The early signs are that efforts to curb excessive investment on the mainland are starting to have an effect - and the soft economic landing that many of the world's economies are relying on may yet come to pass. The amount of new money being ploughed into fixed assets grew by 34 per cent in April, compared with 43 per cent the month before. Loan growth slowed to 19.9 per cent in the first four months, compared with a scorching 23 per cent by the end of last year. Key commodities such as steel and aluminium are trading at lower prices, on the back of reduced demand. None of this means the mainland economy - and the exporting nations dependent on China for continued growth - are out of the woods. But most will hope they might be spared harsher economic remedies. Among these steps would be a drastic rise in interest rates: a gentle rise might send a 'cool-down' signal but a big increase would risk provoking a bust after the boom. One key indicator that mainland officials will be going over with a fine tooth comb is the consumer inflation data for May. The hints being dropped indicate that the rise in the consumer price index will not exceed 5 per cent, which officials had earlier indicated would trigger the strongest responses. A higher rate would have set off alarms, and rightly so. But a lower rate should also be cause for vigilance. This is especially so given the continued rise in the producer price index. This index represents the cost of goods for the mainland's producers, as opposed to what consumers pay for finished goods. The producer price rise is a natural effect of the soaring demand for all types of commodities, from steel to cotton to grain, as companies step up production to capture growing consumer markets. But the gap between producer price inflation and consumer price inflation - 5 per cent versus 3.8 per cent in April - means that increased costs are not being passed on to the consumer. The effect could be a profit-margin squeeze for mainland corporations and the temptation to prop up these companies with loans from already overburdened state-owned banks. As this newspaper's columnist Jake van der Kamp has pointed out in recent weeks, this is a scenario that would jeopardise the all-important efforts to clean up the books at mainland banks and put them on a more economic footing. When the May data are released, the relevant information will include both consumer price inflation and the extent to which it lags producer price rises. Low consumer inflation may buy some time for recent measures aimed at cooling the economy to take effect - and raise hopes that economic growth is in for a measured slowdown instead of a crash. This is important to many economies, given China's growing role in global trade. A large or growing lag between the two indices, however, should not be ignored.
