China May inflation rises, industrial growth slows

By JOE McDONALD AP Business Writer

BEIJING (AP) - China's inflation rose in May amid signs its rebound from the global slump is slowing, adding to pressure on Beijing to keep growth on track and control politically sensitive prices.

Consumer prices rose 3.1 percent from a year earlier, up from April's 2.8 percent rate, the National Bureau of Statistics said Friday. Growth in investment and factory output slowed but still was at double-digit levels.

Rising inflation has prompted concern Beijing might hike interest rates or take other steps to cool growth that hit 11.9 percent in the first quarter. That could affect the United States, Europe and others that look to China, the world's No. 3 economy, to help drive demand for their iron ore, factory machinery and other exports.

A statistics bureau spokesman rejected suggestions China might face "stagflation" - a damaging mix of rising prices and slowing growth. He said inflation pressure was easing and the communist government can hit its target of holding full-year inflation to 3 percent.

"There is no problem of stagnation," said the spokesman, Sheng Laiyun, at a news conference. He said the economy's "three driving forces" - trade, investment and consumer spending - "are still rising."

Analysts expect China's rapid expansion to slow as the initial impact of its 4 trillion yuan ($586 billion) stimulus wanes. The World Bank's forecast for full-year growth is 9.5 percent.

Slower growth could complicate efforts to control prices because the standard tool of rate hikes might further chill economic activity.

"In the second half of the year, growth is going to be slightly disappointing, inflation is going to be slightly too high," said Tom Orlik, an analyst in Beijing for Stone & McCarthy Research Associates. "That clearly puts the Chinese government in a policy quandary."

May exports surged by nearly 50 percent over a year earlier but analysts expect trade to weaken as Europe's debt crisis cuts demand in the 27-nation European Union, China's biggest trading partner.

May inflation was driven by a 6.1 percent rise in food costs, a sensitive issue in a country where some families spend half their incomes on food. Wholesale inflation accelerated to 7.1 percent from April's 6.8 percent rate, suggesting shoppers might face higher prices as retailers pass on rising costs.

May growth in investment in factories and other fixed assets - seen as an indicator of future growth - slipped from April's 26.1 percent expansion to 25.9 percent, the statistics bureau reported. Growth in industrial output declined for a third month, falling to 16.5 percent from the previous month's 18.8 percent expansion.

Investment growth has been dampened by government curbs aimed at cooling a credit boom and surging housing costs. Regulators also want to block overspending on industries such as steel in which production capacity already exceeds demand.

Total lending by Chinese banks in May shrank by 17 percent from April's level to 639.4 billion yuan, ($93.6 billion), the central bank reported.

Financial markets have been rattled by concerns the government might further tighten access to credit. China's main stock index has shed 4 percent since May 25.

Two monthly surveys of industrial activity released earlier showed Chinese manufacturing growth slowing in May on sluggish new orders.

In a positive sign, growth in retail sales accelerated slightly in May to 18.7 percent from April's 18.5 percent rate.

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Associated Press researcher Bonnie Cao contributed to this report.

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Online:

http://www.stats.gov.cn