China December Producer Price Index to Drop, Liu Says

By Zhang Dingmin

Dec. 13 (Bloomberg) -- China's producer price index is expected to drop ``sharply'' in December, China Banking Regulatory Commission Chairman Liu Mingkang said.

The world's fourth-biggest economy is shifting toward deflation, Liu told a financial forum in Beijing today. Capital inflows may shift to outflows, with gross domestic product projected around 8 percent next year, he said.

China's producer-price inflation slowed to half the pace estimated by economists in November as commodity and energy costs fell, raising the possibility that the country will slide into deflation as demand wanes at home and abroad.

Prices at the factory gate rose 2 percent in November from a year earlier, the statistics bureau said Dec. 10, after gaining 6.6 percent in October. That was the slowest pace in two years and less than the 4.5 percent median estimate of 15 economists surveyed by Bloomberg News.

The commission will have ``scientific tolerance'' for bad loans next year, Liu said without detailing.

Chinese banks are scaling up lending after the government pledged a 4 trillion yuan ($584 billion) stimulus plan on Nov. 9 to bolster growth as the world heads toward recession. Lenders may suffer further losses on their overseas assets as the global financial crisis remains ``far from over,'' the commission's Vice Chairman Jiang Dingzhi said Nov. 15.

To contact the reporter for this story: Zhang Dingmin in Beijing at Dzhang14@bloomberg.net