Unlike many other developing countries, China was not facing the risk of hyper, or runaway, inflation, an economist said last week, at the launch of the China Frontier Advisory.

“In the near term, I think some of the inflation fears are definitely unwarranted,” affirmed chief representative of the Economist group in China and director of advisory services for China at the Economist Intelligence Unit Xu Sitao.

He said the reason for this was that inflation in China was mainly caused by food, which only hurt those with fixed income, such as retirees.

“But for the middle class in urban China, food inflation is a small problem. Of course, food inflation is a good problem for Chinese farmers to have,” said Sitao, adding that one of the key policy initiatives for the country, currently, was to narrow the income disparity between urban China and rural China.

He indicated that even if food inflation was about 20%, core inflation (stripping out food and energy costs) was about 2%. This highlights the fundamental change in the Chinese eco- nomy from the 1970s and 1980s, and showed that the economy was a lot more efficient and resilient.

In contrast to the usual analogy of China as a dragon, Sitao likened the Chinese economy to a lizard. “When we look at a lizard, we see a lizard shedding its old skin. The Chinese economy is constantly undergoing structural changes, shedding its old skin. “If you do not understand the animal, you think the animal is dying, but actually the animal is gaining new strength. So I think we all need to appreciate these structural changes,” he said.

“These days everyone is concerned with the crude oil price nearing $140/bl. China is also concerned, but there are a few differences between China and India, and China and Vietnam, and China and Brazil. The first difference is China is a huge creditor: current account surplus last year was 11,4% of GDP; this year it is likely to be 9%. When you have this massive current account surplus, your currency is appreciating, and inflation is being arrested on the margin. “Secondly, public finance is in very good shape,” said Sitao.

He remained convinced that the growth in China was likely to be sustained at current levels, between 8% and 11%, because investment growth was strong, and saving was high.

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