Another glimpse of the problems confronting the Chinese authorities: not only is inflation rising, but industrial production is now running well above the level the government thinks comfortable.
So its no wonder the Central Bank and the Government has been indulging in some 'jawboning' about taking action to tighten monetary policy.
China's National Statistics Bureau said yesterday that the country's industrial output rose a huge 18.1 per cent in May compared to May 2006.
That also compares to a 17.4 per cent rise in April.
Industrial production grew 18.1 per cent in the first five months of this year, compared to the same period of 2006. It grew 16.6 per cent for all of 2006, so there has been a noticeable acceleration this year.
China's Premier Wen Jiabao said on Wednesday that monetary policy needed a "moderate tightening'' to prevent the economy from overheating.
He didn't say when China may tighten policy in his statement which was posted on a government Web site late Wednesday evening.
That forced Chinese stockmarkets lower.
His comments increase the chances of yet another interest rate rise, which would be the third so far in 2007. And if banks are ordered to lift their reserve ratios (which control lending), it would be the six such move so far in 2007.
The benchmark one-year lending rate is 6.57 per cent and the deposit rate is 3.06 per cent.
Premier Wen said in the statement that China still faces problems in the economy, including "rapid growth in industrial production and the trade surplus, fast investment growth, excessive liquidity, increasing inflationary pressure and energy conservation challenges".'
Figures out earlier in the week showed inflation had jumped to an annual rate of 3.4 per cent in May, the fastest in more than two years.
Retail sales also rose by around 16 per cent in May, the biggest rise in 3 years, while exports rose by more than 28 per cent in the same month.
China last month started a campaign to curb excess growth in industries including iron, steel, copper, aluminum, zinc and cement that pollute and consume energy heavily.
More is going to be needed. Will that impact the likes of BHP Billiton and Rio?
