Tuesday June 2, 2020


September 9, 2011

China’s production and price data for August, released today by the National Bureau of Statistics, showed moderate easing of both growth and inflation, lending support to predictions that the second-largest economy in the world will achieve a soft landing.

The slowdown in August inflation was the first in four months and the sharpest since December. Food inflation slowed for the first time since April, but prices for food remained the main cause of inflation, rising 13.4% from a year earlier. Industrial production, a monthly measure of China’s economic output, expanded 13.5% from a year earlier in August, down slightly from 14% growth in July.

Despite these optimistic developments, inflation has still consistently outstripped the government’s inflation target of 4 percent and will likely be closely monitored by Chinese policymakers in months to come.

“Inflation may have peaked but it will remain elevated for a significant period of time and this will complicate monetary policy.” said Alistair Thornton, a Beijing-based economist with IHS Global Insight. Economists at China International Capital Corp. predict one more increase in interest rates possibly by the end of this year, while other analysts forecast the end of tightening in China’s monetary policy. Over the past year, Central Bank governor Zhou Xiaochuan raised interest rates five times and boosted banks’ reserve requirements to a record 21.5 percent for the biggest lenders. Over the next six months, reserve requirements are also being gradually widened to include lenders’ margin deposits.

The consensus among analysts seems to be that China’s macroeconomic policy will not change significantly in the near future, unless there are sharp deteriorations in the U.S. and European economies from which China is not totally immune. In an article that was recently published by Chinese Premier Wen Jiabao and widely disseminated in official media, Wen said the global economic slowdown is “reasonable” and within government expectations. As a byproduct of the slow recovery and sovereign debt problems in the U.S. and Europe, Chinese exporters are expecting to face softer external demand and rising costs. Chinese factory activity data released in August, in fact, indicates that manufacturers experienced a sharp drop in export orders. However, Asia’s fastest-growing economy is still likely to expand at five times the pace of the U.S. and euro area this year, according to Citigroup, which estimates full-year growth of 9 percent for China.

Some believe that this slowing growth may actually help dissipate inflation pressures across Asia and allow China to relax its monetary policy. Others underscore the need to stay vigilant faced with the risks present of a sluggish global economy.

“Government debt risks have become a major challenge affecting the global economic recovery,” said Ma Delun, a vice-governor at China’s central bank. “Some emerging economies are feeling the consequences of policy contraction, and their rates (of growth) are slowing, and downstream risks to the global economy are increasing.”

Nonetheless, China’s past policies have produced consistent GDP growth of around 10 percent a year since the late 1990s, inflation consistently at or below 5 percent, and export growth of more than 20 percent a year. Given this track record, China’s economic planners are likely to believe in the soundness of their current course, which is validated by the current inflation data, unless there is a crisis that calls for major adjustment in their policies.


For further information on trends in China’s economy, please see the following news sources and commentary:

Wall Street Journal – China Inflation Moderated in August

Wall Street Journal – China’s Premier Sees Inflation as Top Priority — Or Does He?

Bloomberg – China Inflation Eases From Three-year High, Giving Room for Pause on Rates

Bloomberg – Asian Manufacturing Slowdown May Aid Region’s Campaign to Stem Inflation

CNBC (Video)China’s Tightening Coming to an End

Chinese commentary on trends in China’s economy, please see the following news sources:

State Council Information Office 温家宝发表文章论述当前宏观经济形势和经济工作

Compiled and edited by Katie Xiao.