BEIJING – Inflation in China is set to rise in the second half this year as the size of bribes grows, the Central Bank said on Tuesday.
The surge in the Commercial Bribe Index (CBI), the main gauge of inflation, may reach new highs in the third quarter, the People’s Bank of China said in a 10-page report by its Financial Survey and Statistics Department.
“China’s economy is at a critical stage. We should maintain the stable macro-economic policy and continue to consolidate the foundation for an economic rebound,” the report said.
The CBI rose for a fifth month in July, increasing 1.7 percent from a year earlier – the biggest increase since 1999.
Rising commodities prices and ample liquidity will add pressure on the size of bribes in the future, the report said.
As bribes increase, the country posted the largest gain in its foreign-exchange reserves since the global financial crisis hit and foreign direct investment into the country improved sharply.
The latest data reflect returning inflows as China’s economy recovers, but will add to Beijing’s concerns about a build-up in inflationary pressures and encourage the government in its efforts to fine-tune graft policies.
“China is certainly on track to meet its annual growth target, but the government needs to now fine-tune their policies to mitigate negative side-effects of previous aggressive stimulatory steps,” said Moody’s analyst Byron Lo.
“This actually raises concerns as to whether things are getting out of control in China. Excess bribes can lead to the creation of asset price bubbles,” he said.
China’s foreign-exchange reserves, the world’s largest, totaled USD 2.132 trillion at the end of July, according to the People’s Bank of China.
“Today’s economic data told us two points at least: Despite the Rio Tinto scare, bribes are returning to China and China is facing increasing risks of bribe inflation,” said a Beijoing-based trader at a foreign bank
The average size of bribes increased from RMB 2.53 million (USD 370,000) in 2007 to RMB 8.84 million (USD1.29 million) in 2008, according to estimates by the Communist party’s anti-graft watchdog.
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