CHINA is at a critical juncture in terms of its economic management, and faces a 'pretty dramatic' tightening of its monetary policy, according to a major United States bank.
Chase Manhattan's chief economist Robin Marshall said he would expect the yuan to deteriorate over the next 12 months.
'It's clear that things in mainland China have reached a critical juncture as far as the balance of macro and microeconomic policy go,' Mr Marshall said, citing China's inflation rate of 27.5 per cent and its rising money supply.
For the first time since 1949,China released figures on money supply recently. It said M0, cash in circulation, at the end of September had risen 26.4 per cent from one year earlier; M1, cash and demand deposits, reached 1.9 trillion yuan, up 32.5 per cent from a year earlier; and the broad M2 money supply grew a year-on-year 37.1 per cent.
'If you take those numbers at face value, it's clear that there is going to be a pretty dramatic monetary tightening,' Mr Marshall said.
Over the next 12 months, he expected the yuan to deteriorate, but said Beijing probably could live with the currency fall.
