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Chinese inflation rises above 3% official target; Other indicators suggest slight slowing in China's economy
By Finfacts Team
Jun 11, 2010 - 5:03:58 AM
A woman walks by a sale advertising poster in Beijing, May 11, 2010. Photo: Xinhua
Chinese inflation has risen above the 3 per cent official target at a time of rising pay demands. However, other indicators published on Friday suggest that growth in China's economy is slowing.
Consumer price inflation rose to 3.1 per cent in May from 2.8 per cent the month before and factory gate inflation was at 7.1 per cent, up from 6.8 per cent.
In recent weeks, the Taiwanese electronics contract manufacturer, Foxconn, agreed to a 30 per cent hike in wages after a spate of migrant worker suicides and industrial unrest has spread across the country with strikes at factories of Japanese carmaker Honda in Guangdong Province in China's industrial heartland getting particular attention. However, Nicholas Lardy of the Peterson Institute for International Economics in Washington DC, says Chinese wages have actually been increasing 15 per cent per year for a decade and he does not expect a big impact from the current pressure for increased pay.
Lardy says in electronics, wages only account for about 5 per cent of the manufacturing cost. “It could be that the current period will be an important turning point, but I am skeptical at this point for several reasons,” he told the New York Times adding that, among other things, productivity gains had partly offset wage gains in China over the last few years, and that for many electronics products, labour was just a small piece of the pie.
China, which since 1990 has pushed up its share of global manufacturing as measured by value-added output (the most commonly used way of measuring economic activity) from 2 per cent to an estimated 18 per cent last year, now roughly matches the US as the world’s biggest manufacturer.
The Financial Times says China is the main reason the proportion of global manufacturing done in the industrialised regions of North America, western Europe and Japan fell from 85 per cent in 1990 to about 73 per cent last year.
Although China logged outstanding export numbers, there was a slight pull back in domestic demand. Jim Walker, founder and CEO of Asianomics, speaks to CNBC's Oriel Morrison and Bernard Lo about the growth mix in the mainland's economy:
National Bureau of Statistics (NBS) spokesman Sheng Laiyun said today that the higher consumer inflation was because of a low comparison basis from the same period last year and was pushed up by food prices hikes. He said China had the basics for keeping prices under control this year.
"Although China faces quite a lot of pressure, the 3-per cent target is still possible with effort," he said.
Lu Ting, China economist of Bank of America-Merrill Lynch, said in an note that China's rising inflation could be interpreted negatively by markets, and would be a risk for a few more months.
"We don't expect a knee-jerk reaction from policymakers: interest rates won't be hiked until the fourth quarter this year," he said.
China today reported that industrial production fell to a year-on-year increase of 16.5 per cent in May, against a 17.8 per cent increase the month before. However, the growth rate was 7.6 percentage points higher than in May last year
China's 39 major industries all posted year-on-year growth in May, with textiles up 11.3 per cent, chemical materials and products expanding 17 per cent, communications equipment manufacturing rising 20 per cent, and transportation equipment manufacturing increasing 22.3 per cent, according to the statistics bureau.
The increase in urban fixed asset investment fell for the third straight month to 25.9 per cent year-to-date, down from 26.1 per cent the month before.
Andy Xie, an independent economist, says the labour strikes in China are a result of Beijing's policy of low wages and high property prices. He tells CNBC's Bernard Lo and Karen Tso that if the government represses the strikes, there will be an even larger social explosion:
China's retail sales, the main gauge of consumer spending in the world's fastest-growing economy, rose 18.7 per cent year on year to 1.25trn yuan (US$183bn) in May, the NBS also announced Friday.
The growth rate was 3.5 percentage points higher than the same period last year and 0.2 percentage points higher than April's, said NBS spokesman Sheng Laiyun.
The People's Bank of China, the central bank, injected 166bn yuan ($24.3bn) into the money market this week, easing tight money supply conditions with bill issuance and repurchase agreements.
The growth in the M2 measure of money supply fell to 21 per cent year-on-year from 21.5 per cent.
