China

China's politically sensitive inflation eased to a 14-month low in August while export growth dipped, the government reported recently and analysts said Beijing might shift from fighting price rises to revving up the slowing economy. Chinese leaders have made a priority of fighting an inflation surge that began in mid-2007 and have imposed price controls and credit curbs. But they face an unexpectedly sharp downturn in economic growth, which can cost jobs and fuel social tensions. Consumer prices rose 4.9% in August over the August 2007, the National Bureau of Statistics said. That was down from July's 6.3% and well below Feb.'s 8.7% rate, the peak of the inflation surge. China's trade surplus hit a record $28.7B in August, but export growth slowed to 21.1%, down from July's 26.9%, the government reported. The recent data "suggest that policymakers will continue to take a prudent and gradual approach in shifting its policy focus from inflation to growth, said a Lehman economist. Stocks in China rose on the news. The benchmark Shanghai Composite Index finished up 0.2%. Analysts have cut growth forecasts this year to as low as 9%, down from 2007's explosive 11.9%. That still would be the fastest rate for any major country, but Beijing wants to keep growth high to reduce poverty and create new jobs. Adding to pressure to improve business conditions, companies were squeezed in August as wholesale inflation accelerated to new 12-year high of 10.1%, according to government data. Beijing reacted to a similar decline in export growth in June by increasing tax rebates to textile producers. Economic planners are expected to roll out measures targeting other struggling industries. China's trade surplus grew by 14.2% in August from a year ago, topping the previous monthly high of $27 billion in Oct. 2007. Exports reached $134.9 billion, while imports rose 23.1% to $106.18 billion. China's inflation surge was blamed on shortages of pork and grain. Beijing responded with price controls and subsidies to raise farm production. But efforts were hampered by winter storms, a jump in oil prices and China's devastating May earthquake. Food prices rose sharply in August, climbing by 10.3%, but that was down from July's 14.4% and well below February's peak of 23.3%. The bureau's chief economist said the continuous decline of the CPI is a positive sign as it shows that the government's measures to ease inflationary pressures were effective. Communist leaders worry about the political impact of high inflation in a society where families spend up to one-third of their incomes on food. Bouts of high inflation in the 1980s and '90s sparked protests. A recent rise in wholesale costs adds to pressure on Chinese companies to raise retail prices. But many are in industries with intense competition that prevents them from passing on higher costs to consumers. That is squeezing corporate profits and could lead to job losses. A chairwoman of China equities for JP Morgan Securities in a report said the focus in terms of inflation has shifted toward non-food prices. With power shortages occurring in many parts of the country, anticipated further hikes in energy prices would feed into higher costs for various items. China's trade surplus with the U.S. grew 16.6% to $17.5 billion in August, the government reported. The gap with the 27-nation European Union, China's biggest trading partner, swelled 25% to $16 billion. Also in August, monthly growth in spending on factories and other assets, a key economic stimulus, accelerated to 27.4%, the government said.