MARKET WATCH

TO THE POINT: Economic data for July indicated that pillar forces of the economy remained strong in July. Fixed-asset investment and retail sales are still soaring. Exports are also recouping some strength, growing over 38 percent in July. The CPI went up by 3.3 percent, a reflection of simmering inflationary jitters. House prices in 70 large and medium-sized cities rose 10.3 percent, the slowest pace in half a year. International grain prices head north, and threaten to filter through the Chinese market.

By HU YUE

July Economic Figures

CPI and PPI

The consumer price index (CPI), a barometer of in fl ation, grew 3.3 percent year on year in July, 0.4 percentage points faster than in June, said the National Bureau of Statistics(NBS). This exceeded the government-set 3-percent target for the entire year.

The producer price index (PPI), a measure of in fl ation at the wholesale level, grew 4.8 percent year on year in July, 1.6 percentage points lower than in June.

The CPI was driven by increasing food prices as heavy summer rains disrupted agricultural production across the country, said Sheng Laiyun, spokesman of the NBS . Food prices, which account for about a third of the weighting in the CPI basket, climbed 6.8 percent in July.

In addition, nationwide wage growth and price increases of commodities also spilled over into the CPI, said Sheng.

“But the situation remains manageable,”he said. “With bank lending wearing off and the PPI heading south, the in fl ationary pressures will ease in the months to come.”

Foreign trade

China’s exports jumped 38.1 percent year on year to $145.52 billion in July, but the growth rate was down from June’s 43.9 percent, said the General Administration of Customs.

Imports increased 22.7 percent from a year earlier to reach $116.79 billion, compared with 34.1 percent in June. The trade surplus stood at $28.7 billion, the highest level since February 2009.

Exports were stronger than expected in part because exporters rushed through deals before the export tax rebate cancellation on 406 items took effect on July 15, said Li Huiyong, a senior analyst with the Shenyin &Wanguo Securities Co. Ltd.

House prices

House prices in 70 large and mediumsized cities rose 10.3 percent year on year in July, compared with 11.4 percent in June,said the NBS. It was the third consecutive month that the prices rose at a slower pace and the lowest rate in six months.

Prices of new homes grew 12.9 percent from one year ago while second-hand home prices increased 6.7 percent.

The property fever is cooling off, but the growth rate is still more than policymakers expected, said Gu Yunchang, Deputy Director of the China Real Estate and Housing Research Association.

The current priority needs to be adhering to austerity measures and continuing to let air out of the bubble, he said.

On August 6, the China Banking Regulatory Commission reiterated its stance to tighten mortgage loans to third-home purchases. It also asked lenders to conduct stress tests for a worst-case scenario where house prices may plunge 50-60 percent in some cities.

Fixed-asset investment

The fixed-asset investment in the first seven months increased 24.9 percent from a year earlier to 11.99 trillion yuan ($1.77 trillion), according to the NBS. The investment in real estate development from January to July surged 37.2 percent to 2.39 trillion yuan($351.5 billion).

Retail sales

NBS data also showed that the retail sales of consumer goods rose 17.9 percent year on year in July to 1.23 trillion yuan ($180.8 billion), 0.4 percentage points lower than in June.

Bank lending

Newly added bank loans denominated in renminbi fell to 532.8 billion yuan ($78.6 billion) in July from 603.4 billion yuan ($88.9 billion) in June, said the People’s Bank of China, the central bank.

The July figure brought new loans for the first seven months to more than 5.16 trillion yuan ($761 billion), accounting for 68.8 percent of the government-set target of 7.5 trillion yuan ($1.1 trillion) for this year.

Meanwhile, the broad money supply(M2), which covers cash in circulation and all deposits, increased 17.6 percent to 67.41 trillion yuan ($9.9 trillion) by the end of July.

Grain Crisis

Global grain prices are skyrocketing,mounting heavy pressure on the Chinese market.

Russia, the world’s third largest wheat producer, on August 5 ordered a ban on grain exports after a severe drought devastated crops and as wild fi res spread across the country. This triggered panic in commodities markets, sending wheat prices to a two-year record high.

European wheat prices peaked at 236 euros ($307.2) a ton on the news while U.S.wheat futures also jumped 8 percent on August 5 on top of an 80-percent increase since mid-June. Panic buying spilled across the grain markets into corn and soybeans,which soared as well.

Given the magnitude of the price spike,fears are proliferating that the pressure will ripple into China through trade links.

China has no serious shortages of grain this year, but the impact of the international price surges will still be felt due to a growing reliance on imports, said Ma Wenfeng,a senior analyst at the Beijing-based Orient Agribusiness Consultant Ltd.

In the first half of this year, China’s wheat imports more than doubled to 845,000 tons from one year ago while rice imports surged 44.3 percent, said the Ministry of Agriculture.In the past few years, China has relied on imports for less than 10 percent of its wheat consumptions.

Meanwhile, rainstorms across the country have added to the risks of price in fl ation by hampering summer planting, he said.

Clues of domestic price hikes are not diffi cult to fi nd. Some grain dealers are rushing to snap up stocks while farmers hesitate to sell, expecting price increases.

It is necessary for the government to stabilize the market and step up a clampdown on price speculation, said Ma.

Investment in Ningxia

The Ningxia-Beijing Economic and Trade Promotion Conference was held on August 6 in Beijing, delivering a strong boost to economic cooperation between the two regions.

The conference witnessed 11 deals worth 9.72 billion yuan ($1.43 billion), mostly for investment projects in new energy, tourism and new construction materials in northwest China’s Ningxia Hui Autonomous Region.

Among the biggest projects, the government of Longyuan County, Ningxia, has teamed up with Beijing-based Longyuan Power Group to build a wind power project with an installed capacity of 300 megawatts.

“These ties with Beijing will help strengthen Ningxia’s economic vitality. The green industries will also pave the way for the economy to grow,” said Li Rui, Vice Chairman of Ningxia Hui Autonomous Region. ■

Numbers of the Week

693million

The business-to-business Internet company Alibaba said its net profit in the first half of 2010 was 693 million yuan ($102 million), representing a

growth of 39.8 percent year on year.

51.2million

China’s imports of iron ores in July rose 8.5 percent from June to 51.2 million tons, after three consecutive months of decline, said the General Administration of Customs.

TAKING TO THE AIR: The Hong Kong-headquartered Cathay Pacific Airways Ltd.resumes construction on a new cargo terminal after two years of suspensiondue to the financial crisis. The terminal, with a total investment of HK$5.5 billion,is scheduled to come into use in 2013