China Stokes Liquidity, Risking 2011 Inflation Spike

China’s reluctance to allow a stronger exchange rate has hamstrung its efforts to rein in inflation and endangered a campaign to shift the economy toward domestic demand.

The central bank continues to add liquidity, with money supply rising 19 percent in November from a year ago, according to the median estimate of 29 analysts in a Bloomberg News survey before a government release this month. That needs to be curbed to 15 percent to 16 percent to rein in inflation, said Fred Hu, the former Goldman Sachs Group Inc. chief China economist who has founded financial advisory firm Primavera Capital Group.