korea, India and Indonesia, also rebounded modestly after a sharp sell-off Monday. Some of those markets appeared to be extending those gains on Wednesday.

The Tuesday sell-off in China came after Prime Minister Wen Jiabao said at a televised news conference on Tuesday morning that inflation this year would probably exceed the government’s target of 4.8 percent, after a sharp rise last year. Continuing inflation is regarded as a sign that the Chinese economy may be overheating.

Officials in Beijing now say that fighting inflation is the government’s top priority. That could mean raising interest rates, a step that often discourages investors from buying stocks.

After the markets closed, China’s central bank said it would increase the reserve ratio for banks to 15.5 percent. The move, effective March 25, will force the banks to set aside slightly more money with the government, a step expected to tighten lending and slow inflation.

The central bank has repeatedly increased the reserve ratio over the last few years, taking it to 15.5 percent from about 7 percent in 2004.

Tuesday’s stock sell-off is part of a wave of troubling economic and political news that appears to be striking this country at a time the government is preparing for the Olympic Games in Beijing and to celebrate the 30th anniversary of the start of China’s market-friendly economic changes.

While the Chinese economy is still sizzling and investment continues to pour into the country, analysts are beginning to worry that if rising inflation does not cut Chinese growth, then weakening demand in the United States for Chinese-made goods will.

“If the U.S. is falling into recession, and we think it is, it will mean downside pressure on exports from China and on economic growth,” said Huang Yiping, chief Asia economist at Citigroup. “This could be a bigger threat than inflation."

The analysts say that Chinese exports could also slow this year because of higher production costs and a rise in the value of the currency, the yuan, against the dollar in recent months.

Analysts are already lowering their growth forecasts for China, with an eye toward the financial troubles of Wall Street firms.

Stock prices in Shanghai are going through an extraordinary reversal of fortune. After a spate of feverish investing that sent the Shanghai composite index up more than 350 percent in the last few years, the market has gone into a tailspin.

New public offerings both here and in Hong Kong have dried up after two years of spectacular initial stock issues that swelled the ranks of China’s billionaires.

Wall Street banks, which late last year boasted of their exciting pipelines of stock offerings, have shelved deals or delayed offerings.

Oddly, while the American economy seems headed toward recession, and China’s economy is booming, the stock markets here have fallen more sharply than those in the United States, even though many investors in China seemed to think that the government would do whatever was required to keep stock prices high before the Olympics.

Great numbers of Chinese are involved in the market, some speculating with their life savings.

David M. Webb, a shareholder activist who is an independent director of Hong Kong Exchanges and Clearing, remarked, “There was an urban myth that the stock market would not go down until after the Olympics, and how much has it gone down?”

Keith Bradsher contributed reporting from Hong Kong.

 

No way can they afford to devalue the Yuan with the inflation they're staring at. One interesting side effect of their inflation issue is that since they have to raise interest rates to combat inflation, it will force them to buy even more US dollars in order to keep their Yuan from increasing in value, which would be bad for their exports (and overall economy). So basically they can finance Mr Bernanke's continued interest rate cuts

 

awful attempt at a bait

 

Believe me, I'm not gloating over their inflation problems. I fully recognize the dangers to worldwide economic health and to my own investment portfolio, which includes investments in Chinese companies. I'm just pointing out what an inflation problem looks like, versus what is being called an inflation problem in the US by political rabble rousers from the left.

 

Holy crap you have no idea what you're talking about. Pemex is the least efficient company in the world. Charge what is "prudent and profitable" - what could possibly go wrong.