An interesting report on inflation pressures in China comes from Dong Tao, at Credit Suisse. He claims that the state purchasing agent is having trouble convincing farmers to sell wheat. Does this mean that farmers believe wheat prices will continue to climb?
Despite a 1.2% yoy increase in the yield of summer crop, farmers have been reluctant to sell to the state agency at the government’s set prices, which are already substantially higher than last year’s levels. We believe this reflects farmers’ rising expectations for inflation, which could drive up production costs (fertilizer in particular) and living costs further. CPI inflation in the rural areas rose by 6.3% yoy in July, compared to 5.3% in the urban areas. Higher inflation in the rural areas has been persisting for 9 months now. This seems to suggest that food inflation may not decline any time soon, as predicted by the government, despite the strong summer harvest.
Michael Pettis is a professor at Peking University's Guanghua School of Management, where he specializes in Chinese financial markets. He has also taught, from 2002 to 2004, at Tsinghua University’s School of Economics and Management and, from 1992 to 2001, at Columbia University’s Graduate School of Business. He is a member of the board of directors of ABC-CA Fund Management Co., a Sino-French joint venture based in Shanghai.
Pettis has worked on Wall Street in trading, capital markets, and corporate finance since 1987, when he joined the Sovereign Debt trading team at Manufacturers Hanover (now JP Morgan). Most recently, from 1996 to 2001, Pettis worked at Bear Stearns, where he was Managing Director-Principal heading the Latin American Capital Markets and the Liability Management groups. He has also worked as a partner in a merchant banking boutique that specialized in securitizing Latin American assets and at Credit Suisse First Boston, where he headed the emerging markets trading team. Besides trading and capital markets, Pettis has been involved in sovereign advisory work, including for the Mexican government on the privatization of its banking system, the Republic of Macedonia on the restructuring of its international bank debt, and the South Korean Ministry of Finance on the restructuring of the country’s commercial bank debt.
Pettis is a member of the Institute of Latin American Studies Advisory Board at Columbia University as well as the Dean’s Advisory Board at the School of Public and International Affairs. He is the author of several books, including The Volatility Machine: Emerging Economies and the Threat of Financial Collapse (Oxford University Press, 2001). He received an MBA in Finance in 1984 and an MIA in Development Economics in 1981, both from Columbia University.
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January, 2008
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