By Lin Guan (chinadaily.com.cn)
Updated: 2007-11-12 15:16

As the statistics bureau prepares its tomorrow release of the consumer price index (CPI), international investment banks predicted China’s October CPI to reach a decade high of 6.8 percent, Money Week reported.

October CPI is estimated at 6.3 percent, 0.1 percentage higher than September but lower than the recorded high of 6.8 percent in August. Meanwhile the year 2007 CPI estimates are in the neighborhood of 4.2 percent, said Wang Zhihao, chief economist from Standard Chartered China.

Compared with Wang's relatively moderate estimate, chief economist from Goldman Sachs China predicted the figures will reach a decades high of 6.8 percent. He cited the rise of pork, vegetable and fuel prices as the main reasons. Goldman Sachs also adjusted their whole year CPI predictions of 4.5 percent to 4.8 percent.

Despite the gaps in their forecasts, the economists widely believed the release of last month's CPI will pressure the central bank for the nation's sixth interest-rate increase this year. Currently, the one-year deposits rate stands at 3.87 percent, and the one-year lending rate at 7.29 percent.

The A share market may continue to drop due to interest rate increase expectations and may lose short-term momentum. There are also worries that the slowdown of US economy and the US Federal Reserve's interest cut may slacken the Chinese economy. However, experts have high expectations for China's domestic investment, consumption and trade potential, saying they will help the Chinese economy maintain rapid growth. The A share market is also expected to remain bullish in the long term.

Chief economist from Citibank China, Shen Minggao, said although August and September statistics showed growth of Chinese exports to the US fell to a mere 9.4 percent and 9.5 percent, total Chinese exports didn't drop due to demand from European and Japanese markets. He forecast China's whole GDP to grow around 11 percent for the year.

In a recent report called "2008 China Economic Outlook" by Standard Chartered, the bank estimated China's whole year GDP growth rate at about 11.5 percent, and next year’s at around 10.5%. Next year China's macro economy will continue to prosper with high growth and a low inflation rate, the report said. However, pressure for RMB appreciation may be even higher, pushing the dollar yuan exchange rate to 7.01 to 1, a 5.5 percent increase.

Wang Zhihao added despite the slowdown in US economy, liquidity in Chinese economy itself is strong enough to fend off related impacts. Hot money and FDI are pouring into stocks and property markets, where the cash is used to strengthen the Chinese economy.