China Stimulus Confusion

ChinaAusgindustrialproduction.pngBy John Richardson

THERE was much talk last week about $158bn worth of new infrastructure projects in China that have received fast-track approval from the central government.

But is this just a lot of noise to boost financial and commodity markets? Can anybody be 100 per cent certain that these projects are genuinely new, and that they can be adequately funded?

If they are new and can be afforded, how quickly will they deliver a boost to economic growth and therefore chemicals and polymer demand? Will this new wave of building work be good for the economy in the long run?

Complicating the stimulus picture is a rebound in inflation. Overall August inflation accelerated to 2 percent from a year earlier after a 1.8 percent rate in July.

Food inflation accelerated for the first time in five months, rising 3.4 percent from a year earlier. Consumer prices increased 0.6 percent from the previous month, the biggest rise since January, while food prices increased 1.5 percent from July.

“A renewed inflationary trend could prove to be a further complication to policy makers’ growth-inflation trade-off,” Glenn Maguire, chief economist at Sydney-based economics consultant Asia Sentry Advisory told Bloomberg.

“China will have enormous difficulties in crafting a policy response to these divergent price and activity trends.”

Meanwhile, industrial production in August fell to a three-year low (see above chart) – underlining the severity of the economic slowdown.

, , , ,

Leave a Reply