China economy shows improvement

China's economy has shown signs of improvement, with the annual growth rates of both industrial output and retail sales rising last month.

However, despite the improvement, both sets of data were below analysts' expectations.

July's industrial production rose 10.8% year-on-year, while retail sales grew at an annual pace of 15.2%.

The rise in retail sales suggests that domestic consumption has helped to counter the drop in foreign demand.

China's 4 trillion yuan ($586bn; £355bn) stimulus package aims to boost domestic demand to fuel a recovery.

The plan has helped to boost China's economy, which grew at an annual rate of 7.9% between April and June, up from 6.1% in the first quarter.

But this is less than the double digit growth seen between 2003 and 2007.

Deflation fears

"The Chinese economy has shown some positive changes," said Li Xiaochao, a spokesman for the National Bureau of Statistics following the data.

But he said that profits at some firms were still "in great decline", adding, "the grave international environment affected our exports".

Separate data also showed Chinese consumer prices continued to fall in July. The consumer price index dropped 1.8% year-on-year, the National Bureau of Statistics said.

The drop was the sixth straight month of decline year-on-year. Wholesale prices were 8.2% lower year-on-year.

Analysts had expected the fall, since the year earlier period had significant inflation but concerns remain about continuing falls in prices.

"Deflation is still deepening," said Mr Peng.

Olympic effect

Trade data showed imports fell 14.9% in July from a year earlier, and exports shed 22.9%.

While exports fell year-on-year they rose from June and beat expectations, adding $17.5bn to reach $105.4bn in July.

"That's a pretty solid improvement, even if the year-over-year comparisons continued to be ugly," said Citigroup economist Ken Peng.

"With improving external conditions, we should see growth pick up in the second half of the year."

Xing Ziqiang, an economist at China International Capital said: "The annual fall in exports is caused by the abnormally high comparison base last July, when factories rushed to deliver their export orders before the Olympic Games."