Inflation Risks Loom
as CPI Edges Higher

China’s consumer price index turned upward to 0.6 percent year-on-year in November, ending a long, calm period for CPI in the negative realm. Inflation risks, however, have mounted to new highs, especially in the economy’s retail and food sectors. Fiscal and monetary regulators on a consumer price watch for the past year are now thinking that the time may be right for dramatic measures aimed at driving down expectations for inflation.

Some of China’s recently announced regulatory measures have pointed to mild policy fine-tuning, especially in the bubbly housing sector. But the pace of inflation fighting may be slower than what’s desirable. Given China’s messy management of housing price expectations, a new spate of turmoil for the nation’s capital markets could be a likely scenario down the road.

State-owned Banks
Backtrack on Governance

Stronger corporate governance at banks was expected after three of China’s four biggest banks -- Bank of China (BOC), Industrial and Commercial Bank of China (ICBC) and China Construction Bank – listed in Hong Kong and Shanghai between 2006 and ’07. Each bank got new shareholders and directors. But in an apparent backtrack, vice presidents at several state-owned banks were recently transferred. Luo Xi of Agricultural Bank of China (ABC) went to ICBC, Cai Hua of China Development Bank switched to ABC, and Zhu Hongbo, secretary for the Communist Party Disciplinary Committee at ABC, was named BOC’s new vice president.

Industry insiders say the executives were transferred to prevent corruption and promote experience-sharing among banks. However, these party- and government-arranged transfers demonstrated that commercialization at state-owned banks is far from complete.