While markets took a hit late last week from another upsurge in fears about the euro and especially Greece, the August economic report from China was reassuringly benign.

Those fears about the eurozone and the European Central Bank was sparked by the resignation of the central bank's chief economist, German Jurgen Stark, who followed his departure with an attack on some of the policies of the ECB.

He is a German and doesn't like the ECB's policy of buying sovereign bonds (such as Italy and Spain at the moment) and made his opposition loudly and widely known late Friday night, our time.

As a result, markets in Europe and the US swooned and fell by between 2% and more than 4%.

Markets in Asia, led by Australia and Japan, will sell off this morning to catch up with the slump.

The Group of Seven major economies agreed on Friday to do more to find ways to support economic growth, but seeing the group contains the world's major basket cases, led by the US, Italy and France, plus the UK, the words meant nothing.

A copy of the communiqué included this comment "Given the fragile nature of the recovery, we must tread the difficult path of achieving fiscal adjustment plans while supporting economic growth".

The G-7 said officials were prepared to take "all necessary actions to ensure the resilience of banking systems and financial markets".

That will do nothing to ease fears in the markets and this nervousness will overshadow the latest economic update from China, which was again very solid and good news for Australia.

While there was an expected dip in industrial production to a still strong 13.5% growth rate in August, inflation eased slightly to an annual rate of 6.2% (from 6.5%) and the trade surplus narrowed noticeably as imports jumped sharply.

Crude steel production figures for last month won't be out until tomorrow, but data released on the weekend shows a sharp jump in iron ore imports in the month.

Iron ore imports rose 8.3% in August to the highest in five months as demand and prices rose.

Imports totalled 59.09 million tonnes, up from 54.55 million tonnes in July and the most since March, according to China's General Administration of Customs.

Imports jumped 32% from 44.61 million tonnes a year earlier as supplies from India again fell, meaning higher offtake from Australia and Brazil (at a time when prices hit three month highs).

But there was an interesting warning from a couple of well placed analysts about the outlook for the rest of the year, who suggested industrial output will slow over the next five months because of the problems in Europe and the US.

August's trade surplus for the month was $US17.75 billion down from July's two year high of $US31.5 billion.

China's exports jumped 24.5% in August from a year earlier to $US 173.31 billion (down from July's record $US175 billion) and imports surged 30.2% to $US155.6 billion, the highest since March.

Exports and imports in the first eight months amounted to $US2.35 trillion, a 25.4% jump year on year.

From January to August, exports totalled $US1.22 trillion, up 23.6%, while imports rose 27.5% to $US1.13 trillion.

The trade surplus for the first eight months of this year was down 10%, at $US92.73 billion, from the same period in 2010, a sign of the sharp acceleration in imports this year (and prices for commodity imports, such as iron ore, coal, oil, soybeans).

In the first eight months, trade between China and the European Union (EU) rose 21.8% to $US372.14 billion. The EU remained China's largest trading partner.

Trade between China and the US was up 17.8% at $US285.65 billion.

The Association of Southeast Asian Nations (ASEAN) block was China's third largest trading partner with bilateral trade totalling $US234.61 billion, up 26.6%, the Customs Bureau said.

Bilateral trade between China and Japan grew at a slower pace of 18.8% and reached $US221.98 billion during the period. China also saw a trade deficit of $US33.72 billion with Japan, down 7% on the first 8 months of 2010.

Though exports grew faster in August than in the previous two months, Chinese analysts appear to be concerned that the pace may slow due to sluggish economies and worsening debt crises in the world's major economies, especially the eurozone which is now one of China's two major export markets.

The dip in industrial production of half a per cent to an annual 13.5% growth rate was consistent with the outcomes in the two major surveys of manufacturing activity for August.

Industrial value-added output growth for the January-August period rose at an annual 14.2%, and on a monthly basis, output rose 1% in August from July, which was a solid result.

In May, year-on-year industrial value-added output growth hit a seven-month low of 13.3% as the government's tightening on monetary policy hit hard, along with the ending of the stimulus spending policies.

All 39 of the country's industrial sectors posted gains in August, according to a sector-based analysis of the industrial output growth figures, according to the National Bureau of Statistics.

China's inflation rate fell to 6.2% from the 37-month high of 6.5% in July.

That might be enough to convince the country's central bank not to extend a higher rate for asset reserve ratios for the country's major banks that is due to expire midweek. They have to keep 22% of their assets in these cash reserves, again a rate of 21.5% for small banks.

The bank has also increased interest rates three times so far this year.

The consumer price index rose 0.3% in August from the previous month, after a 0.5% rise in July. The figure is not seasonally adjusted.

Giving a more detailed breakdown of the index, the bureau said food prices rose 13.4% in the year to August, with non-food prices up 3%.

China's Producer Price Index (PPI), a major measure of wholesale-level inflation, rose 7.3% year-on-year in August, down from 7.5% in July.

During the first eight months of this year, the country's PPI climbed 7.1% from the same period last year.

China's retail sales rose 17% year-on-year in August.

Retail sales in August grew by 1.36% from July. From January to August, the country's retail sales rose 16.9%.

Interestingly the surge in gold prices and demand for the metal saw jewellery sales soar 44.4% from a year ago.

That was the biggest increase among all consumer goods in the month and a major reason for the solid overall rise.

Copyright Australasian Investment Review.
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