06/12/2010
By Ilonka Oudenampsen
In 2011, the biggest opportunity for the economy is if China changes legislation in order to allow land ownership licenses to be traded, said Chris Ruffle, portfolio manager at Martin Currie.
Currently, land in China is owned by the individuals and companies that use it and farm it, through licences which normally last 30 years. Until now those licences haven’t been able to be traded, but Ruffle expects this to be liberalised next year.
ING Investment Management expects Chinese inflation to rise to around 5.5% by the summer of 2011, up from 4.4% today.
Current inflationary pressures in China originate mainly in rising food and commodity prices, and although ING IM believes that these pressures will continue on a global scale because of fast growing demand in the emerging world, it does not think this will continue for long in China. Here, food price inflation has been driven mainly by vegetable prices, but ING IM says that this is a problem that can disappear quickly due to short harvest cycles and big regional differences. As long as energy prices do not increase, food inflation in China should not accelerate, ING IM says.
Maarten Jan Bakkum, senior emerging market strategist at ING IM, said: “It is too early to predict higher inflation figures for China than our current estimate of 5.5% for next summer. The risks are on the upside, but we need to see higher oil prices before we start reconsidering our inflation expectations. We also expect to see the Chinese authorities intervene more with price controls which should help keep inflation down.”
ING IM also made inflation predictions for Brazil, for which it sees inflation approaching the 6% mark. Brazil is one of the few emerging economies where inflation is rising not because of food prices alone.
Bakkum commented: “Given the strength of the Brazilian consumer, the high investment growth and with the output gap closed by now, inflationary pressure is likely to remain relatively high. The zero rate environment in the developed world is likely to keep the Brazilian central bank from aggressively tightening monetary policy. This should mean that policy targets will be missed for a longer period. A more flexible and pragmatic policy approach is a clear trend in the whole emerging world.”
