Credit crunch, did someone use the expression credit crunch?
Tuesday, December 25, 2007
Merry Xmas and A Happy New Year
Well, a Merry Xmas and a Happy New Year to all my readers. Thank you for taking the time and trouble to pass-by. This blog will now - failing major and surprising new developments in the global economy - be offline till the end of the first week in January, or till after the festival of Los Reyes Magos in Spain (for those of you who know what this is all about). Come to think of it, maybe this is just what our ever hopeful central bankers are in need of even as I write - some surprise presents from the three wise men - but I fear that this year if these worthy gentlemen do somehow show at the next G7 meet, the star in the east which draws them will not be the one described in the traditional texts, but in all likelihood the rising star of India.
Credit crunch, did someone use the expression credit crunch?
Credit crunch, did someone use the expression credit crunch?
Friday, December 14, 2007
Slight Easing in China's Output Growth
From Bloomberg this morning:
China's factory and property spending growth slowed, another sign that government lending curbs may be starting to cool the world's fastest-growing major economy.
Fixed-asset investment in urban areas rose 26.8 percent in the first 11 months from a year earlier, the statistics bureau said today, after gaining 26.9 percent through October. Economists calculated November's increase at about 26 percent, down from October's 30.7 percent.
Industrial output grew at the year's slowest pace in November, outstanding loans rose the least in eight months and export growth stayed at reduced levels. Those signs may do little to ease central bank concern the economy is overheating after inflation surged to an 11-year high and the trade surplus swelled.
``It's a slight moderation in connection with the tightening efforts but growth is still very strong,'' said David Cohen, an economist at Action Economics in Singapore. ``Another interest-rate increase before the end of the year would be consistent with avoiding overheating.''
The yuan traded at 7.3712 at 12:07 p.m. after closing at 7.3692 yesterday. The yield on a 15-year bond was little changed at 4.72 percent.
The median estimate of 18 economists surveyed by Bloomberg News was for a 26.6 percent increase in 11-month investment.
Nuclear Reactors
Investment in the oil and natural-gas industries rose 9.6 percent through November, a slower pace than the 12.3 percent gain in the first 10 months. Railways and transportation also had weaker growth.
Spending in the first 11 months rose to 10.1 trillion yuan ($1.4 trillion), more than the size of Canada's gross domestic product last year. China's projects include plans to become the world's biggest producer of nuclear reactors, building about 30 of them by 2020.
``It's too early to call it a slowdown -- we need three months of data,'' said Stephen Green, senior economist at Standard Chartered Bank Plc in Shanghai. He predicts three interest-rate increases next year, more investment controls, and a faster pace of yuan appreciation that will slow inflows of cash from exports.
Investment accounted for 42.5 percent of China's gross domestic product in 2006, compared with 24 percent in Japan, 20 percent in the U.S. and 17 percent in Germany. The number of new projects rose by 24,124 from a year earlier to 211,127 in the first 11 months, the National Bureau of Statistics said today.
Exports, Industrial Production
More than two-thirds of Chinese enterprises say their industries have overcapacity, the state-run Xinhua News Agency reported Nov. 11, citing a government survey. Textile, pharmaceutical and equipment manufacturing were cited as examples.
Industrial output grew 17.3 percent in November from a year earlier. Outstanding local-currency loans climbed 17 percent.
Export growth slowed to 22.6 percent for the past four months from the 29 percent pace through July because of cuts to tax incentives, weaker U.S. demand, and higher prices due to currency gains and production costs.
Spending on fixed assets is ``too rapid'' and has ``become a prominent problem,'' the State Council, or cabinet, said last month. The pace of growth has rebounded this year from the 24.5 percent increase in 2006 and means that new factories may come on stream just as global growth slows, leaving overcapacity, falling profits and bad loans.
The government is targeting inflation that surged to 6.9 percent last month and overheating as the biggest threats to an expansion that has been the biggest contributor to global economic growth in 2007.
China has raised the key one-year lending rate to a nine- year high of 7.29 percent, clamped down on bank lending, tightened project approvals, imposed environmental restrictions and limited land use to curb investment.
China's factory and property spending growth slowed, another sign that government lending curbs may be starting to cool the world's fastest-growing major economy.
Fixed-asset investment in urban areas rose 26.8 percent in the first 11 months from a year earlier, the statistics bureau said today, after gaining 26.9 percent through October. Economists calculated November's increase at about 26 percent, down from October's 30.7 percent.
Industrial output grew at the year's slowest pace in November, outstanding loans rose the least in eight months and export growth stayed at reduced levels. Those signs may do little to ease central bank concern the economy is overheating after inflation surged to an 11-year high and the trade surplus swelled.
``It's a slight moderation in connection with the tightening efforts but growth is still very strong,'' said David Cohen, an economist at Action Economics in Singapore. ``Another interest-rate increase before the end of the year would be consistent with avoiding overheating.''
The yuan traded at 7.3712 at 12:07 p.m. after closing at 7.3692 yesterday. The yield on a 15-year bond was little changed at 4.72 percent.
The median estimate of 18 economists surveyed by Bloomberg News was for a 26.6 percent increase in 11-month investment.
Nuclear Reactors
Investment in the oil and natural-gas industries rose 9.6 percent through November, a slower pace than the 12.3 percent gain in the first 10 months. Railways and transportation also had weaker growth.
Spending in the first 11 months rose to 10.1 trillion yuan ($1.4 trillion), more than the size of Canada's gross domestic product last year. China's projects include plans to become the world's biggest producer of nuclear reactors, building about 30 of them by 2020.
``It's too early to call it a slowdown -- we need three months of data,'' said Stephen Green, senior economist at Standard Chartered Bank Plc in Shanghai. He predicts three interest-rate increases next year, more investment controls, and a faster pace of yuan appreciation that will slow inflows of cash from exports.
Investment accounted for 42.5 percent of China's gross domestic product in 2006, compared with 24 percent in Japan, 20 percent in the U.S. and 17 percent in Germany. The number of new projects rose by 24,124 from a year earlier to 211,127 in the first 11 months, the National Bureau of Statistics said today.
Exports, Industrial Production
More than two-thirds of Chinese enterprises say their industries have overcapacity, the state-run Xinhua News Agency reported Nov. 11, citing a government survey. Textile, pharmaceutical and equipment manufacturing were cited as examples.
Industrial output grew 17.3 percent in November from a year earlier. Outstanding local-currency loans climbed 17 percent.
Export growth slowed to 22.6 percent for the past four months from the 29 percent pace through July because of cuts to tax incentives, weaker U.S. demand, and higher prices due to currency gains and production costs.
Spending on fixed assets is ``too rapid'' and has ``become a prominent problem,'' the State Council, or cabinet, said last month. The pace of growth has rebounded this year from the 24.5 percent increase in 2006 and means that new factories may come on stream just as global growth slows, leaving overcapacity, falling profits and bad loans.
The government is targeting inflation that surged to 6.9 percent last month and overheating as the biggest threats to an expansion that has been the biggest contributor to global economic growth in 2007.
China has raised the key one-year lending rate to a nine- year high of 7.29 percent, clamped down on bank lending, tightened project approvals, imposed environmental restrictions and limited land use to curb investment.
Tuesday, December 11, 2007
China Inflation November 2007
China's inflation accelerated at the quickest pace in 11 years and the trade surplus swelled, adding pressure on the central bank to raise interest rates and let the currency appreciate faster to cool the economy. Consumer prices rose 6.9 percent in November from a year earlier after climbing 6.5 percent in October, the statistics bureau said today.
Surging food and fuel costs and a record $238 billion surplus in the first 11 months have prompted the government to name inflation and overheating as the biggest threats to growth. U.S. Treasury Secretary Henry Paulson is in Beijing to press for yuan gains that would narrow the trade gap and staunch the flow of money into the world's fastest-growing major economy.
The yuan gained by the most in a month against the dollar. The currency, which has climbed 12 percent since a fixed exchange rate was scrapped in July 2005, rose 0.22 percent to 7.3792 per dollar as of 4:46 p.m. in Shanghai from 7.3952 late yesterday. It touched 7.3770, the highest since the end of the dollar link.
The People's Bank of China last week ordered lenders to set aside 14.5 percent of deposits as reserves, up from 13.5 percent. China's one-year lending rate is at a nine-year high of 7.29 percent after five increases this year.
The trade surplus climbed 14.7 percent to $26.3 billion in November from a year earlier, the third-biggest monthly total, the customs bureau said today. The $15.2 billion trade surplus with the U.S. pushed the 11-month total with that country to $149.2 billion.
China's money-supply growth exceeded the central bank's annual target for a 10th straight month as a ballooning trade surplus pumped cash into the world's fastest- growing major economy.
M2, the broadest measure of money supply, rose 18.5 percent to 40 trillion yuan ($5.4 trillion) in November from a year earlier, the People's Bank of China said today on its Web site.
Surging food and fuel costs and a record $238 billion surplus in the first 11 months have prompted the government to name inflation and overheating as the biggest threats to growth. U.S. Treasury Secretary Henry Paulson is in Beijing to press for yuan gains that would narrow the trade gap and staunch the flow of money into the world's fastest-growing major economy.
The yuan gained by the most in a month against the dollar. The currency, which has climbed 12 percent since a fixed exchange rate was scrapped in July 2005, rose 0.22 percent to 7.3792 per dollar as of 4:46 p.m. in Shanghai from 7.3952 late yesterday. It touched 7.3770, the highest since the end of the dollar link.
The People's Bank of China last week ordered lenders to set aside 14.5 percent of deposits as reserves, up from 13.5 percent. China's one-year lending rate is at a nine-year high of 7.29 percent after five increases this year.
The trade surplus climbed 14.7 percent to $26.3 billion in November from a year earlier, the third-biggest monthly total, the customs bureau said today. The $15.2 billion trade surplus with the U.S. pushed the 11-month total with that country to $149.2 billion.
China's money-supply growth exceeded the central bank's annual target for a 10th straight month as a ballooning trade surplus pumped cash into the world's fastest- growing major economy.
M2, the broadest measure of money supply, rose 18.5 percent to 40 trillion yuan ($5.4 trillion) in November from a year earlier, the People's Bank of China said today on its Web site.
Sunday, December 09, 2007
China's Inflation Problem
From Bloomberg today:
China's inflation probably held at the its highest level in more than a decade, adding pressure on the central bank to raise interest rates for a sixth time this year or let the yuan appreciate faster.
Consumer prices rose 6.5 percent in November from a year earlier, according to the median estimate of 21 economists surveyed by Bloomberg News. That's unchanged from October's pace, the fastest since December 1996. The statistics bureau will release the figure at 10 a.m. tomorrow.
China on Dec. 8 ordered banks to increase reserves by the most in four years, three days after government said it would shift to a ``tight'' monetary policy among measures to cool the world's fastest growing major economy. U.S. Treasury Secretary Henry Paulson, who visits Beijing this week, recommends faster appreciation of the yuan to tame price increases.
``China's policy makers are facing a red hot economy with galloping inflation and asset prices,'' said Daniel Melser, an economist at Moody's Economy.com, a unit of Moody's Investors Service in Sydney. ``The best way to combat inflation would be to loosen the leash on China's tightly managed currency.''
In the latest move to limit credit, the central bank will require lenders to put aside a record 14.5 percent of deposits, starting Dec. 25, up from the previous 13.5 percent.
The increase, which was twice as much as the nine others this year, ``reflects the urgency of inflation concerns of the government,'' said Liang Hong, an economist at Goldman Sachs Group Inc. in Hong Kong.
China's inflation probably held at the its highest level in more than a decade, adding pressure on the central bank to raise interest rates for a sixth time this year or let the yuan appreciate faster.
Consumer prices rose 6.5 percent in November from a year earlier, according to the median estimate of 21 economists surveyed by Bloomberg News. That's unchanged from October's pace, the fastest since December 1996. The statistics bureau will release the figure at 10 a.m. tomorrow.
China on Dec. 8 ordered banks to increase reserves by the most in four years, three days after government said it would shift to a ``tight'' monetary policy among measures to cool the world's fastest growing major economy. U.S. Treasury Secretary Henry Paulson, who visits Beijing this week, recommends faster appreciation of the yuan to tame price increases.
``China's policy makers are facing a red hot economy with galloping inflation and asset prices,'' said Daniel Melser, an economist at Moody's Economy.com, a unit of Moody's Investors Service in Sydney. ``The best way to combat inflation would be to loosen the leash on China's tightly managed currency.''
In the latest move to limit credit, the central bank will require lenders to put aside a record 14.5 percent of deposits, starting Dec. 25, up from the previous 13.5 percent.
The increase, which was twice as much as the nine others this year, ``reflects the urgency of inflation concerns of the government,'' said Liang Hong, an economist at Goldman Sachs Group Inc. in Hong Kong.
China To Strengthen The Dollar?
From Bloomberg this morning:
As U.S. Treasury Secretary Henry Paulson visits China this week to push for faster appreciation of the yuan, the bigger issue may be what China is doing to strengthen the dollar.
Paulson's fifth trip to the nation as Treasury Secretary has taken on added urgency as the U.S. grows more dependent on the dollar's decline to lift exports and keep the economy out of recession. While the pace of the yuan's gains tripled in the past 15 months, Chinese officials now plan to increase investments in America that may boost the U.S. currency instead.
``China at this stage needs to be looking to opportunities provided by the weakening U.S. dollar,'' Ha Jiming, chief economist in Beijing at China International Capital Corp., the nation's largest investment bank, said in an interview last week. ``Very recently the government is becoming more interested in channeling money out of the country.''
The Ministry of Commerce said last week it will encourage businesses to buy American assets. Twenty insurers were granted licenses to invest overseas. China Investment Corp., the nation's $200 billion sovereign wealth fund, said it will be a ``stabilizing force'' in markets rocked by credit losses, signaling it may invest in American banks.
``We just started the going-out strategy,'' said Xia Bin, director of financial research at the State Council Development Research Center, which reports to the nation's cabinet. ``It is helpful to reduce yuan appreciation pressure in tandem with other measures, like blocking inflows of speculative money,'' he said in a Dec. 7 interview.
`Rush to Invest'
The combination of a trade surplus that reached $27 billion in October and rising foreign investment increased currency reserves ninefold this decade to $1.46 trillion, according to data compiled by the People's Bank of China.
At the same time, inflation rose to a 6.5 percent rate in October, the fastest in a decade, and regulators are concerned that the country's financial markets are a bubble waiting to burst. The benchmark CSI 300 Index of stocks in Shanghai and Shenzhen jumped 147 percent this year, pushing prices to more than 45 times per-share earnings, more than double that of Hong Kong's Hang Seng Index.
``The biggest issue in Asian markets starting from 2008 will be China's rush to invest overseas,'' said Park Hyo Jin, a strategist in Seoul at Good Morning Shinhan Securities Co. The firm is a unit of Shinhan Financial Group Co., South Korea's second-largest finance company by assets.
The yuan strengthened 11.9 percent since the end of the fixed exchange rate with the dollar in July 2005, including 8 percent since Paulson became Treasury Secretary in July 2006.
`Pace of Change'
The cost to buy yuan in 12 months with forwards fell 1.4 percent last week to 6.8075 per dollar, the biggest decline in three months. The spot rate for the currency dropped 0.04 percent to 7.4030, and declined 0.3 percent on Dec. 6, the most in one day since the peg was scrapped. It rose 0.15 percent to 7.3922 at 11:29 a.m. Shanghai time.
Paulson will try to show in the Dec. 12-13 meetings that a stronger currency will help restrain consumer prices. Chinese officials agree with the ``principle'' that they need a more flexible exchange rate, Paulson said in an interview Dec. 7. A currency that responds to market signals would help China control inflation. ``The pace of change has accelerated,'' he said. ``They need to move it more.''
``The U.S. wants a strong yuan, but what about the dollar being so weak?'' said Binay Chandgothia, who oversees $2 billion as chief investment officer at Principal Asset Management Asia in Hong Kong. ``This will form part of the posturing in the discussions.''
Strong Dollar
Paulson has been consistent in saying a strong dollar is in the nation's interest at the same time that the U.S. Dollar Index, which measures the currency's performance against six of its biggest trading partners, fell to 74.48 on Nov. 23, the lowest since it began trading in 1973. The index, down 8.7 percent for the year, rose 0.1 percent today to 76.33.
The depreciating dollar has helped American exports rise to records in the seven months through September, the longest streak since 2000, Commerce Department data show.
Exports rose to $140.1 billion in September, a bright spot in an economy suffering the worst housing slump in 16 years. The trade deficit narrowed to $56.5 billion in September from the record $67.6 billion in August 2006 as a falling dollar made American goods cheaper in foreign markets.
Record Deficit
The U.S. deficit with China, though, is set to exceed last year's record of $232.5 billion, prompting lawmakers including Senator Charles Schumer, a New York Democrat, to propose sanctions unless the yuan gains at a faster pace. U.S. growth may slow to 1.9 percent in 2008, compared with 10 percent forecast for China, the International Monetary Fund in Washington said.
The nation's leaders have growing incentives to help the dollar appreciate. China owned $396.7 billion of Treasuries as of September, up from $71.4 billion in 2000, according to the Treasury Department. Among foreign nations, only Japan, with $582.2 billion, owns more U.S. government debt.
China Investment ``wants to be a stabilizing force in the international capital markets'' just as other sovereign wealth funds have been, Chairman Lou Jiwei told a conference in Beijing on Nov. 29.
Overseas acquisitions by Chinese companies climbed to almost $28 billion this year, compared with $19 billion in all of 2006, according to data compiled by Bloomberg. The government has approved funds to raise the equivalent of $42.2 billion to invest abroad as of Sept. 30, according to central bank data. In July, the nation's insurers were allowed to invest 15 percent of an estimated $300 billion of assets in foreign currency holdings.
Initial Steps
Initial steps to invest abroad had mixed results. U.S. lawmakers in 2005 blocked an $18.5 billion bid by Hong Kong- based Cnooc Ltd., the country's biggest offshore oil producer, for El Segundo, California-based Unocal Corp. In May, China Investment, the sovereign wealth fund, bought $3 billion of shares in New York-based Blackstone Group LP. The value of the holding has fallen by $1 billion.
Blackstone is planning a bid for Rio Tinto Group, the world's third-largest mining company, that may include China Investment, the Daily Telegraph reported today. Spokespeople for China Investment, Rio and Blackstone all declined to comment.
In October, New York-based Bear Stearns Cos., the second- biggest underwriter of U.S. mortgage bonds, sold a $1 billion stake to state-owned Citic Securities Co., based in Beijing.
`Various Risks'
``Not many Chinese companies have made successful investments overseas so far,'' said Lian Ping, chief economist at Shanghai-based Bank of Communications Ltd., the nation's fifth-biggest state lender. ``We should push outbound investments further, but need to watch various risks.''
Forward contracts suggest the yuan will gain 8.7 percent over the next 12 months, compared with 5.9 percent in the past year. Some investors say they'd be surprised if the gains are that large.
``The market is expecting too much in terms of what China may do after Paulson's visit,'' said Wee-Ming Ting, who helps manage $2.4 billion of global emerging market debt as head of Asian fixed income at Pictet & Cie in Singapore and invests in yuan forwards.
As U.S. Treasury Secretary Henry Paulson visits China this week to push for faster appreciation of the yuan, the bigger issue may be what China is doing to strengthen the dollar.
Paulson's fifth trip to the nation as Treasury Secretary has taken on added urgency as the U.S. grows more dependent on the dollar's decline to lift exports and keep the economy out of recession. While the pace of the yuan's gains tripled in the past 15 months, Chinese officials now plan to increase investments in America that may boost the U.S. currency instead.
``China at this stage needs to be looking to opportunities provided by the weakening U.S. dollar,'' Ha Jiming, chief economist in Beijing at China International Capital Corp., the nation's largest investment bank, said in an interview last week. ``Very recently the government is becoming more interested in channeling money out of the country.''
The Ministry of Commerce said last week it will encourage businesses to buy American assets. Twenty insurers were granted licenses to invest overseas. China Investment Corp., the nation's $200 billion sovereign wealth fund, said it will be a ``stabilizing force'' in markets rocked by credit losses, signaling it may invest in American banks.
``We just started the going-out strategy,'' said Xia Bin, director of financial research at the State Council Development Research Center, which reports to the nation's cabinet. ``It is helpful to reduce yuan appreciation pressure in tandem with other measures, like blocking inflows of speculative money,'' he said in a Dec. 7 interview.
`Rush to Invest'
The combination of a trade surplus that reached $27 billion in October and rising foreign investment increased currency reserves ninefold this decade to $1.46 trillion, according to data compiled by the People's Bank of China.
At the same time, inflation rose to a 6.5 percent rate in October, the fastest in a decade, and regulators are concerned that the country's financial markets are a bubble waiting to burst. The benchmark CSI 300 Index of stocks in Shanghai and Shenzhen jumped 147 percent this year, pushing prices to more than 45 times per-share earnings, more than double that of Hong Kong's Hang Seng Index.
``The biggest issue in Asian markets starting from 2008 will be China's rush to invest overseas,'' said Park Hyo Jin, a strategist in Seoul at Good Morning Shinhan Securities Co. The firm is a unit of Shinhan Financial Group Co., South Korea's second-largest finance company by assets.
The yuan strengthened 11.9 percent since the end of the fixed exchange rate with the dollar in July 2005, including 8 percent since Paulson became Treasury Secretary in July 2006.
`Pace of Change'
The cost to buy yuan in 12 months with forwards fell 1.4 percent last week to 6.8075 per dollar, the biggest decline in three months. The spot rate for the currency dropped 0.04 percent to 7.4030, and declined 0.3 percent on Dec. 6, the most in one day since the peg was scrapped. It rose 0.15 percent to 7.3922 at 11:29 a.m. Shanghai time.
Paulson will try to show in the Dec. 12-13 meetings that a stronger currency will help restrain consumer prices. Chinese officials agree with the ``principle'' that they need a more flexible exchange rate, Paulson said in an interview Dec. 7. A currency that responds to market signals would help China control inflation. ``The pace of change has accelerated,'' he said. ``They need to move it more.''
``The U.S. wants a strong yuan, but what about the dollar being so weak?'' said Binay Chandgothia, who oversees $2 billion as chief investment officer at Principal Asset Management Asia in Hong Kong. ``This will form part of the posturing in the discussions.''
Strong Dollar
Paulson has been consistent in saying a strong dollar is in the nation's interest at the same time that the U.S. Dollar Index, which measures the currency's performance against six of its biggest trading partners, fell to 74.48 on Nov. 23, the lowest since it began trading in 1973. The index, down 8.7 percent for the year, rose 0.1 percent today to 76.33.
The depreciating dollar has helped American exports rise to records in the seven months through September, the longest streak since 2000, Commerce Department data show.
Exports rose to $140.1 billion in September, a bright spot in an economy suffering the worst housing slump in 16 years. The trade deficit narrowed to $56.5 billion in September from the record $67.6 billion in August 2006 as a falling dollar made American goods cheaper in foreign markets.
Record Deficit
The U.S. deficit with China, though, is set to exceed last year's record of $232.5 billion, prompting lawmakers including Senator Charles Schumer, a New York Democrat, to propose sanctions unless the yuan gains at a faster pace. U.S. growth may slow to 1.9 percent in 2008, compared with 10 percent forecast for China, the International Monetary Fund in Washington said.
The nation's leaders have growing incentives to help the dollar appreciate. China owned $396.7 billion of Treasuries as of September, up from $71.4 billion in 2000, according to the Treasury Department. Among foreign nations, only Japan, with $582.2 billion, owns more U.S. government debt.
China Investment ``wants to be a stabilizing force in the international capital markets'' just as other sovereign wealth funds have been, Chairman Lou Jiwei told a conference in Beijing on Nov. 29.
Overseas acquisitions by Chinese companies climbed to almost $28 billion this year, compared with $19 billion in all of 2006, according to data compiled by Bloomberg. The government has approved funds to raise the equivalent of $42.2 billion to invest abroad as of Sept. 30, according to central bank data. In July, the nation's insurers were allowed to invest 15 percent of an estimated $300 billion of assets in foreign currency holdings.
Initial Steps
Initial steps to invest abroad had mixed results. U.S. lawmakers in 2005 blocked an $18.5 billion bid by Hong Kong- based Cnooc Ltd., the country's biggest offshore oil producer, for El Segundo, California-based Unocal Corp. In May, China Investment, the sovereign wealth fund, bought $3 billion of shares in New York-based Blackstone Group LP. The value of the holding has fallen by $1 billion.
Blackstone is planning a bid for Rio Tinto Group, the world's third-largest mining company, that may include China Investment, the Daily Telegraph reported today. Spokespeople for China Investment, Rio and Blackstone all declined to comment.
In October, New York-based Bear Stearns Cos., the second- biggest underwriter of U.S. mortgage bonds, sold a $1 billion stake to state-owned Citic Securities Co., based in Beijing.
`Various Risks'
``Not many Chinese companies have made successful investments overseas so far,'' said Lian Ping, chief economist at Shanghai-based Bank of Communications Ltd., the nation's fifth-biggest state lender. ``We should push outbound investments further, but need to watch various risks.''
Forward contracts suggest the yuan will gain 8.7 percent over the next 12 months, compared with 5.9 percent in the past year. Some investors say they'd be surprised if the gains are that large.
``The market is expecting too much in terms of what China may do after Paulson's visit,'' said Wee-Ming Ting, who helps manage $2.4 billion of global emerging market debt as head of Asian fixed income at Pictet & Cie in Singapore and invests in yuan forwards.
Is the Lending Slowdown Biting?
From the FT today:
China loan curbs hit businesses
By Henny Sender
Published: December 9 2007 16:32 | Last updated: December 9 2007 16:32
In the Chinese river city of Fuling, where Hong Kong’s Noble Group has a soybean crushing operation, the barges continue to unload their cargo of soybeans to be turned into meal and cooking oil and sold on to customers.
But in recent weeks, some of those customers have been doing something new, company officials say: asking Noble to provide them with credit because they can no longer obtain financing from their banks.
But what with one hand you take away, with the other you give:
China raises foreign investment quotas
By Sundeep Tucker in Hong Kong, Geoff Dyer in Shanghai and Richard McGregor in Beijing
Published: December 9 2007 22:06 | Last updated: December 9 2007 22:06
China is to treble the amount of money that foreigners can invest in the mainland capital market, making the long-awaited announcement on the eve of this week’s high-level economic summit between Chinese and US policymakers.
The State Administration of Foreign Exchange, the country’s foreign exchange regulator, said on its website on Sunday that the quota for registered foreign investors would be increased from $10bn to $30bn. It could take several months before institutional investors secure fresh quotas.
The announcement will be welcomed by foreign investors, who have been lobbying for greater access to the mainland’s booming stock market, and comes amid signs Beijing is poised to permit further foreign investment in the domestic securities industry.
The Financial Times reported last week that Credit Suisse and Morgan Stanley had each signed agreements with Chinese partners to establish mainland investment banking ventures – the first such moves since a moratorium on further foreign involvement in the sector was introduced two years ago to protect local firms.
Citigroup, Merrill Lynch and JPMorgan are among the other US investment banks discussing potential partnerships with mainland securities firms, though foreign bankers believe new ventures will be not allowed to operate in some lucrative business areas.
Beijing is expected to point to the twin developments to placate the US delegation, led by Hank Paulson, US Treasury secretary, which has been lobbying China on a number of fronts since the so-called Strategic Economic Dialogue began last year.
Beijing agreed in principle to expand the quota for the Qualified Foreign Institutional Investors scheme at a previous round of bilateral talks in May, though it held back implementation because of a surge of capital trying to enter the country.
The flagship index on the Shanghai market has fallen by about 15 per cent in the past month, though it has still doubled this year.
In an indication of how lucrative the Chinese capital market has been to the 49 institutions which have secured QFII licences, the regulator said on Sunday that the value of their securities had risen to Rmb200bn ($26.5bn) from the initial investment quota of $10bn.
News of the revised quota was welcomed by Chris Ruffle, co-chairman of MC China, a subsidiary of Martin Currie, a UK-based fund manager and largest foreign investor in A-shares.
Mr Paulson is still expected to come under pressure from US investment banks to ensure that new securities ventures will be allowed to trade mainland stocks.
Beijing is expected to permit Credit Suisse and Morgan Stanley to each acquire a 33 per cent stake in their ventures – the maximum allowed under the law. However, western bankers familiar with the thinking of Chinese authorities believe that the new securities ventures will only be granted licences to underwrite initial public offerings and not to trade domestic stocks.
China loan curbs hit businesses
By Henny Sender
Published: December 9 2007 16:32 | Last updated: December 9 2007 16:32
In the Chinese river city of Fuling, where Hong Kong’s Noble Group has a soybean crushing operation, the barges continue to unload their cargo of soybeans to be turned into meal and cooking oil and sold on to customers.
But in recent weeks, some of those customers have been doing something new, company officials say: asking Noble to provide them with credit because they can no longer obtain financing from their banks.
But what with one hand you take away, with the other you give:
China raises foreign investment quotas
By Sundeep Tucker in Hong Kong, Geoff Dyer in Shanghai and Richard McGregor in Beijing
Published: December 9 2007 22:06 | Last updated: December 9 2007 22:06
China is to treble the amount of money that foreigners can invest in the mainland capital market, making the long-awaited announcement on the eve of this week’s high-level economic summit between Chinese and US policymakers.
The State Administration of Foreign Exchange, the country’s foreign exchange regulator, said on its website on Sunday that the quota for registered foreign investors would be increased from $10bn to $30bn. It could take several months before institutional investors secure fresh quotas.
The announcement will be welcomed by foreign investors, who have been lobbying for greater access to the mainland’s booming stock market, and comes amid signs Beijing is poised to permit further foreign investment in the domestic securities industry.
The Financial Times reported last week that Credit Suisse and Morgan Stanley had each signed agreements with Chinese partners to establish mainland investment banking ventures – the first such moves since a moratorium on further foreign involvement in the sector was introduced two years ago to protect local firms.
Citigroup, Merrill Lynch and JPMorgan are among the other US investment banks discussing potential partnerships with mainland securities firms, though foreign bankers believe new ventures will be not allowed to operate in some lucrative business areas.
Beijing is expected to point to the twin developments to placate the US delegation, led by Hank Paulson, US Treasury secretary, which has been lobbying China on a number of fronts since the so-called Strategic Economic Dialogue began last year.
Beijing agreed in principle to expand the quota for the Qualified Foreign Institutional Investors scheme at a previous round of bilateral talks in May, though it held back implementation because of a surge of capital trying to enter the country.
The flagship index on the Shanghai market has fallen by about 15 per cent in the past month, though it has still doubled this year.
In an indication of how lucrative the Chinese capital market has been to the 49 institutions which have secured QFII licences, the regulator said on Sunday that the value of their securities had risen to Rmb200bn ($26.5bn) from the initial investment quota of $10bn.
News of the revised quota was welcomed by Chris Ruffle, co-chairman of MC China, a subsidiary of Martin Currie, a UK-based fund manager and largest foreign investor in A-shares.
Mr Paulson is still expected to come under pressure from US investment banks to ensure that new securities ventures will be allowed to trade mainland stocks.
Beijing is expected to permit Credit Suisse and Morgan Stanley to each acquire a 33 per cent stake in their ventures – the maximum allowed under the law. However, western bankers familiar with the thinking of Chinese authorities believe that the new securities ventures will only be granted licences to underwrite initial public offerings and not to trade domestic stocks.
Wednesday, November 28, 2007
Bear Market in China?
From Bloomberg this morning:
China's stocks fell, taking the CSI 300 Index's decline from its Oct. 16 record close to more than 20 percent. Baoshan Iron & Steel Co. led steelmakers lower on speculation U.S. and European Union regulators will impose punitive duties on their Chinese imports.
China Minsheng Banking Corp. and China Merchants Property Development Co. led banks and real-estate companies lower after China Central Television said the government will take measures to slow expansion in fixed-asset investment.
The CSI 300 Index, which tracks 300 yuan-denominated stocks traded in Shanghai and Shenzhen, lost 59.05, or 1.3 percent, to 4,652.10 as of 2:29 p.m. local time, reversing an earlier gain of 1.1 percent. The measure has declined 21 percent since its record close on Oct. 16. Investors consider a 20 percent drop within 12 months as the signal of a bear market.
``Valuations are still very high and we're not quite ready to go back in just yet,'' said Leslie Phang, who helps manage $1 billion at Commonwealth Private Bank in Singapore, and has been reducing holdings of exchange-traded funds that track the Chinese A-share market.
About two stocks declined for each that climbed on the benchmark, with a measure of materials shares the biggest contributor to the drop. The gauge, which has advanced 128 percent this year, is valued at 42 times reported earnings, the highest in Asia, according to Bloomberg data.
China follows Japan among the world's 10 biggest stock markets to enter a bear market since the summer's U.S. subprime- mortgage collapse. The People's Bank of China has raised borrowing costs five times this year and Premier Wen Jiabao pledged last month to limit land use and tighten investment- project approvals.
In Japan....
Japanese stocks fell, led by Sumitomo Mitsui Financial Group Inc., after Wells Fargo & Co. announced a $1.4 billion pretax charge tied to increased losses on home equity loans.
Shares also declined after U.S. consumer confidence fell more than expected in November and housing prices dropped the most since at least 1988, pointing to weaker demand in Japan's biggest overseas market.
Fast Retailing Co. and Mitsubishi UFJ Financial Group Inc. slid after Japan's government lowered its assessment of the job market for the first time in three years.
``It looks like the trend for growing subprime-related losses at U.S. financial institutions is here to stay,'' said Kiyoshi Ishigane, who helps oversee $61 billion in assets at Mitsubishi UFJ Asset Management Co. in Tokyo. ``Japanese banks have declined because of weak domestic demand and as wages and employment stalled.''
The Nikkei slid 69.07, or 0.5 percent, to 15,153.78 at the close of trading in Tokyo. The Topix index slipped 3.14, or 0.2 percent, to 1,475.64.
Bridgestone Corp. led tiremakers and chemical companies higher after the price of oil slumped the most in two weeks, lowering production costs.
Sumitomo Mitsui, Japan's third-largest publicly traded bank, lost 22,000 yen, or 2.4 percent, to 880,000. Mitsubishi UFJ, the biggest, declined 16 yen, or 1.6 percent, to 1,014. T&D Holdings Inc., the nation's only publicly traded life insurer, slid 130 yen, or 2 percent, to 6,260.
Subprime Losses
Wells Fargo, the second-largest U.S. mortgage lender, said after the close of trading in New York it will take a charge to account for expected losses on home-equity loans as the U.S. housing market continues to deteriorate. The company's shares fell 4.7 percent in after-hours trading in New York.
Norinchukin Bank, the central credit provider to Japan's farmers and fishermen, said yesterday it had unrealized losses of 53.3 billion yen ($491.2 million) on 476.7 billion yen of subprime loan-related assets in the six months to Sept. 30.
The bank, which is not traded, had an additional 14 billion yen valuation loss in October on those investments.
``It's still too early to say'' that the credit crisis has passed, said Masafumi Oshiden, a fund manager in Tokyo at BlackRock Japan Co., whose parent company holds $1.1 trillion in assets.
U.S. Consumer Confidence
Toyota Motor Corp., which gets as much as 70 percent of its profit from operations from North America, lost 100 yen, or 1.6 percent, to 6,000. Komatsu Ltd., the world's second-largest maker of construction machinery, dropped 90 yen, or 2.9 percent, to 3,050.
The New York-based Conference Board said yesterday its consumer confidence index fell more than expected to 87.3 in November, the lowest level since 2005, as Americans struggled with surging fuel costs and falling home prices. House values dropped 4.5 percent in the third quarter from a year earlier, the most since records began in 1988, S&P/Case-Shiller reported separately.
Fast Retailing declined 240 yen, or 3.2 percent, to 7,230. J. Front Retailing Co., Japan's largest department store operator, fell 17 yen, or 1.7 percent, to 1,005.
Sales of clothing slid 1.3 percent in October, as mild weather reduced demand for jackets and sweaters, according to a report by the Ministry of Economy, Trade and Industry.
The Cabinet Office toned down its outlook on the job market after the unemployment rate rose for two months. ``Job-market conditions continue to be difficult and there has been a pause in improvement,'' the government said in its monthly economic report for November, published yesterday.
Cheaper Oil
Wages declined in nine of the 10 months to September and mid-year bonuses, about 10 percent of a worker's annual income dropped for the first time in three years.
Bridgestone, the world's second-largest tiremaker, gained 20 yen, or 1 percent, to 2,025. Sumitomo Chemical Co., Japan's No. 2 chemical maker by market value, jumped 30 yen, or 3.4 percent, to 922 yen.
Crude oil for January delivery extended declines for the second day falling 0.7 percent to $93.76 a barrel in the New York. The price fell 3.4 percent yesterday, the biggest drop since Nov. 13.
Oil explorers fell. Inpex Holdings Inc., Japan's biggest petroleum explorer, slid 50,000 yen, or 4.2 percent, to 1.13 million. Japan Petroleum Exploration Co., the second largest, declined 290 yen, or 3.3 percent, to 8,580.
Sony Corp., the world's second-largest consumer electronics maker, rose 190 yen, or 3.3 percent, to 5,940, completing its biggest three-day gain in almost two years after Dubai International Capital LLC said on Nov. 26 it bought a ``substantial'' stake in the company. The stock has advanced 13 percent over three sessions, the most since Jan. 2006.
Nikkei futures expiring in December lost 0.5 percent to 15,160 in Osaka and dropped 0.3 percent to 15,170 in Singapore.
China's stocks fell, taking the CSI 300 Index's decline from its Oct. 16 record close to more than 20 percent. Baoshan Iron & Steel Co. led steelmakers lower on speculation U.S. and European Union regulators will impose punitive duties on their Chinese imports.
China Minsheng Banking Corp. and China Merchants Property Development Co. led banks and real-estate companies lower after China Central Television said the government will take measures to slow expansion in fixed-asset investment.
The CSI 300 Index, which tracks 300 yuan-denominated stocks traded in Shanghai and Shenzhen, lost 59.05, or 1.3 percent, to 4,652.10 as of 2:29 p.m. local time, reversing an earlier gain of 1.1 percent. The measure has declined 21 percent since its record close on Oct. 16. Investors consider a 20 percent drop within 12 months as the signal of a bear market.
``Valuations are still very high and we're not quite ready to go back in just yet,'' said Leslie Phang, who helps manage $1 billion at Commonwealth Private Bank in Singapore, and has been reducing holdings of exchange-traded funds that track the Chinese A-share market.
About two stocks declined for each that climbed on the benchmark, with a measure of materials shares the biggest contributor to the drop. The gauge, which has advanced 128 percent this year, is valued at 42 times reported earnings, the highest in Asia, according to Bloomberg data.
China follows Japan among the world's 10 biggest stock markets to enter a bear market since the summer's U.S. subprime- mortgage collapse. The People's Bank of China has raised borrowing costs five times this year and Premier Wen Jiabao pledged last month to limit land use and tighten investment- project approvals.
In Japan....
Japanese stocks fell, led by Sumitomo Mitsui Financial Group Inc., after Wells Fargo & Co. announced a $1.4 billion pretax charge tied to increased losses on home equity loans.
Shares also declined after U.S. consumer confidence fell more than expected in November and housing prices dropped the most since at least 1988, pointing to weaker demand in Japan's biggest overseas market.
Fast Retailing Co. and Mitsubishi UFJ Financial Group Inc. slid after Japan's government lowered its assessment of the job market for the first time in three years.
``It looks like the trend for growing subprime-related losses at U.S. financial institutions is here to stay,'' said Kiyoshi Ishigane, who helps oversee $61 billion in assets at Mitsubishi UFJ Asset Management Co. in Tokyo. ``Japanese banks have declined because of weak domestic demand and as wages and employment stalled.''
The Nikkei slid 69.07, or 0.5 percent, to 15,153.78 at the close of trading in Tokyo. The Topix index slipped 3.14, or 0.2 percent, to 1,475.64.
Bridgestone Corp. led tiremakers and chemical companies higher after the price of oil slumped the most in two weeks, lowering production costs.
Sumitomo Mitsui, Japan's third-largest publicly traded bank, lost 22,000 yen, or 2.4 percent, to 880,000. Mitsubishi UFJ, the biggest, declined 16 yen, or 1.6 percent, to 1,014. T&D Holdings Inc., the nation's only publicly traded life insurer, slid 130 yen, or 2 percent, to 6,260.
Subprime Losses
Wells Fargo, the second-largest U.S. mortgage lender, said after the close of trading in New York it will take a charge to account for expected losses on home-equity loans as the U.S. housing market continues to deteriorate. The company's shares fell 4.7 percent in after-hours trading in New York.
Norinchukin Bank, the central credit provider to Japan's farmers and fishermen, said yesterday it had unrealized losses of 53.3 billion yen ($491.2 million) on 476.7 billion yen of subprime loan-related assets in the six months to Sept. 30.
The bank, which is not traded, had an additional 14 billion yen valuation loss in October on those investments.
``It's still too early to say'' that the credit crisis has passed, said Masafumi Oshiden, a fund manager in Tokyo at BlackRock Japan Co., whose parent company holds $1.1 trillion in assets.
U.S. Consumer Confidence
Toyota Motor Corp., which gets as much as 70 percent of its profit from operations from North America, lost 100 yen, or 1.6 percent, to 6,000. Komatsu Ltd., the world's second-largest maker of construction machinery, dropped 90 yen, or 2.9 percent, to 3,050.
The New York-based Conference Board said yesterday its consumer confidence index fell more than expected to 87.3 in November, the lowest level since 2005, as Americans struggled with surging fuel costs and falling home prices. House values dropped 4.5 percent in the third quarter from a year earlier, the most since records began in 1988, S&P/Case-Shiller reported separately.
Fast Retailing declined 240 yen, or 3.2 percent, to 7,230. J. Front Retailing Co., Japan's largest department store operator, fell 17 yen, or 1.7 percent, to 1,005.
Sales of clothing slid 1.3 percent in October, as mild weather reduced demand for jackets and sweaters, according to a report by the Ministry of Economy, Trade and Industry.
The Cabinet Office toned down its outlook on the job market after the unemployment rate rose for two months. ``Job-market conditions continue to be difficult and there has been a pause in improvement,'' the government said in its monthly economic report for November, published yesterday.
Cheaper Oil
Wages declined in nine of the 10 months to September and mid-year bonuses, about 10 percent of a worker's annual income dropped for the first time in three years.
Bridgestone, the world's second-largest tiremaker, gained 20 yen, or 1 percent, to 2,025. Sumitomo Chemical Co., Japan's No. 2 chemical maker by market value, jumped 30 yen, or 3.4 percent, to 922 yen.
Crude oil for January delivery extended declines for the second day falling 0.7 percent to $93.76 a barrel in the New York. The price fell 3.4 percent yesterday, the biggest drop since Nov. 13.
Oil explorers fell. Inpex Holdings Inc., Japan's biggest petroleum explorer, slid 50,000 yen, or 4.2 percent, to 1.13 million. Japan Petroleum Exploration Co., the second largest, declined 290 yen, or 3.3 percent, to 8,580.
Sony Corp., the world's second-largest consumer electronics maker, rose 190 yen, or 3.3 percent, to 5,940, completing its biggest three-day gain in almost two years after Dubai International Capital LLC said on Nov. 26 it bought a ``substantial'' stake in the company. The stock has advanced 13 percent over three sessions, the most since Jan. 2006.
Nikkei futures expiring in December lost 0.5 percent to 15,160 in Osaka and dropped 0.3 percent to 15,170 in Singapore.
Monday, November 19, 2007
Regulatory Measures For the Banks?
From Bloomberg this morning:
China's banking regulator said it's giving ``guidance'' to banks to cool lending that's already topped its goal of 15 percent growth this year and threatens to overheat the world's fastest-growing major economy.
The China Banking Regulatory Commission denied a Wall Street Journal report today that it had ordered banks to freeze this year's lending at Oct. 31 levels. A 15 percent ceiling on loan growth is ``informal guidance, not a hard target,'' said Lai Xiaomin, the commission's Beijing-based spokesman.
Record trade surpluses have pumped cash into China, threatening to stoke inflation, asset bubbles and investment leading to overcapacity in manufacturing. The central bank has raised the benchmark one-year lending rate by 1.17 percentage points this year to 7.29 percent and ordered commercial lenders to set aside larger reserves.
``Reserve-ratio requirement hikes and rate hikes have not been able to slow bank lending growth this year,'' said Sun Mingchun, an economist at Lehman Brothers Holdings Inc. in Hong Kong. ``Therefore, the government has to rely on this non-market type of monetary policy tool.''
Chinese banks extended 3.5 trillion yuan ($471 billion) of new loans in the first 10 months, a 15.6 percent increase from loans outstanding at the end of last year, according to central bank data.
`Obstacles' for Banks
``Banks that exceed the 15 percent cap will face regulatory obstacles in applying for a new branch opening or new product lines,'' said Li Shanshan, a Shenzhen-based analyst at China Merchants Securities Co. ``Therefore, banks still have an incentive to obey what the government says.''
Lending is biggest early in the year ``so slower lending in the remaining two months won't have a significant impact on their bottom lines,'' said Li. Average loan growth of big state-owned banks this year is about 15 percent versus about 20 percent for small and medium-sized lenders, the analyst said.
The regulator last week told state banks to curb lending, citing the 15 percent target, according to the Shanghai Securities News. Another newspaper, China Business News, reported last week that overseas banks were told to tighten lending to real estate developers.
``We don't subject banks to hard-and-fast lending caps since individual banks have such different business needs,'' said the regulator's Lai. ``What we want is a reasonable pace of loans growth, dependent on each bank's capital-adequacy ratio, and the risk and quality of its loan portfolio.''
Accelerating Inflation
The central bank this month ordered lenders to set aside more money as reserves for the ninth time this year, raising the ratio to 13.5 percent, the highest since at least 1987.
The trade surplus widened to a record $27 billion in October.
Inflation last month jumped to 6.5 percent, matching August's rate, the highest in more than 10 years, on higher food prices. The benchmark CSI 300 Index of stocks has more than tripled in the past year even after declines since mid-October.
Government efforts to guide lending illustrate its reluctance to ``raise rates too much or let the yuan appreciate faster'' to curb liquidity, according to Wang Tao, head of economics and strategy for Greater China at Bank of America Corp. in Beijing.
The Chinese currency has gained more than 11 percent versus the dollar since the end of a fixed exchange rate in July 2005.
China's banking regulator said it's giving ``guidance'' to banks to cool lending that's already topped its goal of 15 percent growth this year and threatens to overheat the world's fastest-growing major economy.
The China Banking Regulatory Commission denied a Wall Street Journal report today that it had ordered banks to freeze this year's lending at Oct. 31 levels. A 15 percent ceiling on loan growth is ``informal guidance, not a hard target,'' said Lai Xiaomin, the commission's Beijing-based spokesman.
Record trade surpluses have pumped cash into China, threatening to stoke inflation, asset bubbles and investment leading to overcapacity in manufacturing. The central bank has raised the benchmark one-year lending rate by 1.17 percentage points this year to 7.29 percent and ordered commercial lenders to set aside larger reserves.
``Reserve-ratio requirement hikes and rate hikes have not been able to slow bank lending growth this year,'' said Sun Mingchun, an economist at Lehman Brothers Holdings Inc. in Hong Kong. ``Therefore, the government has to rely on this non-market type of monetary policy tool.''
Chinese banks extended 3.5 trillion yuan ($471 billion) of new loans in the first 10 months, a 15.6 percent increase from loans outstanding at the end of last year, according to central bank data.
`Obstacles' for Banks
``Banks that exceed the 15 percent cap will face regulatory obstacles in applying for a new branch opening or new product lines,'' said Li Shanshan, a Shenzhen-based analyst at China Merchants Securities Co. ``Therefore, banks still have an incentive to obey what the government says.''
Lending is biggest early in the year ``so slower lending in the remaining two months won't have a significant impact on their bottom lines,'' said Li. Average loan growth of big state-owned banks this year is about 15 percent versus about 20 percent for small and medium-sized lenders, the analyst said.
The regulator last week told state banks to curb lending, citing the 15 percent target, according to the Shanghai Securities News. Another newspaper, China Business News, reported last week that overseas banks were told to tighten lending to real estate developers.
``We don't subject banks to hard-and-fast lending caps since individual banks have such different business needs,'' said the regulator's Lai. ``What we want is a reasonable pace of loans growth, dependent on each bank's capital-adequacy ratio, and the risk and quality of its loan portfolio.''
Accelerating Inflation
The central bank this month ordered lenders to set aside more money as reserves for the ninth time this year, raising the ratio to 13.5 percent, the highest since at least 1987.
The trade surplus widened to a record $27 billion in October.
Inflation last month jumped to 6.5 percent, matching August's rate, the highest in more than 10 years, on higher food prices. The benchmark CSI 300 Index of stocks has more than tripled in the past year even after declines since mid-October.
Government efforts to guide lending illustrate its reluctance to ``raise rates too much or let the yuan appreciate faster'' to curb liquidity, according to Wang Tao, head of economics and strategy for Greater China at Bank of America Corp. in Beijing.
The Chinese currency has gained more than 11 percent versus the dollar since the end of a fixed exchange rate in July 2005.
Friday, November 16, 2007
China Factory Spending Up 26% y-o-y
From Bloomberg this morning:
China's growth in factory and property spending unexpectedly accelerated, stoking speculation the central bank will raise interest rates for a sixth time this year to cool the world's fastest-growing major economy.
Fixed-asset investment in urban areas rose 26.9 percent to 8.9 trillion yuan ($1.2 trillion) in the first 10 months of 2007 from a year earlier, the statistics bureau said today. That beat the 26.2 percent median estimate of 21 economists surveyed by Bloomberg News. The pace was 26.4 percent through September.
The central bank may raise the benchmark one-year rate from 7.29 percent as early as today after inflation matched a decade high in October and the trade surplus widened to a record. Surging factory spending increases the risk that China, the biggest contributor to global growth, will be left with idle factories, job losses and a supply glut if export demand slows.
``Macro controls will strengthen because the government wants slower investment,'' said Liao Qun, chief economist at Citic Ka Wah Bank in Hong Kong. ``Add the high inflation number and the chance of an interest-rate increase today or this weekend has got much bigger.'' He expects borrowing costs to rise as many as two times before year's end.
China's key rate, at a nine-year high after climbing 1.17 percentage points this year, compares with 0.5 percent in Japan, 4.5 percent in the U.S., 5 percent in South Korea and 5.75 percent in the U.K.
The yuan was little changed at 7.4233 versus the dollar at 3:57 p.m. in Shanghai. The currency has climbed 11.5 percent since the end of a fixed exchange rate in July 2005. The CSI 300 Index of stocks fell 1.5 percent on speculation that rates will rise, paring the benchmark's gains for the year to 145 percent.
Bigger Than Brazil
Economists calculated the increase in fixed-asset investment for October alone was more than 30 percent.
Spending through October exceeded the gross domestic product of the economies of Russia, Brazil or India. Investment has quadrupled since 1996 when the data was first released. It accounted for 42.5 percent of China's GDP last year.
The nation's projects include a $65 billion facelift for Beijing that includes a new airport terminal, subway lines and roads for next year's Olympic Games.
Spending in the non-ferrous metal industry jumped 33 percent in the first 10 months. Investment in non-metal minerals soared 54 percent. The number of new investment projects was 191,086, an increase of 22,518 from a year earlier.
``The economy risks overheating and more needs to be done in monetary policy tightening,'' said Qu Hongbin, chief China economist at HSBC Holdings Plc in Hong Kong. ``There will be at least one more interest-rate increase this year and the central bank will be tougher in curbing loans.''
Borrowing Costs
The People's Bank of China is boosting this month the proportion of deposits that lenders must set aside as reserves to 13.5 percent, the most since at least 1987.
``A sharper-than-expected slowdown in global growth could curtail China's exports and expose the severity of its overcapacity problem,'' Sun Mingchun, an economist at Lehman Brothers Holdings Inc. in Hong Kong, said in a report this month.
More than two-thirds of Chinese enterprises believe their industries have overcapacity, the state-run Xinhua News Agency reported Nov. 11, citing a government survey. Textile, pharmaceutical and equipment manufacturing were cited as examples.
China's economy may face ``a turning point'' if exports drop abruptly as a result of cooling overseas demand, Sheng Baofu, a Ministry of Commerce researcher, wrote in a Nov. 13 article posted on the ministry's Web site. Exporters mainly targeting the U.S. risk ``continuously shrinking'' orders, Sheng wrote.
Flood of Cash
That contrasts with government efforts now to tame the flood of cash from a trade surplus that reached $27 billion last month, stoking inflation, asset prices and investment.
Money supply grew 18.5 percent from a year earlier, exceeding the central bank's annual target of 16 percent for a ninth straight month. Consumer prices rose 6.5 percent on surging food costs.
China should raise rates and allow more currency appreciation, the World Bank said yesterday. Bigger yuan gains would staunch money inflows by pushing up export prices.
China is the biggest contributor to global growth this year, the International Monetary Fund said last month.
China's growth in factory and property spending unexpectedly accelerated, stoking speculation the central bank will raise interest rates for a sixth time this year to cool the world's fastest-growing major economy.
Fixed-asset investment in urban areas rose 26.9 percent to 8.9 trillion yuan ($1.2 trillion) in the first 10 months of 2007 from a year earlier, the statistics bureau said today. That beat the 26.2 percent median estimate of 21 economists surveyed by Bloomberg News. The pace was 26.4 percent through September.
The central bank may raise the benchmark one-year rate from 7.29 percent as early as today after inflation matched a decade high in October and the trade surplus widened to a record. Surging factory spending increases the risk that China, the biggest contributor to global growth, will be left with idle factories, job losses and a supply glut if export demand slows.
``Macro controls will strengthen because the government wants slower investment,'' said Liao Qun, chief economist at Citic Ka Wah Bank in Hong Kong. ``Add the high inflation number and the chance of an interest-rate increase today or this weekend has got much bigger.'' He expects borrowing costs to rise as many as two times before year's end.
China's key rate, at a nine-year high after climbing 1.17 percentage points this year, compares with 0.5 percent in Japan, 4.5 percent in the U.S., 5 percent in South Korea and 5.75 percent in the U.K.
The yuan was little changed at 7.4233 versus the dollar at 3:57 p.m. in Shanghai. The currency has climbed 11.5 percent since the end of a fixed exchange rate in July 2005. The CSI 300 Index of stocks fell 1.5 percent on speculation that rates will rise, paring the benchmark's gains for the year to 145 percent.
Bigger Than Brazil
Economists calculated the increase in fixed-asset investment for October alone was more than 30 percent.
Spending through October exceeded the gross domestic product of the economies of Russia, Brazil or India. Investment has quadrupled since 1996 when the data was first released. It accounted for 42.5 percent of China's GDP last year.
The nation's projects include a $65 billion facelift for Beijing that includes a new airport terminal, subway lines and roads for next year's Olympic Games.
Spending in the non-ferrous metal industry jumped 33 percent in the first 10 months. Investment in non-metal minerals soared 54 percent. The number of new investment projects was 191,086, an increase of 22,518 from a year earlier.
``The economy risks overheating and more needs to be done in monetary policy tightening,'' said Qu Hongbin, chief China economist at HSBC Holdings Plc in Hong Kong. ``There will be at least one more interest-rate increase this year and the central bank will be tougher in curbing loans.''
Borrowing Costs
The People's Bank of China is boosting this month the proportion of deposits that lenders must set aside as reserves to 13.5 percent, the most since at least 1987.
``A sharper-than-expected slowdown in global growth could curtail China's exports and expose the severity of its overcapacity problem,'' Sun Mingchun, an economist at Lehman Brothers Holdings Inc. in Hong Kong, said in a report this month.
More than two-thirds of Chinese enterprises believe their industries have overcapacity, the state-run Xinhua News Agency reported Nov. 11, citing a government survey. Textile, pharmaceutical and equipment manufacturing were cited as examples.
China's economy may face ``a turning point'' if exports drop abruptly as a result of cooling overseas demand, Sheng Baofu, a Ministry of Commerce researcher, wrote in a Nov. 13 article posted on the ministry's Web site. Exporters mainly targeting the U.S. risk ``continuously shrinking'' orders, Sheng wrote.
Flood of Cash
That contrasts with government efforts now to tame the flood of cash from a trade surplus that reached $27 billion last month, stoking inflation, asset prices and investment.
Money supply grew 18.5 percent from a year earlier, exceeding the central bank's annual target of 16 percent for a ninth straight month. Consumer prices rose 6.5 percent on surging food costs.
China should raise rates and allow more currency appreciation, the World Bank said yesterday. Bigger yuan gains would staunch money inflows by pushing up export prices.
China is the biggest contributor to global growth this year, the International Monetary Fund said last month.
Global Slowdown and Chinese Exports
From the FT this morning:
China’s commerce ministry warned on Thursday that a slowing US economy would trigger a drop in Chinese exports that would mark a “turning point” for China’s rapid economic growth.
A global economic slowdown stemming from problems in the US subprime mortgage market and the resulting credit squeeze “will be the biggest challenge to China’s economy next year”, a report from the ministry’s policy research department said.
The report is Beijing’s first public comment on what repercussions it expects from the global credit crisis and a sign that the government does not support the view that Asian growth has “decoupled” from the US. “If demand in the US drops further, Chinese exporters will be devastated by a rapid and continuous fall in orders,” the report said.
Exports account for more than a third of China’s economic growth and 10 per cent of overall GDP, a radically different situation from just four years ago, when exports contributed nothing to headline growth figures.
Huang Yiping, chief Asia economist for Citigroup, said: “I agree with the government that a marked slowdown in the US would be very bad for China.
“We haven’t seen overcapacity or a so-called hard landing in China because it has been able to export all its excess capacity until now.”
The ministry’s report was pessimistic about the chances of avoiding a US and global slowdown, pointing out that although central banks in the US, Europe and Japan had taken numerous steps to alleviate the credit crisis, the situation had continued to deteriorate and “panic in the credit market remains”.
The US receives a fifth of all Chinese exports, making it the second-largest destination for Chinese-made goods after the European Union.
China’s central bank estimates that every 1 per cent drop in US economic growth translates into a 6 per cent fall in Chinese exports.
Exports to the US have slowed significantly since the start of the year, dropping from a 20.4 per cent year-on-year rise in the first quarter to a 15.6 per cent increase in the second. Growth fell to 12.4 per cent in the third quarter following the eruption of subprime loan problems.
The ministry said a combination of falling US interest rates and rising Chinese rates was limiting Beijing’s ability to rein in soaring property and stock market prices and inflation was running at its highest level in a decade. It also noted that continued turmoil in global financial markets could encourage greater capital inflows to China, straining the country’s financial and regulatory system and increasing inflationary pressure.
While potentially devastating for Chinese exports, a US slowdown could help reduce China’s soaring trade surplus, which hit a monthly high of $27bn in October, having increased more than 59 per cent to $212.4bn in the first 10 months from a year earlier.
China’s commerce ministry warned on Thursday that a slowing US economy would trigger a drop in Chinese exports that would mark a “turning point” for China’s rapid economic growth.
A global economic slowdown stemming from problems in the US subprime mortgage market and the resulting credit squeeze “will be the biggest challenge to China’s economy next year”, a report from the ministry’s policy research department said.
The report is Beijing’s first public comment on what repercussions it expects from the global credit crisis and a sign that the government does not support the view that Asian growth has “decoupled” from the US. “If demand in the US drops further, Chinese exporters will be devastated by a rapid and continuous fall in orders,” the report said.
Exports account for more than a third of China’s economic growth and 10 per cent of overall GDP, a radically different situation from just four years ago, when exports contributed nothing to headline growth figures.
Huang Yiping, chief Asia economist for Citigroup, said: “I agree with the government that a marked slowdown in the US would be very bad for China.
“We haven’t seen overcapacity or a so-called hard landing in China because it has been able to export all its excess capacity until now.”
The ministry’s report was pessimistic about the chances of avoiding a US and global slowdown, pointing out that although central banks in the US, Europe and Japan had taken numerous steps to alleviate the credit crisis, the situation had continued to deteriorate and “panic in the credit market remains”.
The US receives a fifth of all Chinese exports, making it the second-largest destination for Chinese-made goods after the European Union.
China’s central bank estimates that every 1 per cent drop in US economic growth translates into a 6 per cent fall in Chinese exports.
Exports to the US have slowed significantly since the start of the year, dropping from a 20.4 per cent year-on-year rise in the first quarter to a 15.6 per cent increase in the second. Growth fell to 12.4 per cent in the third quarter following the eruption of subprime loan problems.
The ministry said a combination of falling US interest rates and rising Chinese rates was limiting Beijing’s ability to rein in soaring property and stock market prices and inflation was running at its highest level in a decade. It also noted that continued turmoil in global financial markets could encourage greater capital inflows to China, straining the country’s financial and regulatory system and increasing inflationary pressure.
While potentially devastating for Chinese exports, a US slowdown could help reduce China’s soaring trade surplus, which hit a monthly high of $27bn in October, having increased more than 59 per cent to $212.4bn in the first 10 months from a year earlier.
Investment in China Accelerates
From Reuters this morning:
Chinese capital spending in October rose at the briskest pace in over a year, rounding out a strong batch of monthly economic data and cementing expectations of a fresh rise in interest rates, possibly as early as Friday.
Capital spending in urban areas on fixed assets such as factories and power plants increased 26.9 percent between January and October compared with the same period last year, the National Bureau of Statistics said.
It was the fastest year-to-date pace since September 2006, eclipsing forecasts of a 26.3 percent rise and the 26.4 percent increase in the first nine months.
Economists calculated that investment spending in October alone was up 30.7 percent from a year earlier. JPMorgan Chase said that was the quickest monthly clip since June 2006.
"That makes an interest rate rise more likely today. Everybody in the market is now expecting it," Qiu Gaoqing, an analyst with Bank of Communications in Shanghai, said.
Shanghai stocks and the yuan eased on Friday as investors focused on the potential for higher interest rates.
The People's Bank of China (PBOC), the central bank, has already raised interest rates five times so far this year and ordered banks on nine occasions to hold more of their deposits in reserve instead of lending them out.
Mingchun Sun, an economist with Lehman Brothers in Hong Kong, agreed that a rate rise was on the cards.
"We expect one 27 basis-point hike by the end of this year, and it's possible that it could even happen today or tomorrow," he said.
China shifts its interest rates in increments such as 0.27 that are divisible by nine to make it easier for banks, which levy interest based on a 360-day year, to calculate the new payment changes.
A HOT ECONOMY
Chinese policy makers have been trying to cool over-investment for fear that excess supply will drive down profit margins and leave companies unable to service their debts.
"I'm pretty worried about this strong number because we think that the overcapacity issue is already a big problem, and this number is definitely making this more severe," Sun said.
The government has tightened land-conversion and environmental-protection rules, taking particular aim at industries that consume a lot of energy and spew out pollution.
Slightly softer factory output and export growth in October had prompted some economists to conclude that these measures might be biting. The investment report suggested they are not.
Capital spending accelerated in real estate, in smelting and pressing of non-ferrous metals such as copper, aluminium and zinc, and in non-metal minerals including cement.
Moreover, investment in new projects increased by 26.5 percent in the January-October period, up from 24.2 percent in the first nine months and just 6.4 percent in the first half.
Even after five rate rises, the one-year lending rate of 7.29 percent remains attractive given China's strong economic growth and fast-rising profits. Moreover, companies finance more than half of their investment from retained earnings, not bank loans.
The pick-up in investment follows figures earlier this week showing a record trade surplus in October; the sharpest rise in retail sales since the government started issuing the data in 1999; faster money and credit growth; and a rebound in consumer price inflation (CPI) to a nearly 11-year high of 6.5 percent.
Taken together, they leave the world's fourth-largest economy on track to grow by more than 11 percent for all of 2007, the fifth straight year of double-digit expansion.
"This higher investment number, plus a rebound in headline CPI and accelerating credit growth, should give the PBOC more than enough reasons for taking immediate tightening actions," said Qu Hongbin, HSBC's chief China economist.
He said he expected a rise of at least 0.27 percentage point as early as this week.
JP Morgan is also in the pack expecting an increase, but the bank struck a note of caution on the timing.
The rationale for a rise is to lift inflation-adjusted deposit rates -- now 3.87 percent for one year -- out of negative territory quickly to discourage people from investing their bank savings in the frothy stock market, economist Qian Wang noted.
"But with the domestic equity market already in correction mode, the urgency of an aggressive rate hike has been reduced," she said in a note to clients.
The stock market <.SSEC> was down more than 2 percent in early afternoon, partly in anticipation of higher borrowing costs, and is now 14 percent off its peak, scaled on Oct. 16.
The yuan eased a touch to 7.4230 per dollar, as the central bank set a lower reference point for the day's trading, which traders said may be aimed at keeping the currency stable before raising rates.
Chinese capital spending in October rose at the briskest pace in over a year, rounding out a strong batch of monthly economic data and cementing expectations of a fresh rise in interest rates, possibly as early as Friday.
Capital spending in urban areas on fixed assets such as factories and power plants increased 26.9 percent between January and October compared with the same period last year, the National Bureau of Statistics said.
It was the fastest year-to-date pace since September 2006, eclipsing forecasts of a 26.3 percent rise and the 26.4 percent increase in the first nine months.
Economists calculated that investment spending in October alone was up 30.7 percent from a year earlier. JPMorgan Chase said that was the quickest monthly clip since June 2006.
"That makes an interest rate rise more likely today. Everybody in the market is now expecting it," Qiu Gaoqing, an analyst with Bank of Communications in Shanghai, said.
Shanghai stocks and the yuan eased on Friday as investors focused on the potential for higher interest rates.
The People's Bank of China (PBOC), the central bank, has already raised interest rates five times so far this year and ordered banks on nine occasions to hold more of their deposits in reserve instead of lending them out.
Mingchun Sun, an economist with Lehman Brothers in Hong Kong, agreed that a rate rise was on the cards.
"We expect one 27 basis-point hike by the end of this year, and it's possible that it could even happen today or tomorrow," he said.
China shifts its interest rates in increments such as 0.27 that are divisible by nine to make it easier for banks, which levy interest based on a 360-day year, to calculate the new payment changes.
A HOT ECONOMY
Chinese policy makers have been trying to cool over-investment for fear that excess supply will drive down profit margins and leave companies unable to service their debts.
"I'm pretty worried about this strong number because we think that the overcapacity issue is already a big problem, and this number is definitely making this more severe," Sun said.
The government has tightened land-conversion and environmental-protection rules, taking particular aim at industries that consume a lot of energy and spew out pollution.
Slightly softer factory output and export growth in October had prompted some economists to conclude that these measures might be biting. The investment report suggested they are not.
Capital spending accelerated in real estate, in smelting and pressing of non-ferrous metals such as copper, aluminium and zinc, and in non-metal minerals including cement.
Moreover, investment in new projects increased by 26.5 percent in the January-October period, up from 24.2 percent in the first nine months and just 6.4 percent in the first half.
Even after five rate rises, the one-year lending rate of 7.29 percent remains attractive given China's strong economic growth and fast-rising profits. Moreover, companies finance more than half of their investment from retained earnings, not bank loans.
The pick-up in investment follows figures earlier this week showing a record trade surplus in October; the sharpest rise in retail sales since the government started issuing the data in 1999; faster money and credit growth; and a rebound in consumer price inflation (CPI) to a nearly 11-year high of 6.5 percent.
Taken together, they leave the world's fourth-largest economy on track to grow by more than 11 percent for all of 2007, the fifth straight year of double-digit expansion.
"This higher investment number, plus a rebound in headline CPI and accelerating credit growth, should give the PBOC more than enough reasons for taking immediate tightening actions," said Qu Hongbin, HSBC's chief China economist.
He said he expected a rise of at least 0.27 percentage point as early as this week.
JP Morgan is also in the pack expecting an increase, but the bank struck a note of caution on the timing.
The rationale for a rise is to lift inflation-adjusted deposit rates -- now 3.87 percent for one year -- out of negative territory quickly to discourage people from investing their bank savings in the frothy stock market, economist Qian Wang noted.
"But with the domestic equity market already in correction mode, the urgency of an aggressive rate hike has been reduced," she said in a note to clients.
The stock market <.SSEC> was down more than 2 percent in early afternoon, partly in anticipation of higher borrowing costs, and is now 14 percent off its peak, scaled on Oct. 16.
The yuan
Thursday, November 15, 2007
China’s industrial output slows in October
From the FT this morning, via Reuters.
China’s industrial output growth slowed a little in October under the weight of government policy curbs, but its tempo was still so high that economists said a further rise in interest rates was just a matter of time.
Factories churned out 17.9 per cent more goods than a year earlier, weaker than September’s 18.9 per cent pace of expansion and undershooting forecasts of an 18.3 per cent rise.
“We expect further moderation in industrial growth towards end of the year, given continued monetary tightening and sector-specific administrative measures aiming at putting a brake on investment spending,” Qian Wang, an economist at JPMorgan Chase in Hong Kong, said in a note to clients.
The government has taken particular aim at low-end industries that guzzle energy or pollute the environment by ending tax breaks and withholding planning permission. The real estate sector has also been in the crosshairs.
Thursday’s report provided further evidence, on top of slower export growth in recent months, that Beijing’s policies are starting to bite.
Output of non-metal minerals, ferrous metals, cast iron and steel was slower in October than in the first nine months, while growth in coal and cement production slowed abruptly to 4.0 per cent and 9.8 per cent, respectively, from a year earlier.
“As cement is used as a major building material, slower production could signal a slower property market ahead,” economists at BNP Paribas said in a report.
Still, the dip in growth was modest and from a breakneck pace. Output in the first 10 months of 2007 was up a prodigious 18.5 per cent from a year earlier, by far the fastest rate of growth in any major economy.
Chris Leung, an economist with DBS in Hong Kong, noted that October’s dip came after a super-sized gain in September. A week-long national holiday in early October had an impact, too.
“But even if I discount this factor, the trend is still very robust,” Mr Leung said.
The World Bank forecast on Thursday that China’s gross domestic product would grow 11.3 per cent this year and 10.8 per cent in 2008, which would mark the sixth straight year of double-digit expansion.
The sustained growth has fanned worries that the world’s fourth largest economy could boil over.
The State Council, China’s cabinet, said on Wednesday that inflationary pressure was quite strong, while Zhou Xiaochuan, central bank governor, has voiced concern that prices will keep ratcheting higher if people become accustomed to inflation.
After consumer price inflation rebounded in October to a nearly 11-year high of 6.5 per cent, economists expect Mr Zhou will try to contain inflationary expectations by raising interest rates before long for the sixth time this year.
Indeed, Yu Song and Hong Liang at Goldman Sachs told clients to be ready for two 0.27 percentage point increases before the end of the year.
They also expect the central bank to take further steps to withdraw cash from the banking system and to let the yuan rise faster – a key demand of US and European policy makers.
and Bloomberg:
China's industrial production grew 17.9 percent in October as automobile and electronics output accelerated, underscoring government concern that the world's fastest-growing major economy risks overheating.
The increase was less than September's 18.9 percent, according to figures released by the statistics bureau today, and compares with the 18.5 percent median estimate of 22 economists surveyed by Bloomberg News.
The slowdown may be insufficient to deter the central bank from raising a one-year lending rate that's already climbed 1.17 percentage points this year to a nine-year high of 7.29 percent. Premier Wen Jiabao yesterday pledged to tighten economic controls after inflation accelerated to the fastest in a decade and the trade surplus widened to a record.
``Beijing knows that we are on the verge of overheating and interest rates need to rise very soon,'' said Stephen Green, senior economist at Standard Chartered Bank Plc in Shanghai.
The key rate compares with 4.5 percent in the U.S., 5.75 percent in the U.K. and 0.5 percent in Japan.
China should raise interest rates and allow more currency appreciation, the World Bank said today. Bigger yuan gains would staunch money inflows by pushing up export prices. The currency has climbed 11 percent versus the dollar since a fixed exchange rate ended in July 2007.
Production growth was higher than the 14.7 percent gain a year earlier and the 16.6 percent expansion for all of 2006. Output rose 18.5 percent for the year through October.
Automobiles, Computers
Automobile output rose 24.3 percent in October from a year earlier. Computer, telecommunications and electronic equipment production climbed 18.9 percent.
SAIC Motor Corp., China's largest carmaker, plans a 12 percent increase in production this year to 1.5 million vehicles, Chairman Hu Maoyuan said Oct. 16.
China's economy, the world's fourth largest, expanded 11.5 percent in the third quarter from a year earlier. Inflation accelerated to 6.5 percent in October, matching August's rate. The monthly trade surplus was $27 billion.
Spending on factories and property probably climbed 26.2 percent in the first 10 months, according to a Bloomberg News survey of economists. That figure, the last in this round of data, is due at 10 a.m. tomorrow.
``Data released this week has shown increased risks of overheating and the central bank has little excuse not to raise interest rates,'' said Wang Tao, head of economics and strategy for Greater China at Bank of America Corp. in Beijing.
Pollution, Energy
China is trying to curb investment in industries that have overcapacity, consume too much energy and produce excessive pollution. The premier said last month that the government will limit land use, tighten investment-project approvals and guide bank lending.
``Policy tightening'' has cooled factory output, said Ben Simpfendorfer, a strategist at Royal Bank of Scotland Plc in Hong Kong. ``It will moderate further in the early part of next year as exports slow on weaker global demand.''
While the trade surplus reached a record on Christmas shipments, the 22.3 percent gain in exports from a year earlier was the smallest increase in seven months. Retail sales in the U.S. rose 0.2 percent in October from the previous month after gaining 0.7 percent in September, the Commerce Department said yesterday.
Export Demand
Weaker growth in demand for exports ``may be a factor behind the moderation in industrial production growth,'' said Liang Hong, senior economist at Goldman Sachs Group Inc in Hong Kong. Inflation leaves the government ``with little choice but to tighten monetary policy further,'' she said.
Besides rate increases, the People's Bank of China is boosting the proportion of deposits that lenders must set aside as reserves to 13.5 percent, the highest level since at least 1987, from Nov. 26. That's up from 9 percent at the start of the year.
China's banking regulator met with the five biggest state- owned banks on Nov. 13, asking them to slow lending, the official Shanghai Securities News reported.
In India, the world's second-fastest growing major economy, industrial production grew 6.4 percent in September.
China’s industrial output growth slowed a little in October under the weight of government policy curbs, but its tempo was still so high that economists said a further rise in interest rates was just a matter of time.
Factories churned out 17.9 per cent more goods than a year earlier, weaker than September’s 18.9 per cent pace of expansion and undershooting forecasts of an 18.3 per cent rise.
“We expect further moderation in industrial growth towards end of the year, given continued monetary tightening and sector-specific administrative measures aiming at putting a brake on investment spending,” Qian Wang, an economist at JPMorgan Chase in Hong Kong, said in a note to clients.
The government has taken particular aim at low-end industries that guzzle energy or pollute the environment by ending tax breaks and withholding planning permission. The real estate sector has also been in the crosshairs.
Thursday’s report provided further evidence, on top of slower export growth in recent months, that Beijing’s policies are starting to bite.
Output of non-metal minerals, ferrous metals, cast iron and steel was slower in October than in the first nine months, while growth in coal and cement production slowed abruptly to 4.0 per cent and 9.8 per cent, respectively, from a year earlier.
“As cement is used as a major building material, slower production could signal a slower property market ahead,” economists at BNP Paribas said in a report.
Still, the dip in growth was modest and from a breakneck pace. Output in the first 10 months of 2007 was up a prodigious 18.5 per cent from a year earlier, by far the fastest rate of growth in any major economy.
Chris Leung, an economist with DBS in Hong Kong, noted that October’s dip came after a super-sized gain in September. A week-long national holiday in early October had an impact, too.
“But even if I discount this factor, the trend is still very robust,” Mr Leung said.
The World Bank forecast on Thursday that China’s gross domestic product would grow 11.3 per cent this year and 10.8 per cent in 2008, which would mark the sixth straight year of double-digit expansion.
The sustained growth has fanned worries that the world’s fourth largest economy could boil over.
The State Council, China’s cabinet, said on Wednesday that inflationary pressure was quite strong, while Zhou Xiaochuan, central bank governor, has voiced concern that prices will keep ratcheting higher if people become accustomed to inflation.
After consumer price inflation rebounded in October to a nearly 11-year high of 6.5 per cent, economists expect Mr Zhou will try to contain inflationary expectations by raising interest rates before long for the sixth time this year.
Indeed, Yu Song and Hong Liang at Goldman Sachs told clients to be ready for two 0.27 percentage point increases before the end of the year.
They also expect the central bank to take further steps to withdraw cash from the banking system and to let the yuan rise faster – a key demand of US and European policy makers.
and Bloomberg:
China's industrial production grew 17.9 percent in October as automobile and electronics output accelerated, underscoring government concern that the world's fastest-growing major economy risks overheating.
The increase was less than September's 18.9 percent, according to figures released by the statistics bureau today, and compares with the 18.5 percent median estimate of 22 economists surveyed by Bloomberg News.
The slowdown may be insufficient to deter the central bank from raising a one-year lending rate that's already climbed 1.17 percentage points this year to a nine-year high of 7.29 percent. Premier Wen Jiabao yesterday pledged to tighten economic controls after inflation accelerated to the fastest in a decade and the trade surplus widened to a record.
``Beijing knows that we are on the verge of overheating and interest rates need to rise very soon,'' said Stephen Green, senior economist at Standard Chartered Bank Plc in Shanghai.
The key rate compares with 4.5 percent in the U.S., 5.75 percent in the U.K. and 0.5 percent in Japan.
China should raise interest rates and allow more currency appreciation, the World Bank said today. Bigger yuan gains would staunch money inflows by pushing up export prices. The currency has climbed 11 percent versus the dollar since a fixed exchange rate ended in July 2007.
Production growth was higher than the 14.7 percent gain a year earlier and the 16.6 percent expansion for all of 2006. Output rose 18.5 percent for the year through October.
Automobiles, Computers
Automobile output rose 24.3 percent in October from a year earlier. Computer, telecommunications and electronic equipment production climbed 18.9 percent.
SAIC Motor Corp., China's largest carmaker, plans a 12 percent increase in production this year to 1.5 million vehicles, Chairman Hu Maoyuan said Oct. 16.
China's economy, the world's fourth largest, expanded 11.5 percent in the third quarter from a year earlier. Inflation accelerated to 6.5 percent in October, matching August's rate. The monthly trade surplus was $27 billion.
Spending on factories and property probably climbed 26.2 percent in the first 10 months, according to a Bloomberg News survey of economists. That figure, the last in this round of data, is due at 10 a.m. tomorrow.
``Data released this week has shown increased risks of overheating and the central bank has little excuse not to raise interest rates,'' said Wang Tao, head of economics and strategy for Greater China at Bank of America Corp. in Beijing.
Pollution, Energy
China is trying to curb investment in industries that have overcapacity, consume too much energy and produce excessive pollution. The premier said last month that the government will limit land use, tighten investment-project approvals and guide bank lending.
``Policy tightening'' has cooled factory output, said Ben Simpfendorfer, a strategist at Royal Bank of Scotland Plc in Hong Kong. ``It will moderate further in the early part of next year as exports slow on weaker global demand.''
While the trade surplus reached a record on Christmas shipments, the 22.3 percent gain in exports from a year earlier was the smallest increase in seven months. Retail sales in the U.S. rose 0.2 percent in October from the previous month after gaining 0.7 percent in September, the Commerce Department said yesterday.
Export Demand
Weaker growth in demand for exports ``may be a factor behind the moderation in industrial production growth,'' said Liang Hong, senior economist at Goldman Sachs Group Inc in Hong Kong. Inflation leaves the government ``with little choice but to tighten monetary policy further,'' she said.
Besides rate increases, the People's Bank of China is boosting the proportion of deposits that lenders must set aside as reserves to 13.5 percent, the highest level since at least 1987, from Nov. 26. That's up from 9 percent at the start of the year.
China's banking regulator met with the five biggest state- owned banks on Nov. 13, asking them to slow lending, the official Shanghai Securities News reported.
In India, the world's second-fastest growing major economy, industrial production grew 6.4 percent in September.
Thursday, October 25, 2007
China GDP Growth Maintains its pace.
China’s economy maintained its rapid growth in the third quarter, expanding by 11.5 per cent, leaving it on track to grow by its fastest annual rate since the 13.1 per cent pace achieved in 1993.The third quarter represented a slightly slower pace than the second quarter, when output rose by 11.9 per cent.
The marginally slower pace was largely due to a series of government tightening measures, including successive interest rate rises, directives to state banks to cool lending and tighter enforcement of environmental rules.
Even with the slower pace in the third quarter, the central government’s tightening measures are expected to continue until at least the end of this year.
The National Bureau of Statistics, which released the growth figures on Thursday, confirmed a disclosure by a senior official last week that annual consumer inflation slowed to 6.2 per cent in September from 6.5 per cent in August. Inflation is still more than double the central bank's annual target of 3 percent and higher than the key one-year deposit rate of 3.87 percent, encouraging speculation in stocks and property.
The benchmark CSI 300 Index of stocks fell the most in six weeks on speculation that the central bank will raise interest rates for the sixth time this year, curbing company earnings. President Hu Jintao is trying to tame the flow of cash into the economy from record exports without triggering a sudden slowdown.
The yuan rose to as much as 7.4834 versus the dollar from 7.4926 yesterday, heading for the biggest weekly gain in five weeks. It has climbed more than 10 percent versus the U.S. currency since the end of a fixed exchange rate in July 2005 and fallen 7 percent against the euro.
China's trade surplus surged 69 percent in the first nine months from a year earlier to $185.7 billion, topping the record total for all of 2006 and fueling investment. Factory and property spending in urban areas climbed 26.4 percent, the statistics bureau said today. That's up from the 24.5 percent pace for all of 2006.
Investment accounted for 42 percent of GDP growth in the first nine months, versus the 37 percent share for domestic consumption, the statistics bureau said, while ``External demand'' accounted for 21 percent.
Industrial production increased 18.9 percent in September from a year earlier, the fastest pace in three months and up from 17.5 percent in August. Retail sales climbed 17 percent after gaining 17.1 percent.
A spokesman for the National Bureau of Statistics said at a press conference announcing the latest growth figures that the “institutional, systemic and structural problems existing in economic performance are still pronounced.”
“These problems include rapid economic growth, price rises, high pressure on energy consumption and pollutant emission reduction, and the uncertainty of world economic growth.”
According to the office,China has taken six years to achieve 40 percent of a 20-year target of quadrupling per-capita GDP by 2020, with an increase to 16,084 yuan this year.
The marginally slower pace was largely due to a series of government tightening measures, including successive interest rate rises, directives to state banks to cool lending and tighter enforcement of environmental rules.
Even with the slower pace in the third quarter, the central government’s tightening measures are expected to continue until at least the end of this year.
The National Bureau of Statistics, which released the growth figures on Thursday, confirmed a disclosure by a senior official last week that annual consumer inflation slowed to 6.2 per cent in September from 6.5 per cent in August. Inflation is still more than double the central bank's annual target of 3 percent and higher than the key one-year deposit rate of 3.87 percent, encouraging speculation in stocks and property.
The benchmark CSI 300 Index of stocks fell the most in six weeks on speculation that the central bank will raise interest rates for the sixth time this year, curbing company earnings. President Hu Jintao is trying to tame the flow of cash into the economy from record exports without triggering a sudden slowdown.
The yuan rose to as much as 7.4834 versus the dollar from 7.4926 yesterday, heading for the biggest weekly gain in five weeks. It has climbed more than 10 percent versus the U.S. currency since the end of a fixed exchange rate in July 2005 and fallen 7 percent against the euro.
China's trade surplus surged 69 percent in the first nine months from a year earlier to $185.7 billion, topping the record total for all of 2006 and fueling investment. Factory and property spending in urban areas climbed 26.4 percent, the statistics bureau said today. That's up from the 24.5 percent pace for all of 2006.
Investment accounted for 42 percent of GDP growth in the first nine months, versus the 37 percent share for domestic consumption, the statistics bureau said, while ``External demand'' accounted for 21 percent.
Industrial production increased 18.9 percent in September from a year earlier, the fastest pace in three months and up from 17.5 percent in August. Retail sales climbed 17 percent after gaining 17.1 percent.
A spokesman for the National Bureau of Statistics said at a press conference announcing the latest growth figures that the “institutional, systemic and structural problems existing in economic performance are still pronounced.”
“These problems include rapid economic growth, price rises, high pressure on energy consumption and pollutant emission reduction, and the uncertainty of world economic growth.”
According to the office,China has taken six years to achieve 40 percent of a 20-year target of quadrupling per-capita GDP by 2020, with an increase to 16,084 yuan this year.
Tuesday, October 23, 2007
Ali Baba IPO
Chinese e-commerce portal Alibaba.com could raise up to $1.5 billion (€1 billion) in its Hong Kong listing next month, the company said Monday, describing it as the biggest Internet IPO since Google.
Alibaba Group, the company that controls the business-to-business commerce Web site, said it plans to sell 858.9 million shares at an indicative price range of 12 to 13.50 Hong Kong dollars each, up from an earlier initial price of HK$10-HK$12.
Alibaba's charismatic founder Jack Ma, a former English teacher who set up the company in 1999, told reporters the profits would help build a "world-class infrastructure and ecosystem for e-commerce, which will contribute to the sustained growth of the Chinese economy."
Ma was speaking by video phone from the United States where he is drumming up support for the IPO.
Alibaba -- which allows companies in both China and overseas to trade with one another online -- is one of China's fastest growing Internet companies.
It has seen its registered members soar from 6 million in 2004 to 24.6 million in 2007. Paying members increased from 77,000 in 2004 to 255,000 by June 2007.
The company recorded a net profit of 295.2 million Chinese yuan ($39.2 million; € 27.5 million) in the six months ended June 2007.
It expects its net profit to more than triple to 622 million yuan ($83 million; €58 million) from 219.9 million yuan, on strong growth in revenue from both its international and Chinese Web sites.
Unlike other offerings in which most of the shares on offer are newly issued shares, nearly three-quarters of the shares in the IPO are existing shares held by Alibaba.com's parent, Alibaba Group.
About 85 percent of the shares are marked for institutional investors with the rest open to retail investors.
Already, the shares are in high demand, with the South China Morning Post newspaper reporting the institutional tranche was already 50 percent subscribed before the price was raised Yahoo! Inc., which holds a 39 percent stake in Alibaba.com's parent, Alibaba Group, had already agreed to subscribe to about $100 million worth of shares.
Alibaba said another seven "strategic" investors had agreed to take a stake, representing in total about HK$2.3 billion ($296 million; € 207 million)or 20 percent of the offering.
They include Cisco Systems International B.V., AIG Global Investment Corporation (Asia) Ltd., FoxConn (Far East) Ltd. and Industrial and Commercial Bank of China Ltd., as well as investment companies held by Wharf Holdings Ltd. Chairman Peter Woo, Malaysian tycoon Robert Kuok and the Kwok family of Sun Hung Kai Properties Ltd., the company said.
Strong demand from the public -- which can start buying the shares from Tuesday -- is also expected to trigger an extra allocation of 113.67 million shares to raise a total of $1.7 billion (€ 1.19 billion).
Net proceeds from the listing were expected to be about HK$2 billion ($335 million; € 234.46 million), the company said, which would be spent on strategic acquisitions and development initiatives to grow the company's business both in China and overseas.
Shares of the company, which claims to be the largest business-to-business e-trading site in China, will begin trading on Nov. 6
Alibaba Group, the company that controls the business-to-business commerce Web site, said it plans to sell 858.9 million shares at an indicative price range of 12 to 13.50 Hong Kong dollars each, up from an earlier initial price of HK$10-HK$12.
Alibaba's charismatic founder Jack Ma, a former English teacher who set up the company in 1999, told reporters the profits would help build a "world-class infrastructure and ecosystem for e-commerce, which will contribute to the sustained growth of the Chinese economy."
Ma was speaking by video phone from the United States where he is drumming up support for the IPO.
Alibaba -- which allows companies in both China and overseas to trade with one another online -- is one of China's fastest growing Internet companies.
It has seen its registered members soar from 6 million in 2004 to 24.6 million in 2007. Paying members increased from 77,000 in 2004 to 255,000 by June 2007.
The company recorded a net profit of 295.2 million Chinese yuan ($39.2 million; € 27.5 million) in the six months ended June 2007.
It expects its net profit to more than triple to 622 million yuan ($83 million; €58 million) from 219.9 million yuan, on strong growth in revenue from both its international and Chinese Web sites.
Unlike other offerings in which most of the shares on offer are newly issued shares, nearly three-quarters of the shares in the IPO are existing shares held by Alibaba.com's parent, Alibaba Group.
About 85 percent of the shares are marked for institutional investors with the rest open to retail investors.
Already, the shares are in high demand, with the South China Morning Post newspaper reporting the institutional tranche was already 50 percent subscribed before the price was raised Yahoo! Inc., which holds a 39 percent stake in Alibaba.com's parent, Alibaba Group, had already agreed to subscribe to about $100 million worth of shares.
Alibaba said another seven "strategic" investors had agreed to take a stake, representing in total about HK$2.3 billion ($296 million; € 207 million)or 20 percent of the offering.
They include Cisco Systems International B.V., AIG Global Investment Corporation (Asia) Ltd., FoxConn (Far East) Ltd. and Industrial and Commercial Bank of China Ltd., as well as investment companies held by Wharf Holdings Ltd. Chairman Peter Woo, Malaysian tycoon Robert Kuok and the Kwok family of Sun Hung Kai Properties Ltd., the company said.
Strong demand from the public -- which can start buying the shares from Tuesday -- is also expected to trigger an extra allocation of 113.67 million shares to raise a total of $1.7 billion (€ 1.19 billion).
Net proceeds from the listing were expected to be about HK$2 billion ($335 million; € 234.46 million), the company said, which would be spent on strategic acquisitions and development initiatives to grow the company's business both in China and overseas.
Shares of the company, which claims to be the largest business-to-business e-trading site in China, will begin trading on Nov. 6
Tuesday, October 02, 2007
Chinese Manufacturing Continues To Accelerate
China's manufacturing activity expanded at a faster pace in September, according to a survey by CLSA Asia Pacific Markets.The Purchasing Managers' Index rose to a three-month high of 55 from 53.4 in August, CLSA said today in an e-mailed statement. A reading above 50 indicates an expansion.
Rapid manufacturing growth is becoming even more rapid it seems. Monetary policy is still extremely loose and China's economy is still accelerating.
The CLSA index is based on replies to questionnaires sent to purchasing executives at more than 400 industrial companies. The survey tracks changes in output, new orders, employment, prices, inventories and delivery times. The data is seasonally adjusted.
The output index rose to 58.3 in September from 54.6 in August, while the index of new orders climbed to 59.3 from 54.6. The index of export orders increased to 52.9 from 52.3.
A government PMI survey, released by the China Federation of Logistics and Purchasing and the National Bureau of Statistics yesterday, also showed a higher reading. The index climbed to 56.1 in September from 54 in August.
Rapid manufacturing growth is becoming even more rapid it seems. Monetary policy is still extremely loose and China's economy is still accelerating.
The CLSA index is based on replies to questionnaires sent to purchasing executives at more than 400 industrial companies. The survey tracks changes in output, new orders, employment, prices, inventories and delivery times. The data is seasonally adjusted.
The output index rose to 58.3 in September from 54.6 in August, while the index of new orders climbed to 59.3 from 54.6. The index of export orders increased to 52.9 from 52.3.
A government PMI survey, released by the China Federation of Logistics and Purchasing and the National Bureau of Statistics yesterday, also showed a higher reading. The index climbed to 56.1 in September from 54 in August.
Friday, September 14, 2007
Factory Investment Continues To Rise
China's spending on factories, equipment and property climbed 26.7 percent in the first eight months of 2007 according to the statistics bureau today.
The world's fourth-largest economy expanded 11.9 percent in the second quarter from a year earlier, the fastest pace since 1994. The trade surplus grew 33 percent in August to $24.97 billion. Inflation jumped to 6.5 percent.
The world's fourth-largest economy expanded 11.9 percent in the second quarter from a year earlier, the fastest pace since 1994. The trade surplus grew 33 percent in August to $24.97 billion. Inflation jumped to 6.5 percent.
From January to August, urban investment in fixed assets hit 6,665.9 billion yuan, a rise of 26.7 percent year-on-year. Of the total, state -owned and state controlled enterprises invested 2,877.7 billion yuan, surging 16.7 percent; real estate development enterprises valued at 1,427.7 billion yuan, rose by 29.0 percent.
In terms of jurisdiction of management, central investment stood at 643.5 billion yuan with growth rate of 13.2 percent as compared with previous year; that of local investment totaled 6,022.4 billion yuan, jumping 28.4 percent.
In terms of different industries, investments of primary, secondary, and tertiary industry amounted to 78.3, 2,962.6 and 3,625 billion yuan, expanding 42.9, 29.5 and 24.3 percent respectively, year-on-year.
In terms of different sectors, investments of mining and washing of coal stood at 90.8 billion yuan, a year-on-year rise of 22 percent; that of extraction of petroleum and natural gas grew to 108.1 billion yuan, increasing 10.5 percent; that of manufacture of non-metallic mineral products, smelting and pressing of ferrous metals, smelting and pressing of non-ferrous metals respectively valued at 162.1, 149.9 and 74.1 billion yuan, jumping 49.6, 12.9 and 29.2 percent; that of production and supply of electricity and heat, railway transport arrived at 460.7 and 119.3 billion yuan, climbing 11.5 and 3.4 percent year-on-year.
In terms of registration status, investments of domestic funds enterprises stood at 5,909.3 billion yuan, surging 27 percent over that in the same period last year; that of enterprises with funds from Hong Kong, Macao and Taiwan valued at 322.4 billion yuan, rising 32.5 percent; and that of foreign funded enterprises standing at 397.6 billion yuan, up 17.1 percent, year-on-year.
In terms of buildings under and new constructions, by the end of August, the cumulative number of urban construction projects over 500,000 yuan was 237,000, a year-on-year increase of 29,286; that of total investment planned in project under construction stood at 211,981 trillion yuan, climbing 17.9 percent; that of number of project started this year valued at 149,751, a year-on-year rise of 18,665; that of total planned investment of newly projects was 5,194.2 billion yuan, a rise of 16.7 percent.
In terms of volume of positioned funds, investment in urban areas hit 7,677.8 billion yuan, a year-on-year rise of 27.1 percent. Of which, domestic loans, foreign investment, and self-rising funds rising 12.7, 16.3 and 32.2 percent respectively, year-on-year.
People's Bank of China Raises Interest Rates
The People’s Bank of China raised interest rates for the fifth time since March today in an effort to curb the fastest inflation since 1996 and damp speculation in stocks and real estate.
The benchmark one-year lending rate will increase to a nine-year high of 7.29 percent from 7.02 percent, starting tomorrow, the central bank said today on its Web site. The rate has risen from 6.12 percent on March. here is the rather terse text of the communique:
"
Money supply grew 18.1 percent in August, exceeding the central bank's annual target of 16 percent for the seventh straight month. Urban fixed-asset investment climbed 26.7 percent in the first eight months of this year.
The benchmark one-year lending rate will increase to a nine-year high of 7.29 percent from 7.02 percent, starting tomorrow, the central bank said today on its Web site. The rate has risen from 6.12 percent on March. here is the rather terse text of the communique:
"
In order to strengthen liquidity management in the banking system and check the excessive growth of monetary credit, the People’s Bank of China has decided to raise the RMB reserve requirement ratio for depository financial institutions by 0.5 percentage points as of September 25, 2007."
Money supply grew 18.1 percent in August, exceeding the central bank's annual target of 16 percent for the seventh straight month. Urban fixed-asset investment climbed 26.7 percent in the first eight months of this year.
Thursday, September 13, 2007
August Industrial Output Growth Slows
China's industrial production rose 17.5 percent in August, slowing for a second month after the government increased taxes on exports. The increase was down from an 18 percent gain in July.The slowdown may be insufficient to deter the central bank from raising interest rates for a fifth time this year after inflation surged to an almost 11-year high and the trade surplus widened to the second-highest on record.
China's trade surplus widened 33 percent in August from a year earlier to $24.97 billion.
Foreign direct investment in China climbed 12.8 percent through August from a year earlier. Spending rose to $41.9 billion, the Ministry of Commerce said today at a briefing in Beijing. The pace slowed from a 12.9 percent increase in the first seven months. For August alone, investment jumped 11.9 percent to $5.1 billion.
China was the world's fourth-largest recipient of foreign direct investment in 2006 after the U.S., U.K. and France according to the United Nations. Spending by overseas companies climbed 4.5 percent from a year earlier to $63 billion. Including the financial industry, investment fell 4.1 percent to $70 billion.
Disposable incomes among urban households climbed 14.2 percent in the first half from a year earlier.
China's trade surplus widened 33 percent in August from a year earlier to $24.97 billion.
Foreign direct investment in China climbed 12.8 percent through August from a year earlier. Spending rose to $41.9 billion, the Ministry of Commerce said today at a briefing in Beijing. The pace slowed from a 12.9 percent increase in the first seven months. For August alone, investment jumped 11.9 percent to $5.1 billion.
China was the world's fourth-largest recipient of foreign direct investment in 2006 after the U.S., U.K. and France according to the United Nations. Spending by overseas companies climbed 4.5 percent from a year earlier to $63 billion. Including the financial industry, investment fell 4.1 percent to $70 billion.
Disposable incomes among urban households climbed 14.2 percent in the first half from a year earlier.
Tuesday, September 11, 2007
Inflation Continues To Rise in August
Soaring food prices propelled China’s annual consumer price inflation to 6.5 per cent in August, the fastest pace in nearly 11 years, raising expectations that the central bank will defy the global trend and keep raising interest rates. The inflation rate published today, up from 5.6 per cent in July, was the highest reading since December 1996.
Also, according to the National Bureau of Statistics proucer prices keep rising too:
Fixed asset investment continues to be very high:
and In July, the total retail sales of consumer goods reached 699.8 billion yuan, a year-on-year increase of 16.4 percent.
While in August, according to a news release today China's retail sales grew at the fastest pace in more than three years, buoyed by higher prices and rising incomes in what must surely be the world's fastest-growing major economy. Sales climbed 17.1 percent in August from a year earlier to 711.7 billion yuan ($95 billion) after gaining 16.4 percent in July.
Also, according to the National Bureau of Statistics proucer prices keep rising too:
In August, Producers’ Price Index (PPI) for manufactured goods up by 2.6 percent from the same month last year; purchasing prices for raw material, fuels and power rose by 3.8 percent.
PPI for means of production increased 2.2 percent over last August. Of the total, PPIs for mining and quarrying industry increased 1.4 percent; that for raw materials industry and manufacturing industry correspondingly up by 3.9 and 1.5 percent; that for means of consumer goods grew 3.5 percent. Of which, price for foodstuff increased 8.6 percent; that of clothing and commodities rose 1.2 and 1.8 percent respectively, while that for durable consumer goods dropped 0.5 percent.
Fixed asset investment continues to be very high:
From January to July, urban investment in fixed assets hit 5,669.8 billion yuan, a rise of 26.6 percent year-on-year. Of the total, state -owned and state controlled enterprises invested 2,431.7 billion yuan, surging 16.5 percent; real estate development enterprises valued at 1,213.5 billion yuan, rose by 28.9 percent.
and In July, the total retail sales of consumer goods reached 699.8 billion yuan, a year-on-year increase of 16.4 percent.
While in August, according to a news release today China's retail sales grew at the fastest pace in more than three years, buoyed by higher prices and rising incomes in what must surely be the world's fastest-growing major economy. Sales climbed 17.1 percent in August from a year earlier to 711.7 billion yuan ($95 billion) after gaining 16.4 percent in July.
Tuesday, August 21, 2007
China Raises Rates for Fourth Time to Cool Inflation
From Bloomberg today:
China Raises Rates for Fourth Time to Cool Inflation (Update1)
By Nipa Piboontanasawat
Aug. 21 (Bloomberg) -- China raised interest rates for the fourth time since March to cool the world's fastest-growing major economy after inflation surged to a 10-year high.
The benchmark one-year lending rate will increase 0.18 percentage point to 7.02 percent tomorrow, the People's Bank of China said on its Web site. The one-year deposit rate will rise 0.27 percentage point to 3.6 percent.
China's economy grew at the fastest pace in more than 12 years in the second quarter on investment and exports. Consumer prices climbed 5.6 percent in July as the cost of food soared, while the central bank later cautioned that inflationary pressures were broadening.
``This is a reflection of the central bank's concern about inflation and asset bubbles,'' said Ma Jun, chief China economist at Deutsche Bank AG in Hong Kong. ``We can't rule out another interest rate hike this year.''
It's the second time this year that deposit rates increased more than lending rates. The government is trying to make bank savings more attractive to stem the flow of money into property and stock speculation and curb asset bubbles.
The increase is to control ``money supply and loans and stabilize inflation expectations,'' the central bank said.
`Bigger' Bubble
Inflation has outstripped returns on bank savings. The government reduced a tax on interest income last week to 5 percent from 20 percent to make deposits more attractive.
``This is targeted at slowing the money flowing into the stock market,'' said Liao Qun, chief economist at Citic Ka Wah Bank in Hong Kong. ``As the bubble gets bigger, the chance of it bursting is also bigger.''
The key CSI 300 Index has climbed 144 percent this year after more than doubling in 2006. Property prices have also surged. In July, housing prices jumped 19.4 percent from a year earlier in Shenzhen and 10.4 percent in Beijing.
Wang Qing, chief China economist at Morgan Stanley in Hong Kong, said the central bank may raise interest rates again in the fourth quarter.
China is easing controls on money leaving the country to reduce the build-up of cash in the financial system. Yesterday, the government said Chinese investors will be allowed to put money into Hong Kong stocks.
Trade Tension
A stronger yuan would also help to curb the inflow of money and reduce tension with trading partners including the U.S. The currency has gained 9 percent versus the dollar since a revaluation in July 2005. U.S. manufacturers say the yuan is kept weak to make China's products cheap.
Besides raising rates, the People's Bank of China has ordered lenders to set aside larger reserves on six occasions this year. It has also sold bills to soak up cash.
The top priority is to prevent the economy from overheating and keep prices tamed, the central bank said in a quarterly monetary-policy report released Aug. 8.
Consumer-price increases aren't solely the result of ``temporary factors,'' the People's Bank of China said then, highlighting energy and labor costs and people's expectations for inflation.
Economists are split on whether the acceleration in consumer prices is temporary and limited to food or ``getting out of control,'' a term used last month by Tao Dong, chief Asia economist at Credit Suisse Group in Hong Kong.
Non-food inflation slowed to 0.9 percent in July from at least 1 percent in each of the previous five months.
China's economy, the world's fourth largest, expanded 11.9 percent in the second quarter from a year earlier.
The trade surplus surged 67 percent in July from a year earlier to $24.4 billion, the second-highest monthly total. Money supply climbed 18.5 percent, the biggest increase in more than a year.
Fixed-asset investment in urban areas increased 26.6 percent in the first seven months from a year earlier, close to the 26.7 expansion in the first half.
Also the Financial Times:
Chinese central bank raises interest rates
By Reuters, August 21, 12.13 BST
China raised interest rates on Tuesday for the fourth time this year to stabilise inflation after consumer prices rose in July at the fastest pace in more than a decade.
The People’s Bank of China (PBOC) said it was raising the rate that banks pay for one-year deposits by 27 basis points, to 3.60 per cent, and the corresponding benchmark for lending rates by 18 basis points, to 7.02 per cent from 6.84 per cent.
The increases go into effect on Wednesday.
Although the timing was a surprise, the action itself was not despite turbulence in global markets that has prompted the Federal Reserve to cut its discount rate and hold out the prospect of a reduction in the federal funds rate.
Most economists had forecast an increase, both to anchor inflationary expectations and to reduce the incentive for savers to take their money out of the bank – where real deposit rates are deeply negative – and pile into the surging stock market.
”The PBOC is concerned about falling real deposit rates spurring the flow of funds out of deposits into equities. We don’t think this is a response to strong growth,” said Ben Simpfendorfer, an economist with Royal Bank of Scotland in Hong Kong.
Although the economy expanded 11.9 per cent in the second quarter from a year earlier, Lin Songli, an analyst with Guosen Securities in Beijing, agreed that, by raising lending rates less than deposit rates, the central bank was signalling it was not intending primarily to slow the pace of growth.
”The move is mainly targeting inflation, and the authorities might have reached a consensus that investment growth is not a big problem now,” Lin said.
Consumer prices surged 5.6 per cent in the year to July, the fastest pace since early 1997, because of a spike in the cost of pork, eggs and other foods.
Although non-food inflation fell to 0.9 per cent in July, policy makers are concerned that price increases are already rippling out across the economy.
”It’s also meant to curb fast growth in the stock market, which is now at historical highs and is rising very fast,” Lin said.
The main Shanghai share market is up 80 per cent this year on top of a 130 per cent leap in 2006.
Lin said bank shares were likely to fall hard on Wednesday in response to the rate rise.
China Raises Rates for Fourth Time to Cool Inflation (Update1)
By Nipa Piboontanasawat
Aug. 21 (Bloomberg) -- China raised interest rates for the fourth time since March to cool the world's fastest-growing major economy after inflation surged to a 10-year high.
The benchmark one-year lending rate will increase 0.18 percentage point to 7.02 percent tomorrow, the People's Bank of China said on its Web site. The one-year deposit rate will rise 0.27 percentage point to 3.6 percent.
China's economy grew at the fastest pace in more than 12 years in the second quarter on investment and exports. Consumer prices climbed 5.6 percent in July as the cost of food soared, while the central bank later cautioned that inflationary pressures were broadening.
``This is a reflection of the central bank's concern about inflation and asset bubbles,'' said Ma Jun, chief China economist at Deutsche Bank AG in Hong Kong. ``We can't rule out another interest rate hike this year.''
It's the second time this year that deposit rates increased more than lending rates. The government is trying to make bank savings more attractive to stem the flow of money into property and stock speculation and curb asset bubbles.
The increase is to control ``money supply and loans and stabilize inflation expectations,'' the central bank said.
`Bigger' Bubble
Inflation has outstripped returns on bank savings. The government reduced a tax on interest income last week to 5 percent from 20 percent to make deposits more attractive.
``This is targeted at slowing the money flowing into the stock market,'' said Liao Qun, chief economist at Citic Ka Wah Bank in Hong Kong. ``As the bubble gets bigger, the chance of it bursting is also bigger.''
The key CSI 300 Index has climbed 144 percent this year after more than doubling in 2006. Property prices have also surged. In July, housing prices jumped 19.4 percent from a year earlier in Shenzhen and 10.4 percent in Beijing.
Wang Qing, chief China economist at Morgan Stanley in Hong Kong, said the central bank may raise interest rates again in the fourth quarter.
China is easing controls on money leaving the country to reduce the build-up of cash in the financial system. Yesterday, the government said Chinese investors will be allowed to put money into Hong Kong stocks.
Trade Tension
A stronger yuan would also help to curb the inflow of money and reduce tension with trading partners including the U.S. The currency has gained 9 percent versus the dollar since a revaluation in July 2005. U.S. manufacturers say the yuan is kept weak to make China's products cheap.
Besides raising rates, the People's Bank of China has ordered lenders to set aside larger reserves on six occasions this year. It has also sold bills to soak up cash.
The top priority is to prevent the economy from overheating and keep prices tamed, the central bank said in a quarterly monetary-policy report released Aug. 8.
Consumer-price increases aren't solely the result of ``temporary factors,'' the People's Bank of China said then, highlighting energy and labor costs and people's expectations for inflation.
Economists are split on whether the acceleration in consumer prices is temporary and limited to food or ``getting out of control,'' a term used last month by Tao Dong, chief Asia economist at Credit Suisse Group in Hong Kong.
Non-food inflation slowed to 0.9 percent in July from at least 1 percent in each of the previous five months.
China's economy, the world's fourth largest, expanded 11.9 percent in the second quarter from a year earlier.
The trade surplus surged 67 percent in July from a year earlier to $24.4 billion, the second-highest monthly total. Money supply climbed 18.5 percent, the biggest increase in more than a year.
Fixed-asset investment in urban areas increased 26.6 percent in the first seven months from a year earlier, close to the 26.7 expansion in the first half.
Also the Financial Times:
Chinese central bank raises interest rates
By Reuters, August 21, 12.13 BST
China raised interest rates on Tuesday for the fourth time this year to stabilise inflation after consumer prices rose in July at the fastest pace in more than a decade.
The People’s Bank of China (PBOC) said it was raising the rate that banks pay for one-year deposits by 27 basis points, to 3.60 per cent, and the corresponding benchmark for lending rates by 18 basis points, to 7.02 per cent from 6.84 per cent.
The increases go into effect on Wednesday.
Although the timing was a surprise, the action itself was not despite turbulence in global markets that has prompted the Federal Reserve to cut its discount rate and hold out the prospect of a reduction in the federal funds rate.
Most economists had forecast an increase, both to anchor inflationary expectations and to reduce the incentive for savers to take their money out of the bank – where real deposit rates are deeply negative – and pile into the surging stock market.
”The PBOC is concerned about falling real deposit rates spurring the flow of funds out of deposits into equities. We don’t think this is a response to strong growth,” said Ben Simpfendorfer, an economist with Royal Bank of Scotland in Hong Kong.
Although the economy expanded 11.9 per cent in the second quarter from a year earlier, Lin Songli, an analyst with Guosen Securities in Beijing, agreed that, by raising lending rates less than deposit rates, the central bank was signalling it was not intending primarily to slow the pace of growth.
”The move is mainly targeting inflation, and the authorities might have reached a consensus that investment growth is not a big problem now,” Lin said.
Consumer prices surged 5.6 per cent in the year to July, the fastest pace since early 1997, because of a spike in the cost of pork, eggs and other foods.
Although non-food inflation fell to 0.9 per cent in July, policy makers are concerned that price increases are already rippling out across the economy.
”It’s also meant to curb fast growth in the stock market, which is now at historical highs and is rising very fast,” Lin said.
The main Shanghai share market is up 80 per cent this year on top of a 130 per cent leap in 2006.
Lin said bank shares were likely to fall hard on Wednesday in response to the rate rise.
Thursday, August 16, 2007
China Factory and Property Investment Rises 26.6 Percent in H1 2007
From the China Stats Office today:
And just one detail, China will overtake the U.S. this year as the largest contributor to global growth, according to the IMF. The fund forecasts the nation will account for 15.6 percent of the expansion, versus 15.4 percent for the U.S.
From January to July, urban investment in fixed assets hit 5,669.8 billion yuan, a rise of 26.6 percent year-on-year. Of the total, state -owned and state controlled enterprises invested 2,431.7 billion yuan, surging 16.5 percent; real estate development enterprises valued at 1,213.5 billion yuan, rose by 28.9 percent.
In terms of jurisdiction of management, central investment stood at 533.2 billion yuan with growth rate of 15.4 percent as compared with previous year; that of local investment totaled 5,136.5 billion yuan, jumping 27.9 percent.
In terms of different industries, investments of primary, secondary, and tertiary industry amounted to 66.5, 2,549.8 and 3,053.6 billion yuan, expanding 46.2, 28.9 and 24.5 percent respectively, year-on-year.
In terms of different sectors, investments of mining and washing of coal stood at 76 billion yuan, a year-on-year rise of 17.2 percent; that of extraction of petroleum and natural gas grew to 94.7 billion yuan, increasing 10.4 percent; that of manufacture of non-metallic mineral products, smelting and pressing of ferrous metals, smelting and pressing of non-ferrous metals respectively valued at 139.3, 130.2 and 64.7 billion yuan, jumping 48.8, 9.2 and 34.8 percent; that of production and supply of electricity and heat, railway transport arrived at 399.4 and 77.6 billion yuan, climbing 12.6 and 5.4 percent year-on-year.
In terms of registration status, investments of domestic funds enterprises stood at 5,017.2 billion yuan, surging 26.7 percent over that in the same period last year; that of enterprises with funds from Hong Kong, Macao and Taiwan valued at 280.3 billion yuan, rising 34.4 percent; and that of foreign funded enterprises standing at 341.6 billion yuan, up 18.3 percent, year-on-year.
In terms of buildings under and new constructions, by the end of July, the cumulative number of urban construction projects over 500,000 yuan was 217,849, a year-on-year increase of 29,139; that of total investment planned in project under construction stood at 20.3484 trillion yuan, climbing 17.2 percent; that of number of project started this year valued at 132,099, a year-on-year rise of 17,168; that of total planned investment of newly projects was 4,813.8 billion yuan, a rise of 14.6 percent.
In terms of volume of positioned funds, investment in urban areas hit 6,610.4 billion yuan, a year-on-year rise of 25.1 percent. Of which, domestic loans, foreign investment, and self-rising funds rising 11.6, 16.0 and 31.0 percent respectively, year-on-year.
And just one detail, China will overtake the U.S. this year as the largest contributor to global growth, according to the IMF. The fund forecasts the nation will account for 15.6 percent of the expansion, versus 15.4 percent for the U.S.
Wednesday, August 15, 2007
China's Industrial Output, July 2007
China's industrial output rose 18 Percent in July.
Here's the release from China Statistics:
China's industrial production grew 18 percent in July, slowing for the first time in three months after cuts to export incentives.
Output expanded less than June's 19.4 percent, the statistics bureau said today. China reduced export tax rebates on 2,831 types of products starting July 1.
The slowdown isn't likely to ease government concern that the world's fastest-growing major economy may be overheating. Inflation jumped in July to the highest rate in more than a decade and economists say a report tomorrow will show investment in factories and property is accelerating.
Here's the release from China Statistics:
In July, the value-added of the industrial enterprises that above designated size (all state-owned enterprises and non-state-owned enterprises with an annual sales income over 5 million yuan) increased 18.0 percent year-on-year. The sales ratio of industrial products was 98.42 percent, dropped 0.03 percentage point over the same month of last year. Industrial enterprises achieved a total export delivery value of 608.5 billion yuan, a year-on-year rise of 22.2 percent.
In terms of main sectors, the growth rate of manufacture of textile, raw chemical materials and chemical products, non-metallic mineral products, smelting and pressing of ferrous metals expanded respectively 15.8, 20.2, 22.7 and 18.8 percent; that of manufacture of general purpose machinery, transportation equipment manufacturing industry, electromechanical equipment manufacturing climbed 23.5, 26.6 and 23.2 percent correspondingly; that of manufacture of communication equipment, computers and other electric equipment increased 19.7 percent; and that of production and supply of electric power and heat power rose by 13.1 percent.
In terms of major industrial products, the output of coal and electricity respectively reached 196 million tons and 291.6 billion kilowatt-hours, increased 12.7 and 15.5 percent respectively. The output of crude oil was 15.47 million tons, dropped 1.7 percent year-on-year. The output of pig iron, crude steel and rolled steel stood at 39.67, 41.25 and 47.73 million tons, rose by 13.2, 14.5 and 23.9 percent respectively; that of cement was 117 million tons, up by 11.6 percent; that of automobiles was 679 thousand sets, up by 32.7 percent, of which, 386 thousand sets of cars with a growth of 27.9 percent over the same month of the previous year.
From January to July, the accumulated value-added of industrial enterprises above designated size achieved a year-on-year rise of 18.5 percent.
Tuesday, August 14, 2007
Chinese Retail Sales
From Bloomberg today:
And here's the data from China Statistics:
China's Retail Sales Grow at Fastest Pace Since 2004
China's retail sales grew at the fastest pace in more than three years, buoyed by a stock market rally and higher wages and prices.
Spending climbed 16.4 percent to 699.8 billion yuan ($92 billion) in July from a year earlier, the National Bureau of Statistics said today, after gaining 16 percent in June. The figures aren't inflation-adjusted.
The biggest increase in consumer prices in a decade contributed to the acceleration. Stock-market gains and a 14 percent jump in urban incomes underpinned demand, aiding Premier Wen Jiabao's efforts to boost consumer spending and reduce the economy's dependence on exports and investment.
``Inflation played an important role in gains for food sales,'' said Paul Tang, chief economist at Bank of East Asia Ltd. in Hong Kong. ``But in other categories there's genuine continued gains, and overall growth is steady.''
Some Chinese retail stocks climbed. Youngor Group Co., the country's No. 1 maker of men's clothing by sales, gained 5.9 percent to 29.81 yuan after forecasting first-half profit more than tripled.
Meat, poultry and egg sales jumped 51 percent from a year earlier, the statistics bureau said. Jewelry spending rose 46 percent, automobile sales climbed 43 percent and those of furniture gained 32 percent.
Disposable urban incomes jumped 14.2 percent in the first half from a year earlier and earnings among rural households climbed 13.3 percent. McDonald's Corp., the world's biggest restaurant company, last week said it plans to raise salaries in China by 12 percent.
China will reduce a tax on interest income to 5 percent from 20 percent tomorrow, increasing returns on bank deposits to counter the effects of inflation.
China's economy, the world's fourth largest, grew 11.9 percent in the second quarter from a year earlier, the fastest pace in more than 12 years. Overseas sales jumped 34.2 percent in July.
And here's the data from China Statistics:
In July, the total retail sales of consumer goods reached 699.8 billion yuan, a year-on-year increase of 16.4 percent.
In terms of different regions, the retail sales of consumer goods in urban areas was 476.2 billion yuan, rose by 16.7 percent over the same period of the previous year; that of retail sales at and below the county level achieved 223.6 billion yuan, up by 15.8 percent.
In terms of different industries, the retail sales of wholesale and retail trades was 592.4 billion yuan, a year-on-year increase of 16.5 percent; that of lodging and catering services was 92.3 billion yuan, up by 18.0 percent; that of other industries was 15.1 billion yuan, up by 3.1 percent.
Monday, August 13, 2007
Inflation Creeps Up
Inflation in China is ticking up (as we can see from the chart below). In fact China’s inflation rate hit a ten-year high of 5.6 per cent in July, producing a spike which has raised expectations about further tightening measures as well as increased concerns there might be an eventual knock-on impact on the real economy.
On the other hand, as the Financial Times notes:
So I think we need to be very careful before coming to any over hasty conclusions. If we look at the producer price situation for manufactured goods (see chart below), we find that, in July, the Producers’ Price Index (PPI) for manufactured goods up by 2.4 percent from the same month last year. At the same time the purchasing prices for raw material, fuels and power rose by 3.6 percent. So while there is cost pressure from inputs, there is no sign of these producing sustained inflationary upward pressure on producer prices yet.
So while the People’s Bank of China has been sounding more and more hawkish about inflation of late, and especially in its last quarterly monetary report, we still need to wait and see to what extent this passes through to monetary tightening, and even in the event that it does, to what extent - given the overarching liquidity background - to what extent this passes through to impacts on the real economy.
I cannot help feeling that what is going on in the financial markets and the international banking sector right now will be much more significant for determining the future Chinese growth path.
On the other hand, as the Financial Times notes:
The rise in the consumer price index was mainly the result of higher food prices, a result of a shortage of staple meats, especially pork, following an illness which killed millions of pigs late last year, and higher feed costs.
So I think we need to be very careful before coming to any over hasty conclusions. If we look at the producer price situation for manufactured goods (see chart below), we find that, in July, the Producers’ Price Index (PPI) for manufactured goods up by 2.4 percent from the same month last year. At the same time the purchasing prices for raw material, fuels and power rose by 3.6 percent. So while there is cost pressure from inputs, there is no sign of these producing sustained inflationary upward pressure on producer prices yet.
So while the People’s Bank of China has been sounding more and more hawkish about inflation of late, and especially in its last quarterly monetary report, we still need to wait and see to what extent this passes through to monetary tightening, and even in the event that it does, to what extent - given the overarching liquidity background - to what extent this passes through to impacts on the real economy.
I cannot help feeling that what is going on in the financial markets and the international banking sector right now will be much more significant for determining the future Chinese growth path.
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