After China raised interest rates for the first time in nine years on Thurs-day, economists yesterday said the rate hikes are within an "endurable range" and the move was not expected to have an impact on Taiwan's exports in the near future.
China (including Hong Kong) is Taiwan's biggest export market, and was the destination for around 37 percent of goods shipped from Taiwan in the first eight months of this year.
"The purpose of China's rate hikes is to further suppress its runaway economy and ease its inflation pressure," said Cheng Cheng-mount (鄭貞茂), vice president of Citibank Taiwan.
China's consumer price index, a gauge of inflation, fell to 5.2 percent last month from 5.3 percent in the previous month.
"The move will affect [China's] real-estate sector the most, while having a much smaller impact on the cement and steel industries there," Cheng said, adding that the rate hike wasn't a surprise.
"The market had been speculating about this for a long while," he said.
The People's Bank of China said it would raise benchmark interest rates by 0.27 percentage points starting yesterday, to 5.58 percent for one-year lending and 2.5 percent for deposits.
The range of the hike was less than Citibank's original estimate of at least 0.5 percentage points, Cheng said, adding that another hike may come in the spring, if China's investment climate remains sizzling hot.
China's rate increase could increase borrowing costs for busi-nesses, he said, but Taiwanese com-panies with operations there should be able to afford such an increase.
Another industry veteran, however, thought the rate increase might have an impact on Taiwan's export-oriented economy.
"Although China's move was designed to moderate its rising commodity prices, it will likely restrain China's domestic demand, which will in turn hurt Taiwanese companies' focus on that market," said Tsai Horng-ming (蔡宏明), deputy general-secretary of the Chinese National Federation of Industries.
The industries worried that China may allow more rate hikes -- 0.5 percentage points to 0.75 percentage points -- to help ease price increases in the future, which would lead to huge pressure on Taiwanese companies, Tsai warned.
China's move reaffirms its determination to cool down its rapidly growing economy and control soaring inflation, Lehman Brothers said in a report released yesterday.
"The rate hikes strengthen our view that China's economy will slow further, so no change for our 8 percent GDP growth forecast for 2005," Rob Subbaraman, a senior economist for Asia with Lehman Brothers, said in the report.
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