International | Nov 11 2010
By Greg Peel
There would have been the odd green tea spill at the G20 meeting in Seoul as leaders gathered around the Bloomberg terminal to learn the latest round of Chinese economic data. The Chinese finance minister was last seen slinking quietly out a back door.
China's annualised consumer price index grew by 4.4% in October, marking a significant jump above the 3.6% rate of growth in September. Economists had expected a 4.0% figure. Wholesale inflation looked similarly ominous, with the producer price index coming in at 5.0%, up on 4.3% last month and ahead of 4.5% expectations.
The reason the Chinese finance minister might have wanted to be somewhere else all of a sudden is that the inflation results suggests another rate hike will likely be forthcoming from the People's Bank of China anytime soon, which yet again puts pressure – further pressure – on Beijing to revalue the renminbi. Beijing is tipped to do just that, probably before the year is out, and probably only by about 5-7% as an increment.
The renminbi is anywhere between 20% to 40% undervalued depending on what comparisons you use.
But if Beijing does revalue the renminbi shortly it will not be because a bunch of gweilos demanded as much at a token cocktail gathering.
The rest of China's data movements were more benign.
Urban investment dipped to 24.4% growth from 24.5%, bang on expectation; retail sales fell to 18.6% from 18.8% when a flat result was expected; and industrial production surprised with a fall to 13.1% from 13.3% when an increase to 13.5% was expected.
These numbers are more akin to a China being carefully slowed by Beijing. The inflation numbers, nevertheless, reflect rising commodity prices which to some extent reflect a weaker US dollar, but also fundamental demand/supply issues in the food and textile space. The food bill of the average Chinese household is still a far greater proportion of the weekly budget compared to that of Westerners, so soft commodity inflation, which has been running riot, has a greater impact on China than it does in the US or Australia.
China knows it's pointless to wave a finger at the US and its sinister money printing policies because it is Beijing who chooses to peg to the US dollar and thus import such inflation. Were the renminbi to be revalued then food prices for the Chinese population would fall, but so too would Chinese exports become more expensive, and Beijing does not yet think China's domestic economy is proportionately effective enough to cope with the burden of lost export sales and lower receipts.