As the National Statistics Office announced today, industrial production in July was up by 14% in a year-on-year comparison, following an increase of 15.1% in June. Based on seasonally adjusted figures, production growth in July slowed to 0.9% as against the previous month (June: 1.4%). Although we should not attach too much importance to the fact that July's industrial production data fell short of the market expectations - especially since developments in the previous month had come as something of a positive surprise - today's production data, coupled with the purchasing managers' index for the manufacturing sector that was published last week, provide further evidence that economic momentum is likely to continue to taper off slightly in the second half of 2011. At 50.7 points, the purchasing managers' index is currently sitting at the lowest level since February 2009, just a notch above the 50-point expansion threshold. The optimism among Chinese companies as regards the export outlook, in particular, is now only subdued.
Amidst all the talk of waning economic momentum, however, it is important to remember that this economic slowdown is due not least to Chinese economic policy, and is therefore entirely intentional. The government has been battling with various signs of overheating on the Chinese economy for some time now. In recent months, one of the main headaches for economic policy has been the steep rise in consumer prices. In July, they increased by 6.5% year-on-year, the steepest rise for three years. However, given the most recent developments in energy prices, we expect the inflation rate to drift back towards the 4% mark in the months to come.