International | Oct 25 2007
By Rudi Filapek-Vandyck
Expect further cooling measures by the Chinese authorities soon as today’s release of economic data proved again stronger than expected. Both GDP growth and inflation data surprised to the upside.
This would support the view by some economists who argued recently that a substantially weaker US dollar is boosting both economic activity and inflation in the country due to the artificially low valuation of the renminbi, which is partially pegged to the US dollar. However, the gradual appreciation of the Chinese currency is tightly controlled by the Chinese authorities.
In other words: expectations of a gradually slowing Chinese economy have been proven wrong by last month’s US Federal Reserve interest rate cut, as it threw the US dollar in a downward spiral, making Chinese exports cheaper than they already were.
According to today’s official data release, China’s third quarter gross domestic product (GDP) rose 11.5% year-on-year.
The National Bureau of Statistics said in a statement that GDP growth for the first nine months also came in at 11.5%.
The reported figure is down from the 11.9% growth recorded in the second quarter, but most economists were expecting a GDP figure closer to 11%. If anything, the third quarter release shows the Chinese economy continues to power ahead, despite tightening efforts by policymakers in Beijing.
The consumer price index (CPI) surprised to the upside as well with today’s official release showing inflation was up 6.2% year-on-year in September. Similar to the released GDP report, this was slightly down from August’s 6.5%, but not as much as economists had expected. Most economists were hoping to see a figure that would start with a 5.
For the first nine months, CPI was up 4.1%. The food component of the CPI was up 10.6% in the first nine months.
The Chinese central bank has so far raised interest rates five times this year. Even before today’s data releases most economists and analysts were expecting another interest rate hike before year end. Today’s releases have made such a move simply more likely.
