Prices rose by 10% in July, the largest increase since 1996. Serious repercussions on consumption feared. Meanwhile, many companies, especially those run by the state, are producing with slim profits or at a loss. Faith in the stock market is diminishing, and asset prices are falling rapidly. Experts: the Olympics have slowed the economy.

Beijing (AsiaNews/Agencies) - Inflation is rising in China because of producer prices, up 10% in July, the largest increase since 1996. The rise is affecting the Shanghai stock market, which today fell by 1.9%, after losing more than half of its value since the beginning of the year.

The rise in prices is being driven above all by the higher costs for raw materials and energy (+15.4% in July), although the recent drop in oil prices is bringing hope for relief. Experts observe that the rise in consumer prices has for months been below that of producer costs, meaning that for months companies have seen their profit margins fall, and will soon have to pass on the higher costs to consumers, feeding inflation.

In order to combat the rise in oil prices, Beijing is close to finalizing an agreement with Iraq for access to the Adhab oil field south of Baghdad, at a value of 1.2 billion dollars, according to yesterday's statement by Iraqi oil minister Hussain al-Shahristani.

The Shanghai stock market has reacted to the situation by losing 1.9%, after losing 4.47% on Friday, August 8, reaching its lowest level since January of 2007. It was expected that the stock market would lose ground during the Olympics, but everyone is observing that the drop is much steeper than foreseen, and demonstrates that for now, the government has no intention of propping it up. Yesterday, Li Rongrong, head of the state asset supervision and administration commission, said that the state will not make any significant sales in the shares of public companies, because it wants to maintain control of them: this would in any case guarantee that any losses would be covered, and many companies would be able to continue producing below cost, with a clear competitive advantage. According to Goldman Sachs, these losses are in part the consequence of the drastic "pro-Olympics" measures to reduce air pollution: the closing or lower production of hundreds of factories, the stopping of construction projects and traffic in Beijing and in five surrounding provinces and cities which together generate 26% of the gross domestic product. In an analysis, the company affirms that the Olympics will slow China's economic growth "in August and September", "both production and consumption", with a recovery in October, after the measures expire on September 20.

But others note that the Shanghai stock market has lost 50.48% in 2008, and 57.23% since its all-time high in October of 2007. They comment that the constant fall demonstrates a growing lack of trust, in part because everyone believes that stocks are overvalued. It is certain that various companies, like the ones that produce energy, are able to survive thanks only to public subsidies, since the government is forcing them to operate below cost in order to keep consumer prices down. Over the long term, this is causing distrust and concern in the market, and a great deal of caution in investing. (PB)

• china
• economy
• inflation
• energy
• oil
• iraq
• beijng
• olympics
• pollution
• environment
• stock
• market