Chinese Economics Thread

[kwaigonegin]

you two need to kiss and make up. Both of ya'll are like two old chinese ladies bickering over who ate the last wonton from the bowl.

 

[AssassinsMace]

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I like the part where supposedly China, who processes 90% of the world's rare earths, has been held back because foreign companies don't want China to steal its intellectual property. I guess Malayasia's advantage will be for nothing when it has to pay for expensive intellectual property. And let's not forget China just has to end quotas and flood the market and all their industries go into the tank.

 

[Schumacher]

Green investments will be a major theme in China's economy in the next five years project.
If the world economy nosedive soon, China may need to ramp up it's investment drive again. Green sectors is a good place to spend the money.

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China to invest 2 trln yuan in green economy: report
English.news.cn 2011-09-25 09:56:17 FeedbackPrintRSS

BEIJING, Sept. 25 (Xinhua) -- China will invest two trillion yuan (313 billion U.S. dollars) to promote low-carbon economy in the five years to 2015, the China Daily reported on Sunday, citing a senior official from the country's top economic planner.

The investment will help reduce energy consumption per unit of gross domestic product in China by 16 percent at the end of 2015 compared with the level of 2010, the newspaper said, quoting Xie Zhenhua, vice chairman of the National Development and Reform Commission.

During the five years to 2010, energy consumption per unit of GDP dropped by 19.1 percent, according to the report.

Xie said China will develop circular economy projects, establish 100 demonstration bases for resource comprehensive utilization and launch low-carbon pilot programs in five provinces and eight cities during the next five years.
Editor: Zhang Xiang

 

[petty officer1]

News of the week

[video=youtube;8XCHGumrn6g]http://www.youtube.com/watch?v=8XCHGumrn6g&feature=feedu[/video]

Ford's Mulally Says China's Long-Term Growth Sustainable


Inflation worry still linger

China’s Stocks Fall as PBOC Governor Fans Inflation Concern; Vanke Drops

China’s stocks fell as comments from the central bank governor that inflation remains the nation’s “top concern” overshadowed record-low equity valuations.

China Vanke Co. and Gemdale Corp. declined among developers after China Business News said the city of Chongqing will start imposing a property tax on existing villas. China Coal Energy Co., the nation’s second-largest coal producer, advanced 1.8 percent after its parent increased its stake.

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, dropped 11.9 points, or 0.5 percent, to 2,421.22 as of 11:27 a.m., set for the lowest close since July 8, 2010. It lost 2 percent last week, its fourth weekly decline. The CSI 300 Index (SHSZ300) fell 0.6 percent to 2,652.57.

“Policymakers are unlikely to relax tightening policies in the short term so the market is still in the process of seeking its bottom,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “But valuations are already very low and the decline won’t be that big. The market is facing lots of uncertainty and the biggest risk comes from overseas, such as the sovereign-debt problems and slowing growth in advanced economies.”

The MSCI All-Country World Index of 45 nations entered a bear market last week for the first time in more than two years, as the European debt crisis and threat of a U.S. recession raised concerns over global economic growth. The MSCI index sank 7.6 percent last week and has dropped 22 percent from its peak this year on May 2.

Possible rate cut??

Record Cash Crunch Forecast to Abate as Global Outlook Dims: China Credit

China’s biggest cash shortage will ease in the fourth quarter as the risk of a global economic slump prompts the central bank to halt monetary tightening, a survey of bond analysts showed.

The seven-day repurchase rate, the annualized interest rate banks say they charge each other for one-week loans, will average 3.8 percent, based on the median of 12 estimates in a Bloomberg survey. This quarter’s level of 4.4 percent is the highest in data going back to the start of 2004. Similar rates for dollars, euro and yen have averaged 0.18 percent, 1.21 percent and 0.13 percent in the same period.

“The central bank will probably stand by and watch in the fourth quarter,” said Shi Lei, head of fixed-income research in Beijing at Ping An Securities Co., a unit of the nation’s second-biggest insurance company. “With such big uncertainties in the global economy and increasing signs of a domestic slowdown, the likelihood of a hike in interest rates or reserve- requirement ratios is very low.”

Swap traders pared bets last week on the possibility the central bank will raise rates in the next 12 months as the International Monetary Fund cut economic growth forecasts for China and the world. Shi said more available cash in the banking system will spur a rebound in government bonds in the coming quarter, with five- and seven-year debt to lead gains.

The People’s Bank of China didn’t raise lenders’ reserve- requirement ratios this quarter, after nine increases in the eight months through June, and the last of five interest-rate rises in the past year took effect on July 7. The central bank began broadening the scope of reserve ratios to include margin deposits from Sept. 5, a measure being phased in over six months.

Hoarding Cash

The seven-day repo rate jumped 85 basis points, or 0.85 percentage point, last week to 4.17 percent in Shanghai, after sliding 88 basis points in the previous two weeks, on speculation lenders will hoard cash to meet quarter-end capital requirements and holiday demand for funds. China’s financial markets will be closed in the first week of October for the National Day break.

“The extra money banks have to set aside because of the widening of the reserves base may amount to more than 200 billion yuan in both October and November,” said Chen Jianheng, a bond analyst at China International Capital Corp. in Beijing. “Even though another reserve-ratio hike is unlikely in the fourth quarter, we probably won’t see a big rebound in cash supply.”

Cash Injections

M2, the broadest measure of money supply, expanded 13.5 percent from a year earlier in August, the smallest advance since October 2004, central bank data show. Growth averaged 21 percent in the past three years.
China’s central bank has kept pumping capital into the interbank market in each of the past 10 weeks, with maturing bills and repurchase agreements exceeding those issued, according to data compiled by Bloomberg. Policy makers injected 399 billion yuan ($62.4 billion) of cash in the period.

“The PBOC’s moves in open-market operations show that it may want to take banks out of the cash deadlock,” said Wang Mingfeng, a bond analyst in Beijing at Citic Securities Co., the nation’s second-biggest brokerage by revenue. “As inflation starts to trend down, monetary policy shouldn’t be so tight.”

Inflation in China slowed to 6.2 percent in August from a three-year high of 6.5 percent the previous month, the statistics bureau said on Sept. 9. Wang said consumer-price gains may moderate to about 5 percent in the fourth quarter because the slowing economy will crimp domestic demand.

Rate Expectations

China’s two-year interest-rate swaps, which exchange the central bank’s one-year deposit rate for a fixed payment, dropped seven basis points to 3.47 percent as of 9:53 a.m. in Shanghai. That’s the biggest drop in four months and the contracts, for the first time since May 2009, reflect expectations borrowing costs will be cut within a year.

The floating part of the contract is reset after one year and a rate of 3.50 percent would show traders expect no change in the official savings rate, while a 3.625 percent level would indicate one increase of 25 basis points.

China International Capital’s Chen said the country may raise interest rates one more time by the end of this year, though reserve-requirement ratios are unlikely to be increased.

Reserve ratios for smaller lenders may be lowered in November or December, according to Citic Securities’ Wang. The ratio for major banks is at a record 21.5 percent, while that for their smaller counterparts is 19.5 percent, according to data compiled by Bloomberg.

Worsening Outlook

China’s gross domestic product will rise 9.5 percent this year, less than a June estimate of 9.6 percent, the IMF said on Sept. 20, citing policy tightening and moderating external demand. The Washington-based lender lowered their 2012 growth forecast for the nation to 9 percent from 9.5 percent.

Manufacturing may shrink for a third month in September, the longest run of contractions since 2009, based on an index released by HSBC Holdings Plc and Markit Economics on Sept. 22.

The cost of insuring Chinese sovereign bonds against default is climbing. Five-year credit-default swaps on government debt jumped 47 basis points last week to 173 basis points, the biggest increase since 2008, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

Falling Yields

Expectations the economy will continue to slow are helping shore up domestic demand for Chinese securities. The finance ministry sold 33.05 billion yuan of 10-year bonds on Sept. 21 at an average yield of 4.07 percent, according to Chinabond, the nation’s biggest debt clearing house. That was less than the 4.09 percent median estimate in a Bloomberg survey of analysts. The yield on similar-maturity existing notes was 3.97 percent at the end of last week.

The yield on China’s five-year bonds declined 13 basis points last week to 3.82 percent, according to Chinabond. The rate on seven-year debt dropped 11 basis points to 3.92 percent. Yields for those maturities are likely to decline by about 30 basis points in the fourth quarter, Ping An’s Shi estimated.

The yuan strengthened 0.06 percent today to 6.3848 per dollar in Shanghai, after sliding 0.09 percent last week, according to the China Foreign Exchange Trade System. Twelve- month forwards contracts gained 0.09 percent to 6.3998, a 0.2 percent discount to the spot rate. China’s currency may become fully convertible in five years, Li Daokui, an adviser to the People’s Bank of China, said Sept. 25 in Washington.

Financial institutions’ yuan positions, accumulated from purchases of foreign exchange by the central bank, rose by a net 377 billion yuan in August, 72 percent more than in July and the biggest increase in five months, central bank data showed on Sept. 21. Economists watch the numbers for signs of inflows of speculative capital.

“There will continue to be stable capital inflows into China in the fourth quarter,” said Citic Securities’ Wang, who estimated the monthly gain in yuan positions will be 250 billion to 300 billion yuan. “The short-term market sentiment won’t shake investors’ confidence in China.”

Forecaster Fourth-Quarter Projection
BOC International 3.8 percent
China Citic Bank 4 percent
China Postal Savings 4 percent
CICC 3.75 percent
Citic Securities 3.8 percent
First Capital 3.5 percent
Guotai Junan 3.75 percent
Industrial Bank 4.2 percent
Orient Securities 3.75 percent
Ping An Securities 3.5 percent
Shenzhen Development Bank 4.2 percent
Societe Generale 4 percent

Source: Bloomberg News Service

Petty officer1

 

[delft]

"China’s currency may become fully convertible in five years, Li Daokui, an adviser to the People’s Bank of China, said Sept. 25 in Washington." Quoted from Petty officer1's post.

That's pretty soon. If something horrible happens to the Euro, as many people seems to consider to be likely, RMB may be an important part of many countries reserves by 2030-2040.

 

[i.e.]

"China’s currency may become fully convertible in five years, Li Daokui, an adviser to the People’s Bank of China, said Sept. 25 in Washington." Quoted from Petty officer1's post.

That's pretty soon. If something horrible happens to the Euro, as many people seems to consider to be likely, RMB may be an important part of many countries reserves by 2030-2040.

Hu/Wen will retire in couple of years, so one might see a directional change on some key items, Currency policy and economic policy may be one of them.
there is a lot of criticizism directed at Wen right now. some blamed inflation on him. "too soft. too liberal. needs clear headed thinking not compassionate based economic policies..." etc etc.

 

[petty officer1]

Hu/Wen will retire in couple of years, so one might see a directional change on some key items, Currency policy and economic policy may be one of them.
there is a lot of criticizism directed at Wen right now. some blamed inflation on him. "too soft. too liberal. needs clear headed thinking not compassionate based economic policies..." etc etc.

I think most criticism I heard direct at Wen, mainly his economic policy is just unfounded and mis-informed.
China currently have a nominal inflation of 6-7%. Compared to the growth in GDP of 8-9.5% every year is IMHO outstanding uses of monetary and fiscal policy.

After the Zhu administration, unemployment are high, and in 1994 inflation reached a unprecedented 24.1%. All those economic pain are necessary on dis-mantle some of china's highly inefficient SOEs, and distributing economic freedoms to private enterprises. In able to continue the industrialization of China. Which paved the growth of China for the post Asia economic crisis of 1998 to the Shanghai Stock Exchange (SSE) index bubble crash of 2008. Zhu averted the possible economic crash and total failure of China's economic growth after the political turmoil of 89. after he left office...

Wen's and China central bank's monetary policy are seen as draconian by Western standard. six 25 basis point increase on State bank lending rate and multiple increase on reserve rate. These measures have already tighten credits and slowed lending by major state banks.

Most inflations in China were caused by local municipal governments inefficiently borrowing on infrastructure building, real estate developing, and pork prices. Central government can only do so much on fighting inflation on the micro-economic level.

Unlike some South America countries that are stuck in the middle income trap for decades, Numbers are telling us China is doing really well on increasing the real wage and purchasing power of the middle class. Which will make up the great percentage of future consumers and skilled workers for the Chinese industrialization, well into 2030. Making China less depended on its biggest trading partners (EU 1st and US 2nd) on aggregated growth.

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I just want to say you can't expect low inflation that is around 2-3% when China is growing at 9+% annually. Money supply will have to accompany the growth of national outputs. Wage increase will come, but slowly due to sticky price (ex. labor contracts). But we are already seeing pressure for wage increase happening.

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People in China will only start to appreciate Wen's economic policy 10 years later, when China have a economy with a huge middle class, high employments, less depended on foreign exports. And even the possibility of Yuan becoming one of the world reserve currency.

Just like how people hate Zhu, when unemployments are high in the early 90's when he break their "iron rice bowl." are now enjoying BMWs and a chance to own their own business and hire thousand of workers.

People should be glad Chinese economic planning are not sacrificed by short political gains (elections), on short growth that hurt long-term growth.

Just like the first premier of China Zhou Enlai said:

When asked what he thought of the French Revolution of 1789, Chinese leader Zhou Enlai answered, "It is too soon to say."

Petty officer1

 

[solarz]

Just like the first premier of China Zhou Enlai said:

When asked what he thought of the French Revolution of 1789, Chinese leader Zhou Enlai answered, "It is too soon to say."

That's actually a myth:

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[petty officer1]

Originally Posted by petty officer1

Just like the first premier of China Zhou Enlai said:
When asked what he thought of the French Revolution of 1789, Chinese leader Zhou Enlai answered, "It is too soon to say."
That's actually a myth:

Too Soon to Tell

You are absolutely right, I should have done more research on it. I was taught this in College, and read it in many economic books. Many people still use it as an analogy on the chinese long-term planning.

I have to be more careful next time.

 

[legoboy]

Just curious, can somebody please explain to me China's GDP(Nominal) numbers? I don't quite understand them. These are from Wikipedia and various other sources.

2006 - $2,712,917 US
2007 - $3,494,235 US
2008 - $4,519,950 US
2009 - $4,990,528 US
2010 - $5,878,257 US

I don't understand the growth each year part. I was under the impression China's growth has been about 10% each year. Yet these numbers are like 20% growth each year ???? wtf. Like 2007-2008 was almost a 30% jump ???? wtf That doesn't even make sense to me. Thats whats been confusing me.