China is expected to further tighten its belt down the road in an effort to curb growing inflationary pressure sparked by its loose monetary policy following the global financial crisis, experts said Thursday.
China's manufacturing indicator for November rose to the highest level in seven months, a report showed Wednesday, heightening concerns that the country is facing more inflationary pressure as the indicator has trended upward since August.
"Seven of the 11 subindexes were higher than their respective levels in the previous month. The output index continued its upward trend ...
suggesting that China's industrial production growth will re-accelerate very soon," said global trading firm Li & Fung Group in a report.
"On the other hand, the input prices index rose to 73.5 percent in November, the highest level in 29 months. Production cost pressure has
continued to build up, suggesting inflationary pressure in downstream prices in the short to medium term."
Input prices are prices of materials and fuels bought by manufacturers.
According to the report, the input prices index rose 3.6 percent from 69.9 percent in October. All of the 20 industries reported rising input prices, including five industries -- chemical fibers, rubber and plastics; chemicals; oil refining and coking; smelting of non-ferrous metals; and wood processing and furniture -- that reported a surge of more than 80 percent.
Yun Hang-jin, an analyst at Korea Investment and Securities Co., also expected that more tightening could be in the cards.
"While China's economy is landing softly, inflationary pressure is adding a burden. The Chinese government will try to hold fast to its monetary policy," he said.
Yun forecast that Beijing will additionally hike its interest rate or the required reserve ratio before or after the government's annual Central Economic Conference is held from Dec. 10-12.
Since Oct. 20, interest rates have been raised once and banks' required reserves ratio on two occasions in China, while capital control and property purchases by foreign individuals and companies have also been tightened.
There are worries that higher returns in emerging markets and expectations of a stronger Chinese yuan could lead to increasing capital
flow to the mainland, further fueling inflation.
"With food prices and wages on the rise and home prices remaining high, more tightening measures could be launched. We expect interest rates to be raised by a further one percentage point, and several more hikes in the required reserve ratio, in coming months," said Bill Leung, senior economist at Hang Seng Bank.