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April 21, 2005

Chinese Growth

Yes, it's still fast. From the Wall Street Journal Online (subscription required):

China's economy grew faster than expected in the first three months of the year as its export engine kicked into higher gear, fueled by surging textile sales to the U.S. and Europe.

The quarter's strong growth of 9.5% compared with the same period in 2004 is generally positive news for the global economy.

And yes, that means more talk about when the yuan will revalue.

A burgeoning trade surplus is likely to add to international pressure on China to allow its currency to strengthen -- which would make Chinese-made products more expensive overseas -- and could further stoke protectionist sentiment in the U.S. and Europe.

And apparently there is concern about China's very own asset bubble.

Fixed-asset investment, a main focus of Beijing's cooling campaign last year when the economy started overheating, is still running too hot. The government's greatest challenge now appears to be reining in the sizzling property markets in Shanghai and other coastal cities...

Investment in factories, roads, office blocks and other fixed assets during the first three months rose 22.8% compared with the same quarter of 2004, or down from the rate of 25.8% for all of last year.

It may be that the expansive monetary policy required to sustain the peg is beginning to have some consequences on prices, but not enough to elicit policy changes quite yet,

Consumer-price inflation in the first three months rose 2.8% from a year earlier, while producer-price inflation, a possible warning of consumer inflation to come, was up 5.6%...

"There's no question that the economy is reaccelerating," said Dong Tao, senior regional economist at Credit Suisse First Boston. But he added: "I would expect the government to hit the brake only when it sees a lot more evidence of overheating." He said authorities likely wouldn't raise interest rates unless annual consumer inflation reaches 5% to 6%.

UPDATE: The Global Trader adds some thoughts on the Chinese GDP report (and Wednesday's CPI report as well).

April 21, 2005 in Asia | Permalink


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CPI in usa y/y increase: 3.1%
CPI in china y/y increase: 2.8%
dollar-renminbi flat.

a real appreciation of the dollar v. the renminbi ... tho a tiny one. right now inflation differentials are not working in the right way, in light of the surplus in china/ deficit in usa. this is where i don't quite follow the McKinnon adjustment story (inflation differentials, i.e. higher inflation in china as preferable to a nominal appreciation of the renminbi).

of course, i don't trust the chinese data, or, perhaps more accurately, i suspect that by keeping gas prices (and other prices too) down with administrative controls, China is fudging its cpi numbers a bit.

Posted by: brad setser | April 21, 2005 at 12:08 PM

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