Will China's economy hop forward in Year of Rabbit?

The Chinese economy will be put on a diet in the Year of the Rabbit, as leaders in Beijing seek to trim inflation and curb an overheated real estate market in the months ahead.

In the days before the Chinese New Year, Premier Wen Jiabao announced that the government would put an increased focus on the "welfare of the people," taking steps to improve prosperity in the coming year.

Driving down prices and tempering the Chinese real estate market are two steps the government intends to take to help its people "live and work in peace and contentment, be free from anxiety, and live with greater happiness and dignity," Wen said in remarks reported by the state-run Xinhua News Agency.

While the Chinese government may believe that dangling these carrots to the public will win their support, experts say Beijing will have a much harder time actually bringing price increases and inflation under control.

Sameer Mathur, an assistant professor at McGill University's Desautels Faculty of Management, said the Chinese government is particularly concerned about the political impact of rising prices in the economy.

Inflation hit a two-year high in November, as part of longer trend that Mathur said has helped push prices up 10 to 15 per cent across the board in China, including for food.

China's National Bureau of Statistics recently reported that food prices "increased sharply" in 2010, with consumers paying 7.2 per cent more for their groceries in December than they did a year before. And that was twice the rate of increase in the general Consumer Price Index over the same time period.

In a telephone interview with CTV.ca, Mathur said when Chinese citizens realize their grocery bills are going to keep rising, "that's going to be when they are going to be really upset."

Loren Brandt, a professor in the department of economics at the University of Toronto, said the problem with bringing food prices under control is that they are affected by many factors inside and outside of China.

If Beijing decides to restrict food prices, Brandt said it is a decision that will inevitably "filter down all the way down to the farmer," whereby food producers would be forced to respond to such changes.

Under such a scenario, farmers could choose to sell their products outside of China for a higher yield, or they could limit production in an attempt to drive up prices in a country with 1.3 billion mouths to feed.

Whatever administrative measure might be taken to limit food prices, it will "impact domestic supply and cause more problems," Brandt said in a recent telephone interview from Toronto.

Housing prices have also become a problem in the Chinese economy, with its soaring real estate market encouraging foreign and domestic investors to put their money into bricks and mortar opportunities in China.

Mathur said that "many smart investors" took advantage of opportunities to borrow money at cheap rates to make speculative investments in the Chinese real estate market during the worldwide recession.

And that has pushed development through the roof: The National Bureau of Statistics says that the total investment in the Chinese real estate market in 2010 was 33.2 per cent higher than the year before.

In some cases, Mathur said investors "have literally built apartment buildings and have kept them empty," as they wait for the right moment to put them on the market.

In response, China has raised its interest rates and made it harder for banks to lend money to investors in attempt to cool down the market. But Brandt said that is just not enough to keep investors from putting their money into Chinese real estate.

The domestic real estate market is attractive to Chinese investors because it seems safer than putting their money into volatile stocks.

Foreign investors, on the other hand, are drawn to investing in China because it is widely believed that the Chinese currency is undervalued and will eventually have to appreciate.

Brandt says that means that their investment today could be worth more tomorrow, on top of whatever return they can generate in the hot real estate market.

Ultimately, China is "walking a tightrope," Brandt said, in which the country wants to maintain growth while keeping inflation and prices under control.

While some believe the Year of the Rabbit to be lucky in character, Yunxiang Gao, an assistant professor of history at Ryerson University, said it is not especially so.

Gao said that historically, the Year of the Dragon is considered more favourable than its rabbit counterpart, though to be born under the bunny is much better than being born in the Year of the Lamb.

If a more neutral year lies ahead for the Chinese economy, it would fit the tightrope analogy -- whereby Beijing must work hard to maintain its balance amid the dynamic pressures on the world's second-largest economy.

With files from The Associated Press