Economic future
With inflation subdued and growth gathering momentum, China now has an opportunity to roll back the stimulus, said Li Daokui, Director of the Center for China in the World Economy at Tsinghua University and a newly appointed advisor to the central bank's monetary policy committee.
"The strong performance in the first quarter should remove worries over a second dip in the economy," Li Daokui said, "so the most likely time for an interest rate hike is in the second quarter this year."
Cao Heping, an economics professor of Peking University, said the effect of lending is starting to gain traction, taking some pressure off the country to act on interest rates.
Before a strong recovery is firmly in place, it will be hard to see how China can risk putting the brakes on the economy by hiking the interest rates, said Cao.
Lian Ping, chief economist at the Bank of Communications, disagreed with them. "The low inflation reading basically eliminates the possibility of drastic monetary moves in the near future," he said.
In addition, an early interest rate hike ahead of Western countries would only accelerate hot money inflows and stir domestic financing, Lian said.
International speculative capital seeking to cash in on an expected rise in the value of yuan, the Chinese currency, has also become a problem. China's foreign exchange reserve increased by $47.9 billion in the first quarter of 2010, around $10 billion more than the trade surplus in combination with foreign direct investment. The difference was widely believed to be caused by hot money that already found its way around regulatory controls and into the country. |