CORRECTED-UPDATE 1-JP Morgan bullish on China commodity demand, warns on social tension

(Corrects name to Jing Ulrich in first paragraph)
(Adds quotes, background)

By Alejandro Barbajosa

SINGAPORE, April 5 (Reuters) – Social tension in China
remains an investment risk as strong demand for coal, grains and
copper pushes up commodity raw material prices, Jing Ulrich,
J.P. Morgan China managing director, told a conference on
Tuesday.

“Investors are always looking for the potential risks that
have not been discounted,” Ulrich said.

“One area that we need to pay attention to is social
tension. That’s why the government is targetting low-income
housing and inflation control to try to ease the social tension
that exists.”

China plans to build 36 million units of low-income housing
units, Ulrich said, citing the country’s latest five-year plan.
In addition, China plans to spend $400 billion developing its
power grid over the next five years and $150 billion annually to
build its high-speed rail network. [ID:nTOE72603Y]

“By all accounts, strong infrastructure spending will be
maintained during this five-year plan,” Ulrich said.

“China will continue to lead commodity demand growth.”

The public infrastructure spending and related higher
incomes should boost demand for imports of copper and coal for
the power sector and increase demand for grains like soybeans
and corn, Ulrich said.

China became a net corn importer in 2010, and purchases from
abroad of the grain should continue to escalate, Ulrich said.

“People are getting wealthier and they need to eat soybeans
and corn.”

Corn (Cc1: Quote, Profile, Research) stayed near record highs on Tuesday on continued
worries over tight supplies from top exporter the United States
and expected demand from China.

MONETARY POLICY

China has moved to tackle rising inflation by raising
interest rates and hiking the amount of cash banks must hold as
reserves as it attempts to cool the economy gradually.
[ID:nL3E7F10R5]

But the tighter monetary policy is not expected to dim
near-term demand for commodities, Ulrich said.

“Commodities will still be a very bright spot for the near
future, despite the uncertainty brought by the restructuring of
the economy, we must not forget that China’s fundamentals remain
very strong.” Ulrich said.

Still, higher prices in China and around the globe along
with political uncertainty, should keep gold in investor sights
as an inflation hedge.

Gold hit a record high above 1,447 an ounce in late
March.

“I don’t think this is the end of the gold rally,” Ulrich
said. “Gold is seen as an alternative to paper currencies.”

Ulrich said there is strong demand for gold from investors
in China.

(Editing by Ed Lane)

CORRECTED-UPDATE 1-JP Morgan bullish on China commodity demand, warns on social tension