FOR two consecutive months, key indicators in China have shown signs of a slowdown in the overheated economy following the introduction of monetary and financial measures by Vice-Premier Zhu Rongji. Latest figures from the State Statistics Bureau indicated that positive signals were emerging from industrial output and fixed-asset investment, although the high growth rate continued. In August, the country's industrial growth rate was 23.4 per cent, 1.7 points lower than in July, whose figure in turn was down 5.1 per cent from June. Government economists quickly concluded that the continued fall in the industrial growth rate indicated the success of macro-economic control measures adopted since June. But unusually, the official media yesterday played down the significance of the seemingly encouraging figures, pointing to high price levels in major cities and a trade deficit being fuelled by strong imports. Government economists interpreted the new data as meaning macro-economic controls had affected industrial production as early as July. They noted that the drop in industrial production had been mild, but seemed confident that the country's industrial production growth would continue to slow down over the rest of the year, to an annual rate of less than 20 per cent by the start of next year. Statistics indicated that China had invested 57.44 billion yuan (about HK$76.97 billion at the official rate) in fixed assets last month, 18.1 per cent more than in the same month last year. The growth rate in August, however, was down by 10.4 percentage points from that of the first seven months of this year. The State Statistics Bureau also reported that savings deposits of Chinese residents had risen 36.2 billion yuan in August, 25.5 billion more than in the same month last year. And total retail sales amounted to 107.08 billion yuan in August, 23.8 per cent more than in the same month last year. That was a lower growth rate than the 28.4 per cent in June or the 26.5 per cent in July. The economists claimed that the trend in retail sales indicated that macro-control measures had had a desirable effect on consumer markets. In spite of these positive signs, economists indicated that more efforts were need to implement macro-economic control measures fully. They argued that the most important task at present was to re-adjust the economic structure and improve investment input, and that steps had to be taken to restore financial order. It is also suggested that a sound investment mechanism be set up to guarantee funds for key state projects and infrastructure. The official media charged that government efforts to cool the economy had failed to curb spiralling inflation in the cities and or trim excessive imports since the start of the year. The influential Economic Daily noted that three major problems remained in the economy: inflation was still too high, enterprises were short of cash and exports were continuing to fall while imports rose. Government statistics put inflation in the 35 major cities at 22.2 per cent year-on-year, against 23.3 per cent in July, up from 21.6 per cent in June and from 17.4 per cent for the whole first half of the year. Export firms are reporting a shortage of cash to buy goods for export while joint ventures are continuing to import large amounts of equipment and materials. And with domestic prices rising and domestic demand remaining strong, manufacturers prefer to sell to the local market rather than export their goods. In the first six months of this year, imports outstripped exports by US$4.62 billion. If the current trend continues, China is likely to witness its first trade deficit in four years.
