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TRADE WARS
China export growth slows in August but imports pick up
by Staff Writers
Beijing (AFP) Sept 8, 2017


China's factory gate inflation accelerates in August
Beijing (AFP) Sept 9, 2017 - China's factory price inflation, a key barometer of the industrial sector, accelerated sharply in August, reflecting strong demand and a reduction in excess capacity which has plagued China's economy.

The producer price index (PPI), which measures costs for goods at the factory gate, rose 6.3 percent year on year in August, much faster than expected, official data showed Saturday.

The pace of PPI expansion jumped from 5.5 percent registered in July, according to the National Bureau of Statistics, which Bloomberg said represented 12 consecutive months of growth.

China's consumer price index (CPI), a main gauge of retail inflation, meanwhile rose 1.8 percent year-on-year in August, stronger than the 1.4 percent posted in July.

The increase was driven by the rise in prices for produce like eggs and vegetables which have been driven up by heavy rain and high temperatures over the summer.

The August figure, which strong, is still well below the government's target of 3.0 percent.

After several years of persistent deflation, producer prices rebounded in 2016 and early 2017.

The PPI has benefited from the government's campaign to reduce excess capacity in the industrial sector, particularly among state-owned steel firms and cement manufacturers, which has reduced supply and boosted prices.

"Commodity prices are the main driver," lifting PPI, said Wang Qiufeng, an analyst at China Chengxin International Rating Co. in Beijing.

Factory have also been boosted by buoyant domestic demand which is being stoked by China's booming infrastructure projects.

Chinese exports grew slower than forecast in August, hit by weak global demand, but analysts said Friday that a jump in imports indicated a pick-up domestically and point to a further improvement.

The figures follow a run of broadly positive readings in recent months, which have provided some optimism in the world's number two economy and key driver of global growth.

Exports increased 5.5 percent year-on-year, the customs administration said, down from 7.2 percent in July and well off the 6.0 percent in a Bloomberg News survey.

"There appears to have been a broader decline in external demand," Julian Evans-Pritchard of Capital Economics said in a note.

But he added that "further downside to export growth should be limited by the fairly positive outlook for China's main trading partners".

Imports climbed 13.3 percent, beating July's 11 percent and the 10.0 percent forecast in the Bloomberg survey. The trade surplus for the month came in at $42.0 billion.

"Strong imports reflect the momentum of domestic demand. It seems that third-quarter gross domestic product will see an upside risk again," Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd, told Bloomberg News.

Evans-Pritchard added that ambitious Chinese producers encouraged by higher industrial metal prices have contributed to surging inbound shipments of iron and cooper ore.

The strong import figures are likely to be welcomed by the country's leaders who are trying to recalibrate its growth model from one driven by exports and state investment to one based on domestic consumption.

- Strong yuan -

The trade data came a day after the People's Bank of China announced a rise in China's foreign exchange reserves, indicating the central bank would shift its priority from curbing capital outflow to controlling yuan appreciation, Evans-Pritchard said in a previous note.

Earlier this year the yuan sank to almost 7.0 to the dollar, a level not seen in almost eight years -- hit by capital outflows as the economy struggled and traders bet on US rate hikes.

However, it has enjoyed a resurgence in recent weeks and is now at a 16-month high around 6.5 thanks to lower expectations the US Federal Reserve will lift interest rates again this year, tighter controls on capital outflows and improving economic performance.

"The strong yuan is favourable to China if they want to buy more from the rest of the world," Yeung said.

The Chinese economy saw better-than-expected growth in the first two quarters of the year thanks to debt-fuelled investment in infrastructure and real estate although warnings of a potential financial crisis have spurred Beijing to clamp down.

The long-term outlook remains clouded by geopolitical tensions linked to the North Korea nuclear crisis as well as US President Donald Trump's anti-globalisation rhetoric and threats to slap China with tariffs.

China last month had halted imports of iron, iron ore and seafood from North Korea, whose latest nuclear test last weekend met strong condemnation from the emerging BRICS nations during a summit this week.

However, Friday's data show an 8.4 percent increase in exports to the United States last month. And while that lifted its controversial trade surplus with the country to $26.2 billion, Betty Wang of ANZ research said in a note: "A broad-based trade war between the two countries is unlikely."

TRADE WARS
China's fifth-largest bank downgraded to junk status
Beijing (AFP) Sept 7, 2017
China's fifth-largest state-owned bank has had its credit rating downgraded to junk status by Moody's, the latest sign of fragility in the country's financial system. The decision to downgrade Bank of Communications was based on the lender's lack of customer deposits and over-reliance on expensive and volatile alternative sources of funding, Moody's said Thursday. It follows a Chinese go ... read more

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