| trade surplus unexpectedly rose last month as | | | | Chinese consumers have been relatively |
| producer prices jumped at their fastest rate in 12 | | | | protected: it’s the corporate sector that |
| years. | | | | has borne the brunt, despite subsidies. |
| The trade figures were good news: a 4% rise on | | | | Domestic oil companies’ margins have |
| July last year and a $US4 billion jump on June's | | | | been hit, as have margins of metal processors. |
| low figures. | | | | That's partly why aluminium, zinc, lead and copper |
| But the bad news was the producer price | | | | producers have combined to cut production. |
| increase of 10% (annual rate) in the year to July, | | | | The other major factor is to leave enough spare |
| the worst outcome since 1996. But even with | | | | electricity generating capacity for the country to |
| these figures there's now the prospect of a rapid | | | | allow the Games to go on without an interruption. |
| slowing in growth as world commodity prices | | | | That's because China has a precariously supply |
| drop.. | | | | demand balance for electricity and needs to step |
| We will get the consumer price figures for July | | | | up construction of new coal and nuclear stations, |
| today: prices rose at an annual rate of 7.1% in | | | | import more gas (and build more pipelines) and |
| June. | | | | import more energy. |
| The Chinese stock market had its worst week in | | | | Chinese and other economists say the rise in the |
| six weeks in the wake of the sharp rise in the | | | | PPI doesn't necessarily mean a rise in consumer |
| PPI, which was up from an annual rate of 8.8% in | | | | prices because of domestic competition, and the |
| June. | | | | widespread controls on food and other prices of |
| The CSI 300 Index fell 5.2% to an 18-month low: | | | | essential goods until after the Olympic Games. |
| its now off 54% this year after more than | | | | Consumer prices rose at an annual rate of 7.1% in |
| doubling in 2007. | | | | June compared to a year earlier: that was down |
| The trade surplus and the 26.9% in exports to | | | | from the storm induced jump to an 8.7% annual |
| $US136.7 billion topped all estimates and was | | | | rate in February. |
| surprisingly ahead of the 17.6% rise in June. | | | | The impact of the higher costs for electricity and |
| Imports jumped 33% in July from June's 31% | | | | petrol and diesel will show up in consumer prices, |
| rise, indicating the surge in commodity prices is a | | | | but even that will hit corporates because many |
| major factor in Chinese trade and inflation figures. | | | | producers won't be able to increase selling prices |
| But with commodity prices tumbling (and oil, | | | | (especially food producers). |
| copper and many other commodities down again | | | | The rise though will worry exporters who are |
| overnight) there's now a strong prospect that the | | | | facing slowing demand in foreign markets for |
| PPI and then consumer prices could very well | | | | products. Export growth is down, partly because |
| drop in months to come. | | | | of the sluggish state of the Japanese, US and |
| But there are fears that the rise in domestic | | | | European economies, but also because of the |
| costs and the price controls preventing full | | | | rising Yuan. |
| recovery of those added costs at a retail level | | | | To combat this weaker export performance and |
| for many businesses, are cutting profits. Hence | | | | to reassure businesses that the government is |
| the continuing slump in Chinese shares prices. | | | | pro-growth, the central authorities have loosened |
| Subsidies take their toll on oil refiners, who pay | | | | bank-lending quotas, raised tax rebates for some |
| market rates for crude oil and sell petrol at | | | | exports (textiles, for instance) and now frown on |
| state-mandated prices. | | | | any more appreciation of the Yuan, which has |
| Power companies’ tiny increase in tariffs | | | | gone back to being an administered currency. |
| last month (5%) does not begin to offset the rise | | | | China's economy grew 10.1% in the second |
| in coal prices. So China's tight power situation his | | | | quarter from a year earlier, down from 10.6% in |
| made worse by small power companies stopping | | | | the March three months, and around 12% a year |
| producing electricity. | | | | ago. But 10% is still very strong growth and |
| China still has a slew of price controls in place and | | | | some of the fall can be traced to the impact of |
| even though there have been some rises allowed | | | | the snowstorm in January and early February, the |
| in recent months in the cost of electricity (up 5% | | | | bad floods in the south of the country and of |
| in early July) and diesel and products rose (by | | | | course the Sichuan earthquake. |
| around 17% from the start of July in both cases), | | | | Some Beijing analysts say the Chinese |
| its not enough to restore margins. | | | | government will make rebuilding Sichuan a big |
| It seems a combination of these rises and the | | | | national campaign after the Games are finished, a |
| surging market costs of energy and metal | | | | move which will stimulate demand for a wide |
| imports were the drivers behind the jump in | | | | range of products, such as metals, concrete, |
| official producer price inflation to that 12 year high | | | | bricks, wood, and energy. |
| last month. | | | | In the first seven months of 2008, producer |
| The rises in the electricity, petrol and diesel fuel | | | | prices rose 8% from the same period of 2007. |
| costs will also have an impact impact on July's | | | | That's actually not a bad performance given that |
| consumer price figures, which are due out shortly. | | | | UK produceer prices are rising at an annual rate of |
| It's been the uncontrolled wholesale prices that | | | | 9%-10% and US producer prices at 9%. |
| have taken the brunt of the sharp moves in | | | | Encouragingly exports to the US rose 9.9% in the |
| world prices for commodities like oil: the retail | | | | first seven months of this year after being up |
| selling prices are frozen, or have been allowed a | | | | 8.9% in the half year to June. Shipments to |
| couple of rises in the past 11 months. | | | | European rose 27% (all but unchanged) and |
| The latest figures show that the producer price | | | | exports to Japan rose 15.9% after increasing |
| of crude oil jumped 41% last month from July | | | | 15.1% in the six months to June. |
| 2007, after rising 36% in June. Ferrous metals | | | | IMPORTANT: AIR reports about financial markets |
| climbed 31% after rising 29% in June on June | | | | and investment products in the widest sense |
| 2007 (so there's a slowing evident in metals). | | | | possible. The AIR website and all its contents is |
| But since mid-July oil has led commodity prices | | | | prepared for general information only, and as |
| sharply lower, and this should transmit through to | | | | such, the specific needs, investment objectives or |
| the Chinese PPI in August and September, which | | | | financial situation of any particular user have not |
| should change the trend. | | | | been taken into consideration. |