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Data: Bloomberg, IMF Projections

Special Note: This chart is also produced for all the other countries covered in this book and is based on a Purchasing Power Parity basis from IMF (International Monetary Fund) data. For a definition of PPP please refer to Chapter 3.

According to Bloomberg, China’s reserves have risen by 721% from 2004 through 2012. In comparison the combined total reserves among the rest of the BRICs rose about 400% to $1.1 trillion. As of 2012 China sits on $3.3 trillion of reserves, which is enough to buy every central bank’s official gold supply twice over.

The Economist Intelligence Unit expects consumer prices to rise by 3.7% a year on average in the period 2013 to 2017, partly owing to the fact that a falling working-age population will help to push up wages rapidly. The authorities are expected to allow the renminbi to appreciate modestly against the US dollar, even when there are going to be fervent attempts by the West to demand much faster appreciation of Chinese currency. So far the Chinese have marched to their own drum and resisted political pressures to revalue the renminbi to a level greater than what is domestically palatable. Its current account is likely to move to deficit from 2017 as import growth outstrips export expansion.

The average rate of inflation in China was 4.3% from 1994 to 2010 (see Exhibit 2). The exhibit shows how inflation peaked in 1997 and then retreated due to withdrawal of foreign capital during the Asian financial crisis. We then see inflation going up with the massive investment that the Chinese government pushed at the beginning of the millennium.

The Chinese government is focused on keeping inflation below 4%, with a 5% inflation rate considered excessive. The official target for 2013 is 3.5% and economists predict rising inflation for 2013. Some of the factors causing inflation have been the massive stimulus that came in 2009 in response to the recession and also wage inflation due to a tighter labour supply as a result of changing demographics.