Inflation in China Gathers Momentum

Chandrasekhar Atreya
11 Aug, 2010
New York City

Stocks in Shanghai recovered to close higher but indexes in Hong Kong closed lower after the U.S. Fed gave weak assessment of the economy. Inflation in China in July was reported at 3.3%, above the central bank target of 3%. Diamond imports in first half surges 92%.

[R]5:00 PM Hong Kong, China – Stocks in Shanghai recovered to close higher but indexes in Hong Kong closed lower after the U.S. Fed gave weak assessment of the economy. Inflation in China in July was reported at 3.3%, above the central bank target of 3%. Diamond imports in first half surges 92%.[/R]

China stocks fell the most in six weeks on economic slowdown worries but rebounded at close. Stocks in Hong Kong index opened lower and continued to fall after the U.S. Fed gave a weak economic assessment and left the target interest range near the record low.

The Hang Seng Index in Hong Kong fell 0.83% or 179.06 to close at 21,294.54. The CSI 300 Index in China gained 0.62% or 17.57 to close at 2,850.21.

Consumer price index, one of the main gauges of inflation, rose to its highest level this year boosted by rising food prices.

The CPI gained 3.3% in July from the prior year, at 0.4% higher than in June, the National Bureau of Statistics said today. Above, the 3% full-year target set by the government in March. Food prices, which account for about a third of the weighting in calculating the CPI, rose 6.8% in July, compared with June’s rise of 5.7%.

The producer price index, a major measure of inflation at the wholesale level, grew 4.8% year-on-year in July at 1.6% lower than in June, the NBS said.

Retail sales, the main gauge of consumer spending, climbed 17.9% year-on-year in July to 1.2253 trillion yuan and the growth of industrial value-added output was up 13.4% in July year-on-year, the NBS said.

Diamond imports into China rose to a record $577 million at the Shanghai Diamond Exchange in the first half of this year as strong local demand and stable economic growth made the nation as the world’s second-biggest market for the precious stone.

Diamond imports surged 92% in the first half, the Shanghai Diamond Exchange Administration said in a statement on Tuesday.

The Industrial & Commercial Bank of China Ltd said it will pay shareholders of its Hong Kong unit a 27% premium to make it private, as part of its effort to expand its presence in the island city. Each ICBC (Asia) Ltd shareholder would get HK$29.45 per share, ICBC said in its proposal posted on the Hong Kong exchange on Tuesday.

“While ICBC (Asia) is currently trading at its recent high, we believe that further growth of the business maybe limited by its status as a listed company in Hong Kong,” the banks said in a joint statement.

Industrial experts are advising the government to stop projects that make ethanol bio-fuel with corn, as the projects are pushing up corn prices.

Zhao Youshan, Director of the Commercial Petroleum Flow Committee under the China General Chamber of Commerce, said Tuesday he has informed the State Council, China’s Cabinet of his views. He said livestock breeders are facing feed shortages as ethanol fuel makers, helped by the government subsidies of about 1,900 yuan per ton of Ethanol produced, are rushing to buy corn and thus creating a shortage.

Zijin Mining Group Co said Tuesday it has suspended production at two mines in Shandong Province at the request of the local government for safety checks. This could signal a raft of stronger measures from the government aimed at mining companies following a number of severe accidents and environmental disasters in recent months.

China''s banking regulator said Tuesday it is considering revising the bank service pricing regulation so that bank customers can enjoy better services. A draft version of the revised regulation has been sent to China''s commercial banks and local price monitoring offices, the China Banking Regulatory Commission said in a statement on its Web site.

Chinese banks extended 532.8 billion yuan of new local currency loans in July, according to details posted on the central bank’s Web site.

Shanghai Movers

China Vanke Co gained 4.5% to 8.32 yuan and Poly Real Estate added 2.5% to 12.58 yuan.

Wuliangye Yibin Co, the nation’s second biggest maker of white liquor, added 2.3% to 29.58 yuan.

Shanxi Coal International Energy Group Co gained 2.2% to 20.51 yuan after reporting first half net income rose by 33% from a year earlier.

Taiyuan Heavy Industry Co, the construction machinery manufacturer, gained 2.8% to 13.15 yuan after reporting a rise of 29% in first half net from a year earlier.