Peng Wensheng

PD: There's been considerable pressure from price increases recently. People seem to be expecting inflation. What do you think of these problems?

Ba: After the release of the No.40 Document from the State Council that aims at stabilizing the overall consumption prices, there were some initial results in controlling inflation. But as some fundamental reasons of price increase have not been eliminated, there will still be many factors driving prices up, including increased input pressure from the international markets, relatively strong expectations of market price increases, and the influence of festivals.

Peng: In the short term, inflationary pressures will continue to rise. At present, food prices are still increasing. A new peak of inflation was expected in January.

It is helpful to use carryover effects last year to predict short-term trends of overall inflation. However, the factor is not a reliable tool to forecast inflation trends in the future 12 months. Monthly changes and trends should also be taken into consideration to forecast yearly inflation trends.

Ba: We also have to notice a new change in external price factors. In December 2010, the purchasing price index dropped significantly while the inflationary pressure showed signs of easing. The purchasing price index in December reached 66.7 percent, a drop of 6.8 percentage points, which was the first drop after a four-month continuous increase.

Based on current trends, inflation in 2011 is still controllable. Current inflation focuses on food and housing and has not yet fully spread. As long as there are no large-scale natural disasters from the end of 2010 to the first half of 2011, which may result in a sharp rise of agricultural prices, the inflationary pressure of 2011 will be lower than 2007 and 2008, but higher than 2004.

PD: For a few months since last April, with the guidance of national macro-control policies and measures, the rising pace of real estate market was suppressed. But after the National Day, prices grew rapidly again. What will happen this year?

Ba: Last year, China's real estate industry had good development momentum. National investment in real estate development was 4.83 trillion yuan ($732 billion), up 33.2 percent. and 760 million square meters of residential housing was built.

We have to recognize that real estate is one of the pillars of the national economy, which has made great contributions to economic development. But real estate development should be orderly and reasonable and match the rest of the economy.

Under the guidance of a series of macro-control measures, real estate price will further reflect real market demand this year.

At present, Chongqing and Shanghai have launched property tax reforms, which will curb demand to a certain extent. Meanwhile differentiated loan policies can better reveal real housing needs.