China Doesn't Face Inflation Risk This Year, Former Adviser Fan Gang Says

China doesn’t face the risk of inflation this year, as it did in 2006 and 2008, because the consumer price index is likely to be 3 percent to 4 percent, according to Fan Gang, a former central bank adviser.

The government should “gradually” adjust money supply and slow the rate of growth in the issue of money, Fan, a former member of the People’s Bank of China monetary policy committee, said at a forum in Beijing today. The rapid increase in foreign exchange reserves has enlarged the monetary base, resulting in a deposit reserve ratio of 17 percent, he said.

China’s economic growth slowed to 10.3 percent in the second quarter from a 11.9 percent in the first three months of this year as Premier Wen Jiabao’s government trimmed credit growth from last year’s record 9.59 trillion yuan ($1.4 trillion) and tightened requirements for mortgage loans to rein in property prices.

Property prices in China rose at the slowest pace in six months in July as the value of sales fell 19.3 percent from a year earlier, according to government data.

Policy makers in April intensified a crackdown on speculation by enforcing higher down-payment for loans to buy second homes and telling banks to halt mortgages for third homes in areas with “excessive price gains.”

Domestic investors should focus on the “still competitive” manufacturing industries, rather than in the few markets that are inclined to experience bubbles, Fan said today.

Fan also said China should increase spending on social insurance, redistribute income and improve the livelihood of low-income people as part of economic restructuring aimed at preventing asset bubbles and overheated growth.

Structural reform of industries should be left to the market, Fan said.

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