China's CPI Inflation Slows In June 2008

China's inflation rate fell to 7.1 per cent in June from 7.7 per cent in May. The rate has now been falling steadily from a 12-year high of 8.7 per cent hit in February, according to the latest data from the national statistics bureau.



This reduction comes after months of government efforts to cool inflation by paying subsidies to increase food supplies and imposing price controls on food, fuel and other basic goods, and moves at the central bank to increase the percentage of their deposits that the banks need to keep as reserves.

The government gave no June figure for food prices, but said they rose 20.4 percent in the first half over the year-earlier period. JPMorgan estimated June's food price rise at 17.5 percent, compared with 19.9 percent in May.

China's main planning agency, the National Development and Reform Commission, have said that inflation in housing prices, another key area of concern, slowed slightly in June but that costs in 70 major cities still were up 8.2 over June 2007.

China's producer price index (PPI), which measures factory-gate inflation, reached 8.8% year-on-year in June, the fastest rise since 1999. In May it rose by 8.2%. Since it usually takes six months for manufacturers to pass on their cost pressure to end consumers, this acceleration in the PPI seems likely to drive inflation higher again later in the year.






China's economy grew by 10.4 per cent in the first half of this year, officials also said today. China's economy grew by 10.1 percent in the three months ending June 30 over the same period last year, compared with 10.6 per cent in the first quarter of the year while for the whole of 2007 the economy grew at a rate of 11.9 per cent.

On the other hand export growth - which is the principle driver of the Chinese economy - dropped sharply in June to 18.2 percent which while still very rapid was well down from May's rise of 28 percent. The drop in the rate of increase seems to be due to slowing global demand, prompting suggestions regulators might slow the rise of China's currency, the yuan, or take other steps to help struggling exporters.

China's GDP Growth Slows In Q2 2008

China's economy grew at the slowest pace since 2005 in the second quarter, prompting the yuan's biggest drop in seven weeks on speculation the government will slow its advance to protect exporters. Gross domestic product rose 10.1 percent from a year earlier, down from 10.6 percent in the first quarter, as exports weakened and the government curbed lending. Consumer prices rose 7.1 percent in June, slowing from 7.7 percent in May, according to the latest data from the statistics bureau.





GDP growth cooled for the fourth straight quarter.

The trade surplus for the second quarter narrowed 12 percent from a year earlier to $58.14 billion as import costs climbed and U.S. demand faltered.


Producer prices climbed 8.8 percent in June from a year earlier, the statistics bureau said today, after rising 8.2 percent in May.

China Manufacturing PMI June 2008

China's manufacturing expanded in June at the slowest pace since August 2005 as the growth in export orders weakened for a third month, according to a purchasing managers survey. The Purchasing Managers' Index produced by the China Federation of Logistics and Purchasing fell to 52 from 53.3 in May.



The index of new export orders declined to 50.2 from 53.4. A reading above 50 reflects an expansion, below 50 a contraction.

Those for new orders and output also fell, while the input-price index climbed to a record, underscoring the threat to manufacturing from higher costs for labor and raw materials. In the first five months, 2,331 shoemakers closed in Guangdong province, the world's largest footwear production center,according to the China customs bureau yesterday. The principle causes appear to be rising wages and appreciation in the yuan that has eaten into export profits.

The global economic slowdown which has followed the U.S. housing slump added to the increase in borrowing costs as China's central bank tries to fight the rising inflation may mean that China's growth will drop below 10 percent this year for the first time since 2002. One factor here will be the resilience in exports, and there are already signs of some weakening, since overseas shipments climbed 22.9 percent in the first five months of this year, down from the 25.7 percent gain for all of 2007, and in the present climate it is hard to see this trend reversing.

China Increases Energy Prices

China increased energy prices across the board yesterday in an important policy shift that is likely to have an impact both inside and outside the country.


On the one hand the measure is bound to add to the country’s already high inflation rate. On the other, if the rate of demand increase were to slow inside China itself, then this would perhaps take some pressure off global oil prices.

Global oil prices fell immediately following the announcement in Beijing that petrol and diesel prices would go up by to 18 per cent and electricity tariffs would rose by just under 5 per cent. Oil prices – which were already under pressure from a possible Saudi announcement this weekend that they are going to increase oil production – fell more than $4 a barrel to $132.32.

Before the announcement, petrol prices in China were about 40 per cent below those in the US. In the last month, India, Taiwan, Malaysia and Indonesia have all cut their subsidies amid mounting fiscal cost and in spite of concern about high inflation, and the Chinese decision does of course follow last weekend's Group of Eight finance ministers statement said last weekend that “reducing subsidies” was an important step on the way to lessening the rate of increase in oil prices.


We will now need to watch and wait to see what impact the decision will have on China's internal inflation, and on Chinese demand for fuel products. We may well not see lower Chinese oil use in the short-term, since the decision may well be more effective in stimulating supply than it will be in curb demand.

The previous price caps had caused significant problems of shortages, and the two large state-owned refiners had been continuously complaining about their losses and the shortages which had been produced at petrol stations across the country as many small refineries stopped operations. So ironically the increase in retail prices could now boost Chinese demand, rather than reduce it, at least in the short term, simply because higher prices will probably encourage refiners to import more oil and boost sales in order to to ease current petrol and diesel shortages.

The IEA said earlier this month that the fuel shortages that have beset China since 2007 suggest that “pent-up demand remain considerable”.

China Factory Investment May 2008

China's spending on factories and real estate grew 25.6 percent through May, led by property development and boosted by reconstruction work after snowstorms in January and February. Urban fixed-asset investment rose to 4.03 trillion yuan ($585 billion) in the first five months from a year earlier, according to the latest data from the Chinese statistics bureau. This follows a gain of 25.7 percent in the four months to April. Im May the year on year increase over May 2007 was 25.7 percent.



Investment in real-estate development was up 31.9 percent in the first five months from a year earlier. Spending on non- ferrous metals jumped 41.5 percent and coal surged 47 percent. China is rebuilding roads, power lines, factories and homes after the worst snowstorms in half a century and the May 12 earthquake that killed more than 69,000 people.

New investment projects rose by 9,667 in the first five months from a year earlier to 84,368. Planned spending on those ventures was 2.72 trillion yuan, down 2.5 percent.

China Industrial Output May 2008

China's industrial-production growth accelerated on rising exports, signaling that the world's fourth-biggest economy is weathering a global slowdown. Output rose 16 percent in May from a year earlier after gaining 15.7 percent in April, the statistics bureau said today.



Overseas shipments surged last month and retail-sales growth was close to the highest in nine years, keeping factories busy even as the deadliest earthquake in 32 years disrupted output in Sichuan province. The shortening of a weeklong May holiday to a three-day break boosted production.

Sichuan's small role in China's manufacturing limited the May 12 disaster's effect on production. Quake reconstruction work is boosting output of some products like steel sheets for housing.

Raw-coal production rose 18.5 percent in May from a year earlier after gaining 13.9 percent in April. Crude-oil output climbed 1.8 percent in May after increasing 0.5 percent in April.

China's export growth accelerated to 28.1 percent in May from a year earlier. Retail sales gained 21.6 percent. For the first five months, industrial production climbed 16.3 percent from a year earlier, the statistics bureau said. China's economy expanded 10.6 percent in the first quarter from a year earlier.

China Inflation May 2008

China's inflation rate slowed to 7.7 percent in May 8.5 percent in April, the statistics bureau said. Aprils number was not far from February's twelve year high of 8.7%.




However China's money-supply growth accelerated to the fastest pace in four months in May, adding pressure on the central bank to prevent cash inflows from fueling inflation. M2, the broadest measure, rose 18.1 percent from a year earlier to 43.6 trillion yuan ($6.3 trillion), according to the People's Bank of China today, after gaining 16.9 percent in April.

The trade surplus, foreign direct investment and inflows of capital from investors betting on currency gains are flooding the world's fastest-growing major economy with cash. The People's Bank of China earlier this week ordered lenders to increase the proportion of deposits that they set aside as reserves to a record 17.5 percent (as of June 25) in an attempt to slow down monetary growth.