09/13 01:34 China Prices Extend Their Slide, Leaving Exports to Fuel Growth By Michael Forsythe
Beijing, Sept. 13 (Bloomberg) -- China's consumer prices dropped for a sixth month in August and exports surged by a quarter, the latest evidence that overseas demand is fueling Asia's fastest- growing economy as domestic spending lags.
Consumer prices fell 0.7 percent in August from a year earlier, and exports surged 25 percent to $29.4 billion as overseas customers bought more mobile phones and machinery, government figures showed.
``There's a real dichotomy in the Chinese economy,'' said Robert Subbaraman, an economist at Lehman Brothers Japan Inc. ``There's concern that domestic demand, once you strip out all the government pump-priming, is quite weak.''
Department-store operator Taiyuan Tianlong Group Co. said its first-half loss more than doubled to 23.7 million yuan ($2.86 million) as consumers bought less clothing and food. By contrast, rising exports helped profit at Sichuan Changhong Electric Co., China's biggest television maker, rise five-fold during the half.
China's 1.3 billion consumers, who had $1 trillion saved at banks last month, may trim spending further as the government cuts welfare benefits and state companies -- which fired 25.5 million workers between 1998 and 2001 -- cut their workforces further. Government spending may slow in coming months, putting an added drag on growth, analysts said.
``It's unrealistic to expect this growth momentum to continue,'' said Qu Hongbin, an economist at HSBC Holdings Plc in Hong Kong. ``There is increasing uncertainty over export growth, and it's safe to say that that public spending has peaked.''
For now, foreign cash is spurring growth. China's trade surplus grew to $2.2 billion last month from $1.4 billion a year earlier, and foreign direct investment in the country surged 25.5 percent in the first eight months of the year to $34.4 billion, reports showed today.
Excess Goods
Low labor costs and a weak currency are helping China-based manufacturers win overseas orders for goods ranging from computer parts to clothing. The country's admission to the World Trade Organization last year eased investment rules for foreign companies.
By contrast, consumer prices are falling as manufacturers make more goods than they can sell and consumers save rather than spend. The government said in July it expects prices to drop 0.5 percent this year, after targeting a 1 percent to 2 percent gain in March.
Government investment in roads, phone networks and other projects -- which rose 24.1 percent in the first seven months of the year -- may flag at the end of the year as the government tries to rein in its annual budget deficit, analysts said.
In the first eight months of the year, consumer prices fell 0.8 percent from the same period last year, today's report showed. Exports climbed 18 percent during the eight-month period, compared with a 6.8 percent rate for all of 2001.