Chinese Economics Thread

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China's annual rate of consumer inflation slowed sharply to a 20-month low of 3.2 percent in February, comfortably within Beijing's 2012 target of 4 percent, giving policymakers room to further loosen monetary policy to support slowing growth.

Analysts say abating price pressures give Beijing space to loosen policy and reduce the amount of cash commercial banks must hold as reserves at the central bank.

That view is likely to be further reinforced later with more data expected to show factory output fell back to August 2009 levels, while fixed asset investment also cooled and consumer spending held steady.

"The latest CPI number is mainly because of the dissipation of the Chinese New Year effect. Prices came down after the holiday, especially food prices," said Kevin Lai, economist at Daiwa in Hong Kong.

"That supports our view that there should be more policy relaxation."

Investors remain tense after tremors triggered in global financial markets this week when Beijing cut its 2012 growth forecast to an eight-year low of 7.5 percent, a move made in part to make space for economic reform, but which sparked fresh fears of an abrupt slowdown -- a so-called "hard landing".

"People want to stress-test that hard-landing scenario for China," Tim Condon, head of Asian economic research at ING in Singapore, told Reuters ahead of Friday's slew of data releases. "But they always soft-land."

Condon said he expected the world's No. 2 economy to grow at least 8.5 percent this year, a level that "certainly qualifies as a soft-landing".

Economists polled by Reuters had forecast China's consumer inflation to run at 3.4 percent in February compared with a year ago. Producer price inflation was flat on the year in February, slower than market expectations for a 0.2 percent reading.

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A Reuters poll in December showed economists expect Beijing to lower banks' required reserve ratios (RRR) by 200 basis points in 2012. The central bank cut the RRR by 50 bps in February after cutting 50 bps off the ratio in November.

But widespread expectations for easier policy have not fuelled bets for an outright interest rate cut. In contrast, Brazil slashed its interest rates by a surprisingly large 75 bps on Thursday to support economic recovery and restrain a strong currency that is stifling its industry sector.

Barring a spike in world commodity prices, analysts say China's inflation should stay muted for all of 2012 as high comparison figures a year ago force food inflation to slow.

Economists estimate food prices represent 30 percent of China's consumer price index, the composition of which is kept secret.

Friday's flurry of data, which should highlight the slowdown under way in China, also includes the first set of hard numbers of the year for industrial output, fixed asset investment and retail sales. They will combine data held back from January because of the heavy distortions caused by the Lunar New Year holidays.

Fixed asset investment, industrial output and retail sales numbers are scheduled for publication at 0530 GMT.

Factory output may underscore the downside risks, with economists forecasting growth of 12.3 percent from a year ago, the weakest since August 2009 when the world was still shuddering from the global financial crisis.

Fixed asset investment, which accounted for 54 percent of China's economic growth in 2011, is forecast to have grown 20 percent in the first two months.

That would be its lowest level since December 2002's 17.4 percent, but an encouraging sign for policymakers keen to cut dependence on investment spending for growth, which generates both over-capacity and speculative bubbles.

Retail sales meanwhile are forecast to have grown 17.4 percent in February from a year earlier.

 

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Christine Lagarde, the managing director of the International Monetary Fund, nominated China's Lin Jianhai to lead the fund's secretary's department on Wednesday. The appointment underscores China's economic status and its increasing participation in global governance.

When the appointment takes effect on March 22, Lin will be the first Chinese person to lead the secretary's department at the Washington-based institution.

Lagarde lauded Lin's wide-ranging career at the IMF, saying his breadth of experience has been of particular benefit to the fund, where his skill in building consensus among staff, management and the fund's global membership has been essential to the work of the Executive Board during one of the most difficult periods in the organization's history.

Lin has been acting director of the department since November, the statement said.

Born in Wenzhou in East China's Zhejiang province in 1955, Lin studied at Beijing's University of International Business and Economics and at the University of California, Berkeley. He also holds a doctorate in international finance from George Washington University. Before arriving at the IMF in 1989, he worked in the financial sector and in academia.

Lin will lead a department that is responsible for the operations of the IMF's 24-member executive board and serves as a main contact point for the institution's 187 member countries, according to an IMF statement.

"I'm not surprised by the news. As China is the world's second-largest economy, it will naturally play a bigger role in global financial and economic governance," said Yu Miaojie, associate professor at Peking University's China Center for Economic Research.

"I expect an increasing number of Chinese to assume top positions in international institutions," Yu said.

Last July, Lagarde named the Chinese economist Zhu Min as a deputy managing director, the first Chinese to hold the post, in an attempt to strengthen the IMF's understanding of Asia and emerging economies.

At the time Zhu was only the second Chinese to take a senior position in a top international financial institution. Lin Yifu, who was appointed vice-president and chief economist of the World Bank in 2008, was the first.

Lin Jianhai's nomination came on the same day that the IMF's executive board agreed on the outlines of a new structure to regulate voting power and contributions in the organization. The new structure will recognize the rise of emerging economies in the global economy, according to a report from AFP, citing a source in the organization.

According to the source, the reform proposal, advanced by Brazil's IMF director Paulo Nogueira Batista, was favorably received by the board's senior directors.

The proposed reform comes as the IMF seeks to boost its resources for crisis intervention by some $500 billion.

While Europe will play a large role in this, the lion's share is expected to come from cash-rich emerging economies, such as Brazil, China, India, Russia and South Africa.

The reform still has to be defined precisely, but the scope of accord on the restructuring - which would probably diminish Europe's powerful role at the fund - suggests that the details could be sorted out quickly.

China has made many calls for reformation of the shareholding and governing structure of the IMF.

 

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The growth of China's industrial value-added output eased to 11.4 percent year-on-year in the first two months of this year as market demand shrank, the National Bureau of Statistics (NBS) said Friday.

The figure dropped from 12.8 percent in December last year, the NBS said in an online statement.

The easing growth of industrial production will provide room for Chinese manufacturers to push forward restructuring and accomplish emission-reduction goals, analysts said.

NBS data shows that China's industrial value-added output has been slowing since last year, recording 14.4 percent in the first quarter of 2011, 14 percent in the second quarter, 13.8 percent in the third quarter, and 12.8 percent in the fourth quarter.

The downward trend may continue in the first quarter of the year, as domestic growth will slow in the short term caused by a dismal external market and slowing domestic manufacturing activities, market insiders said.

However, the growth of industrial production will see moderate rebounds starting in the second quarter of the year, said Lu Zhengwei, chief economist of the Industrial Bank, citing strong fundamentals of the economy's industrial production.

The government targets a 11-percent growth in the industrial value-added output this year, Miao Wei, minister of Industry and Information Technology, said at the ongoing annual sessions of the National People's Congress, China's top legislature, and the Chinese People's Political Consultative Conference, the country's top political advisory body.

Miao said the government has set a lower growth rate as it aims to save more resources for promoting industrial upgrading and growth mode transformation, and help achieve emission-reduction goals.

The government aims to cut its economy's energy consumption per unit of industrial value-added output by 5 percent this year, and that for carbon dioxide emission by over 5 percent, according to Miao.

The NBS said the industrial value-added output of state-owned and state-held companies rose 7.3 percent year-on-year over Jan. - Feb. period, while that of collectively-owned and joint-stock enterprises expanded by 9.9 percent and 13.9 percent, respectively.

Industrial value-added output for the heavy industry sector rose 10.9 percent from a year earlier during the period, while that of the light industry sector climbed 12.7 percent.

All 41 of the country's industrial sectors posted gains in the first two months, with textiles up 14.1 percent; chemical materials and products up 13.4 percent; and general equipment manufacturing up 8.6 percent.

The industrial value-added output increased by 7.8 percent in China's eastern regions during the period, by 17.6 percent in central areas and by 16.6 percent in western parts of the country.

Moreover, 317 out of 471 products saw value-added outputs increase over the Jan. - Feb. period. The output of electricity rose 7.1 percent year-on-year to 718.7 billion kilowatt-hours, while that of steel increased 4.6 percent to 139.29 million tonnes.

Meanwhile, the output of automobiles dropped 1.8 percent year on year in the first two months to 3.12 million units.

Industrial value-added output measures the final output value of industrial production, or the value of gross industrial output minus intermediate input, such as raw materials and labor costs.

China's industrial value-added output growth decelerated to 13.9 percent in 2011 from 15.7 percent in 2010, NBS data showed.

 

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For the first time in a year, China recorded a trade deficit of 31.48 billion U.S. dollars in February, as import growth far outpaced exports.
Exports rose 18.4 % from a year earlier to 114.47 billion U.S. dollars in February, while imports were up 39.6 % to 145.96 billion U.S. dollars, customs data showed Saturday.

The fast trade expansion was fueled by the lower comparative base for last February, when the Chinese Lunar New Year holiday cut working days from the month and skewed trade data, the General Administration of Customs (GAC) said. The week-long holiday fell in January this year.

After seasonal adjustments, the annual growth of exports slowed to 4 % in February while that of imports was cut down to 9.4 %.

Exports this January fell 0.5 % from a year earlier, the worst slowing in more than two years, and imports fell even more sharply, plunging 15.3 %.

The country's foreign trade rose 7.3 % year-on-year to 533.03 billion U.S. dollars in the first two months, with a combined trade deficit of 4.25 billion U.S. dollars, the GAC said.

China's trade with the European Union, its largest trade partner, grew 4.7 % year-on-year in the January-February period to 79.8 billion U.S. dollars. However, China's sales to the Eurozone slid 1.1 % in the first two months year-on-year.

In February, the United States, the nation's second-largest trade partner, replaced the EU as China's largest export market, as monthly sales to the U.S. outnumbered that to the EU.

China's trade with the U.S. gained 9.2 % year-on-year to 66.05 billion U.S. dollars.

 

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China’s importance in the Forbes Billionaires List has soared in recent years as its economy has boomed. Last year, a record 115 mainland Chinese made the list, compared with hardly any a decade ago. Entrepreneurs involved in everything from Tibetan medicine to sports shoes to the Internet have joined an elite group populated by the likes of Warren Buffett and Bill Gates. Their growing financial heft has put the hitherto unknown Chinese successes at the center of attention worldwide for the likes of immigration agents, charities and universities scrambling to admit their children and attract their cash. Collectively, they ranked No. 2 in the world on the Forbes Billionaires List in 2011, second only after the United States.

Yet this year, the trend reversed. The number of mainland Chinese billionaires dropped by 20 to 95. Behind the decline: Some 35 billionaires from China that made the list last year didn’t make it this year. The arrival of fresh faces – some 16 – wasn’t enough to offset the decline.

Fortunes shrank as profits and stock valuations were hurt by the country’s slower economic growth, brought on in part by a global slowdown and tight credit policies. Shanghai’s main stock index plunged by nearly 20% in the 12 months that we surveyed for this year’s list. Hong Kong, where many Chinese entrepreneurs also list, suffered a 9% drop in its main index.

Among the 2011 Chinese billionaires that didn’t make the list this year are Nike rival Ding Shizhong, whose family controls sports footwear maker Anta, and Lei Jufang, a supplier of Tibetan medicine whose main business Tibet Cheezheng Tibetan Medicine lost 28% of its market value in the last year.

Other flame-outs: Zhang Changhong, chairman of financial information provider Shanghai Great Wisdom, whose shares plunged 55%, and Li Hongxin, the chairman of paper producer Sun Paper, a joint venture partner of New York-listed International Paper. Its shares lost nearly a third.

And in a year when China’s powerful central government was moving harshly to suppress real estate prices, it’s no surprise that some members from that industry that made the 2011 billionaires list disappeared this time around. Among them was Qi Jinxing of Hangzhou Binjiang Real Estate Group of Hangzhou, a city that was a favorite of Macro Polo when he visited China centuries ago. Qi’s shares in Hangzhou Binjiang Real Estate Group lost about a third in the past year. Chu Mang Yee, chairman of Hong Kong-listed real developer Hopson Development, also didn’t make the list after its shares tanked by about a quarter.

China still has a lot of billionaires – 95, to be exact and ranks third in the world after the U.S. and Russia. And it still has a lot of entrepreneural talent, embodied this year’s top-ranking list member from the country, Robin Li, CEO of search engine Baidu.

Yet it isn’t a sure thing that that the billionaire boom will return soon. The government, after following an export-led and industry-heavy development model for years, appears to be struggling to nudge the economy in new direction. And China, long a high-ranking member of the “Forbes Misery Index” due to steep tax rates, appears to be looking for ways to increase its take from successful entrepreneurs and individuals through new tax hikes at a time when many entrepreneurs are already worried that state-owned companies receive preferential treatment.

“There’s a huge risk” that entrepreneurs who would otherwise start-up companies will not do so if the investment climate turns less favorable, Dingkun Ge, president of the China-U.S. School of Entrepreneurism and Innovation, told a lunch of the American Chamber of Commerce in Shanghai that convened yesterday to discuss the new Forbes Billionaires List.

 

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The gross production value of China's marine sector surged to 4.557 trillion yuan (about 711,153 million U.S. dollars) last year, marking a 10.4 percent jump year-on-year, new figures from the State Oceanic Administration (SOA) show.

Of the gross, 2.65 trillion yuan was generated by added value, and the rest from marine-related industries, SOA spokesman Shi Qingfeng said Friday.

"In 2011, the country's marine electric power industry reported a relatively sharp increase as many coastal wind power plants were put into operation. Emerging industries such as marine biological medicines and the utilization of sea water also saw fast development," according to Shi.

The spokesman said the country's marine-related industries had 34.2 million employees last year, some 700,000 more than in 2010.

Last year, the Chinese government approved pilot programs for the development of the marine economy in the coastal provinces of Shandong, Zhejiang and Guangdong.

China has abundant marine resources, with its 3 million square km of offshore waters and 32,000 km of coastline. It also has a proven marine oil reserve of 24.6 billion tonnes and natural gas reserves of 1.6 billion cubic meters.

 

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"The trade volume between China and the Association of Southeast Asian Nations (ASEAN) increases by 25 percent on average annually, and it means a huge commercial opportunity for enterprises of both sides,” the secretary-general of the China-ASEAN Center Ma Mingqiang said, “As long as Chinese enterprises find their orientations and bring their advantages into effect, they will be able to accomplish much in ASEAN markets.”

"Since the friendly dialogue mechanism was established more than 20 years ago, the trade volume between China and the ASEAN countries has been growing by 25 percent annually, indicating that the products of China and the ASEAN complement each other very much." Ma said that this complementarity is the major force promoting the growth of the bilateral trade.

According to data from the Ministry of Commerce of China, the trade volume between China and the ASEAN reached 362.33 billion U.S. dollars in 2011, setting a new high record and up 24 percent compared to that of 2010. In January of 2012, the ASEAN exceeded Japan for the first time to be the third largest trade partner of China.

Ma said that the force that drives the trade boom between China and the ASEAN comes from four aspects.

First, both China and the ASEAN are having rapid economic developments, and both of them are demanding more from external markets.

Second, the establishment of the China-ASEAN Free Trade Area has further released the economic complementarity between China and the ASEAN, and it is a major force driving the bilateral trade to increase.

China needs to import mechanical and electrical products, electronic components, palm oil, rubber and oil and gas from the ASEAN, and the bloc needs to import huge amounts of mechanical and electrical products, daily commodities and textile raw materials. Currently, both sides are important links of the international economic integration and international industrial chain and have found their orientations.

Third, the good political relations and cooperative mechanisms of various levels between China and the ASEAN are reliable political and systemic guarantees for the bilateral trade between the two sides and can make sure the smooth development of the trade.

Fourth, China and the ASEAN connected by both the water way and land way, and the geo-political advantage is a great convenience for the trade between the two sides.

 

[Norfolk]

There really almost ought to be a news-aggregating sub-forum just for escobar's posts (they're everywhere, and on everything)- "The Escobar Report", anyone?

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, by Michael Pettis, China Financial Markets, 10 March 2012:

Contrary to some recent research reports cited in the press I do not think we have seen any substantial rebalancing of the economy towards consumption in 2011. This is largely an argument being made by economists who did not see why Chinese consumption repression was all along at the heart of the growth model. These economists are now too quick, I think, to hail evidence of a surge in consumption, but I find the evidence very weak and more importantly I am convinced that there cannot be a sustainable surge in consumption as long as the investment-driven growth model is maintained and as long as debt continues to rise unsustainably.

and:

It is unquestionably a good thing, in my opinion, that Beijing is made aware of how difficult, and urgent, the transition is likely to be, but it is also a little disheartening that it has taken so long to warn about what should have been deeply worrying us five or six years ago. China’s growth model was clearly unsustainable even back then, and was just as clearly heading to a debt crisis, and the longer it took to address the problems the more severe they were likely to get.

Pettis is usually worth a thorough read, and this article is one he parsed from one of his recent newsletters. Much more at the link.

 

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I like the "Escobar Report" it keeps me updated on China economic current events. I get so caught up with work that I don't have time to even read and research all the news.

 

[escobar]

Pettis is usually worth a thorough read, and this article is one he parsed from one of his recent newsletters. Much more at the link.

Yep, like always his articles are very interesting.