Changing China

from George Chen:

China is still waiting for inflation to peak

By George Chen The opinions expressed are the author’s own.

How time flies. It's already the end of August and speculations naturally arise about what China's inflation reading will be for this month.

The most optimistic view these days is that the August Consumer Price Index (CPI) could decline to below 6 percent. The most pessimistic view I've heard is that growth has slowed down in August, but probably only to 6.2 percent or 6.3 percent.

But, why should we care about the August CPI so much? One month cannot tell the whole story.

The reason we care so much is because if the August CPI growth slows down (we will see the official release of August economic data in the coming weeks), it's good news for the central bank as well as for the ordinary people in China who have been fighting with fast inflation for more than three years already. But, it's not good enough.

Yesterday, amid market talks about August CPI, I heard something interesting from Mengniu, China's top dairy product maker: "We are confident we can at least maintain (first-half) margin levels in the second half," Mengniu Chief Financial Officer Wu Jingshui told reporters after the company's first-half earnings release. He added the company might raise product prices and adjust its product mix to offset an estimated 3 to 5 percent rise in raw milk costs in 2011.

A Hu-Ma summit in 2012?

When Taiwan President Ma Ying-jeou was elected ruling Nationalist Party (KMT) chairman in July, pundits jumped on the idea that he would use his new title to help secure a meeting with China’s President Hu Jintao. The first-of-a-kind summit would follow six decades of strained relations including China’s threats of military force against the island.

Ma’s new job, which he will take in mid-October, allows him to meet Communist Party Chairman Hu in a party-to-party role, laying aside each side’s presidential title. China does not recognise Taiwan’s presidency or other government institutions as it claims sovereignty over the self-ruled island.

Beijing’s state-run China Daily newspaper said such a meeting would signal “great reconciliation.”

A meeting would best take place in 2012, according to a KMT spokesman, Lee Chien-jung.

Before then, Ma will be wary of Taiwan’s divided public, Lee said. Taiwanese generally favour closer economic ties with China but oppose rushing into a relationship with the long-distrusted Communist government on fears that Beijing would compromise Taiwan’s self-rule, including its democracy. Ma will monitor opinion polls for any change in sentiment, the spokesman said, ruling out any meeting in the short term.

Ma could also be embarrased at home if Hu declined to acknowledge his title as president.

Odds of a meeting will surge in 2012 if Ma wins re-election by a big margin in March of that year, which would be an endorsement of China-friendly economic policies that have characterised his administration since he took office in May 2008.