China should be cautious of inflation

BEIJING - China should be cautious of inflation and prevent the effects of excess liquidity, Fan Gang, a former advisor to the country's central bank, said Saturday.

The loose credit policy of the United States is pumping money into the market and increasing expectations for the depreciation of the US dollar and the appreciation of other currencies, including the Chinese yuan, Fan told the annual meeting of China's economy (2010-2011) in Beijing.


The policy is reasonable for its own economy but will cause serious problems for the world, he said.

It pushes up commodity prices and spurs hot money flows that cause inflation in emerging economies, he said.

The People's Bank of China (PBOC), China's central bank, announced Friday it will raise banks' reserve requirement ratio by 50 basis points, to mop up excess liquidity amid mounting inflationary pressures.

The PBOC last year raised banks' reserve ratio six times and interest rates twice, to rein in inflation.

China's consumer price index (CPI), the main gauge of inflation, hit 5.1 percent in the year to November 2010, its highest in 28 months.

Fan also came out in favor of a gradual appreciation of the yuan. He said a stronger yuan helps ease inflation pressures and facilitates economic restructuring.

The annual forum is sponsored by the China Center for International Economic Exchanges (CCIEE), a non-governmental think tank chaired by former vice premier Zeng Peiyan.