Inflation retreats, slowdown worry grows

By Li Hong (chinadaily.com.cn)
Updated: 2008-09-10 11:57

A clerk adjusts the price tag in a supermarket in Hefei, Anhui Province in this July 17, 2008 photo. Consumer price index, a major gauge of inflation, dropped to 4.9 percent in August, the National Bureau of Statistics said on Wednesday. [Xinhua]

Inflationary pressure further evaporated for the world's largest developing economy, as China's official statistics showed that the rise of consumer price index (CPI), a major gauge of inflation, retreated to 4.9 percent in August, down significantly from last month.

Premier Wen Jiabao, in his annual government work report to the parliament in March, set the 2008 inflation target at 4.8 percent. Earlier, Beijing authorities have revised its major economic policy guideline from solely controlling inflation, to solidifying a relatively fast economic growth while curbing inflation.

Chinese officials and economists are now more worried about a precipitating slowdown than an inflationary build-up. The economic growth is on a continuous dip, as the National Bureau of Statistics reported the gross domestic products (GDP) growth slowed to 10.1 percent from April to June from 10.5 percent from January to March. Analysts forecast the number for the 3rd quarter may drop to a single digit.

China's official Xinhua news agency reported Wednesday that the country's consumer inflation in August dropped to 4.9 percent, compared with 6.3 percent in July, 7.1 percent in June and 7.7 percent in May. It said the steep drop of CPI is more than those predicted by market watchers.

Some economists have advocated a government stimulus plan, to jumpstart a raft of key projects nationwide with at least 100 billion yuan of government spending. Others suggest that Beijing give tax holidays to businesses and cut individual income tax to encourage domestic consumption.

The streak of a rising currency, the yuan, against the American dollar, has also come to an end lately. Many economists said the non-stop rise of the yuan, ever since July 2005 when China's central bank ended its peg with the greenback, has hurt export shipments badly. China's export machine has lost much of its previous steam, and dragged on the economy, economists said.

After the closing of the Beijing summer Olympic Games, a debate on a possible serious moderation of the economy has begun. Chilled by a gloomy stock market and bumpy housing sale numbers, many in China have called for Beijing to act immediately, by adding investments, increasing consumption and invigorating export.

A hefty slowdown of the Chinese economy won't bode well for the global economy, whose outlook is even gloomier as the United States is in deep strait of a recession, which is trying its best to walk out of the subprime crisis. Europe is also hurt by falling housing prices, which causes troubles for the banks.

Major world stock markets, including the Shanghai and Shenzhen stock exchanges, are expected to remain in the doldrums in the coming days, as investors see no end in the dark tunnel.

The Dow Jones industrials fell about 300 points on Tuesday, nearly erasing the previous session's big gains following Bush administration's rush to rescue battered Fannie Mae and Freddie Mac, after fresh concerns about the financial stability of another Wall Street investment bank, the Lehman Brothers.