The mixed figures released latest presented that inflation was still the foremost issue to be considered, as higher factory gate inflation indicate potential future inflationary pressures. Just like an ECB governor said that control of inflation expectations was the most important measures should be taken. And the interest rate raising would be the last trump card of PBOC?
WEAKER EXPORTS HIT CHINESE GROWTH RATE
By Geoff Dyer in Beijing
Friday, July 18, 2008
China's growth rate slowed again in the second quarter of the year because of weaker export markets and restrictions on lending, although the economy is still expanding at more than 10 per cent a year despite a global slowdown.
The government said the economy grew 10.1 per cent in the second quarter, down from 10.6 per cent in the first quarter, which was the fourth quarter in a row in which the pace of growth in gross domestic product declined. The result was the lowest growth rate since the last quarter of 2005 and was also slightly below analysts' forecasts.
The government also announced mixed news on inflation. While consumer price inflation continued to decline – from 7.7 per cent in May to 7.1 per cent last month – factory gate inflation rose again from 8.2 per cent to 8.8 per cent.
The batch of new figures underlined the delicate challenge that the Chinese authorities are facing of trying to cool the economy in the face of high inflation without prompting a sharp drop in activity and employment.
Li Xiaochai, the official spokesman at the National Bureau of Statistics (NBS), said the government was trying to balance the risk of inflation with the need to create jobs. But he added: “The current slowdown in growth has been happening steadily – there are no big ups or downs.”
The authorities have tried to tackle inflation this year by accelerating the rate of currency appreciation and by placing stricter quotas on new bank lending, although they have not increased interest rates.
However, the central bank is under growing pressure from different parts of the government and industry to relax some of the tightening measures, which could increase with the latest signs of slowing growth. In particular, the Commerce Ministry called last week for slower appreciation of the currency. Stephen Green, economist at Standard Chartered in Shanghai, said: “We do not think recent comments signal an imminent change in either monetary or foreign exchange policy . . . but the tide does seem to be turning.”
Several private sector economists said that as growth was still robust, controlling inflation should remain the priority, especially given that higher factory prices indicate potential future inflationary pressures.
