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What Pigs and Cement Tell Us About China's Economic Strategy

BEIJING (TheStreet) -- Anyone who follows China's pork and cement markets knew well in advance of Friday's CPI report for April that the country's headline inflation rate would hit the skids.

Astute observers of pork and cement are also in a good position to predict how the government will respond to a decline in the consumer price index to 1.8% last month -- the lowest inflation rate since October 2012 -- and other signs of a decelerating economy.

Based on Beijing's moves in recent weeks to support falling pork and cement prices, more and perhaps more carefully targeted market intervention steps can be expected.

Prime Minister Li Keqiang has ruled out a major government stimulus, insisting Beijing wants market forces to fine-tune the economy, even if that means letting some areas of the manufacturing sector shrink. He's aware that debt from a 4 trillion-yuan stimulus launched after the global financial crisis in 2008 is still haunting China.

But Li is also keen to hit the government's 2014 GDP growth target of 7.5%. He stressed that goal again this week at a conference of African leaders in Nigeria's capital Abuja.

"We have the confidence and ability to meet these objectives, that is, a growth target of 7.5% for the whole year," Li said, according to China's state media. "This ensures a high level of growth that's good news for African countries, and good news for the world."

The government's ability apparently includes the capacity and will to intervene to support producers of pork, cement and other goods. If possible, Beijing does not want the slowdown in consumer demand reflected in the latest CPI figure to shutter farms and factories, thus dampening GDP growth.

The latest CPI figure, down sharply from 2.4% in March, reflected lower prices for meat, liquor, vegetables and transportation, according to the National Bureau of Statistics.

It also pointed to a deflationary trend that experts have been warning about since early April. Cai Jin, vice president of the China logistics federation, told a newspaper last month that "although there is no deflation now, this is the trend" and "a constant concern."

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