Emerging Markets Roundup: China

OVERHEATING EASES, BUT DEMAND IMBALANCES REMAIN

 

By Thomas Clouse

 

Chinese overheating is finally slowing.

 

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Rising food costs hit consumer price index

Chinese overheating is finally slowing after numerous interest rate increases and other policies were enacted to cool the economy and contain inflation. GDP growth fell to 9.6% in the first half of 2011, down from 10.3% in 2010. Despite signs of progress on house prices, rising food costs in June pushed the country’s consumer price index to its highest year-on-year growth rate in three years. Investment also contributed significantly more to GDP growth than consumption—although policymakers have tried to stoke domestic demand and encourage more balanced economic growth. Highlighting that imbalance, China’s trade surplus rose to $22.3 billion in June, from $13.05 billion in May.

 

China’s ministry of railways was in the spotlight after a high-speed train collided with another on July 23, killing at least 40 passengers. Preliminary reports cited a malfunctioning signal as the cause, although the investigation is ongoing.

 

Former railway minister Liu Zhijun made headlines in February when he was removed from office on charges of corruption. The charges and recent crash have cast doubts over the value of China’s massive investments in high-speed railways in recent years. Many in China have also called for reform of the powerful railway ministry, which acts as both regulator and service provider for China’s extensive railway system. The government’s overall response to the accident drew criticism throughout China after rumors spread across the internet that the train wreckage was buried shortly after the crash.

 

China’s most popular internet search engine—Baidu—has agreed to pay copyright fees to record labels for music offered through its websites. The company will continue to offer free downloads, paying royalties from advertising revenue, marking significant progress in efforts by foreign music firms to protect copyrights in China. The International Federation of the Phonographic Industry (IFPI) said in January that China’s internet piracy rate was “virtually 100 per cent.” China has 485 million internet users—the largest single-country internet population in the world.

 

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