TO THE POINT: Inflation continues to stretch policymakers' nerves as consumer prices continue running high. Import growth has outpaced export, a reflection of China's trade rebalancing. Consumption and investments are holding up, putting a solid floor under the slowing economy. Woes of the U.S. economy have sent a shiver throughout the globe, including China's stock markets. The gloomy auto market has shown signs of recovery.

July Figures

CPI and PPI

The consumer price index (CPI), a barometer of inflation, grew 6.5 percent in July from a year ago, hitting a record high since July 2008, said the National Bureau ofStatistics (NBS).

The biggest driver of the CPI was food prices, which went up 14.8 percent in June over the same month of last year. Pork prices, in particular, skyrocketed 56.7 percent. Residential costs climbed 5.9 percent.

The producer price index (PPI), a major measure of inflation at the wholesale level, rose 7.5 percent, accelerating from 7.1 percent in June.

As the U.S. economy falters, expectations abounded for the U.S. Government to kick start a third round of quantitative easing, which may further exacerbate China's inflation woes.

But Lu Zhengwei, chief economist with the Industrial Bank Ltd., downplayed the concern. "As tightening policies take roots, the CPI is set to peak in August before tapering off in the fourth quarter," he said.

"The government may slow the pace of hikes in interest rates and the reserve requirement ratio given the weakness of the Chinese economy," he added.

The central bank, has raised interest rates three times and the reserve requirement ratio six times so far this year.

In a recent report, the Standard Chartered Bank, said inflation worries are giving way to concerns over the faltering global economic recovery.

"The next monetary policy move will be loosening and it's just a question of how soon," said the report of the Standard Chartered Bank.

"The policy loosening is likely to take the form of a less restrictive loan quota and increased budgetary spending on infrastructure and social housing," the report said.

Foreign trade

China's foreign trade is recovering lost ground.

In the first seven months, the foreign trade totaled $2.02 trillion, soaring 25.1 percent from the previous year, according to data from the General Administration of Customs. Of this total, exports edged up 23.4 percent to reach $1.05 trillion while imports went up 26.9 percent to $973.2 billion. The trade surplus shrank 8.7 percent to $76.21 billion.

In July alone, exports rose 20.4 percent to $175.13 billion while imports grew 22.9 percent to $143.64 billion.

Despite modest recovery, Chinese exporters will continue facing serious headwinds, such as the yuan's appreciation and economic vulnerability of developed economies, said Lian Ping, chief economist with the Bank of Communications.

Central parity of the yuan hit 6.4167 against the U.S. dollar on August 10, a record high since June 2010 when China restarted reform of the yuan exchange rate regime.

Imports will go on with a rosy path due to buoyant domestic demands and rising international commodities prices, said Lian.

Louis Kuijs, a Beijing-based seniorn economist of the World Bank, said the contribution of net trade to China's real GDP growth will decline.

The less diminished role of trade in supporting China's economic growth is partly because of slack demand, as the rest of the world struggles to recover from the financial crisis, he said.

Retail sales

China's retail sales of consumer goods totaled 1.44 trillion yuan ($223.3 billion) in July, an increase of 17.2 percent from a year earlier. The July figure brought the amount in the first seven months to 10.02 trillion yuan ($1.6 trillion), up 16.8 percent.

Fixed-asset investments

Investments in fixed assets climbed 25.4 percent to 15.24 trillion yuan ($2.4 trillion) for the January-to-July period. The growth rate was 0.2 percentage points lower than the January-to-June period.

Property development investments during the first seven months were 3.19 trillion yuan ($494.2 billion), representing growth of 33.6 percent from the previous year.

Industrial added value

The added value of industrial enterprises above a designated size—annual sales revenue of 20 million yuan ($3 million)—grew 14 percent year on year in July, 1.1 percentage points slower than in June.

All 39 sectors reported growth in industrial added value in July. The best performers were non-metal minerals and telecommunications equipment, which increased 18.8 percent and 15.8 percent, respectively.

Stock Nightmare

China's stock market witnessed a painful tumble on August 8, as the credit rating agency Standard & Poor's (S&P) lowered the rating on the U.S. sovereign debt, triggering investor worries of a new global recession.

The Shanghai Composite Index slumped 3.79 percent on August 8 to close at 2,526.82 points while the Shenzhen Composite Index lost 3.33 percent to finish at 11,312.63 points.

For the first time in history, S&P cut the rating from AAA to AA+, sending a shiver through global financial markets. The agency said there's one-in-three chance that the rating could be downgraded a further notch if conditions worsen over the next six to 24 months.

China has nearly $3.2 trillion worth of foreign exchange reserves, about 70 percent of which are holdings of U.S. Treasury securities.

Fears of a spreading debt crisis in Europe depressed confidence of global investors and accelerated panic selling of stocks, said Yi Xiaobin, an analyst with the China Galaxy Securities Co. Ltd.

In addition, Chinese investors were also worried that more tightening policies are in the pipeline as inflation jitters proliferate, said Yi.

Yi added that the domestic stock markets may continue to fluctuate amid turbulence in overseas markets, but he ruled out possibility of continuous plunges given solid corporate earnings.

"It remains to be seen whether the market will stage a rebound," said Gui Haoming, chief analyst at Shenyin & Wanguo Securities Co. Ltd. "The market recovery, in the long run, depends on controlling inflation and asset bubbles."

Auto Recovery

Auto sales in China climbed 2.18 percent year on year to reach 1.28 million units in July, according to data from the China Association of Automobile Manufacturers (CAAM).

The country produced 1.31 million cars in July, up 1.26 percent from one year earlier.

For the first seven months, the combined auto sales topped 10.6 million units, a rise of 3.22 percent year on year, while the output reached 10.46 million units, up 2.33 percent.

The country's auto market boomed for the past few years but started to cool after the government removed tax incentives for the industry and several cities have tightened automobile purchase policies in an effort to combat traffic jams.

"The government may resume favorable policies to boost the auto market as an effort to spur the slowing economy," said Yu Tiantian, a researcher with Jilin North Automobile Industry Information Development Co. Ltd.

Dong Yang, Secretary General of the CAAM, expected auto sales in the second half of the year to be significantly higher than those of the first half.

September and October are usually the peak time for the car market, said Dong.

Embracing E-Commerce

A forum on breakthroughs of Internet applications by traditional industries was held in Beijing on August 8 to discuss how traditional industries can integrate online and offline resources via the platform of Internet and innovate in commercial models.

Speakers at the forum agree that integration between traditional industries and the Internet is an inexorable trend, and Internet technologies will change business patterns of traditional industries and offer more effective and convenient solutions to traditional industries.

During the forum, a clothing international trade service platform, shininghub.com, is officially launched. The website is devoted to offering online services on trade match, order fulfillment and supply chain management.