Opinion

Not an easy exit

(China Daily)
Updated: 2010-05-12 13:53

The steadfast plunge of the Chinese stock market shows how heavily worries over climbing inflationary pressures weigh on local investors.

Together with the changing global growth prospect, such market panic will add to the complexity and difficulty of China's stimulus withdrawal. Policymakers need to pay close attention to these concerns. But more important, they should keep pressing ahead with efforts to prevent asset bubbles and economic overheating.

Even as global stocks surged on the about $1-trillion emergency rescue fund to end Europe's debt crisis, the benchmark Shanghai Composite Index closed at a nearly one-year low on May 11 as latest statistics indicated that price pressures have been building throughout the economy.

China's consumer prices rose 2.8 percent in April from a year earlier, the fastest pace in 18 months, while property prices jumped 12.8 percent following a record increase by 11.7 percent just a month ago. Such accelerated inflation does justify investor worries because it might invite more tightening measures that can choke off growth.

That explains why the stock market has shrugged off news that the audacious bailout to stanch the European debt crisis might make another global slump less likely for the moment.

However, while rising inflationary pressures are strengthening the case for higher interest rates and more tightening measures, policymakers also have to take into account the consequences of an overdone correction in the domestic stock market as well as the risk of underestimating the impact of a darkening global growth outlook on the domestic economy.

The complicated economic situation means that China's exit from stimulus measures has to be more circumspect.

Any rash policy change may risk derailing the country's strong economic rebound. Yet, the rising inflationary pressures also require policymakers to come up with more well-targeted measures to squeeze out looming asset bubbles.