China promises sweeping economic change

China is promising an economic overhaul that would raise the status of consumers and entrepreneurs. But it has given no sign how it will tackle its politically volatile reforms.

Premier Wen Jiabao says Beijing wants to nurture self-sustaining growth driven by consumption and service industries. He made the comments in a weekend speech outlining this year's goals.

Achieving those goals will require cutting subsidies for state companies and other changes that might trigger a backlash within the Communist Party.

The changes could drive China's evolution from low-cost factory into a major consumer market. That might help to narrow a yawning wealth gap and ease tensions over China's trade surplus by boosting consumer demand for imports.

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http://www.businessweek.com/ap/financialnews/D9LPK5KO0.htm

Chinese inflation spikes on food costs

NEW YORK -- Higher food prices continue to be the main driver of inflation in China, raising the likelihood of an imminent interest rate hike as the country tries to reel in its red-hot economy.

Consumer prices rose 5.1% for the 12 months ended Nov. 30, according to government data released early Saturday in China. That comes on the heels of a 4.4% jump in October. And once again, a surge in food costs is the culprit. Food prices rose 11.7% during the period.

Excluding food prices, China's CPI edged up only 1.9%.

Compare that with the United States, where the CPI has been sluggish for months. In October, the U.S. CPI increased a modest 1.2%, according to the Bureau of Labor Statistics. Excluding the volatility of food prices, the U.S. CPI rose 0.6%.

The U.S. trade balance narrowed to a more-than-expected $38.7 billion, bringing the U.S. trade deficit to a 9-month low.

China tries to stave off inflation

But China is a different story.

China said its trade surplus narrowed to $22.9 billion in November -- a 16% decrease over October's $27.2 billion surplus. China's exports jumped 34.9%, while the country's imports rose 37.7%.

Fears of runaway inflation have led to rising speculation that the People's Bank of China will move to raise interest rates as early as this weekend.
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Just one week ago, China said it would be more "prudent" about its monetary policy in 2011. And on Friday, the People's Bank of China raised the reserve requirement ratio for its banks by a half-percentage point for the third time in a month.

Month by month: CPI rose 1.1% in November, on a monthly basis. The increase was largely due to higher food prices. Meanwhile, core CPI was up a more modest 0.6%.

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http://money.cnn.com/2010/12/10/news/international/china_cpi_inflation/