Economy

August data suggests Chinese economy's continued momentum

(Xinhua)
Updated: 2010-09-13 10:38

Inflation not a concern

Although China's inflation rate quickened to a 22-month high, economists said it is not cause for worry as the bulk of the price increases came from higher food costs that were caused by adverse weather conditions, which will not last.

China's consumer price index (CPI), a major gauge of inflation, rose 3.5 percent from a year earlier in August, the second consecutive month the CPI has exceeded the government's full-year target of 3 percent.

Food prices, which have about a one-third weighting in the calculation of the CPI, climbed 7.5 percent year on year in August, according to NBS statistics. The pace of growth quickened from the 6.8-percent rise in July and 5.7-percent growth in June.

China's CPI grew 0.6 percent in August from July. For the first eight months, it increased 2.8 percent year-on-year.

Analysts expect the CPI to ease in the fourth quarter.

Zhu Jianfang, chief analyst at Citic Securities, said the pace of food price increases is likely to ease from September and that the chances of an interest rate hike are slim.

"With proper regulation for the rest of the year, it is still feasible to realize the government's full-year inflation control target," Sheng said.

Uncertaintities ahead

The August economic indicators reflected a moderation in China's growth slowdown but the possibility for further growth deceleration cannot be ruled out, said Lu Zhengwei, chief analyst at the Industrial Bank.

One major concern is whether China could find a way to balance efforts to complete the 4-trillion-yuan economic stimulus package with the meeting of targets to cut energy use and emissions, Lu said.

To stave off adverse effects of the global financial crisis, China announced in late 2008 a stimulus package of 4 trillion yuan to be implemented by the end of 2010.

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The package led to a lending and investment boom in China last year. But no information is available on the latest developments of the stimulus package.

This year is the last year in China's 11th Five-year Plan (2006-2010), under which the country planned to cut its energy consumption per unit of GDP 20 percent by year end.

The past four years saw the figure decline 14.8 percent. However, the energy consumption per GDP unit rose slightly, 0.09 percent, in the first half of 2010, suggesting it would be difficult to reach the target level by the end of the year.

As the deadline approaches, many provinces, including Zhejiang, Jiangsu, Hebei and Shanxi, have set limits on electricity consumption for high energy-consuming and high-polluting industries. Analysts believe this may affect growth in industrial production.

China's policies to cool the real estate market and the uncertain outlook for exports in the second half will contribute to a slowdown in economic growth, Xin Guobin, an official with the Ministry of Industry and Information Technology, said earlier this month.

"Speculation about a stronger yuan and the spread of the sovereign debt crisis in the European Union lead to uncertainties for the country's second-half exports," he said.

Economists forecast China's economic growth to slow to around 9 percent in the third quarter the year and then 8 percent in the fourth quarter.