Inflated View of China Hikes
[Financial Analysis and Commentary]</br></br>Higher oil prices and a stronger-than-expected U.S. recovery have raised fears about the persistence of China's inflation. But given the government has tightened more than many recognize, the real question is how long before Beijing swings policy back to neutral.</br></br>Three increases have raised the benchmark one-year rate by 0.75 percentage point since October. But banks can charge customers what the market will bear. PBOC figures show at the end of 2010, 43% of borrowers were paying above the benchmark, compared with 33% at the beginning.</br></br>Anecdotal evidence also suggests China's corporate sector faces tighter credit. Reports from the black market for credit in Wenzhou, a source of informal finance to entrepreneurs, suggest rates are higher than they were in summer 2008.</br></br>With credit taps tightening, growth is slowing -- highlighted by purchasing managers' index data for January and February. But there also are forces pulling in the other direction. Recovering overseas economies mean stronger exports. That will cut into spare capacity in the economy and push prices higher -- as will rising commodity prices.