China's economy still looking too hot

China's money-supply growth slowed in February, M2 rising 17.5 percent from a year earlier compared to 18.9 percent in January. A shrinking trade surplus -- exports were up 6.5 percent in February, the slowest pace in almost six years -- would help sustain the downtrend.

On the other hand, money is continuing to flow into China in the form of foreign direct investment, which rose 38 percent in February from a year earlier.

And other economic data continue to show few signs of cooling. From Bloomberg:

China's retail sales climbed 20.2 percent, matching the fastest pace in at least nine years, a sign that consumer spending may sustain the world's fastest- growing major economy as export demand weakens.

The increase for January and February was the same as December's and more than the 19 percent median forecast of 18 economists in a Bloomberg News survey...

Consumer-price inflation accelerated to 8.7 percent in February, underscoring the risk the world's fourth-largest economy will overheat after expanding 11.2 percent in the fourth quarter. Producer prices, the cost of goods as they leave the factory, rose 6.6 percent, the fastest pace in three years.

February inflation would have been affected by snow storms and the Lunar New Year, but even adjusting for these factors, Michael Pettis estimates that "normalized February inflation would have still come in at 7.1%". That would be too high, and could put more attention on the possibility of faster renminbi appreciation.

Certainly, the continued decline in the US dollar yesterday, despite the introduction of the Term Securities Lending Facility on Tuesday, suggests that the current rate of renminbi appreciation against that currency is poor defence against inflation. From Bloomberg today:

The dollar fell to the lowest since 1995 against the yen after U.S. President George W. Bush said the dollar is "adjusting."

The U.S. currency also slid to a record low against the euro as Bush said its decline was not "good tidings" for proponents of a strong dollar. It traded near an all-time low versus the Swiss franc...