China increased interest rates last month may be "the first of several"

China increased interest rates last month may be "the first of several" amid growing concern about the growth of loans, said Anthony Bolton, who manages the Fidelity Special Situations Fund Solutions China Plc.

The expansion of credit "is still too high, especially if it is all out of balance and unofficial channels of credit into account," Bolton wrote in a statement on the preliminary results of its 601 million pounds (964 million dollars) of funds listed in London. It has risen 20 percent since the launch in April.

The Shanghai Composite Index fell 4 percent today to its lowest level in a month of speculation that the government will step up measures to curb accelerating inflation as higher interest rates and price controls. The index has fallen more than 8 percent since Nov. 11 on expectations of policy makers will raise rates for the second time in two months.

China raised its benchmark interest rates and deposit for the first time since 2007, on 19 October before a government report showed inflation rose in September at its fastest pace in almost two years. Consumer prices accelerated last month more than 4.4 percent, over the government's annual target of 3 percent.

Central bank governor Zhou Xiaochuan, said China is under "pressure" of capital flows as the China Securities Journal reported that the limits are possible food prices.

Quantitative easing

U.S. Federal Reserve has fueled concern in emerging economies with its plans to buy 600 billion U.S. dollars of long-term debt to reduce borrowing costs and stimulate growth in the second round of so-called quantitative easing. China "is not compatible with" quantitative easing that makes "imported" inflation in developing countries, the Minister of Commerce Chen Deming said on 13 November.

"I've never seen the current situation that created the money in a country is slipping away at a rapid pace in assets in other parts of the world," wrote Bolton. "This is a phenomenon which I believe is only in its early stages and could be the story of the large investment the next year or so."

China's economic growth may slow to 7 percent to 8 percent but still look "very interesting" in an economic environment in which much of the world is growing at 2 percent, Bolton wrote. The Chinese economy grew by 9.6 percent in the third quarter, the smallest increase in a year.

Bolton announced the management of Fidelity funds in the UK Special Situations focused for 28 years, earn an annual return of 19.5 percent, according to Morningstar Inc.