China Investment In Fixed Assets Accelerates

China's factory and property spending growth accelerated in July, fueled by rebuilding after the Sichuan earthquake in May and snowstorms in January and February. Urban fixed-asset investment rose 27.3 percent to 7.22 trillion yuan ($1 trillion) year on year in July, according to the latest data from the Chinese statistics bureau, after gaining 26.8 percent in the first half. China is at the present time busy rebuilding roads, power lines, factories and homes after the worst snowstorms in half a century and an earthquake that killed more than 69,000 people.





Railway spending climbed 35.8 percent in the first seven months to 105 billion yuan, up from 20.4 percent for the first half. China plans to spend 3.8 trillion yuan on transportation infrastructure in its five-year plan running through 2010.

Growth in spending in real-estate development slowed to 30.9 percent from 33.5 percent. Ferrous-metals investment climbed 31.6 percent from 27.5 percent. Non-ferrous metals rose 40.5 percent after climbing 39.2 percent.

China's Industrial Output Slows in July 2008

China's industrial production grew at the slowest pace since February 2007 on weaker export orders and factory shutdowns to clear the air for the Olympic Games. Production rose 14.7 percent in July from a year earlier, the statistics bureau said today, after gaining 16 percent in June.




Weakness in economies around the world have reduced orders for export products, while higher fuel and raw-material prices deterred some companies from expanding. The slowdown, exacerbated by attempts to prevent pollution in Beijing during the Olympics, suggests an acceleration in China's July export growth is unlikely to be sustained.

The yuan fell to 6.8620 against the dollar as of 5:05 p.m. in Beijing after closing at 6.8570 yesterday.

Textile output rose 10 percent in July from a year earlier after gaining 12.4 percent in June. Steel products growth weakened to 7 percent from 11 percent. Cement output rose 6.3 percent, down from 7.9 percent. Growth in electricity output slowed for the fourth straight month, climbing 8.1 percent after an 8.3 percent gain in June.

China's economy expanded 10.1 percent in the second quarter from a year earlier, down from 11.9 percent in all of 2007. Still, rising domestic demand may help sustain industrial production to some extent. Retail sales jumped 23.3 percent in July from a year earlier.

China Retail Sales Rise At Record Pace In July

China's retail sales expanded at the fastest pace in at least nine years in July as incomes and prices climbed in the world's fastest-growing major economy. Sales rose 23.3 percent to 862.9 billion yuan ($126 billion) after gaining 23 percent in June, the statistics bureau said today.



As we can see, as inflation is falling back the real rate of increase in retail sales is accelerating. This, in part, is a result of increases in wages.

According to the most recent data from the Chinese statistical office, in the first half year of 2008, the average wage of on-duty staff and workers in urban units reached 12,964 yuan, a year-on-year increase of 18.0 percent. Of the total, the average wage of state-owned units was 13,800 yuan, up by 17.0 percent; that of collective-owned units was 7,789 yuan, rose by 18.9 percent; and that of units of other types of ownership was 12,610 yuan, an increase of 19.2 percent.

Urban disposable income increased 14.4 percent in the first half, or 6.3 percent after stripping out inflation. Also per capita consumption expenditure was 5,490 yuan, up by 13.7 percent over the same period of the previous year, a real increase of 5.7 percent after deducting price factors. China aims to increase consumption to reduce dependence on investment and overseas sales for economic growth.

The problem with this scenario at the present time is the impact on producer prices. China's producer prices climbed at the fastest pace since 1996 in July on energy and commodity costs, underscoring the significant risk of second round effects and the possibility of a rebound in consumer-price inflation. Factory-gate prices rose 10 percent in July from a year earlier, the statistics bureau said yesterday, after gaining 8.8 percent in June.



The acceleration in retail sales and the surge in fixed asset formation at a time when industrial output is weakening and exports are slowing means only one thing as far as I am concerned: a correction is coming.

Today's data comes two days after figures showing exports climbed 26.9 percent in July, accelerating from 17.2 percent in June.

China Inflation Drops To 6.3% In July

China's annual inflation rate dropped to 6.3% in July - the slowest pace in 10 months - and significantly down from February's 8.7 percent rise which was the fastest rate in 12 years.




The slowdown may encourage government policies aimed at sustaining growth in the world's fourth-biggest economy rather than fighting inflation. While policy makers have halted the yuan's appreciation and boosted tax rebates to help exporters, data yesterday showing the fastest producer-price inflation in 12 years underscores the risk that consumer prices will rebound.


China's producer prices climbed at the fastest pace since 1996 in July on energy and commodity costs, underscoring the significant risk of second round effects and the possibility of a rebound in consumer-price inflation. Factory-gate prices rose 10 percent in July from a year earlier, the statistics bureau said yesterday, after gaining 8.8 percent in June.




The yuan rose 4.2 percent in the three months through March and 2.3 percent in the second quarter before stalling in the third. The currency remains Asia's best performer against the dollar this year. Gains make exports more expensive and cut import costs. China's exporters are concerned that a weakening global economy will erode shipments. Exports are now rising at an annual 22.6 percent rate, significantly down from the 25.7 percent pace achieved for whole year 2007.

China Manufacturing Contracts In June According To The PMI

Manufacturing in China contracted - on a seasonally adjusted basis - for the first time in many years in July as export demand faltered and factories closed to clear the air before the Olympic Games. The Manufacturing Purchasing Managers' Index - prepared by the China Federation of Logistics and Purchasing - fell to a seasonally adjusted 48.4 in July from 52 in June. Any reading below 50 represents contratction, and this was the first such reading since the survey began in 2005.



The output index fell to 47.4 in July from 54.2 in June, while the index of new orders dropped to 46.2 from 52.6. The index of export orders declined to 46.7 from 50.2.

None of this is really too surprising, as it is hard to see how you can maintain 20% plus export growth as all your main customers' economies are slowing. The expansion in what is now the world's fourth-biggest economy slowed for the fourth straight quarter in the three months through June, according to initial estimates.