BOSSA.CZ (BOSSA.CZ)
Macroeconomics  |  August 09, 2012 18:42:16

What's happening today in China?


Despite the fact that the Chinese macrodata today was worse than expected, the markets reacted positively to figures released. Why is that? The point is that investors on the basis of unfavorable information about the status of the Chinese economy expect the central bank or the Chinese government's additional stimulus, and therefore the markets rise.

Already early in the morning our time has been published data on Chinese inflation, namely CPI (Consumer Price Index) and PPI (producer price index). Consumer prices in July went up by 1.8 percent, the expectation was 1.7 percent. For comparison, last month, this indicator grew by 2.2 percent and last year reached the value to 6.5 percent. China's Inflation Target National Bank for this year is at 4 percent. It seems, therefore, that in terms of inflation, there is room for further monetary stimulus.The only potential threat to the future price growth could increase food prices. They threaten dry and warm in the U.S. that have a negative impact especially for the price of grain. Chinese leaders also recognize the possibility of unexpected price fluctuations, which was last month, for example, pork prices of 18.5 percent. For this reason, the PBoC is still a bit cautious in the next release.

At 7:30 our time was then published data in retail sales, industrial production and increase investment in fixed assets.

Very negative were mainly data on industrial production. Those of 9.2 percent was the lowest even in 3 years. Analysts expect annual growth of industrial production in July at 9.8 percent.Retail sales, which inform people buy domestic appetite, were also in the last month of the year on year worse, and 13.1 percent compared with the expectation of 13.7 percent. Domestic demand is important for GDP growth, which was in the 2nd quarter, the lowest since mid-2009.

Investment in fixed assets increased from January to July this year by 20.4 percent compared with the expectation of 20.5 percent. It is mainly the construction of roads, bridges, factories, which in turn indicate future employment growth, and consequently also of consumption.

So it seems that China would be after these dates may proceed to further stimulate the economy. It can use the tools of monetary policy (lowering interest rates, reducing the mandatory minimum. Reserve banks), what she did in the past. The threat from rising inflation, according to today's data still under wraps.China could also support its economy through fiscal policy instruments, by reducing taxes or increase in support from public expenditure.

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