Although it is unlikely to see system-wide financial risks in China in the near future, there are however six potential risk areas that may significantly affect the Chinese economy, if not properly addressed.

High inflation

Annualised consumer price index (CPI) released in April had reached 8.5%, which is at an uncomfortable level. There are several reasons for the rapidly rising prices in China.

RMB appreciation has only limited impact on the rising price of commodity imports. The rising food and metals prices in the world have directly contributed upward pressure to China’s CPI, and the rising energy prices globally are increasing difficulties on Chinese government’s domestic price control measures.

The ability of downstream industries to absorb price pressures from upstream materials suppliers has become minimal. Back in 2007, although the Chinese economy was also growing rapidly, the CPI could nevertheless stay around 4%. This was because there had been a … Read More

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