International | Aug 31 2006
By Rudi Filapek-Vandyck
On the 1st of June FN Arena sent out its first and only news alert email thus far. At the time CLSA, a leading provider of brokerage and investment banking services in the Asia-Pacific region, had noticed how its monthly Chinese manufacturing surveys showed input price pressures were continuing to rise.
CLSA announced the end of the global deflationary wave that China had started a few years ago. It has repeated that view in subsequent monthly updates.
Now the Chinese authorities seem to have adopted CLSA’s view. Yesterday, China’s National Bureau of Statistics warned of an increased inflation risk as a result of ongoing excessive investment growth in the country.
The warning caught the eye of equities economist Martin Arnold at CommSec. The public admission that inflation may now become a problem in China is something that deserves global investors’ attention, Arnold believes, because of the central role the Chinese economy plays in maintaining global growth at a reasonable pace.
So far, there’s no sign yet of an inflationary break-out, Arnold suggests. He notes the July CPI figure in China showed inflation growing by 1% on an annual basis. However, he points out, producer prices have recently been rising at their fastest pace in nearly a year and that could well translate into higher consumer and export prices from now on. As such, CommSec is now singing from the same song sheet as CLSA in early June.
So far, CommSec adds, there are no signs that the higher pace in producer prices has filtered through to the retail sector. No doubt, Chinese economic data in September will be followed closely by economists and strategists worldwide.
Another possible cause of concern remains the Chinese authorities determination to step on the economic brakes. CommSec believes that as long as there is a risk the Chinese economy may overheat, further policy tightening and constraints on domestic bank credit is to be expected.
It is a view shared by the experts at BCA Research who, a few months ago, stated China would succeed in slowing down its economic growth eventually, simply because the Chinese government would put everything in place to achieve what it wants to achieve. BCA’s China Investment Team has reiterated the view this week.
The team notes the central government has now dispatched inspection teams to local governments to make sure its administrative tightening measures are being enforced. This underscores that policymakers are determined to induce a clear downshift in capital spending growth, BCA says.
