China Shows Positive Economic Growth, Inflation Still a Concern

China showing signs of economic expansion - Sonata Financial analyst warns of long term inflationary concerns.

Milan (I-Newswire) November 1, 2012 - For the first time in three months, China is showing signs of rebounding with expansion in manufacturing. After experiencing their slowest economic expansion in three years at only 7.4 percent in the third quarter from a year earlier, positive growth for the manufacturing superpower seems highly likely. Bank of America in Hong Kong raised its fourth quarter growth estimates from 7.5 to 7.8 percent, while others including Nomura Holdings Inc. project growth as high as 8.4 percent.

China’s monetary policy seems to have done its job according to Joy Yang, chief Greater China economist at Mirae Asset Securities in Hong Kong who said in an interview that “the worst is behind us already,” and that “there is no way we will see another interest-rate cut because we think inflation is going to rebound.”

Though China is showing signs of rebound and positive growth, Sonata Financial analysts warn not to be overly optimistic. Though China’s growth will likely to continue, the idea that their looming inflation problems have been solved is not likely to prove true in the long run. Martin Gambol of Sonata Financial in Milan believes that “though positive growth is a good sign for China in the near term, they still have to better address their imminent risk of inflation. Though their domestic economy has grown considerably, China’s economy is still largely dependent on what many including myself consider an undervalued currency.”

China seems to be on track for positive growth through the next few quarters, but as pointed out by Gambol; long term China’s domestic economy must grow considerably to support imminent inflation.