TO THE POINT: Economic statistics for August released on September 11 ignited serious concerns over inflation and led to a sharp plummet of the Chinese stock market. The consumer price index growth rate in August hit the highest in a single month in 11 years to 6.5 percent and the producer price index grew a mild 2.6 percent. The real estate market continued its rapid growth momentum, while the trade surplus ranked the second highest in history. The Chinese Government decided to stabilize its trade policies and dump frequent policy adjustments to provide a healthy and stable policy environment for its companies. By LIU YUNYUN

PPI Grows Moderately

China's producer price index (PPI) for manufactured goods was up 2.6 percent in August over the same period of last year, the National Bureau of Statistics (NBS) said on September 10.

The monthly increase was 0.2 percentage points higher over July, said the bureau.

NBS also said the purchasing price of raw materials, fuel and power was up 3.8 percent year on year, 0.2 percentage points higher than July. The PPI of capital goods rose 2.2 percent.

The PPI for the mining sector was up 1.4 percent, while that of raw materials sector rose by 3.9 percent, and that of processing sector was up 1.5 percent.

Inflation Pressure Mounting

The 6.5-percent growth in the consumer price index (CPI) in August has triggered nationwide concern over inflation, raising the possibility of another round of interest rate hikes.

The 6.5-percent increase came after a 5.6-percent increase the previous month, the NBS said, and was much higher than the experts' expectations of 6 percent. It was the largest monthly growth in 11 years and pushed the first eight months' CPI growth to 3.9 percent.

Meanwhile, the PPI, a measure of inflation at the wholesale level, increased 2.6 percent in August, 0.2 percentage points higher than in July. That marked a reversal from a steady slowdown in PPI in the past few months, which analysts indicated as a sign that inflationary pressure is spreading from the consumer sector to other sectors of the economy.

In a breakdown of August's CPI figures, food prices jumped 18.2 percent year on year, while non-food items rose only 0.9 percent.

Among foodstuffs, meat and meat products reported the biggest increase, up 49 percent, followed by a 34-percent hike in cooking oil, and a 23.6-percent rise in eggs. Grain prices went up 6.4 percent.

In August, rural areas saw a 7.2-percent price increase, compared with 6.2 percent in urban areas.

Zhou Xiaochuan, Governor of the People's Bank of China, the central bank, expressed his concern about inflation one day before the statistics were released on September 11, saying that, "curbing inflation is our objective."

Earlier this month, Zhou said the central bank hoped to turn the real interest rate positive, indicating more interest rate hikes may come in the next few months.

China has raised interest rates four times so far this year, most recently on August 21 when the benchmark one-year deposit rate rose to 3.6 percent.

But, the return on deposits is still below the inflation rate, indicating a loss of purchasing power for people who put their money into banks. Bank deposits are continually flowing into the stock market and property market, pushing both markets to record highs.

However, official economists still believe serious inflation is unlikely.

Yao Jingyuan, Chief Economist with NBS, said the CPI growth will slow after the third quarter because of the increased supply of pork and other foodstuffs.

The National Development and Reform Commission (NDRC) said all food demand except pork can be satisfied, and "we see no threat of severe inflation."

Other economists, led by Justin Lin from Peking University and Wang Tongsan from the Chinese Academy of Social Sciences, said the country has entered a cycle of higher consumer prices; and warned of an inflation threat. They said record-high investments, growing wages, increasing consumption demand, and price hikes in the international market have fueled inflation fears.

The announcement of the CPI figure on September 11 and the issuance of another batch of special treasury bonds totaling 200 billion yuan finally led to a wave of panic selling on the same day, resulting in the largest single-day drop in three months.

The benchmark Shanghai Composite Index, after hitting a temporary high in the morning, plummeted 241.32 points, or 4.51 percent, close to 5,093 points, the deepest plunge in the post-May 30 period after June 4 when the benchmark index fell 330 points in a single day.