China's industrial output rises, prices fall

BEIJING: China's industrial output, trade and retail sales improved in July, data showed Tuesday, in positive signs for Beijing's multibillion-dollar effort to restore stable growth in the world's third-largest economy.

Consumer prices fell, possibly damping fears that stimulus spending might trigger a rise in inflation that could disrupt the rebound.

The flurry of data suggested China's recovery is making progress, which could help to drive a global rebound from the worst economic downturn since the 1930s. But private sector activity is weak and economists say growth is still dependent on stimulus spending.

"The Chinese economy has shown some positive changes," said a spokesman for the National Bureau of Statistics, Li Xiaochao, at a news conference. However, he said, "profits of some enterprises still are in great decline."

Industrial production rose 10.8 percent from a year earlier, the third straight monthly increase in growth, the statistics agency said. Retail sales climbed 15.2 percent, while investment in factories and other fixed assets also rose.

"These are mostly good signs," said Citigroup economist Ken Peng. "With improving external conditions, we should see growth pick up in the second half of the year."

Imports and exports showed improvements over June, though both fell compared with a year earlier, according to customs data. Imports dropped 14.9 percent from the same month in 2008, while exports fell 22.9 percent. But total trade was up $17.5 billion from the previous month.

"That's pretty solid improvement, even if the year-over-year comparisons continued to be ugly," Peng said. He said July declines were due in part to the fact that the month was being compared with a peak in trade last year.

China's economic growth accelerated to 7.9 percent in the latest quarter, up from 6.1 percent the previous quarter, though officials warn that a recovery is not firmly established and have called for continued vigilance. The The biggest gains have been in construction and other stimulus-financed activity, while private sector growth has lagged.

Beijing's 4 trillion yuan ($586 billion) stimulus is aimed at insulating China from the global downturn by boosting domestic demand through massive spending on construction of highways and other public works. Most of the money has gone to state-owned companies but some is starting to flow to the private sector.

Regulators worry that too much of the soaring lending by Chinese banks has been diverted to speculation in stocks and real estate. That has prompted worries among investors that Beijing might rein in lending, though Premier Wen Jiabao promised last weekend that easy credit will continue.

Also Tuesday, the central bank reported that total borrowing from Chinese banks plunged in July to 355.9 billion yuan ($51.9 billion), down sharply from June's record 1.5 trillion yuan ($223 billion).

A deputy central bank governor said last week that lending should decline in the second half of the year even without government intervention. He said developers have received most of the money they need and are turning to completing projects.

June's 1.8 percent fall in consumer prices from a year earlier was the sixth month of decline, the statistics bureau said. Wholesale prices fell even more sharply, dropping by 8.2 percent from a year earlier and reducing pressure for producers to pass on higher costs to consumers.

Such a decline was expected, especially because prices are being compared with a period of high inflation in 2008. But prolonged declines can cause economic problems.

"Deflation is still deepening," said Citigroup's Peng. "So demand is still not very solid, economy-wide."