China's inflation jumps to 3-year high

[nrj]

BEIJING — China's surging inflation accelerated to a three-year high in June even as the overheated economy began to cool.

Consumer prices rose 6.4 percent over a year ago, a sharp jump from May's 5.5 percent rate, data showed Saturday. It was driven by a 14.4 percent rise in politically volatile food costs, up from 11.7 percent in May.

"This far exceeds expectations," said IHS Global Insight analyst Alistair Thornton.

Communist leaders declared taming prices their priority this year and have been frustrated as inflation rose steadily, even as manufacturing and other activity eased in the face of repeated interest rate hikes and other controls.

Inflation is politically dangerous for the ruling communists because it erodes economic gains that underpin their claim to power and can fuel unrest.

The Cabinet's planning agency had forecast that June inflation would likely exceed May's increase due to summer flooding that damaged crops and pushed up prices of pork and vegetables.

The price of pork, the country's staple meat, jumped 57.1 percent in June, the National Bureau of Statistics reported. That is especially sensitive in a society where poor families spend up to half their incomes on food.

The June figures were released earlier in the month than usual in what the bureau said is a new policy to prevent leaks by announcing data as soon as they are compiled.

A state newspaper said last month that several officials of the bureau and China's central bank were fired on suspicion of leaking data to stock brokerages, which might have profited from being able to anticipate changes in financial markets.

Analysts blame the inflation spike on the dual pressures of consumer demand that is outstripping food supplies and a bank lending boom they say Beijing allowed to run too long after it helped China ward off the 2008 global crisis.

Li Peilan, a 70-year-old Beijing housewife, said food costs consume nearly half her family's 6,000 yuan ($920) monthly income.

"Considering other costs such as buying other daily items and the education of my grandson, we are almost spending all of our income now," Li said as she shopped at a market in the Chinese capital.

Rapid growth in factory output and other activity have eased in recent months as the government tries to steer world's second-largest economy to a more manageable growth pace after last year's double-digit expansion.

Beijing has raised interest rates five times since October — most recently on Wednesday — but analysts say another rise or tighter limits on bank lending might be imposed if inflation stays high.

The rate hikes also increase the payout on bank deposits, which helps to put money in consumers' pockets. Still, the 3.5 percent deposit rate after the latest increase is well below inflation, meaning Chinese households lose money by keeping it in the bank.

China's economy expanded by a sizzling 9.6 percent in the first quarter of the year and even though growth is easing, it is expected to be close to 9 percent in the second quarter. The World Bank raised its forecast of China's economic growth in April from 8.5 percent to 9.3 percent and said Beijing should tighten monetary policy further.

Premier Wen Jiabao, the country's top economic official, expressed confidence last month that inflation was under control. But he later acknowledged it would overshoot the official 4 percent target for the year.

June's rise in the consumer price index was the fastest since 7.1 percent rate in June 2008.

"I don't think this means the wheels are falling off. But it means they underestimated what pumping all that money into the system over the past three years can do," Thornton said.

China's central bank governor said Friday that the bank's inflation fight is complicated by the fact that its official mission requires it to support growth and employment.

"It's difficult for China's central bank to only set one objective of controlling inflation," governor Zhou Xiaochuan said in a speech at Tsinghua University, the newspaper Beijing News reported.

Zhou said China "can tolerate a certain degree of inflation" in the course of rapid changes in its economic growth patterns, the newspaper said.

Analysts expect inflation to stay high through at least July but said it should decline in the second half of the year as the economy cools.

Manufacturing activity in June slipped to a 28-month low due to curbs on credit and weaker overseas demand, according to the China Federation of Logistics and Purchasing, an industry group. It said the downward trend was likely to continue.

"Growth will continue to slow," HSBC economist Qu Hongbin said this week. "This is a necessary evil for China to fight inflation."

AP

 

[nrj]

China Inflation Quickens to Fastest in Three Years on Food Costs - Businessweek

July 9 (Bloomberg) -- China's inflation rose to a three- year high of 6.4 percent in June, a level that some analysts said may be a peak as price gains moderate in the second half.

The increase exceeded the 6.2 percent median estimate in a Bloomberg News survey of 19 economists. Producer prices were unchanged from the previous month, a report on the statistics bureau website showed today.

Premier Wen Jiabao aims to tame inflation without choking off an expansion that is already slowing as export orders weaken and monetary tightening takes effect. An unexpected increase in U.S. unemployment and a threatened default by Greece have underscored the world's reliance on China, the fastest-growing major economy.

"The need to control domestic inflation has complicated the Chinese government's attempts to engineer a soft landing for the economy," said Jing Ulrich, Hong Kong-based chairman of global markets for China at JPMorgan Chase & Co. June "will likely mark the peak in the latest inflation upturn."

Producer prices gained a more-than-forecast 7.1 percent from a year earlier, the statistics bureau report showed.

Today's data came three days after the central bank announced the nation's fifth interest-rate increase since mid- October. The Shanghai Composite Index has fallen 0.4 percent this year on concern that efforts to cool inflation will damp profits and growth in the world's second-biggest economy.

Pork Costs Soar

Inflation was mainly driven by a 14 percent gain in food costs, the biggest increase in three years, and also pushed up by an unfavorable base for comparison a year earlier, an effect that will diminish in the second half. Pork, a Chinese staple, rose 57 percent. Non-food prices climbed 3 percent, the biggest gain since at least 2005.

The government may keep interest rates on hold for the rest of the year, while boosting bank reserve requirements already at record levels and selling bills to drain cash from the financial system, Ulrich said.

Consumer prices rose 0.3 percent from May, the most in four months, after central bank Governor Zhou Xiaochuan said yesterday that policy makers are more focused on month-on-month numbers than yearly figures.

Shanghai taxi fares jumped today, adding to price increases by companies from McDonald's Corp. to Starbucks Corp. While Wen said last month that inflation is "controllable," he also acknowledged that the government's 4 percent target for the full year may be out of reach.

Outlook for Rates

Bank of America Merrill Lynch said today that the chance of the central bank adding to this week's quarter-point rate increase this year is "very small" with inflation likely to have peaked. Societe Generale SA sees benchmark borrowing costs staying on hold as reserve requirements rise.

UBS AG said that the central bank may raise rates if inflation is as high next month, while Australia & New Zealand Banking Group Ltd. predicted an increase this quarter as the pace of inflation continues to outstrip returns on bank deposits.

Signs that the economy is cooling include a slide in a manufacturing gauge to a 28-month low in June. Investors are focused on China's growth after U.S. job growth plummeted since April and as officials in Europe try to avert a debt default by Greece.

China's Expansion

China's expansion may have slowed to 9.5 percent in the second quarter from a year earlier after a 9.7 percent increase in the first three months of this year, according to the median estimate in a Bloomberg News survey. That data is due July 13.

Goldman Sachs estimates gross domestic product rose 8 percent from the previous quarter on a seasonally adjusted and annualized basis, compared with its 9 percent estimate for the previous three months.

Inflation and corruption can have an "impact on the stability of a political power and the peacefulness of a society," Wen said in London last month. He pledged in March to rein in "exorbitant" house price increases in some cities that have fueled public discontent.

Global food costs are also part of the challenge, with prices rising 39 percent in June from a year earlier, according to the Food and Agriculture Organization of the United Nations.

"I don't think policies should loosen," Cui Li, a Hong Kong-based economist at Royal Bank of Scotland Plc. who previously worked at the International Monetary Fund, said before today's data. "We may have to wait until August for inflation to peak."

China's key one-year lending rate is 6.56 percent and the one-year deposit rate is 3.5 percent. Cui said the central bank may raise rates twice more this year.

--Sophie Leung, with assistance from Ailing Tan in Singapore. Editors: Paul Panckhurst, Ken McCallum.


To contact the reporter on this story: Sophie Leung in Hong Kong at [email protected]

 

[Yusuf]

Rising food prices is a worldwide phenomenon and no one is able to control it.

The other day I read a report about a survey in the western world including US and UK in which the respondents said they had actually changes their eating habits as well as slowed down in eating out because of the rising food prices. People were actually saying they now eat stuff which costs relatively cheaper than eating want they want.

 

[nrj]

Population has exploded in such a proportion that managing its demand & the relative cost of production is going crazy. Distribution is major challenge as well. China can control its inflation if willing to divert its internal security expenditure (which is greater than its army budget) to ease daily commodity prices.

 

[p2prada]

Such a high food inflation in China would mean the biggest factor contributing to this is the drought situation due to the Three Gorges Dam.

 

[Armand2REP]

Such a high food inflation in China would mean the biggest factor contributing to this is the drought situation due to the Three Gorges Dam.

That only affected 2% of all agriculture and the effects were mostly local. It is the smallest contributing factor when it is money supply expansion, rising wages, hot money and lack of capital outflow that is driving up the CPI.

 

[no smoking]

Such a high food inflation in China would mean the biggest factor contributing to this is the drought situation due to the Three Gorges Dam.

Well, so far there is no solid evidence that these droughts are brought by three georges dam. All we got today are just some scientists' opinion.

And another thing you are missing is that there were always 30% of china cultivated land were impacted by various kinds of disasters, flood, or drought, snow, etc.

 

[cw2005]

That only affected 2% of all agriculture and the effects were mostly local. It is the smallest contributing factor when it is money supply expansion, rising wages, hot money and lack of capital outflow that is driving up the CPI.

Armand, this is the first time I agree and support your argument. It is "lack of capital outflow" causing the high jump of property price and those ghost town.

 

[amoy]

It is "lack of capital outflow" causing the high jump of property price and those ghost town.

Contrary to this quite a lot of outflow going on either by corporate acquisition overseas or private consumption. Chinese driving up property prices in Canada (Vancouver, Toronto mostly) is well known

 

[Armand2REP]

Contrary to this quite a lot of outflow going on either by corporate acquisition overseas or private consumption. Chinese driving up property prices in Canada (Vancouver, Toronto mostly) is well known

The Chinese living in Vancouver, California, Taiwan and Hong Kong are sending money into China that dwarfs anything that leaves it by a handful of millionaires with connections to get money out. Hot-money inflows has been on the top of CCP agenda for years. Chinese SWF is dwarfed by the hundreds of billions of private equity funds going into China, for example George Soros' fund has more into China than the SWF has out of it in a particular year. There have been $50 billion worth of shorting funds created in the last 3 months. Private consumption in China of foreign goods doesn't come close to counter the flood of cash coming in from exports. Simple fact is, you want to cut inflation, balance your inflows to outflows and quit printing excess money.

 

[mattster]

I'm an engineer, so i dont understand a lot of this economics stuff.......but it would seem to me that any country anywhere that is having a breakneck 10% to 11% growth rate is going to have serious inflation problem. If you have 11% growth - doesnt that mean that there is a ton of liquidity in the system which in turns creates all kinds of NPLs, and speculation in property etc.

The whole US sub-prime mess is a result of too much liquidity in the system - when there is so much money floating in the system, people are going to make more money by taking huge risks in trying to put that money to work.

So how do you tame inflation with 10 to 11% growth ? Reducing to 9.5% isnt going to do jack. I dont see how China has stop inflation unless it seriously cuts down the growth rate to something like 7% to 8%.

Am I wrong ?

 

[Armand2REP]

I'm an engineer, so i dont understand a lot of this economics stuff.......but it would seem to me that any country anywhere that is having a breakneck 10% to 11% growth rate is going to have serious inflation problem. If you have 11% growth - doesnt that mean that there is a ton of liquidity in the system which in turns creates all kinds of NPLs, and speculation in property etc.

Excess liquidity and NPLs aren't a symptom of growth, it is a symptom of wreckless bank lending. Growth is a short term symptom of that lending which will have its day of reckoning when it can no longer be hidden by restructuring. M2 money supply has been increased by a factor of 3 over the growth it creates which = unsustainable.

The whole US sub-prime mess is a result of too much liquidity in the system - when there is so much money floating in the system, people are going to make more money by taking huge risks in trying to put that money to work.

Take US sub-prime crisis by a factor of 10X and you get China's problem.

So how do you tame inflation with 10 to 11% growth ? Reducing to 9.5% isnt going to do jack. I dont see how China has stop inflation unless it seriously cuts down the growth rate to something like 7% to 8%.

The growth is caused by excess lending, it is not the cause. The cause is excess bank lending which needs to be scaled back to its pre-crisis levels. Problem with that is the economy will tank because 70% of GDP is tied to fixed asset investment.

 

[no smoking]

China can control its inflation if willing to divert its internal security expenditure (which is greater than its army budget) to ease daily commodity prices.

Another typical example of myth from overseas pro-democratic activities.
Do you have any idea what the meaning of your so called "internal security" in china's budget?
It includes the following budgets:

police department
public traffic management department
fire fighting department
Anti-smuggling department
society wellfare department

So, tell me which one you think can be cut off.

 

[Armand2REP]

^^ Don't forget the payroll for 40,000+ internet police.

 

[Virendra]

self delete

 

[Rick]

^^ Don't forget the payroll for 40,000+ internet police.

I'm Ok with them, if they are dealing with cyber crime more than blocking me from facebook and twitter.So geneally speaking internet cops are necessary, but some of their jobs are not so.

China can control its inflation if willing to divert its internal security expenditure (which is greater than its army budget) to ease daily commodity prices.

Irrelative.According to your theory US can greatly speed its health care reform by using it's military expenditure.But the fact is you can't cut your own flesh to feed youself, that's not the cure.

 

[Rick]

Population has exploded in such a proportion that managing its demand & the relative cost of production is going crazy. Distribution is major challenge as well. China can control its inflation if willing to divert its internal security expenditure (which is greater than its army budget) to ease daily commodity prices.

Sorry to hear the news about what happened in Mumbai.But it also proved again that how important internal security expenditure is.To prevent this kind of terror attack more money in internal security expenditure is defenitely worthy.Americans they do the same after 911.

 

[Ray]

That only affected 2% of all agriculture and the effects were mostly local. It is the smallest contributing factor when it is money supply expansion, rising wages, hot money and lack of capital outflow that is driving up the CPI.

Since the beginning of this year, the middle and lower reaches of the Yangtze River have been plagued by the region's worst drought in 50 years. Water has consistently been drawn from the Three Gorges Dam to combat the drought, but many are pointing fingers at the Three Gorges Project, saying it created the problem in the first place.

As accusations fly that the dam has permanently altered the climate of the Yangtze River region, scientists like Wang Guangqian, a fellow at the Chinese Academy of Sciences and head of Tsinghua University's Water and Sediment Sciences and Hydraulic and Hydro-Power Engineering Laboratory, still defend the Three Gorges Project, stating that the drought was caused by a lack of rain and has absolutely nothing to do with the dam. According to Wang and many others, the dam's advantages still far outweigh its disadvantages.

Pros: Three Gorges Project as a Beacon of Progress

The Three Gorges Dam is impressive; it towers 185 meters above its surroundings and is 2 km long. Before its construction, water levels hovered around 60 m high. Now they stand at an average of 175 m. In total, the dam holds over 39 billion cubic meters of water.

To understand the Three Gorges Dam, we have to know exactly what it is and what changes its construction has brought to the Chinese people. For Wang Guangqian, the dam has meant flood prevention, improved shipping routes, hydroelectric power and convenient water resources for more people.

Floods have a long history of ravaging the region. In 1998, thousands died in Yangtze River floods, a catastrophe that some scientists say could have been avoided if only the Three Gorges Dam had been in place. Experts like Wang Guangqian claim the dam can easily prevent floods in the region for at least the next 100 years. Last year, 70,000 tons of floodwaters (more than in the 1998 disaster) were diverted into the dam, saving the region from another tragedy.

Shipping has also become much more convenient since the dam's completion, drastically cutting the time and expenses needed for transporting goods since people no longer need to pull boats through rough patches of the river. Electricity generation means a secure future for economic development here, and for many people water resources are more secure than they were in the past.

Cons: The Dam Has Wreaked Havoc on the Local Ecosystem and People

To talk about the darker side of the Three Gorges Dam, we first have to discuss the 1.3 million people forced to leave their homes for the project.

Forced out of their ancestral homes by the Yangtze River, some of the Three Gorges refugees moved to other towns and cities. Many others were not willing to move away, but the tiny space that remained after lands were partitioned for the dam was too crowded. Most fled to the steep neighboring mountains where geological disasters like landslides make life much less stable. Hopes that the dam would pull the Yangtze River basin's people out of poverty were soon crushed.

Another serious problem with the dam is its environmental impact. Ecological issues were not even considered during the dam's planning 20 years ago when environmentalism was just beginning to gain ground. Local fish species, whose breeding is affected by the irregular water pressure brought by the dam, have been direct victims of the construction.

Furthermore, the massive amounts of water in the dam have led to an increase in erosion and have caused concerns about an increase in natural disasters. Scientists like Wang Guangqian admit that the dam's presence leads to low magnitude earthquakes. A marked increase in earthquakes has already occurred since the dam's completion, the most serious one with a magnitude of 6.4. Resulting landslides and collapsing buildings are deadly dangers for local residents, especially those still living in make-shift homes after being evacuated for the dam.

Drought? Don't blame the dam

Chinese scientists deny any relationship between the current drought and the dam. According to Wang Guangqian, China's agricultural sector has had an amazingly smooth ride for the past ten years during which it has experienced uninterrupted annual rises in crop yields. Drought affects a large portion of the country each year, but that is historically a natural and predictable part of the Chinese climate. The Ministry of Environmental Protection of the People's Republic of China recently published a response to public concerns about the dam as a possible cause of the dry climate. In their response, prolonged lack of precipitation was listed as the main cause of the drought.

Some experts point to climate change, stating that a simple lack of rain or the presence of the dam can't explain the whole problem. Wang Donghai from the Chinese Academy of Meteorological Sciences compared the Yangtze River region's increase in earthquakes to the recent increase in tornadoes seen in the United States. "Can we blame gas-guzzling American motorists for the thousand tornadoes there? Sure, it might be a factor, but I think it's still a very, very small part of the problem."

Wang Donghai also emphasized that despite everyone's panic over the drought, flooding will almost certainly continue to be a very real problem in the future. His words rang all too true as rains that began on June 3 brought some relief from the drought but also resulted in fresh flooding in the Yangtze River region.

China's watery future

One thing is sure, this year the Three Gorges Dam failed to deliver on its promise to combat drought. Expert Zhang Boting says an important problem lies in the project's management structure. The Ministry of Water Resources manages water conservancy while all other dams and reservoirs are classified as part of the electrical power system. Since the power system has no authority to direct water resources, there is mismanagement of non-power-related issues at places like the Three Gorges Dam. Without anyone responsible for distributing the dam's water to thirsty locals, an uncoordinated drought response was inevitable.

Many insist China needs to build more dams and reservoirs to solve the country's ever more urgent problems of water scarcity. In addition, many are calling on the government to put water resource management before hydroelectric power concerns as the main priority of the dam. In the future, the dam could provide water on a larger scale to desperate drought sufferers along the river, alleviating regional calamities like those experienced this year.

Ecological Nightmare: Is the Three Gorges behind China's Recent Droughts? - Hangzhou news,Hangzhou relocation,Hangzhou expat news

An assessment of the Three Gorges from China.

 

[Ray]

 

[Ray]