world growth

world growth

Wednesday, September 10, 2008

China inflation drops as trade surplus hits record high

Latest economic figures look pretty good, though Chinese investers are still hurt from the abysmal performance of the stock market.

China inflation drops as trade surplus hits record high

BEIJING (AFP) — Inflation in China fell for a fourth straight month in August while the trade surplus hit a record high, data said Wednesday, with analysts blaming weakening domestic demand.

The figures have pushed the case for Beijing to boost growth, economists said, following months of efforts by policymakers to slow down the world's fourth largest economy and rein in inflation.

"The policy priority has already changed... More concerns are probably on growth now," said Huang Yiping, a Hong Kong-based economist with Citigroup.

"The government will probably continue to relax some of its policies in the short term," he said, citing possible measures such as tax cuts and loosening credit controls.

The data showed the year-on-year increase in the consumer price index dropped to 4.9 percent in August, the fourth consecutive month of slowing inflation, which is far below February's near 12-year high of 8.7 percent.

The news came as it was also announced that the trade surplus for last month hit an all-time high of 28.7 billion dollars -- beating its record of 27.1 billion dollars in October last year..

Growth slowed to 10.1 percent in the second quarter of this year against a backdrop of cooling global expansion. The economy expanded by 11.9 percent in the whole of 2007.

And Wednesday's data suggested the third quarter could see that trend continue.

"The overall slowdown of the Chinese economy has become a trend," said Wang Xiaoguang, an economist with the National Development and Reform Commission, China's top economic planner, according to the state-run Xinhua news agency.

"The downturn (in the consumer price index) might reverse in the future, but the possibility is slim," he was quoted as saying.

Food prices, the main driver of inflation since last year, were up 10.3 percent in August from a year earlier. In July, food inflation had been 14.4 percent.

This could partly be reflected in better food supply, but Stephen Green, a Shanghai-based economist with Standard Chartered, said in a research note that "we see a wealth of evidence" that consumption growth had indeed slowed.

The evidence included sluggish car sales, falling revenues at major electronics retailers and weakening enthusiasm for buying homes, he said.

Less vibrant domestic demand was also seen as a main factor behind the massive trade surplus.

The August surplus was caused by an abrupt slowdown in imports rather than any particular pickup in exports, observers argued.

"Import growth declined rather steeply while exports posted just normal growth," said Feng Yuming, a Shanghai-based economist with Oriental Securities.

China's exports last month increased 21.1 percent from a year earlier to 134.9 billion dollars, according to customs data. In July, exports had increased 26.9 percent.

Meanwhile, August imports were up 23.1 percent to 106.2 billion dollars, customs said, marking a steep decline from 33.7 percent growth the month before.

"Soft imports growth and the reacceleration and pickup in trade surplus growth in August could be an indication of weakening domestic demand," Goldman Sachs said in a research note.

Bucking the trend of a general slowdown, foreign companies have poured money into the Chinese economy this year, according to other data released Wednesday.

Foreign direct investment into China rose 41.6 percent in the first eight months of the year compared with the same period last year, Beijing said.

Overseas companies invested 67.7 billion dollars in the period from January to August, the commerce ministry said in a brief statement on its website.

However, the flood of foreign money was a drop in the ocean of much larger domestic spending on investment, official data suggested.

While investments in fixed assets -- a key measure of spending on productive capacity -- were up 27.4 percent in the first eight months of the year, foreign funds earmarked for such investments increased by a mere 6.0 percent.

1 comment:

China Watcher said...

Generally good information from media especially from the West. How about writing your own articles or commenting on the opinions of the Western journalists? Most of these journalists only look at China from a narrow perspective.
Thanks for pointing me to your site.