Controlling the Inflation Rate in China

In: Adam Roseman|ARC China

26 May 2011

In his weekly newsletter for ARC China, Founder and Managing Partner Adam Roseman explains the many steps that China has taken to deal with potential inflation.  Two contributors to inflation include real estate prices and “hot money” inflow issues.

Roseman explained that China has taken many steps to control the real estate prices.  As he wrote, “Many large to middle sized cities in China now have implemented a limit on loans to non-local buyers and suspended loans for purchases of 3rd homes. For the first property to be purchased by a family, the government has mandated a minimum down payment of 30% of the purchase price if the property has a gross floor area of more than 90 square meters. Families that purchase a second property are required to make a down payment of 60% of the purchase price. For such properties, the interest rate to be charged on the loan must be 1.1 times the People’s Bank of China benchmark interest rate.”

When analyzing the hot-money inflows, Adam Roseman said that the Chinese government is having banks hold more foreign exchange and that they are strengthening their auditing of overseas fundraising.

In addition, as Roseman explained, “Apart from expected contributing factors of inflation, the Chinese Government has also proved its ability to act swiftly and successfully to bring vegetable prices down when there was a sharp increase in those prices in the winter of 2010. In addition, the Chinese Government recently announced limited price control guidelines and said it would put state reserves of grains, edible oils and sugar on the market when necessary in order to increase market supply.”

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Stay up to date on the economic news from China. Gain insight from leading investors in the Chinese market, like Adam Roseman of ARC Investment Partners. Follow the economic trends and changes occurring in the global marketplace, as they relate to changes taking place in China.