China kept up a fast investment tempo in August, government figures showed on Friday, making the case for further policy tightening to prevent economic growth and inflation from spinning out of control.
Capital spending in urban areas on fixed assets such a flats and factories rose 26.7% from a year earlier in the first eight months, a touch stronger than the rise of 26.6% between January and July, the National Bureau of Statistics said.
Coming on the heels of a leap in consumer inflation to a decade high of 6.5% in the year to August, the numbers point to the need for tighter monetary policy, BNP Paribas said.
The central bank has already raised interest rates four times this year, and BNP Paribas said it expected two more increases in 2007 and several more in 2008.
"Even after a series of tightening measures by the government, the economy does not show any clear signs of a slowdown," the bank said in a note to clients.
But others saw the investment figure, which was close to expectations of a 26.5% rise, in a different light.
They said the fact that capital spending was not accelerating despite above-target money supply growth, coupled with weaker growth in exports and industrial output in August, provided tentative evidence that the government's restraints were working.
"We haven't changed our view that China's economy is moving towards a modest slowdown," said Jiang Chao, an analyst with Guotai Junan Securities in Shanghai.
The government has ended tax breaks and tightened administrative rules to discourage low-value-added industries, especially in the export sector, that consume a lot of energy and belch out pollution.
Gao Hucheng, a vice minister of commerce, told a news conference that these steps were likely to trim China's trade surplus in the coming months.
Property And Shares
Export growth slowed to 22.7% in August from 34.2% in July as the curbs apparently started to bite.
Qu Hongbin with HSBC in Hong Kong said it was premature for policy makers to get excited because previous signs of a cooling economy have turned out to be false dawns.
But he said of August's indicators: "It seems they're all showing early signs that the growth rate is starting to peak or even moderate a bit. At least it's no longer accelerating."
Qu said the most pressing task facing policy makers was to curb inflation and fast-rising property and share prices.
The Shanghai Composite Index, which was flat on Friday, has doubled this year and more than quadrupled since the start of 2006.
Urban property prices nationwide rose 8.2% in August from a year earlier but are rising much more rapidly in cities like Shenzhen and Beijing.
Underscoring the property frenzy, investment in urban real estate quickened to 29.0% in the first eight months from 28.9% in the January-July period.
"In my view more needs to be done on the tightening front, just to make sure that this moderation in growth is sustained," Qu said. "Without a further tightening we'll see clear signs of overheating, especially in property and asset price inflation."
The 6.5% jump in consumer prices was the highlight of August's data deluge. The surge in headline inflation was due to an 18.2% rise in food costs, driven by a shortage of pork.
Non-food prices remained remarkably tame, up just 0.9% from a year earlier. But Qu said that was of no comfort to ordinary Chinese, who spend a big chunk of their wages on food.
"The only thing they know is that living costs -- be it property or the CPI -- have been rising pretty fast. So if the government doesn't do enough in terms of tightening, you may run a risk of people's expectations of inflation starting to rise. "That's more worrying than the food price itself," he said.