China will allow banks to be more generous with loans until at least the end of next year to help meet huge capital needs to 2000 and build confidence in the run-up to the handover of Hong Kong next year.
W.I. Carr China economist Joe Zhang predicted credit would grow by about 25 per cent in nominal terms and 10-12 per cent in real terms, in line with gross domestic product growth.
'The government will have to tolerate double-digit inflation as a necessary evil,' Mr Zhang said.
'A relatively loose credit environment will allow companies to restructure and recover from the last austerity programme.' A time-lag has allowed China temporarily to declare victory against inflation, which fell to 7.7 per cent for the first quarter of the year.
That success would be short-lived, Mr Zhang said.
He expected retail price inflation would average about 13 per cent this year, compared with Beijing's target of 10 per cent. He said monthly inflation could rise as high as 17 per cent by the end of the year, due to credit easing, higher tariffs and fares, and a 20 per cent increase in grain prices.