Chinese Economics Thread

[crobato]

This article is significant as to the case of China's economy having decoupled from the US.

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Thursday, June 12th, 2008

China’s Export Machine Shifts Into High Gear, Even as U.S. Market Decelerates

By Jason Simpkins
Associate Editor


China's exports advanced at a 28% pace in May, despite growing economic turbulence in the United States and Europe, underscoring yet again that the Asian giant doesn't need Western markets to flourish.

The strong export growth should also give China's central bank more room to maneuver in its battle against escalating inflation at home.

After growing 21.9% in April, Chinese exports climbed 28.1% to $120.5 billion last month, China's customs bureau reported. Exports to the United States grew 9.1% in the first five months of year, while exports to the European Union climbed 27.4%.

The increases demonstrate that global demand for Chinese goods remains strong, even though many Western markets are battling the fallout of a worldwide financial crisis. Indeed, the export statistics are serving as evidence of an economic theory known as decoupling, in which emerging economies in Asia and Europe have developed enough market place muscle to no longer be dependent on the U.S. economy for growth.

And decoupled markets can survive - and even thrive - even if the United States were to spiral down into a recession.

The report suggests that those saying that exports are collapsing are wrong, Stephen Green, head of China research at Standard Chartered Bank PLC in Shanghai, said in a report.

Trade did grow with the more mature economies of the West. But China got its biggest boost from such emerging markets as India. Two-way trade with India increased by 70% in the first five months of 2008, the fastest rate of growth among China's Top 10 trading partners.

China is also forging stronger ties with Latin America. In 2004, Chinese President Hu Jintao predicted that Sino-Latin American trade would reach $100 billion by 2010.

In reality, it reached $102.6 billion in 2007, surging 42% from the year before.

The fact that Chinese exports have more than weathered the global financial storm is a huge blow for critics who had earlier predicted this credit-related mess would cause China to stumble.

China's economy grew by 10.6% in the first quarter of 2008, despite complications stemming from the U.S. credit crunch, the Chinese New Year and the worst ice storm the country had seen in decades.

"We have a lot of evidence to support the decoupling view," Timothy Bond, Merrill Lynch & Co. Inc.'s (MER) chief Asia economist, said in a research note.

Indeed, the recent surge in exports is proof that China will continue to advance - with all but a complete collapse of the U.S. economy. The growth in sales overseas sales, regardless of what happens in the United States, but they also proved that Chinese trade isn't dependent on the weakness of the yuan.

The Yuan's Rebound

For years, the United States and other Western powers have claimed that China has kept its currency, the yuan, artificially low to boost exports. But the yuan gained more than 10% on the dollar in the year through May, and still exports surged.

In the past year in fact, even with the freefalling dollar, China¡¯s trade surplus with the United States has grown from $126 billion to$143 billion, a gain of 13%. And the fact that exports are accelerating along with the value of the yuan will give China¡¯s central bank some latitude in dealing with inflation.

"Robust export growth could dispel domestic concerns that a stronger yuan is hurting exports too much," Gene Ma, head economist at China Economic Monitor, told BBC News.

The yuan has appreciated 5.4% against the dollar so far this year, making Chinese goods more expensive in foreign markets. At its current rate, the yuan will almost certainly improve on the mere 7% gain it posted against the dollar last year. And that will help China control inflation and shift from what its central bank called ¡°heated¡± growth to a more-sustainable economic expansion.

In fact, the effects of a stronger yuan already can be seen. Consumer inflation slowed to 7.7% in May from 8.5% the month prior, two government officials said Tuesday, citing statistics bureau data.

"Inflation has peaked, at least temporarily," Ben Simpfendorfer, a currency strategist at Royal Bank of Scotland in Hong Kong, told Bloomberg. "Pork prices have stabilized to some extent. Vegetable prices certainly have."

Food costs account for 34% of China's consumer price index, and growth in agricultural prices slowed to 19.3% in May from 24.2% a month earlier, according to the Ministry of Agriculture.

The Consumer's Viewpoint

Furthermore, the recent surge in oil prices probably won't affect China's consumer prices because of generous government subsidies. The government can afford to subsidize the price of fuel and is likely to continue to do so, Mark Williams, an economist at Capital Economics Ltd., said in a recent report.

"Even if international oil prices remained at their current levels, the total net subsidy bill for the year would probably amount to less than half of one percent of GDP," Williams wrote in a June 5 report. "The costs of keeping prices down are still manageable given the strength of China's state sector. Officials are wary of anything that could raise inflation expectations."

And even though as producer prices climbed an astonishing 8.2% in May, inflation could still recede in the second half of the year - in part because figures will be compared with prices from last year when food prices soared uncontrollably.

"The worst is behind us now," Paul Tang, an economist with the Bank of East Asia Ltd. (OTC ADR: BKEAY) in Hong Kong, told Bloomberg. "The question is more about at what pace the improvement is going to be realized in coming months."

 

[crobato]

A lot of trade to India, inflationary measures, interest rates on the Yuan.

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China's Export Growth Unexpectedly Accelerates to 28%
June 12 2008, 9:17 AM

June 11 (Bloomberg) -- China's export growth unexpectedly accelerated in May, easing concern that a strengthening yuan and a slowdown in U.S. demand will trigger an economic slump.

Overseas sales rose 28.1 percent from a year earlier, after gaining a revised 21.9 percent in April, the customs bureau said on its Web site today. That was more than the 20 percent median estimate of 17 economists surveyed by Bloomberg News.

Exports to the U.S. accelerated, withstanding a 10 percent gain in the yuan against the dollar in the year through May. Imports jumped 40 percent because of soaring raw-material costs, supporting the central bank's case that inflation is a bigger threat than weakening global demand.

``This is very good news for the central bank, backing up their argument that exports are not collapsing,'' said Stephen Green, head of China research at Standard Chartered Bank Plc in Shanghai. ``It gives them more space to raise interest rates and let the yuan appreciate faster to curb inflation.''

The trade surplus was $20.2 billion, down from $22.4 billion a year earlier and less than the $21.3 billion estimate in the survey of economists. For the first five months, the surplus has narrowed 9 percent from a year earlier.

Surging prices for iron ore, crude oil, oil products, coal and soybeans drove the biggest increase in imports in almost four years, according to the customs bureau. The gain was 26.4 percent in April.

U.S. Demand

The yuan rose to the highest since a fixed-exchange rate ended in 2005, trading at 6.9208 versus the dollar as of 4:37 p.m. after closing at 6.9255 yesterday.

Exports to the U.S. rose 9.1 percent in the first five months from a year earlier, up from the 6.9 percent gain through April, the customs bureau said. Shipments to the European Union climbed 27.4 percent, an increase from 25.4 percent.

TCL Corp., China's biggest electronics maker, said mobile- phone exports soared 62 percent in May from a year earlier.

``Export growth held up partly because the U.S. economy appears to be recovering better than expected,'' said Shen Minggao, an economist at Citigroup Inc. in Beijing. ``Another factor may be that there were more working days in May than last year, when there was a seven-day holiday.''

The central bank cautioned on June 3 against exaggerating the risk that weakening global demand would lead to a hard landing for the world's fourth-largest economy.

Machinery and electronic exports climbed 59 percent from a year earlier. Trade with India surged 70 percent in the first five months, the quickest gain among China's top 10 trading partners, the customs bureau said.

Inflation Fight

China has already let the yuan gain more than 5 percent versus the U.S. dollar this year, a faster pace than the 7 percent increase for all of 2007. That has cut import costs and also put pressure on exporters by making their products more expensive in overseas markets.

U.S. Treasury Secretary Henry Paulson said yesterday that a more flexible currency could be a ``valuable tool'' to help China cool inflation. The U.S. and Europe argue that China's government has kept the yuan artificially weak to help exporters.

Producer prices rose 8.2 percent in May, the biggest increase in more than three years, the statistics bureau said today, indicating consumer-price inflation may rebound.

Consumer prices rose 7.7 percent last month, two government officials said yesterday, citing statistics bureau data. April's 8.5 percent pace was the fastest in almost 12 years.

Banks' Reserves

Besides letting the yuan gain, China has ordered lenders to set aside a record 17.5 percent of their deposits as reserves from June 25 to try to prevent excess cash in the financial system from fueling inflation.

So far, China has kept interest rates on hold this year to avoid attracting more speculative capital from abroad into an economy already flooded with cash. The benchmark one-year lending rate is 7.47 percent, and the equivalent for deposits is 4.14 percent.

The central bank said on June 3 that the world's fastest- growing major economy was shifting from ``heated'' to more stable growth after a 10.6 percent expansion in the first quarter.

Growth will slacken for the rest of 2008 and 2009 on weaker export gains, the Organization for Economic Cooperation and Development said on June 4.

 

[SampanViking]

Another explanation is that the financial squeeze on consumers and reduced optimism are resulting in consumers buying budget rather then premium goods which is rather a benefit to China's lo-end production.

Interesting to see if corresponding falls are seen in more expensive local manufacturers sales figures.

 

[Schumacher]

Yup, so far the signs are pointing to considerable resilience of the Chinese economy to the slowdown in US, the hotly debated so-called 'decoupling', as predicted by a study I posted few months back. I foresee more signs in the coming months confirming this trend. I've almost literally put my money where my mouth is on this. But to be safe, will observe for a while longer maybe til near the end of the year, well after the Olympics & after more signs the inflation beast is under control before putting in more money.

 

[Norfolk]

This is all extraordinary - and very good - news. I would still be curious to see both the inflationary and CPI numbers for the quarter when they come out. Still, good show!:coffee:

 

[crobato]

As a note, an increasing amount of US dollars are being pooled out of the trade deficit-buy US Treasure Bond cycle used by China, Japan, the Asian Tiger economies, and OPEC to keep the dollar value high and stable. This is in reference to the bloating dollar reserves in Russia and India, which do not rely much on exports to the US and thus has little motivation to help maintain the dollar value and recycle the money back to the US in the form of Treasury Bonds. Combined, that's like 800 billion out of the cycle. Again, something that bears close watching as this is crucial for the US dollar.

 

[crobato]

The world gets stranger every day. While Taiwan goes honking mad over its disputed islands issue, China is close to settling its with Japan.

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China and Japan 'near gas deal'
File image of a Chinese gas drilling rig in the East China Sea
China and Japan have held several rounds of talks over the dispute

Japan and China are close to a deal that would ease a long-running dispute over gas fields in the East China Sea, reports from Japan say.

The two sides were "working out final details", top government spokesman Nobutaka Machimura said.

His comments came after Japanese media said an agreement on joint exploration of disputed areas had been reached.

China will allow Japan to invest in drilling projects in return for a share of the profits, Kyodo News agency said.

The dispute has been an ongoing irritant in China and Japan's often tense relationship.

But ties have improved in recent months and in May Chinese President Hu Jintao visited Tokyo for talks with his Japanese counterpart, Yasuo Fukuda.

Under the deal, China and Japan would conduct joint exploration of several gas fields in offshore areas each side claims, Kyodo said, citing government sources.

The deal would allow undersea oil and gas resources to be accessed while putting to one side the wider issue of overlapping territorial claims, the agency said.

An official announcement could come as early as this week, the agency quoted the sources as saying.

 

[SampanViking]

Nothing works in Isolation Crobato. Decoupling of the economy is forcing all the neighbourhood to reconsider a range of regional policies. Just look at what is happening throughout.

 

[crobato]

A booming China faults U.S. policy on the economy
By Edward Wong

Tuesday, June 17, 2008
BEIJING: Not long ago, Chinese officials sat across conference tables from American officials and got an earful.

The Americans scolded the Chinese on mismanaging their economy, from state subsidies to foreign investment regulations to the valuation of their currency. Your economic system, the Americans strongly implied, should look a lot more like ours.

But in recent weeks, the fingers have been wagging in the other direction. Senior Chinese officials are publicly and loudly rebuking the Americans on their handling of the economy and defending their own more assertive style of regulation.

Chinese officials seem to be galled by the apparent hypocrisy of Americans telling them what to do while the American economy is at best stagnant. China, on the other hand, has maintained its feverish growth.

Some officials are promoting a Chinese style of economic management that they suggest serves developing countries better than the American model, in much the same way they argue that they are in no hurry to copy American-style multiparty democracy.

In the last six weeks alone, a senior banking regulator blamed Washington's "warped conception" of market regulation for the subprime mortgage crisis that is rattling the world economy; the Chinese envoy to the World Trade Organization called on the United States to halt the dollar's unchecked depreciation before the slide further worsens soaring oil and food prices; and Chinese agencies denounced a federal committee charged with vetting foreign investments in the United States, saying the Americans were showing "hostility" and a "discriminatory attitude," not least toward the Chinese.

All this reflects a brash new sense of self-confidence on the part of the Chinese. China seems to feel unusually bold before the Summer Olympics, seen here as a curtain raiser for the nation's ascent to pre-eminence in the world. The devastating earthquake last month helped by turning world sympathy toward China and dampening criticism of its handling of Tibet.

The Chinese attitude is no doubt bolstered by the lame-duck status of the Bush administration and by the fact that the United States is widely seen as having squandered its political and military leadership during the war in Iraq, which China opposed. Likewise, Chinese officials and state news media have suggested that the relatively quick mobilization of the Chinese Army during the recent earthquake in Sichuan Province contrasts favorably with the Bush administration's reaction to Hurricane Katrina.

The aggressive stand comes at an inopportune moment for the White House. Treasury Secretary Henry Paulson Jr. and other cabinet members are to meet with Chinese officials in Annapolis, Maryland, on Tuesday in the latest round of semiannual economic talks. The Americans have a laundry list of complaints, among them that the Chinese use regulations to favor domestic companies over foreign rivals and that Beijing does too little to police the theft of copyrights and patents held by Western companies.

The United States is also pressing China to address concerns about the safety of food and drugs it exports.

But China has its own list of grievances, topped by management of the dollar and restrictions on foreign investment in the United States. And the Americans could find themselves with little negotiating leverage.

"U.S. credibility and the credibility of U.S. financial markets is zero everywhere in the world," said Joseph Stiglitz, a professor of economics at Columbia University who has sharply criticized the Bush administration and praised China's economic management in the past. "Anybody looking at this from the outside says, 'There's been a lot of hot air coming out of the U.S., so why should we listen to these guys when they didn't know how to manage risk?' "

Here in China, economic observers are noting that the Chinese posture toward the Americans has decidedly shifted.

"This time, the Chinese side is trying to change its attitude to be more active, to be more aggressive, to balance the two sides," said Song Hongbing, author of "The Currency War," a best-selling if conspiratorial book on the American economy. "They just started to change their attitude for the future."

Chinese officials are expressing their disdain in forums around the world. Last month, Liu Mingkang, the chairman of the China Banking Regulatory Commission, delivered a lecture at the British Museum in London in which he blamed the American government for the subprime mortgage crisis that came close to freezing Western debt markets and required extensive intervention by the Federal Reserve. The turmoil, he said, was "counteracting the course of global civilization."

"Does moneymaking or doing business justify the regulators in ignoring their duty for prudential supervision and their job of preventing misbehavior?" he said.

One of Liu's colleagues, Liao Min, told the newspaper The Financial Times in late May that the "Western consensus on the relation between the market and the government should be reviewed."

"In practice, they tend to overestimate the power of the market and overlook the regulatory role of the government, and this warped conception is at the root of the subprime crisis," said Liao, director general of the commission.

China is grappling with its share of economic problems, including high inflation. But it has reasons to feel optimistic.

Some economists say it has improved its state-owned banking system by writing off bad debt and overhauling management even as it rejected American pressure to privatize banks and allow unfettered competition in the financial sector. Its financial system is more tightly regulated and less dynamic than the American one, but also more stable, Chinese economists argue.

On currency management, China has been under heavy pressure to raise the value of the renminbi, which foreign critics say is maintained at an artificially low level to make Chinese exports less expensive. So far China has managed to walk a tightrope. It has allowed the renminbi to increase in value against the dollar in tiny increments, for a total of 20 percent since 2005, a less dramatic change than the Bush administration and Congress demanded.

The gradual approach has allowed the export sector to adjust while preventing a currency shock that might derail growth.

Meanwhile, the Americans allowed the dollar to plunge in value. That angered the Chinese, which keeps most of its $1.76 trillion in foreign reserves in dollars. Chinese officials have accused the Americans of mismanaging the dollar at a time when Washington is still pressing China to appreciate the renminbi to narrow the trade deficit.

Earlier this month, the Chinese envoy to the World Trade Organization said in Geneva that the United States had failed to safeguard the value of its currency, worsening the pain for people around the world who pay high oil and food prices in dollars.

The envoy, Sun Zhenyu, also said the United States was engaging in protectionism by imposing unfair duties on Chinese goods and subsidizing American products.

Earlier this month, several Chinese institutions submitted sharp critiques to the Treasury Department of proposed new regulations relating to foreign investment in the United States. Some of the remarks were scathing.

"The regulations still include some sections and procedures which reflect the enshrouded protectionism, an obvious contradiction to the spirit of free competition the U.S. has championed since long time ago," wrote the China Securities Regulatory Commission.

The commission said the proposed regulations reflected a "self-evident hostility" and "discriminatory attitude" to certain types of foreign investments and "will ultimately hurt enthusiasm of foreign investment in the U.S."

China was particularly stung in 2005 by opposition in Congress to a bid by its third largest national oil company to buy the Unocal Corporation, an American oil company, for $18.5 billion.

Paulson, the Treasury secretary, said Monday that he agreed that there had been a "general trend" of China becoming increasingly vocal in its criticism of American policies, but that this was not a cause for concern.

"We've had a relationship where both sides have been pretty frank privately and pretty frank publicly," Paulson said in a telephone interview in Washington. He said China's criticism of American policies grew out of its rise as an economic power, with greater voice in global discussions on trade, currency and the flow of capital.

Nicholas Lardy, a China expert at the Peterson Institute for International Economics in Washington, said in an interview that "the Chinese are reacting adversely, and I think with some justification."

He added, though, that he interpreted China's recent aggression more as a reaction to specific events or policies involving the American economy rather than the result of a new surge in national confidence.

If that is the case, China might be able to avoid the pitfall of hubris. Japan attacked the American government's economic management in the 1980s, only to find itself tumbling into recession and stagnation ever since. Some economic experts here warn that China's economy could soon feel the full brunt of the downturn in the world economy, and that the American economy, in the long run, could stay on top.

"The U.S. has always considered its economy powerful and is reluctant to listen to other countries," said Lin Jiang, the head of the economics department at the China Youth College for Political Sciences in Beijing. "Of course China now is more confident than before and Chinese people are more proud of China's economy, but we can't be blind. It's still hard to challenge the U.S."

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[crobato]

While criticizing in one hand, the other hand goes signing some major business deals...

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US, China report no major economic breakthroughs

By MARTIN CRUTSINGER, AP Economics Writer

Tuesday, June 17, 2008


(06-17) 13:10 PDT Annapolis, Md. (AP) --

Top finance officials from the United States and China pledged greater cooperation Tuesday on a range of economic issues from dealing with soaring energy prices to coping with the global shocks from America's subprime mortgage crisis.

However, it was clear that the fourth round of high-level economic talks would leave both nations far apart on a number of contentious subjects from U.S. unhappiness over the slow pace of China's economic reforms to Chinese concerns about increasing protectionist sentiments in the United States.

Treasury Secretary Henry Paulson hoped that the two days of talks will produce enough results to persuade the next administration to continue the meetings. It was Paulson's brainchild to start the twice-a-year discussions in 2006.

Chinese Vice Premier Wang Qishan, the head of the Chinese delegation, said he believed that real progress had been made in dealing with contentious issues such as currency and the trade deficit, and he urged patience going forward as China implements necessary reforms.

Wang said the two countries needed to avoid "complicating and politicizing economic issues." The Chinese have grown concerned about a number of bills introduced in Congress that would impose economic sanctions on China unless the country moves more quickly to allow its currency to rise in value against the dollar.

"Our cooperation is an irreversible and unstoppable current," Wang said, speaking through an interpreter. "China needs the United States and the United States needs China."

In addition to a broad sampling of President Bush's Cabinet and their counterparts from China, the talks also included Federal Reserve Chairman Ben Bernanke and the head of China's central bank, Zhou Xiaochuan.

Paulson said it was critical that the United States and China, the world's two largest importers of oil, increase their cooperation on energy issues in the face of increased demand and record-high oil prices. He said the two sides would work to flesh out more details of a 10-year cooperative agreement reached in Beijing in December.

The talks, known as the Strategic Economic Dialogue, have so far failed to live up to expectations that they could trigger broadbased economic changes that would lead to a significant narrowing of the U.S. trade deficit with China, which last year hit an all-time high of $256.2 billion, the largest deficit ever recorded with a single country.

While the Chinese have allowed their currency to rise in value by 20 percent against the dollar since July 2005, American manufacturers contend that the yuan is still significantly undervalued, putting U.S. products at a competitive disadvantage.

Paulson said that the talks were important to the global economy even when they produced only incremental changes.

"The United States and China don't always agree on economic issues," he said. "Sometimes we may disagree quite strongly, but we keep talking."

Business groups, which believe the meetings have been beneficial, said it would be wise for the Chinese to produce results as a way of convincing the next occupant of the White House to keep the talks going.

But other China experts say the Chinese delegation may believe that it is not worthwhile to offer too many economic concessions to a lame-duck administration when they can wait to negotiate with a new team.

The administration wants the Chinese to open their financial system to foreign banks and investment houses, but that effort is meeting strong resistance from the Chinese, given the billions of dollars in losses suffered by U.S. financial giants in the credit crisis that erupted last August.

Wang, who headed one of China's biggest government-owned banks, said that he wanted to use the talks to "deepen our discussion about the U.S. subprime crisis and its implications."

Zhou, China's central bank governor, said that the Chinese were interested in learning what regulatory mistakes had led to financial troubles in the U.S. and that Bernanke had led a discussion on the issue.

Alan Holmer, the administration's China envoy, told reporters at a separate briefing that "there would be significant costs to China if they were to slow down in their financial-sector liberalization."