TO THE POINT: The inflation pressure has extended from the food sector to manufactured goods. The central bank ordered financial institutions to deposit more money to the central bank in a bid to rein in liquidity. China imposed anti-dumping duties on acetone imports to protect domestic suppliers. The largest national steel mill will soon come into being after two Hebei mills merged. By LIU YUNYUN

Major Figures of May

Consumer price index: up 7.7 percent

The consumer price index (CPI), the barometer for inflation, grew 7.7 percent in May year on year, 0.8 percentage points lower than that in April, according to the National Bureau of Statistics (NBS).

It came as no surprise for financial institutions that the CPI dropped in May month on month, as food prices, a major trigger for this round of inflation, dropped considerably thanks to an abundant summer supply. For instance, green pepper was sold at 14 yuan ($2) per kg during winter Lunar New Year time in February, but around 3 yuan ($0.43) per kg in June.

According to generally acknowledged international standards, when the CPI growth rate is running above 3 percent, inflation is unavoidable; when the growth surpasses 5 percent, it means serious inflation.

There is no quick fix yet to cure inflation. But Song Guoqing, economics professor with Peking University, stated the most efficient and simple way to control inflation is to control money supply. "Inflation is actually a money issue. When there is more money in the market, costs will rise, so do the prices," Song argued. He called on the central bank to strictly reinforce stringent monetary policy to resolve inflation pressure.

Producer price index: up 8.2 percent

NBS data also showed that the producer price index (PPI) for manufactured goods, a main gauge for inflation at wholesale level, soared 8.2 percent in May year on year, the biggest surge in three years. Purchasing prices for raw materials, fuels and power rose by 11.9 percent.

Of the total, PPI for the mining and quarrying industries increased 25.9 percent; that for the raw material industry and machining industry correspondingly rose up by 10.9 percent and 6.3 percent; and consumer goods grew 5.1 percent. Of this, price for foodstuff increased 11 percent; those of clothing and commodities rose 2.4 percent and 3.9 percent, respectively, while durable consumer goods dropped 0.5 percent.

In the first five months, PPI grew 7.4 percent from a year earlier period.

The hovering PPI will add more pressure to consumer prices, as the producers tend to pass on their cost to consumers who will ultimately bear all price hikes.

Trade surplus: down 9.9 percent

The huge increase of imports slashed China's trade surplus, which dropped 9.9 percent to $20.2 billion in May compared with that of the same month last year, according to the General Administration of Customs.

Exports in May rose 28.1 percent year on year to $120.5 billion, while imports surged 40 percent to $100.3 billion. The export growth rate was 0.6 percentage points lower than May last year, whereas the import growth rate was 20.9 percentage points higher.

In the first five months, the aggregate trade surplus stood at $78.02 billion, down 8.6 percent year on year.

The escalating yuan value helped cut exports by dampening the cost advantage of Chinese products while boosting imports. Meanwhile, "the price surge of primary goods in the international market pushed upward the prices of raw materials, iron ores, crude oil and refined oil, which also contributed to the high import value in May," said Li Jian, a researcher with the research institute under the Ministry of Commerce.

Punching Liquidity Harder

The Chinese central bank's 1-percentage-point hike of reserve requirement ratio dampened investors' enthusiasm in the stock markets.

On June 7, the People's Bank of China unexpectedly announced to raise reserve requirement ratio by a bold 100 basis points to 17.5 percent. It was the fifth hike so far this year in a bid to control cash in circulation. The reserve ratio hike will have a negative impact on the profits of banks and may add liquidity pressure on real estate companies. Financial institutions in serious earthquake-stricken areas were temporarily suspended from the hike.

In response to the hike, the benchmark Shanghai Composite Index freefell 7.73 percent-the biggest drop in 16 months-to 3,072 points on the first trading day after the announcement. It was followed by another 1.57-percent drop on the second day. The trade volume was a mere 55.69 billion yuan ($8 billion) on June 11. The outflow of international speculative money might also contribute to the stock market losses, some analysts suspected. Many stock analysts agreed a bear market had already begun.

"The central bank might wanted to signal to the public that it will adhere to stringent monetary policy, even though the reconstruction needs a huge amount of money after the massive earthquake (on May 12)," said Peng Xingyun, an expert with the Chinese Academy of Social Sciences.

The central bank held strong that "the earthquake won't change the economic development trend," while "the most urgent task of China is to rein in consumer prices," according to a report issued on May 30 by the macro-economic research team under the central bank earlier this month.

Trade Tussle

China's Ministry of Commerce slapped anti-dumping duties on acetone imports from Japan, Singapore, South Korea and Taiwan, effective as of June 9.

This move is reportedly designed to offset losses of local manufacturers inflicted by acetone exports of the above-mentioned areas.

The anti-dumping duty rates were set in a range from 5 percent to 51.6 percent, and the tax would be in effect for five years. Any domestic importers should pay such duty to the Chinese Customs, while the rate is varied for different companies. A month ago, India had also imposed anti-dumping duties on acetone imported from or produced in South Korea.

Acetone is an important chemical material primarily used to produce bisphenol A and serves as an organic solvent. It is widely used in the medical and paint industries.

Forging No.1 Steel Mill

Hebei Iron and Steel Group (HISG) is expected to replace Baosteel Group Corp. as the largest steel mill in the country.

HISG was created from a merger between two large steel companies in Hebei Province, namely Tangshan Iron and Steel Group and Handan Iron and Steel Group, according to Sun Ruibin, Vice Governor of Hebei Province, in a press conference held on June 11.

HISG was expected to have a production capacity of 31.75 million tons of steel a year, overtaking Baosteel.

China's steel industry is undergoing consolidation, partly in a bid to use resources more effectively and become more energy-efficient. In March, Zhao Xiaogang, President of the China Steel Industry Association and Chairman of Anshan Steel Group, had stated, "The Chinese steel industry must be reshuffled. The reshuffle effort will be the greatest in history in the next three years."

So far in the first half of this year, Baosteel acquired smaller players Shaoguan Iron and Steel Group and Guangzhou Iron and Steel Group; Jinan Steel Co. Ltd. and Laiwu Steel Co. Ltd. merged into Shandong Iron and Steel Group; Wuhan Iron and Steel (Group) Corp. had also acquired or controlled smaller mills.

Coal Boom

China National Coal Group Corp. (CNCG), a major coal producer of China, said on June 6 that its profits rose 61.8 percent year on year to 4.1 billion yuan ($585.7 million) in the first five months of this year.

CNCG said its operating income rose 42.7 percent to 31 billion yuan ($4.43 billion).

The group produced 47.09 million tons of coal, up 13.2 percent, and 2.48 million tons of coke, up 24.4 percent.

It sold 41.94 million tons of coal, up 19.9 percent. Of total coal sales, 35.09 million tons were sold domestically, up 28.3 percent, and 6.83 million tons were exported, up 7 percent.

Numbers of the Week

100 million yuan

Shareholders of the No. 1 domestic real estate giant China Vanke Co. have approved a decision to spend 100 million yuan ($14.29 million) to rebuild homes in quake-stricken Sichuan, after it was criticized by the public for its mean stance in donating to quake-hit areas.

11.5 percent

The Beijing Municipal Government advocates everyone's salaries should rise 11.5 percent this year, 2 percentage points higher than that of last year.