The Escalation of Inflation in China<\/strong><\/p>\n

The Chinese Consumer Price Index (CPI), a chief measure of inflation, rose to a 16-month high in February, up to 2.7 percent from a year ago, which was 1.5 percent in January this year; beating forecasts of 2.3 percent. Additionally, the Producer Price Index (PPI), a major gauge of inflation at the wholesale level, rose 5.4 percent in February from a year earlier, up from January\u2019s 4.3 percent. Inflation now exceeds the 2.25 percent interest rate on 12-month certificates of deposit, raising the risk for policymakers that savers might withdraw their cash from banks and plunge into the already bubbly property market.<\/p>\n

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The Chinese Central Bank, however, has commented that China is not witnessing inflationary pressure yet, and the consumer inflation will be mild and controllable this year. They ascertain the spurt in consumer inflation due to the Lunar New Year, which fell in February this year but was in January in 2009 and also due to the heavy snow this year.<\/p>\n

Nevertheless, the Chinese government has set a target limit of a 3-percent rise in consumer inflation for 2010 and has taken actions to ease inflationary pressures by ordering banks to increase their reserve ratios three times since December to curb their lending. It also aims to restrict this year’s credit growth to 7.5 trillion Yuan as inflation expectations rose after 2009’s new loans hit a record 9.59 trillion Yuan, almost double that of the previous year. Besides, the rise in consumer prices puts China’s real bank deposit rate in a negative territory, leading to speculations that the central bank will raise interest rates relatively soon.<\/p>\n

Hence, direct credit controls would be necessary for China to get into a healthy, sustainable track, as traditional monetary policy tools do not work, given the low level of interest rates and an economic growth of 9-10 percent in China. On the contrary, the decision to slam the brakes on growth by means of a sharp reduction in lending must be accomplished in an appropriate manner, otherwise; it might drag down any and every company that soared higher during the recent China boom.<\/p>\n

–R. Zacharia<\/em><\/p>\n

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Fertilizer M&A Picks Up <\/strong><\/p>\n

Recently the yearlong agriculture bidding war was brought back to the spotlight after lying dormant for some time. This week, CF Industries increased its offer to buyout Terra Industries; disrupting the current acquisition that was taking place. Having had plenty rumors and firm-to-firm aggression, this has not been the typical M&A transaction seen on Wall Street. Starting over a year ago, in February of 2009, the whole ordeal consist of four firms: Agrium \u2013 a Canadian integrated agribusiness firm, Yara \u2013 a large Norwegian agribusiness company, CF Industries \u2013 a fertilizer pure play, and Terra Industries \u2013 also a fertilizer firm.<\/p>\n

To understand the recent news, the intentions of the preceding firms must be recognized. Terra Industries is the popular target, being bid on by both CF Industries and Yara. CF wants to merge the companies so it can grow as a fertilizer firm, becoming the biggest in the industry if the buyout occurs. Yara would use them to create integration in their value chain. The fourth company involved, Agrium, wants to buyout CF Industries for the same reasons Yara wants to buy Terra \u2013 integration.<\/p>\n

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