China Overheating Risk Resurfaces, Ex-PBOC Adviser Says

China’s economic risks have shifted back to growing too quickly as new regional-government officials try to boost development, a former central bank adviser said.

“The new problem is how to prevent overheating,” which would stoke inflation and asset bubbles while pushing the government to enact controls, Fan Gang, a People’s Bank of China academic adviser from 2006 to 2010, said yesterday in an interview in Davos, Switzerland, where he is attending the World Economic Forum. “That kind of complication has come back again.”

Fan’s comments mark a resurfacing of concerns that had receded last year as growth, inflation and the housing market cooled. The world’s second-largest economy may expand by 8 percent to 8.5 percent this year, Fan said, following the weakest pace since 1999. He said he hopes the rate stays below 9 percent, withstanding “ambitious” plans by local governments.

“I really hope China can this year achieve a little bit above 8 percent” growth and lay a foundation for 8 percent expansion in the next couple of years, said Fan, director of the National Economic Research Institute of the China Reform Foundation. “The momentum is really there again” with talk of urbanization and infrastructure construction, he said.

Li Keqiang, appointed No. 2 in the ruling Communist Party in November and set to become premier in March, has been championing urbanization as a growth driver for the economy as export gains slow.

‘Modest’ Appreciation

Fan said he sees “modest” appreciation in the yuan against the dollar this year as money flows in from other countries. The currency rose about 1 percent in 2012 against the dollar, the least in three years.

China’s economic growth accelerated for the first time in two years in the fourth quarter. Gross domestic product expanded 7.9 percent from a year earlier, up from the three-year low of 7.4 percent in the previous quarter and snapping a seven-quarter slowdown, a government report last week showed. Industrial production and retail sales also accelerated in December.

The median estimate of economists surveyed last month by Bloomberg News was for GDP growth of 8.1 percent in 2013. Expansion was 7.8 percent in 2012, statistics bureau data showed last week.

Manufacturing may be expanding at a faster pace in January, based on the median economist estimate for a preliminary reading scheduled for today for a purchasing managers’ index from HSBC Holdings Plc and Markit Economics.

China’s consumer inflation has slowed since reaching a three-year high of 6.5 percent in July 2011. The rate was 2.5 percent in December, rebounding from a 33-month low of 1.7 percent in October.

Home Prices

New home prices in China rose in December in the most cities in 20 months, renewing concerns that the government may issue new tightening measures.

The central bank has refrained from easing monetary policy since July, after two interest-rate cuts and three reductions in the reserve-requirement ratio for lenders, on concern that any loosening may fuel inflation and drive up property prices.

The government may further loosen controls over interest rates this year, especially on deposit rates, Fan said. “The demand for this kind of liberalization is really there and people do not see much problem with that,” he said.

— With assistance by Zoe Schneeweiss, and Lifei Zheng

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