<P><FONT size=4>CSFB： 如果CPI 到8%,其他投行 评论</FONT></P>
<P><FONT size=4>China Economics --What if inflation hits 8%?</FONT></P>
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<P><FONT size=4>● We believe both the government and the market have<BR>underestimated the magnitude of inflation. Food inflation may<BR>surge further, while wage inflation among migrant workers is<BR>spilling from the manufacturing to the service sector<BR>● We now project CPI inflation to hit 6.5% yoy around mid 2008,<BR>with a possibility of reaching 8%. Real interest rates are set to<BR>move deeply into negative territory.<BR>● Our central case is deposit rates going up 189 bps (to 5.22%pa)<BR>and lending rates up 135 bps (to 8.19%pa) by the end of 2008.<BR>Should CPI hit 8%, we look for additional 150bps hikes. We also<BR>revised our GDP growth forecasts up to 11.5% yoy for 2007 and<BR>down to 10.4% for 2008.<BR>● China has exported inflation to the US for two consecutive<BR>months. We think China’s role as a major source of global<BR>disinflation may have come to an end.<BR>China’s inflation is getting out of control and the government is behind<BR>the curve, in our opinion. The biggest contribution to rising inflation<BR>comes from foods, which counted for 78% of China’s 3.2% average<BR>inflation in H107. We think food inflation will rise further over the next<BR>12 months. The autumn crop, which counts for four-fifths of total<BR>annual grain production, is expected to be weak, caused by the worst<BR>flooding since 2003 that is currently sweeping the nation. Further, the<BR>shortfall in hog production will not be reversed quickly. Moreover,<BR>wage rate among the migrant workers is rising quickly as the labour<BR>shortage for migrant workers is spreading from the manufacturing<BR>sector to the services sector. Besides, rents and transportation</FONT></P>