Chinese Commerce Minister Chen Deming says rising inflation, imported via global commodity prices, is China’s major policy concern this year. The government has set a 3% inflation target for this year.

Meanwhile central bank chief Zhou Xiaochuan says February’s rise in inflation was in line with expectations.

Some analysts are now predicting that, after today’s data, the much anticipated rate hike might happen as soon as tomorrow. This would generally be bearish for the standard ‘risk’ trades with the logic being that a hike might slow Chinese growth down. I have no view on this, just reporting it as I hear it.

The full set of data can be viewed here. Seems just a matter of time before interest rates rise and the stimulus spending ends.

This is slightly more than was forecast. The oft neglected M2 measure of money supply has risen by over 25% in the last 12 months. Consistent rises in M2 will eventually lead to inflationary pressures.

China’s exports continue to recover at a significant rate. With inflation also seemingly on the march, this looks to be another reason for China to pare back on last year’s stimulus package.

This Bloomberg report speculates that upcoming Chinese economic data will encourage the Chinese authorities to raise rates sooner rather than later as inflation becomes an increasing danger to their economy.

Yi Gang, head of the State Administration of Foreign Exchange (SAFE) is being quoted on Reuters as saying that the Chinese FX reserves are suitably diversified and are not used for short term speculation (yeah, sure).

Also of interest is that non-state gold holdings now exceed 3000 tonnes but China faces some constraints in adding to this amount. Gold price will rise if China buys, he adds.

US Treasuries still play a vital role in China’s management of its FX reserves.

Comment won’t inspire too much hope in those looking for early, meaningful, revaluation of the yuan.

• Recent loan curbs aimed to ensure even loans throughout the year, not serious tightening
• Can contain inflation and asset bubbles if M2 and yuan lending targets are achieved this year

China sounds like it is readying itself to return to a crawling USD peg rather than the fixed peg it has assumed for the duration of the global financial crisis.

The impact on the major currencies is likely to be less dramatic than it would have been when the dollar was extremely weak like during the middle of 2009. That’s because there has been less reserve diversification of late and the market is better balanced between bulls and bears, in my opinion. If China moved to allow a modest appreciation in the CNT with the dollar at extremely oversold levels, there would have been a rush to cover dollar shorts. These days, the market is long the dollar, but not extremely so…

 Headlines flying over newswires but no effect as of yet on the FX market.

• The economic turnaround has strengthened but still lacks the internal driver.
• Resource price reform will be strengthened.
• China wants to keep the Yuan stable but will improve the exchange rate mechanism.
• China cannot afford to ignore inflationary pressure
• Will act resolutely to curb over exuberent property price rises in some areas

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