China's factory gate prices rose at the fastest pace in more than eight years in February, official data showed Thursday, fuelling hopes the country may export inflation to the global economy.

The producer price index (PPI) increased 7.8 percent year-on-year, according to the National Bureau of Statistics (NBS), marking the sixth straight month of rises and beating economist expectations of a 7.7 percent jump in a Bloomberg poll.

It was the fastest growth rate since September 2008 and marked an acceleration from the previous five months, raising hopes that the pick-up in prices in the world's top trading nation could filter through to other economies.

For years the world economy has been mired in tepid inflation or deflation which, if persistent, tends to be bad for industrial prospects and economic growth because customers delay purchases in hopes of yet-cheaper deals in the future, starving companies of business and funds.

The on-year rise in producer prices is partly due to the comparison with a low figure last year, when prices saw a "sharp decrease" in February, NBS analyst Sheng Guoqing said in a statement.

China's Lunar New Year holiday falls in January or February and is often blamed for interfering with economic data for the first two months.

Increases in oil and natural gas exploitation, coal mining as well as metal smelting also contributed to the expansion, he added.

- 'Strange reflation' -

The figures follow upbeat reports on China's fourth-quarter economic growth as well as February factory activity and imports that were driven by higher commodity prices.

The "strange reflation" helps "corporations by allowing them to push up prices and generate the needed revenues to cover their very high debt burden", said Natixis analyst Alicia Garcia Herrero.

But the soaring PPI, which "may have already peaked", did not push CPI up "because there is no recovery in demand yet", Zhou Hao with Commerzbank AG told Bloomberg.

Downstream sectors may not reap the benefits of factory gate inflation as "there are few signs" that sales prices are reflecting the rising costs of raw materials, Nomura analyst Zhao Yang said in a note.

The data also weakened investors' confidence, sending the benchmark Shanghai Composite Index down by 0.74 percent, as the market is wary of possible interest rate hike, Zheshang Securities analyst Zhang Yanbing told AFP.

The consumer price index (CPI), a key gauge of retail inflation, rose 0.8 percent last month, missing the 1.7 percent increase estimated by economists and marking its slowest growth in two years.

Ample supply in vegetables and sagging demand for meat after the Chinese new year holiday resulted in a "marked drop" in food prices in the month, and a declining number of tourists after the festival also drove down costs of flights and hotels, Sheng said.

Inflation in the country's property sector, which will likely face credit tightening, has not flowed through to service sectors, as inflation in transportation, education, culture and entertainment was "very weak", Zhao Yang said.

Looking ahead, authorities will likely prioritise controlling credit risks over restraining inflation, given that consumer prices have still not breached policy makers' "comfort zone", Julian Evans-Pritchard of Capital Economics said in a note.

Authorities had vowed to keep the CPI increase "at around three percent" in a work report delivered to the National People's Congress on Sunday.

Baidu CEO defends state support of Chinese firms
Beijing (AFP) March 9, 2017 - State support for private firms is crucial in China's market, the head of the mainland's online search giant Baidu said Thursday, following complaints from European businesses that Beijing-backed firms are pushing out foreign competitors.

"I think state support of private companies is absolutely necessary. In the Chinese economy, the government wields a very important role... such as to provide data to allow companies to do better research," chief executive Robin Li said on the sidelines of annual parliament meetings being held this week in Beijing.

"The state does not spend that much money on private companies. We still rely on the market for most of our (financing)," he told reporters.

"The Chinese market has its own characteristics; it's not the same as the US or even France."

Li's remarks came after the European Union Chamber of Commerce in China on Tuesday released a 70-page critique of the government's "Made in China 2025" plan -- launched two years ago -- to champion local high-tech manufacturing.

While upgrading manufacturing methods and developing high-tech industries is important for China's economic transition, state intervention can stoke tensions with trade partners and lead to industrial overcapacity, the Chamber's report said.

Current state subsidies also give an unfair advantage to local producers and may possibly violate China's commitments as a member of the World Trade Organisation, it added.

Beijing has said it wants to reorient China's economy away from relying on debt-fuelled investment and towards a consumption and innovation-driven model, but the transition has proved challenging.

The economy grew 6.7 percent last year -- the slowest rate in a quarter of a century.

Li is among more than 100 billionaire delegates of China's rubber-stamp parliament, the National People's Congress (NPC), which convenes annually in Beijing.

On Sunday, at the opening of the NPC, the government released statements appearing to address international concerns over the "Made in China" plan.

"Foreign firms will be treated the same as domestic firms when it comes to licence applications, standard-setting and government procurement, and will enjoy the same preferential policies under the Made in China 2025 initiative," a government work report said.

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