BEIJING'S bid to squeeze inflation out of the Chinese economy could pose problems for foreign investors seeking to sustain current returns, financial experts have warned.
However, they said that while the Chinese economy was facing a cyclical downturn, longer-term prospects remained good.
Principal of Hong Kong-based Shaw Investment Management Sin-ming Shaw said: ''Anti-inflation policies in a country where there are inadequate monetary policy instruments are likely to overshoot, forcing the country into a hard landing - if not this time, then next time.
''We must prepare for severe air pockets and frequent turbulence.'' Mr Shaw said investors had recently been bombarded with seemingly conflicting assessments of the mainland economy urging either caution or encouragement.
He said last week's National People's Congress supported executive Vice-Premier Zhu Rongji's tight credit policy.
''Credit is tight in China; very, very tight. While banks still quote lending rates in the range of eight to 10 per cent, many loans are done at rates in the mid-20s to high 20s. The point is tight money is the antibody to inflation. My view is runaway inflation in China, barring a reversal of policy, is no longer a threat moving into 1994 and beyond. This is not to say inflation will disappear or will move obediently into the single-digit area.'' Mr Shaw said many huge state enterprises remained a big drain on the national budget.
