Difficulties for fast growth

Even though an increase in exports in August suggested that China's trade was becoming more stable, it cannot eliminate the possibility that the country will be faced with the dual difficulties of rising inflation and slower economic growth.

The country's exports increased by 2.7 percent year-on-year in August, a rate that failed to meet market expectations.

Policymakers, seeing inflation accelerate and industrial activity stagnate, now find themselves in the difficult position of having to stimulate growth and tame prices at the same time.

The country's rate of consumer inflation ticked up to 2 percent in August from July's 30-month low of 1.8 percent and its industrial output's rate of increase slowed to 8.9 percent year-on-year, the lowest such figure since May 2009.

The fact that consumer inflation has recorded rises in July and August is an unmistakable sign that inflation is becoming a threat again.

Food prices, in particular, increased by 1.5 percent month-on-month in August, reflecting the surging cost of vegetables, fruits and grain. Partly the result of recent bad weather, the increase also stems from consistent rises in farm costs. The international grain market is also a source of anxiety.

The producer price index's decrease in August, meanwhile, suggests that corporate profits are likely to be low for quite some time, sending a signal that now is too early to predict that the economy will quickly bottom out and then rebound.

These figures make a strong case for the central government to adopt more stimulus measures to shore up the economy.

We have seen the government take steps to ensure infrastructure projects are approved more quickly and have seen local governments adopt de facto relaxations of real estate controls.

Amid all of this, though, the looming risk of rising inflation will continue to thwart authorities' attempts to adopt stronger stimulus measures.

Perched between rebounding inflation on one side and slowing economic activity on the other, China will have to walk a tight rope to revive its economy.

(China Daily 09/11/2012 page8)