China Economic Activity Eases in July

This is a transcript of top stories presented by China's CCTV Business Channel as produced by CNBC Asia Pacific.

Hello and welcome.

You're watching “Asia Market Daily”, co-produced by CCTV Business Channel and CNBC, first in business worldwide.

I am Saijal Patel and here are the top stories across Asia.

Our first stop - China, where data out today shows industrial production and fixed-asset investment growth weaken in July, pointing to an easing of economic activity.

Industrial output grew the least in 11 months, as government measures to crack down on real-estate speculation and attempts to rein in credit growth weigh in.

July's production rose 13.4 percent from a year earlier according to the National Bureau of Statistics.

Investment in fixed assets in urban areas also slowed to 24.9 percent from 25.5 percent a year earlier.

Some economists are concerned that growth may slow further.

(SOT) Diana Choyleva, Director, Lombard Street Research:

“Looking forward, as to how we can get out of this, there has to be a bigger realization in China that it can't continue along the route of its export-led growth model and not allow the exchange rate to adjust according to what market forces are causing it to do. And it can't keep the capital account closed forever, because Chinese coming to the end of the road of this export-led growth model, and if anything, what we have observed since the financial crisis broke out is that its cycle has become more violent and shorter.”

Meantime, retail sales, new lending, producer prices and money supply increased at a slower pace in July.

Retail sales rose 17.9 percent year-on-year, slowing from June's 18.3 percent rise. The numbers came in less that economists had estimated.

Meantime, retail sales, new lending, producer prices and money supply increased at a slower pace in July.

Retail sales rose 17.9 percent year-on-year, slowing from June's 18.3 percent rise. The numbers came in less that economists had estimated.

Slightly gaining though, the consumer price index for July was 3.3 percent higher than a year earlier as a result of higher food prices amid severe flooding in many areas across the country.

Analysts attribute the higher inflation numbers to one-off factors and expect inflation pressures to decline in the months ahead.

(SOT) Gerard Lyons, Chief Economist and Group Head of Global Research, Standard Chartered:

“Even though there's big wage pressures across the border here in the Pearl and the Delta, negative companies based in the Pearl and the Delta is having a big positive elsewhere in China. More companies now are moving from the coastal areas inland, particularly to Western and Central China. Their land prices are lower; wages are lower, productivity still high. The government recent years has built infrastructure really well inland. So I think what we're seeing is a positive in terms of the dynamic of the Chinese economy.”

And now for a look at how Asian markets stacked up at the end of trading day.

Stocks in the region mostly in negative territory, as prospect of slower global growth overshadows the Fed's latest move to support the U.S. recovery. The latest economic data out of China also dampened sentiment for regional markets.

(SOT) Geoff Lewis, Head of Investment Services, J.P. Morgan Asset Management:

“We are still in this very volatile trading range kind of environment. We had a bit of a relief rally in July for obvious reasons, but a lot of the worries, things like oh is the fiscal tightening destroy growth in 2011, these things are going to be with us for some time unfortunately, so it's a very difficult environment now for asset allocation, it's a very difficult environment for taking aggressive bets. I think investors need to be pretty cautious and well diversified in their investment strategy.”

In Japan the benchmark Nikkei 225 closed lower by 2.7 percent.

Honda and other Japanese exporters fell as the yen hovered near a 15-year high to the dollar.

Meantime, South Korea's KOSPI also finished lower by 1.3 percent

Technology shares took the biggest hit as uncertainty over the global economic recovery and weak product demand dimmed the profit outlook for shares such as Hynix Semiconductor.

In Australia, the S&P ASX 200 hit a 12 day low during trading day to close 1.9 percent lower.

Commonwealth Bank posted a record half-year profit but shares skidded after it flagged a weak demand for credit.

In Greater China, a mixed day of trade.

Alibaba.com gained after logging its best quarterly results in 2 years.

Meantime, Everbright Bank has reportedly priced its Shanghai offering at the top of an indicative range, putting it on course to raise up to $3.2 billion dollars.

Overnight the U.S. Federal Reserve stepped in to kick start the flagging US economy.

The Fed had left rates on hold and said it would keep them low for an extended period.

It also announced a couple of initiatives, in what some are calling a form of quantitative easing.

CNBC's Steve Liesman with the details.

(Package Starts)

First it will no longer allow its 2 trillion dollar balance sheet to shrink, and will now maintain its size.

Secondly, it will take the money from the mortgage back securities and debt that was scheduled to expire in roll-off, and turn it into treasuries in long-term securities. It did this along with downgrading its economic outlook saying the pace of recovery is likely to be more modest than anticipated.

What does the fed hope to accomplish? A shrinking of balance sheet would be equivalent to tightening monetary policy but with the economy weak and the outlook unusually uncertain the fed is biding its time, waiting for clarity.

By not allowing balance sheet to shrink, the fed is effectively maintaining a neutral policy from where it is now.

Two developments we must discuss. First, this is the first time the fed has effectively peged size of balance sheet - effectively creating a new measure for interest rates for Fed to target, and by which investors can now gauge the Fed's policies.

Second, the potential impact of the fed letting mortgages balance roll off, which could mean higher rate for homebuyers. But by buying treasuries, the fed is also susceptible to the charge it is printing money to pay for the government deficits.

Back to you.

(Package ends)

Former Fed governor Robert Heller spoke to CNBC today and he said the Federal Reserve's plans are questionable.

(SOT) Robert Heller, Former Federal Reserve Governor:

“I think by buying more fed securities the fed is moving on a very slippery slope, that is something that the fed should beware of. Only countries that are in deep trouble tend to do that and in the end there's no easy exit strategy.”

Heller went on to say the U.S. government needs to urgently get its fiscal house in order and he outlined one example they should be following.

(SOT) Robert Heller, Former Federal Reserve Governor:

“Germany adopted tighter fiscal policy several months ago, and lo and behold, their economy is really turning the corner now. Germany is on the road for strong recovery, and that's the path we should take.”

Well, that wraps up today's business highlights.

I'm Saijal Patel from CNBC.

Thank you for watching.

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