Fears of overheating as China's runaway growth defies efforts to slow it down
Monthly CPI inflation remains high at 0.5 per cent, and is expected to increase on a large money overhang and a positive output gap.
"Meanwhile, negative real interest rates will continue to draw investment into the property sector, pushing prices even higher.
"We believe the expected launch of a property tax will not curb prices," but push rents higher, and so worsen inflation.
Last week Beijing announced a 15 per cent rise in minimum wages as it tried to balance controlling inflation against bridging the growing income gap between rich and poor.
If analysts are correct that Chinese companies are operating at razor thin margins, this increase in the cost of labor will push them into the red or force them to significantly raise prices.
This Christmas I noted that most of the children's clothing I bought for gifts was already made in places other than China: Vietnam, Cambodia, Guatemala . . . 2011 could be the turning point in China as export behemoth. Their own aggressive growth policies have driven up the price of their raw material inputs, real estate, and now their distorting currency policies (and corresponding bad luck in the state of the worldwide food market) are driving up the price of labor. Price competitiveness is going to be very difficult to maintain here on out.