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Tuesday, August 15, 2006

Disconnect on China!

Just to show that the Chinese economy is so big, so complicated that even the experts get confused, take a look at these two stories on recent Chinese economic growth. See if you can spot the disconnect...

Story #1...
China's industrial output soars

China has seen its industrial output surge in July compared to a year earlier, official statistics show.
Industrial output was up by 16.7%, the National Bureau of Statistics said, with strong increases in iron ore, steel products and coal.
While the rise is below June's annual growth of 19.5%, analysts still predict strong growth ahead.

Story #2...

China's Industrial Output Slows as Car Demand Cools (Update3)

Aug. 15 (Bloomberg) -- China's industrial production rose last month at the slowest pace since April as increasing fuel costs crimped demand for cars and the central bank reined in lending for new factories.
Output at manufacturers, mines and power plants climbed 16.7 percent from a year earlier, the statistics bureau said today. Growth slowed from June's 19.5 percent pace, which was the fastest on record, and lagged behind all forecasts in a Bloomberg News survey of 22 economists.

MY TAKE: So who's right? The scary thing is maybe they both are. 16.7% growth is phenomenal! Just to look at another statistic, vehicle production in China grew at a 10.4% pace. Detroit would cream its collective jeans if it saw that. On the other hand, China's economy has been so red-hot that this is a significant slowing. Vehicle output int he first half of the year increased 28%.

Meanwhile, retail sales in China's cities rose 14.2% to 408.2 billion yuan (that's US$51 billion in real money) in July from a year earlier. So here's an idea. Maybe China's car production was crimped by oil prices, but otherwise, the transformation of China into a consumer economy is proceeding apace. If that's the case, Chinese economic growth -- and its appetite for commodities -- will increase.
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