On November 22, 2010, Xinhua published an analytical article explaining why prices, especially food prices, have been increasing sharply in China. Below are the key points:
China has excess currency. China’s banking system has made 17 trillion yuan in RMB loans since 2008. The broad money supply is approaching 70 trillion yuan. The excess currency in the market leads to excess purchasing power that needs to find investment opportunities. However, the real estate market is now regulated; the stock market is in the recovery stage; and the RMB’s appreciation limits capital outflow.
In addition, the prices of agricultural products have increased in the international market. The prices of bulk raw materials have also increased. This is the result of the United States’ monetary policy and in particular, the second round of quantitative easing, and also from other countries’ loose monetary policies.
Source: Xinhua, November 22, 2010
http://news.xinhuanet.com/herald/2010-11/22/c_13616725.htm