China Continues to Surprise

The boom in China is not about to bust. The weakness in China's industrial production and retail sales evident in April was reversed in May. After declining 0.57% in April from March, industrial production rose 0.53% in May from April. The consensus was for a continued decline. The deceleration in the growth of retail sales, from 2.45% in March to 1.00% in April was followed by an increase in the growth rate to 1.50% in May. The month to month changes in industrial production and retail sales are shown in the first chart.

Inflation in China, although of concern, has been better behaved than that of some of the other emerging countries. The second chart shows the year to year increases in the CPI's of the so-called BRIC countries, Brazil, Russia, India and China. Currently China has the lowest rate of inflation of the four countries, as can be seen in the second chart. Inflation in China has been held in check by vigorous efforts on the part of the monetary authorities to cool the economy. The Prime Lending Rate has been raised by 50 basis points from 5.81% in January to 6.31% in May and the Reserve Requirement Ratio for large depository institutions has been raised from 19.0% in January to 21.5 in early June.

Inflation has also been curbed to some extent by the appreciation of the yuan that has taken place of the past year as shown in the third chart. The yen has appreciated 5.3% against the dollar from June, 2010 to the present. The data cited above can be found in the Haver Data Base, EMERGE, EMERGEPR and INTDAILY.