China Raises Interest Rates Again to Cool Inflation

 s central bank announced on Saturday that it was raising interest rates in what appears to be a long-term campaign to suppress inflation as many ordinary Chinese express discontent with rising consumer prices.  The People’s Bank of China said it would raise the one-year benchmark lending rate by 25 basis points to 5.81 percent and the benchmark deposit rate by the same amount to 2.75 percent. The Chinese economy has been awash in liquidity due to government stimulus money and generous lending by state banks. Chinese officials are now concerned about an overheated economy and the inflationary pressures that come with that.
The fact that China’s economy has remained robust during the global recession gives Chinese officials leeway to rein in liquidity. The country has been growing at an average of 10 percent a year, and the strength of the export industry remains high despite a dip in late 2008, when the financial crisis first roiled the United States and then other parts of the world.
But just as important as exports, investment in large capital-intensive projects has been fueling the economic engine and driving up prices.
Analysts have been saying for months that they expect China to raise interest rates throughout 2011.
Earlier this month, the government reported that the CONSUMER PRICE INDEX   rose 5.1 percent in November, compared with the same period a year ago. It was the largest increase in three years. Since the spring, the year-on-year increase in the index has been above 3 percent, despite the government’s desire to keep the average increase below 3 percent for the entire year.
Chinese leaders are aware of the political dangers of high inflation.XINHUA, THE STATE NEWS AGENCY, REPORTED   on Dec. 17 that Li Keqiang, the vice premier, said at a conference of government officials that “more efforts should be provided to stabilize prices next year.” He added that over the next five years, growth rates should be defined “reasonably.” Mr. Li is expected to take over as prime minister in 2012 from WEN JIABAO, who now oversees the economy.
Officials have signaled throughout the month that moves will be taken to better control spending across the country. China announced on Dec. 3THAT IT WOULD TIGHTEN MONETARY PILICY   next year, shifting it from “relatively loose to prudent.” That was a clear sign that Chinese officials were intensely concerned about inflation.
On Dec. 15, the Chinese Academy of Social Sciences, a prominent research organization based in Beijing, reported that high inflation and housing prices had contributed to a deepening sense of popular disaffection. The findings of the report were based on a survey of 4,143 people.
Commodity prices were the main concern of urban residents, followed by health care and housing prices, according to the findings, which were reported by Xinhua on Dec. 16. Rural residents in this year’s survey said health care was their top concern, followed by commodity prices.