Chinese Economics Thread

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CHINA'S US$410 billion sovereign wealth fund has bought a minority stake in Thames Water, a water and sewage company, in its first acquisition in the UK.

China Investment Corp said in a statement yesterday that it acquired an 8.68 percent stake in Thames Water through a wholly-owned unit. But CIC did not provide a value for the deal.

The CIC transaction followed a visit to Beijing earlier this week by George Osborne, the UK's finance minister, who is seeking Chinese investments in his country's infrastructure sector.

"It is a vote of confidence in Britain as a place to invest and do business. This (CIC) investment is good news for both the British and Chinese economies," Osborne was quoted as saying by Reuters.

The deal marks the second recent foreign acquisition of a stake in Thames Water, the UK's largest water and wastewater service provider, after the Abu Dhabi Investment Authority bought 9.9 percent in Kemble Water Holdings, the parent of the utility.

CIC executives previously said it was keen to invest in infrastructure of Western countries. The lingering European sovereign debt crisis has made assets there attractive to investors all over the world.

Thames Water says it services 8.8 million customers across London and the Thames Valley and handles sewage for an area with 14 million customers.

CIC faced criticism over the performance of investments made just as the 2008 global crisis was developing.

But its performance has improved since, and the fund said that it made an 11.7 percent return in 2010, the latest year for which results have been reported.

 

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A female worker works at a textile company in Jiangsu's Nantong on December 11, 2011.

The preliminary HSBC Purchasing Managers' Index (PMI) was 48.8 in January, a third consecutive reading below 50, indicating a slowdown.

That indicates a persistent weakness in the manufacturing sector that may invoke an easing of the government's tight monetary policy.

HSBC Holdings Plc said that the contraction in manufacturing production is likely to continue in the first few months of this year, indicated by continued declines in output and new-order indices.

A sub-index of output, as yet unpublished, is expected to decline to a two-month low of 47 from the 49.4 seen in December.

The PMI is a measure that shows operating conditions in the manufacturing industry. A reading below 50 means contraction, while one above that figure indicates expansion. The number was 48.7 in December and 47.7 in November.

"It shows that economic growth is likely to moderate further," said Qu Hongbin, chief China economist and co-head of Asian economic research at HSBC.

Although in December, data from the National Bureau of Statistics (NBS) showed that the year-on-year growth in industrial production rebounded slightly to 12.8 percent from 12.4 percent in November, "the ongoing slowdown in investment and exports implies more barriers to growth", Qu said.

The contraction in manufacturing followed a sharp drop in GDP to a three-year low, on a quarterly basis, of 8.9 percent in the last quarter of 2011, dragging full-year economic growth down to 9.2 percent from 10.4 percent recorded in 2010, according to the NBS.

"The first three months may be the bottom of growth momentum," said Stephen Green, chief economist with Standard Chartered Bank PLC.

However, a contraction in manufacturing may raise the possibility that the slowdown is likely to continue into the second quarter, he said.

On Wednesday, the Washington-based World Bank downgraded its estimate of the world's second-largest economy to 8.4 percent in 2012 from a previous estimate of 8.6 percent, because of weakening exports as European countries experience economic recession and the ongoing sovereign debt crisis.

Standard Chartered's Green predicted that a further slowdown in investment will drag on the growth of industrial production in the January-to-March period and exports may continue to weaken. "Under these circumstances, more monetary loosening will come, but only slowly," he said.

Wang Tao, an economist at UBS AG, wrote in a research note that the policy objective has clearly changed to support growth - indicated by a rebound in bank lending at the end 2011 - as inflation falls and growth slows.

"In 2012, we expect the government to increase bank lending by at least 8 trillion yuan ($1.27 trillion), likely to be supported by two or three additional cuts of the reserve-requirement ratios (for lenders)," Wang said.

 

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another silly article from Gordon G. Chang

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The Chinese economy increased its dependence on the United States last year according to recently released trade figures from Beijing and Washington.

China’s overall trade surplus in 2011 was $155.1 billion, according to the Ministry of Commerce.

And how much of that surplus is related to America? Commerce Department figures show that, through the first 11 months of last year, China’s trade surplus against the United States was $272.3 billion. That’s up from $252.4 billion for the same period in 2010, a 7.9% increase.

The Commerce Department has not released the December trade number yet, and some are predicting that China’s surplus against us will top $300 billion when all the figures are in. Yet let’s assume, merely to be conservative, that China’s December surplus is zero. If December’s surplus is zero, then 175.6% of China’s overall trade surplus last year related to sales to the United States. That’s up from full-year figures for the three preceding years: 149.2% for 2010, 115.7% for 2009, and 90.1% for 2008.

Notice a trend? The Chinese economy is becoming even more hooked on selling things to the United States. Why the big jump last year? Because orders from the 27-nation European Union for Chinese goods collapsed. And if Europe falls apart this year—increasingly likely—China will become even more reliant on the American consumer.

President Obama, in his State of the Union message on Tuesday, is expected to announce the creation of a China trade task force that will combine officials from the Treasury, Commerce, and Energy Departments as well as the U.S. Trade Representative’s office.

Is the concept a good one? Ted Alden of the Council on Foreign Relations praised the idea in the January 12 Nelson Report when he said “this should be seen as an opportunity for creative thinking about trade enforcement.”

Perhaps it is, but we don’t need to get fancy on this issue. All we need is for President Obama to tell the Chinese that they need us more than we need them. And all he has to say is “175.6%.” The clever officials in Beijing will not need interpreters to figure out what that means.

 

[Equation]

another silly article from Gordon G. Chang

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The Chinese economy increased its dependence on the United States last year according to recently released trade figures from Beijing and Washington.

China’s overall trade surplus in 2011 was $155.1 billion, according to the Ministry of Commerce.

And how much of that surplus is related to America? Commerce Department figures show that, through the first 11 months of last year, China’s trade surplus against the United States was $272.3 billion. That’s up from $252.4 billion for the same period in 2010, a 7.9% increase.

The Commerce Department has not released the December trade number yet, and some are predicting that China’s surplus against us will top $300 billion when all the figures are in. Yet let’s assume, merely to be conservative, that China’s December surplus is zero. If December’s surplus is zero, then 175.6% of China’s overall trade surplus last year related to sales to the United States. That’s up from full-year figures for the three preceding years: 149.2% for 2010, 115.7% for 2009, and 90.1% for 2008.

Notice a trend? The Chinese economy is becoming even more hooked on selling things to the United States. Why the big jump last year? Because orders from the 27-nation European Union for Chinese goods collapsed. And if Europe falls apart this year—increasingly likely—China will become even more reliant on the American consumer.

President Obama, in his State of the Union message on Tuesday, is expected to announce the creation of a China trade task force that will combine officials from the Treasury, Commerce, and Energy Departments as well as the U.S. Trade Representative’s office.

Is the concept a good one? Ted Alden of the Council on Foreign Relations praised the idea in the January 12 Nelson Report when he said “this should be seen as an opportunity for creative thinking about trade enforcement.”

Perhaps it is, but we don’t need to get fancy on this issue. All we need is for President Obama to tell the Chinese that they need us more than we need them. And all he has to say is “175.6%.” The clever officials in Beijing will not need interpreters to figure out what that means.[/QUOTE


Apparently Gordon Chang left out the other half of the interdependence of the US and China trade.

 

[Maggern]

Indeed. What would happen to the extremely fragile economic growth in the US if consumer prices suddenly jumped 20%? Production can't shift to Vietnam overnight.

Also, it's just silly to suggest the EU will fall apart this year.

 

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With the last second of the Chinese lunar year of Rabbit being counted down on Sunday, joyous Chinese people erupted in cheers and glittering fireworks displayed against the night sky to greet the Chinese lunar year of Dragon.

The Chinese dragon, opposite to its western counterpart, is perceived as an auspicious, powerful and dynamic icon, always courageous enough to face daunting challenges.

China's efforts to strike balance between promoting growth and restructuring its export-driven economy along a path full of unexpected twists and pot-holes have best defined the spirits of the Chinese dragon.

Despite facing stiff headwinds from a flagging world economy and a festering eurozone debt crisis, China still managed to reach a growth rate of 9.2 percent in 2011, dwarfing any other major economy in the world.

More to the point, a breakdown of China's GDP growth reveals that the country is shifting away from its lopsided growth model toward a more balanced and sustainable one, with consumption contributing a larger share to China's GDP growth than previous years.

The latest data released by China's National Bureau of Statistics showed that investment and consumption contributed 54.2 percent and 51.6 percent to China's GDP growth in 2011, while net exports registered a negative 5.8 percent.

The better tone should also be fed into retail sales, a key indicator of consumer spending, which rose 18.1 percent year-on-year in December, up from the 17.3-percent growth seen in November.

These figures have sent out a strong message that China's unfolding economic restructuring, aimed at reducing its over-reliance on exports to fuel the growth, has yielded some desirable results in 2011, the first year of China's 12th Five-Year Plan.

Around the world, at the stroke of midnight, many might approach the Chinese lunar year of Dragon with more uneasiness than joy. Stock markets are in a funk. The eurozone is in danger of disintegration. Jobless rate is stubbornly high in the United States. Much of the rest world is struggling to avoid the collateral damage from sluggish economic growth in the developed world.

Under such circumstances, the painful yet relatively smooth restructuring of the Chinese economy could prove to be good news not only to China, but also to the world.

If the strong domestic demand can take hold for years to come, it will not only beef up China's abilities to defend the protracted global financial crisis, but also give a boost to the world economy.

That's because a consumer-led China would be likelier to buy more of products and services from all corners of the world, which will support jobs and uplifting economies both at home and abroad..

Meanwhile, a huge Chinese market, with its 1.3 billion people, means more exports and investment opportunities for other countries, thus helping them offsetting a dwindling demand from the West.

China, with the spirits of the Chinese dragon, is ready to work with the rest of the world and show more courage to bid farewell to the beaten path so as to pull through the current economic downturn.？

 

[Equation]

Indeed. What would happen to the extremely fragile economic growth in the US if consumer prices suddenly jumped 20%? Production can't shift to Vietnam overnight.

Also, it's just silly to suggest the EU will fall apart this year.

It all depends on Greece. If they start to default, yes, but if not, then they'll be okay. I don't know how long the Greek government will play this game of "I need help or else I'm going to default". This is not fair for the Germans and French who had to bail out these other weaker EU nations in numerous times.

 

[lostsoul]

Indeed. What would happen to the extremely fragile economic growth in the US if consumer prices suddenly jumped 20%? Production can't shift to Vietnam overnight.

Also, it's just silly to suggest the EU will fall apart this year.

You should read Zerohedge

 

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Shanghai's economy grew 8.2 percent last year, among the slowest of China's provinces and municipalities, but it remained the Chinese mainland's richest city, the Shanghai Statistics Bureau said Friday.

The growth pace moderated from 9.9 percent in 2010 and was well under China's average of 9.2 percent last year. The city's gross domestic product hit 1.92 trillion yuan (US$305 billion), with a per capita GDP of 82,560 yuan, highest in the mainland.

Yan Jun, chief economist at the bureau, said that although the growth rate in the city continued to weaken in the past two years, the growth quality was improved.

"Shanghai has managed to accelerate economic restructuring, keep inflation stable, and reduce reliance on investment, export and the property market to drive its economy," Yan said, adding the rate was comparatively fast given the city's restructuring process and the global economic slowdown.

Shanghai's service sector jumped 9.5 percent from a year earlier to 1.11 trillion yuan, or 58 percent of last year's total GDP. It has become the biggest source of Shanghai's economic growth.

Manufacturing advanced 6.5 percent on an annual basis and the agricultural sector lost 0.7 percent, the bureau said. The output of Shanghai's property industry decreased 2.4 percent year on year to 101.9 billion yuan.

Shanghai's Consumer Price Index, the main gauge of inflation, increased 5.2 percent last year, slower than China's average of 5.4 percent. The Producer Price Index, the factory-gate measurement of inflation, added 2.9 percent, indicating future consumer prices may continue to moderate.

"A reasonable inflation level will encourage people's spending, and allow more room for policy-makers to take supportive actions when the economy suffers," said Li Maoyu, an analyst at Changjiang Securities Co.

Shanghai's retail sales gained 12.3 percent to 677.7 billion yuan in 2011, 0.8 percentage points more than the previous year. Industrial production expanded 7.4 percent to 679.8 billion yuan while fixed-asset investment grew 0.3 percent to 506.7 billion yuan, the bureau said. Exports jumped 16 percent to US$209.7 billion last year, while imports added 21 percent to US$227.6 billion. But their pace slowed substantially in recent months due to the eurozone crisis.

Looking ahead, Shanghai has set an economic growth target of around 8 percent for this year, Mayor Han Zheng said last week, noting the city will focus more on the improvement of people's livelihood.

Last year, disposable income of Shanghai's urban residents rose to 36,230 yuan, and that of rural dwellers to 15,644 yuan, both jumping 13.8 percent from a year earlier. According to the bureau, it was only the second time since 2000 that Shanghai people's seasonally adjusted income growth, excluding the effect of inflation, surpassed the rate of GDP in the city.

Shanghai created 64,160 new jobs last year, and the registered unemployment rate stayed at 4.2 percent.

The city's fiscal revenue expanded 19.4 percent from a year earlier to 342.9 billion yuan, and its spending was 391.4 billion yuan, up 18.5 percent on an annual basis, the bureau said.

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China's centrally-administered state-owned enterprises (SOEs) reported net profits of 917.33 billion yuan (141.3 billion U.S. dollars) in 2011, up 6.4 percent year-on-year, the country's SOEs regulator said Friday.

The growth rate was 33.8 percentage points down from a year earlier, partly due to the complicated economic situations at home and abroad, the State-Owned Assets Supervision and Administration Commission of the State Council said in a statement on its website.

However, it was up from the 3.6-percent increase recorded during the first 11 months of 2011, which indicated that profits of these companies rose significantly in December, the statement said.

Total revenues of those companies rose 20.8 percent to 20.24 trillion yuan last year, 11.3 percentage points lower than a year earlier, according to the commission.

Liu Cheng, a professor with the University of Science & Technology Beijing, said that the performance of the centrally-administered SOEs was generally a result of economic conditions at home and abroad, and it was no indication of any problems in their profitability.

 

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China made six monthly cuts of US debt in 2011, data from the US Treasury Department show, trimming its holdings by $27.5 billion from the end of 2010.

China cut its holdings of United States Treasury bonds to the lowest level in 16 month in November in a step that analysts said was meant to continue the diversification of the country's foreign exchange reserves amid global uncertainties.

According to data from the US Treasury Department, China's holdings of US Treasury bonds stood at $1.1326 trillion by the end of November 2011, $1.5 billion down from the previous month. It was the second successive month that the amount had declined, and the lowest reserve level seen since July 2010.

China made six monthly cuts of US debt in 2011, the department's data showed, trimming its holdings by $27.5 billion from the end of 2010. Yet despite the reductions, China remains the top buyer of US Treasury securities.

Meanwhile, a surge in international demand pushed up the amount of foreign holdings of US Treasury debt by 1.7 percent in November to hit $4.75 trillion.

Japan remains a strong net buyer of US Treasury bonds, bringing its holdings of the securities to a record high of $1.039 trillion and threatening China's position as the top holder. Britain, the third largest holder of US Treasury debt, also increased its holdings by 4.4 percent to reach $429.4 billion.

"The 'risk-aversion' sentiment caused by a deteriorating eurozone crisis has prompted the demand for the government bonds issued by developed countries, such as the US," Dagong Global Credit Rating Co, a Chinese rating agency, said in a research note.

"However, this does not imply the improvement of solvency in these countries, but only the limited investment choices under the current international monetary system."

Dagong predicted that the US' debt-to-GDP ratio may continue to rise to 105.8 percent in 2012 from 100.7 percent in 2011. And the US Federal Reserve is likely to launch a third round of quantitative easing - injecting more money into the economy - in the middle of the year.

In December 2011, China's foreign exchange reserves declined on a quarterly basis for the first time in more than a decade, falling to $3.18 trillion, according to data from the People's Bank of China, the central bank.

"Although declining, the (foreign-exchange) reserve is still huge," Zhou Jingtong, a researcher with Bank of China Ltd, was quoted by China Business News as saying.

"Diversifying the portfolio and moderately reducing dollar assets is the only choice in the long term."

Investing in US Treasury bonds is "relatively safe" at the moment but is definitely not the best step to take, Zhou said. He said the chances are good that the securities will depreciate.

"Diversifying foreign reserves calls for varying the types of currencies and also diversifying assets," said Mei Xinyu, a senior researcher at the Ministry of Commerce's Chinese Academy of International Trade and Economic Cooperation.

Mei said the Chinese government should concentrate more on holding diverse classes of assets - by, for instance, investing in the US stock market or in stocks in other countries.