China Inflation ‘Somewhat Out of Control,’ George Soros Says

China’s decision to keep its currency weak has caused the government to lose control of inflation and risks fuelling wage-price gains, billionaire investor George Soros said. While the policy helped insulate China from the financial crisis in 2008, the world’s second-biggest economy has missed its chance to allow the yuan to appreciate to tame inflation, Soros, chairman of Soros Fund Management LLC, said yesterday at a conference in Bretton Woods, New Hampshire. “It would be very advantageous to allow the currency to appreciate as a way of controlling inflation,” Soros said. “The authorities missed that opportunity. You now have inflation somewhat out of control, and causing some serious danger of wage-price inflation.”

“While exchange rates can be an effective tool to contain inflation in some countries, I don’t think that’s the case for China,” said Li Cui, chief China economist at Royal Bank of Scotland Plc in Hong Kong. “It’s not so surprising that we are seeing higher inflation in China as price growth is mainly driven by strong domestic demand, while imported inflation only plays a marginal role.”

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