Inflation is the biggest new challenge that China's economy faces. However, a cure for inflation in many other countries may make things worse in China's case. Fitch, one of the leading international rating agencies, made comments on Tuesday.
"Each policy solution presents other problems," said James McCormack, Fitch's managing director of Sovereign Ratings Asia Pacific, in his interview with People's Daily Online Tuesday.
A decision on interest rate hikes --- an action usually taken by central banks to rein in inflation --- is difficult to make. Mr. McCormack explained that it would cause further capital inflow into China and more forex reserves. This would make the inflation problem even"more difficult."
What's more, the impact of tightening economic policy must be considered. A tighter monetary policy means weaker economic growth. But the economy has already faced a "weaker external environment" due to the "weaker export outlook" - a scenario which the country has not met before in recent years.
"The authorities need to consider how tight they want their policy to be," he concluded, adding that the areas affected by the earthquake may be granted more relaxed policies.
In his speech at Fitch's annual Global Banking Conference Tuesday in Beijing, Mr. McCormack also expressed his concern about"increasing inflation" worldwide. However, he thinks there is a "much bigger problem" in emerging markets.
By People's Daily Online
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