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Monday, December 01, 2008

China's Manufacturing Contracts Sharply In November

China’s manufacturing shrank by the most on record and export orders plunged, providing more evidence that recessions in the U.S., Europe and Japan are sharply slowing what was previously the world’s fastest-growing major economy. The Purchasing Managers’ Index fell to a seasonally adjusted 38.8 in November from 44.6 in October, according to the China Federation of Logistics and Purchasing. The output index fell to 35.5 from 44.3, while the index of new orders dropped to 32.3 from 41.7. On these indexes any reading below 50 means contraction, and as can be seen in the chart below, China's manufacturing industry has now been contracting (month on month) in four of the last five months. The November reading stands out though, since the magnitude of the contraction has accelerated sharply.






A separate index - the CLSA China Purchasing Managers’ Index - reveals a similar picture, and fell to a seasonally adjusted 40.9 in November from 45.2 in October. The CLSA index, which was started in April 2004, is based on a survey of more than 400 manufacturing companies.

Output, new orders and export orders had record contractions. The output index fell to 39.2 in November from 43.4 in October, while the index of new orders declined to 36.1 from 43.8. The index of export orders dropped to 28.2 from 44.3, CLSA said.

A slump in property sales and building work is also undermining growth. Construction of homes, offices and factories contracted at least 16.6 percent in October after a 32.5 percent expansion a year earlier, according to a report from Macquarie Securities.

Monday, November 03, 2008

The Contraction In Chinese Manufacturing Accelerates In October

China's manufacturing contracted by the most on record last month as the global financial crisis cut demand for exports, a second survey showed. The CLSA China Purchasing Managers' Index fell to a seasonally adjusted 45.2 in October from 47.7 in September. The output index fell to 43.4 in October from 46.7 in September, while the index of new orders declined to 43.8 from 45.8. The index of export orders dropped to 44.3 from 45.9.


The government-backed China Federation of Logistics purchasing managers' index - published on 1 November - also showed a strong contraction, falling to 44.6 in October, the lowest level since the data began in 2005, from 51.2 in September.



Basically, not only does Chinese manufacturing seem to have been in contraction mode for the last several months now, the rate of contraction seems to be accelerating.

To be watched, and carefully.

Monday, October 20, 2008

China GDP Growth Slows Quite Rapidly In Q3 2008

China’s economic growth rate slipped into single digits in the third quarter for the first time in at least four years under the impact of the global credit crisis and weakness in the domestic property sector. Annual gross domestic product growth slowed more sharply than expected to 9.0 per cent from 10.1 per cent in the second quarter, the National Bureau of Statistics (NBS) said on Monday.



It was not immediately possible to pinpoint when growth was last weaker because China does not publish new quarterly data when it revises its annual GDP figures. nor was it possible to precisely calibrate the speed of the slowdown since we do not have seasonally adjusted quarter on quarter data. China's economic expansion was the weakest since at least the second quarter of 2003, when growth slumped because of the severe acute respiratory syndrome, or SARS, epidemic.

Industrial production slowed to 11.4 per cent in the year to September, the lowest rate since 2002, suggesting that the economy was losing momentum as the quarter went on. However, the pace of retail sales and fixed-asset investment growth both accelerated last month, beating forecasts and providing reassurance to policy makers counting on domestic demand to take up the slack from ebbing exports.

The property market, which accounts for about a quarter of fixed-asset investment, is in almost in free fall due to tight credit and government curbs. Home sales by volume plunged 55.5 percent and 38.5 percent in Beijing and Shanghai in the first eight months from a year earlier, the official Xinhua News Agency reported, citing the China Real Estate Association. This decline is really still to show its ugly face in the data though, since urban fixed-asset investment climbed 27.6 percent in the first nine months from a year earlier, after a 27.4 percent increase through August, today's data showed.

Retail sales rose 23.2 percent last month from a year earlier, matching the gain in August and close to the fastest pace in at least nine years.

Urban disposable incomes for the first nine months rose 14.7 percent to 11,865 yuan ($1,737) from a year earlier. Rural cash incomes climbed 19.6 percent to 3,971 yuan. Those numbers were boosted by inflation.



The fifth quarter of slowing growth may exacerbate declines this year in iron ore, copper and oil prices and undermine demand for exports within Asia, where economies are already contracting. The cabinet announced yesterday tax cuts for exporters and increased infrastructure investment and the central bank may be poised to cut interest rates for the third time this year.

Steel-product output in China, the world's biggest producer and user of the alloy, fell 5.5 percent in September from a year ago to a seven-month low as weak demand and falling prices forced mills to pare production.

"China's crude steel output fell to 39.6 million tonnes, down 7% from August and 9.1% year-on-year, indicating that many northern mills were cutting production, said market sources. China's steel production ban for the Olympics lasted from July to September 20, so a fall in September output meant that mills were not only not resuming production, but reducing it further in the face of weak demand, said the sources. Several mills in Hebei, China's biggest crude steelmaking province, have been cutting output or have even closed down due to sluggish demand. Some were dumping products in the market in return for cash. September output for major finished products like rebar and plate rose, however, inched up in the month but analysts said this may be due to lower crude steel exports in the month. China exported 7.31 million tonnes of crude steel in September, 1.42 million tonnes or 13.5% less..."


Output was 45.9 million metric tons last month, according to figures provided today by China Mainland Marketing Research Co., which releases data on behalf of National Bureau of Statistics. Production rose 8.1 percent to 445.2 million tons in the first nine months from a year earlier.

Prices of hot-rolled coil, a benchmark product, have fallen to 3,645 yuan a metric ton from a record 5,957 yuan in June. The slump has led to losses at almost all steelmakers, JPMorgan Chase & Co.'s analyst Zhang Feng said recently in a research note.


Export growth may plummet from 22 percent in the first nine months of this year to ``zero or even negative growth'' in 2009, according to Stephen Green, head of China research at Standard Chartered Bank Plc in Shanghai.

The closure last week of a big toy factory in southern China dramatised the difficulties facing the economy, which have prompted steel and aluminium firms to slash output because of slumping prices. Steel prices in China have fallen about 20 per cent over the past three months and there are reports of small steelmakers being forced to close because of shrinking demand.

Wednesday, October 15, 2008

Rio Tinto Give China Slowdown Warning

Rio Tinto’s chief executive, Toma Albanese, warned on Wednesday about the health of China and said the slowdown in one of the world’s fastest growing economies had led the mining company to revise its capital spending plans. Mr Albanese said there had been a marked reduction in Chinese commodity demand from the overheated levels of 2007 and added that the “vast majority of Chinese aluminium producers are now making operating losses.”

As the credit crisis unfolded over the past year, one of the few certainties in the global economy seemed to be China’s ability to plough on regardless at double-digit growth rates. Not any more. With Wall Street in tatters and Europe’s and Japan’s economies faltering, many investors are beginning to ask if China too might stumble badly. After five turbo-charged years of accelerating growth, the Chinese economy is clearly slowing.

Housing Market Evidence of Slowdown

The local government in Shanghai yesterday raised its ceiling on mortgage lending to households under a government-run program, uping available funding by 20 percent in an attempt to encourage families to buy apartments in the city. Eligible households will be allowed to borrow as much as 600,000 yuan ($87,679) starting today, up from 500,000 yuan, the city's public housing fund agency said in a statement yesterday.

Under Shanghai's mortgage program, most households are allowed to spend as much as 7 percent of their monthly salaries to repay loans. Employers must match workers' contributions and borrowers receive preferential bank lending rates. Households meeting certain requirements can spend as much as 15 percent of salaries, and they are the ones eligible for the new ceiling.



The loan program covered 3.42 million people at the end of June, according to the agency. About 8.8 percent of people covered make the larger repayments, the Shanghai Daily said in June, citing the housing agency.

Housing prices in Shanghai, China's biggest financial center, fell 19.5 percent in the third quarter from the previous three months as the volume of sales slumped, real estate broker Savills Plc said yesterday. Average transaction prices, which rose to a record in the second quarter, dropped to 9,092 yuan per square meter, the London-based broker said in a report.

The volume of transactions slid 39 percent from the second quarter and two-thirds from the same period last year to 2.9 million square meters, according to Savills.

China's stocks also fell for a second day today, with metal producers leading the way, on concern profits will decline as economic growth slows.

Jiangxi Copper Co., China's second-biggest producer of the metal, slid 5.9 percent after copper and zinc futures slumped by the exchange-imposed 4 percent daily limit in Shanghai. China Shenhua Energy Co., the nation's largest coal producer, fell 3.2 percent as more affordable oil reduced the allure of alternative energy sources. Citic Securities Co. fell 2.9 percent after a second competitor in as many days reported a slump in profit.

Monday, October 13, 2008

Chinese Exports Maintain Strong Momentum In August

China’s trade surplus hit a record $29.3bn in September as exporters succeeded in defying forecasts of falling international demand – for the moment, at least.

Exports rose 21.5 percent from a year earlier to $136.4 billion after gaining 21.1 percent in August, according to data from the Chinese customs bureau. China has cut interest rates twice in the last month in an attempt to stimulate the economy as the worst financial crisis since the Great Depression undermines global growth. The surplus adds to the already existing $1.8 trillion of foreign-currency reserves.


The expanding trade surplus – up from the previous record of $28.7bn in August – will bolster China’s slowing gross domestic product growth rate but could also refocus international attention on Beijing’s effort to support exporters in recent months by slowing the renminbi’s appreciation against the US dollar.

Chinese imports grew 21.3 per cent year-on-year in September, their weakest performance for more than a year.

It is clear that the focus of government policy has shifted away from combating inflation, which hit a 12-year high of 8.7 per cent in February, and toward supporting growth. China remains relatively insulated from the current international financial turmoil. Major state banks have been extensively recapitalised in recent years and have only limited international exposure, while the government has been enjoying rapid growth in tax revenues and over $1.8bn in foreign exchange reserves.

However, local investors are already suffering from dramatic falls in stock prices and the slump in urban property markets, increasing vulnerability to any fall in export demand.

Monday, September 01, 2008

August PMI Indicates Continuing Contraction In Chinese Manufacturing

Manufacturing in China contracted for a second month in August, according to the latest reading on the manufacturing PMI. The China Federation of Logistics and Purchasing Purchasing Managers' Index registered a seasonally adjusted 48.4 in August, unchanged from July.



The Chinese authorities have become increasingly concerned that the impact of a global slowdown may weigh heavily on their export oriented economy, and they have recently attempted to put a brake on gains in the yuan and have also loosened lending quotas to help exporters and small businesses following four quarters of slowing economic growth. China's growth slowed to a 10.1 percent annual rate in the second quarter of this year, coming down quarter by quarter from the high of 12.6 percent attained in the second quarter of 2007.

The government is considering spending an extra 400 billion yuan ($58 billion) to stimulate the economy, according to reports in Chinese news media. A plan awaiting approval from the State Council and the National People's Congress includes 220 billion yuan of spending and 150 billion yuan of tax cuts, the Beijing-based Economic Observer newspaper reported last week. In addition China has tripled railway spending this year to 300 billion yuan. The current five-year plan, which runs through 2010, calls for investing almost 4.8 trillion yuan on power stations, waterways, roads and other infrastructure projects -- more than the combined output of Taiwan, Thailand and Vietnam. Reconstruction after May's Sichuan earthquake could cost another 1 trillion yuan, the government says.

Monetary policy may also be loosened, and the People's Bank of China said in August that it would ``fine-tune'' monetary policy to cushion the economy as overseas demand weakens. This is being widely interpreted as meaning that the central bank will reduce the portion of deposits banks are required to hold as reserves - possibly by as much as 2.5 percentage points, bringing the level down to 15 percent.

Friday, August 15, 2008

China Investment In Fixed Assets Accelerates

China's factory and property spending growth accelerated in July, fueled by rebuilding after the Sichuan earthquake in May and snowstorms in January and February. Urban fixed-asset investment rose 27.3 percent to 7.22 trillion yuan ($1 trillion) year on year in July, according to the latest data from the Chinese statistics bureau, after gaining 26.8 percent in the first half. China is at the present time busy rebuilding roads, power lines, factories and homes after the worst snowstorms in half a century and an earthquake that killed more than 69,000 people.





Railway spending climbed 35.8 percent in the first seven months to 105 billion yuan, up from 20.4 percent for the first half. China plans to spend 3.8 trillion yuan on transportation infrastructure in its five-year plan running through 2010.

Growth in spending in real-estate development slowed to 30.9 percent from 33.5 percent. Ferrous-metals investment climbed 31.6 percent from 27.5 percent. Non-ferrous metals rose 40.5 percent after climbing 39.2 percent.

Thursday, August 14, 2008

China's Industrial Output Slows in July 2008

China's industrial production grew at the slowest pace since February 2007 on weaker export orders and factory shutdowns to clear the air for the Olympic Games. Production rose 14.7 percent in July from a year earlier, the statistics bureau said today, after gaining 16 percent in June.




Weakness in economies around the world have reduced orders for export products, while higher fuel and raw-material prices deterred some companies from expanding. The slowdown, exacerbated by attempts to prevent pollution in Beijing during the Olympics, suggests an acceleration in China's July export growth is unlikely to be sustained.

The yuan fell to 6.8620 against the dollar as of 5:05 p.m. in Beijing after closing at 6.8570 yesterday.

Textile output rose 10 percent in July from a year earlier after gaining 12.4 percent in June. Steel products growth weakened to 7 percent from 11 percent. Cement output rose 6.3 percent, down from 7.9 percent. Growth in electricity output slowed for the fourth straight month, climbing 8.1 percent after an 8.3 percent gain in June.

China's economy expanded 10.1 percent in the second quarter from a year earlier, down from 11.9 percent in all of 2007. Still, rising domestic demand may help sustain industrial production to some extent. Retail sales jumped 23.3 percent in July from a year earlier.

Wednesday, August 13, 2008

China Retail Sales Rise At Record Pace In July

China's retail sales expanded at the fastest pace in at least nine years in July as incomes and prices climbed in the world's fastest-growing major economy. Sales rose 23.3 percent to 862.9 billion yuan ($126 billion) after gaining 23 percent in June, the statistics bureau said today.



As we can see, as inflation is falling back the real rate of increase in retail sales is accelerating. This, in part, is a result of increases in wages.

According to the most recent data from the Chinese statistical office, in the first half year of 2008, the average wage of on-duty staff and workers in urban units reached 12,964 yuan, a year-on-year increase of 18.0 percent. Of the total, the average wage of state-owned units was 13,800 yuan, up by 17.0 percent; that of collective-owned units was 7,789 yuan, rose by 18.9 percent; and that of units of other types of ownership was 12,610 yuan, an increase of 19.2 percent.

Urban disposable income increased 14.4 percent in the first half, or 6.3 percent after stripping out inflation. Also per capita consumption expenditure was 5,490 yuan, up by 13.7 percent over the same period of the previous year, a real increase of 5.7 percent after deducting price factors. China aims to increase consumption to reduce dependence on investment and overseas sales for economic growth.

The problem with this scenario at the present time is the impact on producer prices. China's producer prices climbed at the fastest pace since 1996 in July on energy and commodity costs, underscoring the significant risk of second round effects and the possibility of a rebound in consumer-price inflation. Factory-gate prices rose 10 percent in July from a year earlier, the statistics bureau said yesterday, after gaining 8.8 percent in June.



The acceleration in retail sales and the surge in fixed asset formation at a time when industrial output is weakening and exports are slowing means only one thing as far as I am concerned: a correction is coming.

Today's data comes two days after figures showing exports climbed 26.9 percent in July, accelerating from 17.2 percent in June.

Tuesday, August 12, 2008

China Inflation Drops To 6.3% In July

China's annual inflation rate dropped to 6.3% in July - the slowest pace in 10 months - and significantly down from February's 8.7 percent rise which was the fastest rate in 12 years.




The slowdown may encourage government policies aimed at sustaining growth in the world's fourth-biggest economy rather than fighting inflation. While policy makers have halted the yuan's appreciation and boosted tax rebates to help exporters, data yesterday showing the fastest producer-price inflation in 12 years underscores the risk that consumer prices will rebound.


China's producer prices climbed at the fastest pace since 1996 in July on energy and commodity costs, underscoring the significant risk of second round effects and the possibility of a rebound in consumer-price inflation. Factory-gate prices rose 10 percent in July from a year earlier, the statistics bureau said yesterday, after gaining 8.8 percent in June.




The yuan rose 4.2 percent in the three months through March and 2.3 percent in the second quarter before stalling in the third. The currency remains Asia's best performer against the dollar this year. Gains make exports more expensive and cut import costs. China's exporters are concerned that a weakening global economy will erode shipments. Exports are now rising at an annual 22.6 percent rate, significantly down from the 25.7 percent pace achieved for whole year 2007.

Friday, August 01, 2008

China Manufacturing Contracts In June According To The PMI

Manufacturing in China contracted - on a seasonally adjusted basis - for the first time in many years in July as export demand faltered and factories closed to clear the air before the Olympic Games. The Manufacturing Purchasing Managers' Index - prepared by the China Federation of Logistics and Purchasing - fell to a seasonally adjusted 48.4 in July from 52 in June. Any reading below 50 represents contratction, and this was the first such reading since the survey began in 2005.



The output index fell to 47.4 in July from 54.2 in June, while the index of new orders dropped to 46.2 from 52.6. The index of export orders declined to 46.7 from 50.2.

None of this is really too surprising, as it is hard to see how you can maintain 20% plus export growth as all your main customers' economies are slowing. The expansion in what is now the world's fourth-biggest economy slowed for the fourth straight quarter in the three months through June, according to initial estimates.

Thursday, July 24, 2008

China's CPI Inflation Slows In June 2008

China's inflation rate fell to 7.1 per cent in June from 7.7 per cent in May. The rate has now been falling steadily from a 12-year high of 8.7 per cent hit in February, according to the latest data from the national statistics bureau.



This reduction comes after months of government efforts to cool inflation by paying subsidies to increase food supplies and imposing price controls on food, fuel and other basic goods, and moves at the central bank to increase the percentage of their deposits that the banks need to keep as reserves.

The government gave no June figure for food prices, but said they rose 20.4 percent in the first half over the year-earlier period. JPMorgan estimated June's food price rise at 17.5 percent, compared with 19.9 percent in May.

China's main planning agency, the National Development and Reform Commission, have said that inflation in housing prices, another key area of concern, slowed slightly in June but that costs in 70 major cities still were up 8.2 over June 2007.

China's producer price index (PPI), which measures factory-gate inflation, reached 8.8% year-on-year in June, the fastest rise since 1999. In May it rose by 8.2%. Since it usually takes six months for manufacturers to pass on their cost pressure to end consumers, this acceleration in the PPI seems likely to drive inflation higher again later in the year.






China's economy grew by 10.4 per cent in the first half of this year, officials also said today. China's economy grew by 10.1 percent in the three months ending June 30 over the same period last year, compared with 10.6 per cent in the first quarter of the year while for the whole of 2007 the economy grew at a rate of 11.9 per cent.

On the other hand export growth - which is the principle driver of the Chinese economy - dropped sharply in June to 18.2 percent which while still very rapid was well down from May's rise of 28 percent. The drop in the rate of increase seems to be due to slowing global demand, prompting suggestions regulators might slow the rise of China's currency, the yuan, or take other steps to help struggling exporters.

Thursday, July 17, 2008

China's GDP Growth Slows In Q2 2008

China's economy grew at the slowest pace since 2005 in the second quarter, prompting the yuan's biggest drop in seven weeks on speculation the government will slow its advance to protect exporters. Gross domestic product rose 10.1 percent from a year earlier, down from 10.6 percent in the first quarter, as exports weakened and the government curbed lending. Consumer prices rose 7.1 percent in June, slowing from 7.7 percent in May, according to the latest data from the statistics bureau.





GDP growth cooled for the fourth straight quarter.

The trade surplus for the second quarter narrowed 12 percent from a year earlier to $58.14 billion as import costs climbed and U.S. demand faltered.


Producer prices climbed 8.8 percent in June from a year earlier, the statistics bureau said today, after rising 8.2 percent in May.

Tuesday, July 01, 2008

China Manufacturing PMI June 2008

China's manufacturing expanded in June at the slowest pace since August 2005 as the growth in export orders weakened for a third month, according to a purchasing managers survey. The Purchasing Managers' Index produced by the China Federation of Logistics and Purchasing fell to 52 from 53.3 in May.



The index of new export orders declined to 50.2 from 53.4. A reading above 50 reflects an expansion, below 50 a contraction.

Those for new orders and output also fell, while the input-price index climbed to a record, underscoring the threat to manufacturing from higher costs for labor and raw materials. In the first five months, 2,331 shoemakers closed in Guangdong province, the world's largest footwear production center,according to the China customs bureau yesterday. The principle causes appear to be rising wages and appreciation in the yuan that has eaten into export profits.

The global economic slowdown which has followed the U.S. housing slump added to the increase in borrowing costs as China's central bank tries to fight the rising inflation may mean that China's growth will drop below 10 percent this year for the first time since 2002. One factor here will be the resilience in exports, and there are already signs of some weakening, since overseas shipments climbed 22.9 percent in the first five months of this year, down from the 25.7 percent gain for all of 2007, and in the present climate it is hard to see this trend reversing.

Friday, June 20, 2008

China Increases Energy Prices

China increased energy prices across the board yesterday in an important policy shift that is likely to have an impact both inside and outside the country.


On the one hand the measure is bound to add to the country’s already high inflation rate. On the other, if the rate of demand increase were to slow inside China itself, then this would perhaps take some pressure off global oil prices.

Global oil prices fell immediately following the announcement in Beijing that petrol and diesel prices would go up by to 18 per cent and electricity tariffs would rose by just under 5 per cent. Oil prices – which were already under pressure from a possible Saudi announcement this weekend that they are going to increase oil production – fell more than $4 a barrel to $132.32.

Before the announcement, petrol prices in China were about 40 per cent below those in the US. In the last month, India, Taiwan, Malaysia and Indonesia have all cut their subsidies amid mounting fiscal cost and in spite of concern about high inflation, and the Chinese decision does of course follow last weekend's Group of Eight finance ministers statement said last weekend that “reducing subsidies” was an important step on the way to lessening the rate of increase in oil prices.


We will now need to watch and wait to see what impact the decision will have on China's internal inflation, and on Chinese demand for fuel products. We may well not see lower Chinese oil use in the short-term, since the decision may well be more effective in stimulating supply than it will be in curb demand.

The previous price caps had caused significant problems of shortages, and the two large state-owned refiners had been continuously complaining about their losses and the shortages which had been produced at petrol stations across the country as many small refineries stopped operations. So ironically the increase in retail prices could now boost Chinese demand, rather than reduce it, at least in the short term, simply because higher prices will probably encourage refiners to import more oil and boost sales in order to to ease current petrol and diesel shortages.

The IEA said earlier this month that the fuel shortages that have beset China since 2007 suggest that “pent-up demand remain considerable”.

Tuesday, June 17, 2008

China Factory Investment May 2008

China's spending on factories and real estate grew 25.6 percent through May, led by property development and boosted by reconstruction work after snowstorms in January and February. Urban fixed-asset investment rose to 4.03 trillion yuan ($585 billion) in the first five months from a year earlier, according to the latest data from the Chinese statistics bureau. This follows a gain of 25.7 percent in the four months to April. Im May the year on year increase over May 2007 was 25.7 percent.



Investment in real-estate development was up 31.9 percent in the first five months from a year earlier. Spending on non- ferrous metals jumped 41.5 percent and coal surged 47 percent. China is rebuilding roads, power lines, factories and homes after the worst snowstorms in half a century and the May 12 earthquake that killed more than 69,000 people.

New investment projects rose by 9,667 in the first five months from a year earlier to 84,368. Planned spending on those ventures was 2.72 trillion yuan, down 2.5 percent.

Monday, June 16, 2008

China Industrial Output May 2008

China's industrial-production growth accelerated on rising exports, signaling that the world's fourth-biggest economy is weathering a global slowdown. Output rose 16 percent in May from a year earlier after gaining 15.7 percent in April, the statistics bureau said today.



Overseas shipments surged last month and retail-sales growth was close to the highest in nine years, keeping factories busy even as the deadliest earthquake in 32 years disrupted output in Sichuan province. The shortening of a weeklong May holiday to a three-day break boosted production.

Sichuan's small role in China's manufacturing limited the May 12 disaster's effect on production. Quake reconstruction work is boosting output of some products like steel sheets for housing.

Raw-coal production rose 18.5 percent in May from a year earlier after gaining 13.9 percent in April. Crude-oil output climbed 1.8 percent in May after increasing 0.5 percent in April.

China's export growth accelerated to 28.1 percent in May from a year earlier. Retail sales gained 21.6 percent. For the first five months, industrial production climbed 16.3 percent from a year earlier, the statistics bureau said. China's economy expanded 10.6 percent in the first quarter from a year earlier.

Thursday, June 12, 2008

China Inflation May 2008

China's inflation rate slowed to 7.7 percent in May 8.5 percent in April, the statistics bureau said. Aprils number was not far from February's twelve year high of 8.7%.




However China's money-supply growth accelerated to the fastest pace in four months in May, adding pressure on the central bank to prevent cash inflows from fueling inflation. M2, the broadest measure, rose 18.1 percent from a year earlier to 43.6 trillion yuan ($6.3 trillion), according to the People's Bank of China today, after gaining 16.9 percent in April.

The trade surplus, foreign direct investment and inflows of capital from investors betting on currency gains are flooding the world's fastest-growing major economy with cash. The People's Bank of China earlier this week ordered lenders to increase the proportion of deposits that they set aside as reserves to a record 17.5 percent (as of June 25) in an attempt to slow down monetary growth.

Wednesday, June 11, 2008

China Export Growth Accelerates in May

China's export growth accelerated in May, easing concern that a strengthening yuan and a slowdown in U.S. demand may be in the process of slowing excessively the Chinese economy. Overseas sales rose 28.1 percent from a year earlier, after gaining a revised 21.9 percent in April, according to the Chinese customs bureau today.

Exports to the U.S. accelerated, withstanding a 10 percent gain in the yuan against the dollar in the year through May. Imports jumped 40 percent because of soaring raw-material costs, supporting the central bank's case that inflation is a bigger threat than weakening global demand. Surging prices for iron ore, crude oil, oil products, coal and soybeans drove the biggest increase in imports in almost four years, according to the customs bureau. The gain was 26.4 percent in April.

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


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

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

Producer prices rose 8.2 percent in May, the biggest increase in more than three years, the statistics bureau said today, indicating consumer-price inflation which may have fallen back in May to 7.7% (according to recent "leaks") from the 8.5% peak in February could well rebound in the not too distant future.




The producer price of gasoline rose 11 percent in May from a year earlier after gaining 10.8 percent in April. Ferrous metals jumped 26.7 percent after climbing 24.8 percent, the statistics bureau said.



House prices in China's 70 major cities rose 10.1 percent in April from a year earlier, slowing for a third month after the government raised mortgage rates and imposed stricter down- payment requirements.

China's Central Bank told lenders earlier this week to set aside more money for the fifth time this year in an attempt to cool inflation. Banks must put aside a record 17 percent of deposits as reserves starting June 15, and this figure will rise to 17.5 percent from June 25, according to the People's Bank of China. The move is expected to drain about 422 billion yuan ($60 billion) from the financial system. Local-currency deposits stood at 42.2 trillion yuan at the end of April.

Monday, June 02, 2008

China Manufacturing PMI May 2008

China's manufacturing growth slowed in May according to two different measures which are published monthly.

Growth slowed from the fastest pace in four years according to a survey of purchasing managers by CLSA Asia-Pacific Markets. The CLSA China Purchasing Managers' Index fell to a seasonally adjusted 54.7 from 55.4 in April.

The CLSA index, started in April 2004, is based on a survey of more than 400 manufacturing companies. The survey tracks changes in output, new orders, export orders, employment, inventories, input costs and output prices. A reading above 50 shows an expansion in business activity, below 50 a contraction.

The output index dropped to 56.7 in May from 57.9 in April, while the index of new orders fell to 57.3 from 58.6. The export orders index in the CLSA survey rose to 52.2, a four-month high, from 52.

At the same time the Purchasing Managers' Index published jointly by the China Federation of Logistics and Purchasing and the government's statistics bureau fell to 53.3 in May from a record 59.2 in April.






The index of export orders on this measure fell to 53.4 from 58.9. The index of new orders declined to 55.4 from 65. The output index dropped to 55.7 from 66.5.

The index is based on a survey of more than 700 companies in 20 industries, including energy, metallurgy, textile, automobile and electronics. A reading above 50 reflects an expansion, below 50 a contraction.

Whichever way you look at it, and no matter the differences between the two surveys, manufacturing seems to have slowed somewhat in China in May.

Thursday, May 15, 2008

China Producer Prince Index April 2008

In April, Producers’ Price Index (PPI) for manufactured goods was up by 8.1 percent from April 2007; purchasing prices for raw material, fuels and power rose by 11.8 percent.



Of the total, PPIs for mining and quarrying industry increased 27.2 percent; that for raw materials industry and machining industry correspondingly up by 10.4 and 6.0 percent; that for means of consumer goods grew 5.4 percent. Of which, price for foodstuff increased 11.9 percent; that of clothing and commodities rose 2.3 and 3.7 percent, while that for durable consumer goods dropped 0.5 percent.

In terms of different categories:

PPI for crude oil increased 37.9 percent, year-on-year. The prices for oil products, such as gasoline, diesel and kerosene increased 10.8, 10.2 and 11.7 percent respectively.

PPI for polystyrene decreased 0.1 percent compared with the same month a year ago; that of latex up by 21.5 percent; and that of terylene rose by 1.2 percent, year on year.

PPI for mining and washing of coal industry was up by 26.0 percent from last March. Of which, PPI for crude coal increased 27.4 percent.

PPI for smelting and pressing of ferrous metals grew 24.8 percent from the same month last year. Of which, PPIs for ordinary large rolled-steels, medium rolled-steels, small rolled-steels, wire rod and heavy steel plate correspondingly increased 29.3, 41.1, 34.6, 37.0, and 24.9 percent, year on year.

PPI for smelting and pressing of nonferrous metals gained a year-on-year rise of 4.7 percent. Of the total, the increase of copper and lead surged 0.6 and 20.9 percent, while that aluminum and zinc dropped 0.1 and 24.2 percent respectively.

In addition, wherein the purchasing price for raw materials, fuel and power, nonferrous metal materials, ferrous metals, and chemical materials increased21.2, 20.8, 6.1, and 4.2 percent respectively, year-on-year.

From January to April, PPI grew 7.2 percent, year-on-year; the purchasing price for raw materials, fuels and power products increased 10.3 percent.

China Fixed Asset Investment April 2008

China's factory and property spending climbed 25.7 percent in the four months up to April. Fixed-asset investment in urban areas rose to 2.8 trillion yuan ($400 billion), the statistics bureau said today.

China ordered banks this week to set aside a record proportion of their reserves to cool the world's fourth-biggest economy after inflation surged last month to almost a 12-year high. Spending by newly appointed local government officials and reconstruction work after the 7.9-magnitude quake may boost investment growth this year.

Property investment rose 32 percent, accounting for a quarter of total spending, and investment in coal mining surged 47 percent.

What is now the world's fourth-largest economy grew 10.6 percent in the first quarter, a slower pace than the 11.2 percent growth in the previous three months, after exports cooled.


Inflation, on the other hand was up at 8.5 percent in April.




Producer prices rose 8.1 percent last month from a year earlier, the fastest pace in more than three years.

Wednesday, May 14, 2008

China Industrial Output April 2008

China's industrial production growth slowed slightly in April. Output was up 15.7 percent in April from April 2007, the statistics bureau said today. This follows a 17.8 percent increase in March.

Tuesday, May 13, 2008

China Retail Sales April 2008

China's retail sales climbed (in money terms)at the fastest pace since at least 1999 in April, but since inflation was also up near a decade high the actually - inflation adjusted - rate of increase was of course much less. Sales rose 22 percent to a record 814.2 billion yuan ($116 billion) in April after gaining 21.5 percent in March, the statistics bureau said today. If we look at the comparison on the chart below, what we can really say is that there is no sign, at this point, of any economic slowdown, at least as far as retail sales go.





Rising incomes will help to counter the effects of surging prices, stock market declines, and the scrapping of a seven-day May holiday, State Information Center economists led by Fan Jianping said in a report published this month. Real urban disposable incomes climbed 11.5 percent in the first quarter from a year earlier to 4,386 yuan ($627). Rural earnings rose 18.5 percent to 1,494 yuan.


Meantime China's money-supply expansion unexpectedly acceleratedin April, adding pressure on the central bank to prevent cash from further fueling inflation which is already close to the fastest pace since 1996.

M2, the broadest measure, rose 16.9 percent at the end of April from a year earlier to 42.9 trillion yuan ($6.1 trillion), the People's Bank of China said today, after gaining 16.3 percent in March.

Outstanding local-currency loans rose 14.7 percent at the end of April from a year earlier, the central bank said. Lenders extended 463.9 billion yuan of new loans last month, bringing the total to 1.8 trillion yuan for the first four months. Outstanding local-currency deposits rose 17.7 percent at the end of April from a year earlier, the central bank said. Household savings rose 99.2 billion yuan from the previous month.

Monday, May 12, 2008

China Inflation April 2008

China’s consumer price inflation clung near a 12-year high in April, maintaining pressure on the government to stick to its tight policy stance in spite of softening global growth. As a result China has today once more instructed banks to set aside more deposits as reserves, this is now the fourth time so far this year such action has been taken. Banks must place a record 16.5 percent of deposits with the central bank, up from the previous 16 percent, the People's Bank of China said today on its Web site.




Apart from February’s reading of 8.7 per cent, inflation was last higher in May 1996, when the rate was 8.9 per cent. Food prices, which make up a third of the consumer basket, have been the overwhelming driver of inflation. They rose 22.1 per cent in April from a year earlier, though weekly government reports on fresh food prices have showed a slight dip in May. Non-food prices rose 1.8 per cent in April from a year earlier, the same as in March.

Zhou Xiaochuan, China’s central bank governor, said on Saturday that the country would give precedence to tackling inflation over targeting growth or employment. Today's increase in reserve deposits will freeze about 208 billion yuan ($30 billion) in the banking system, in an attempt to cool the world's fastest-growing major economy by restraining lending. However 7.5 percentage points of increase in the requirement since the start of last year has so far failed to stop the lending growth that is fuelling both the expansion and all this inflation, so it is extremely unlikely that an additional o.5 percentage point raise at this juncture will do the trick.


And even as easing food prices give some grounds for thinking that the worst on this front may be over, pipeline pressures have now been steadily builting up at the producer price level, and the producer price index, or best available measure of factory-gate inflation, hit a three-and-a-half year high of 8.1 per cent in April. This followed an 8 percent gain in March and was the quickest pace since November 2004. Thus there may be a whole stream of "second round" effects still to come.






Producer prices of ferrous metals jumped 24.8 percent in April from a year earlier, after rising 21.2 percent in March, the statistics bureau said. Gasoline prices climbed 10.8 percent after gaining 9.9 percent and clothing costs increased 2.3 percent after climbing 2 percent.

Higher wages and energy and commodity costs led a third of manufacturers to raise prices in April, according to a survey by CLSA of more than 400 purchasing managers. The Labor Contract Law, imposed on Jan. 1, mandates minimum wages and limits overtime work. The average wage in Chinese urban areas climbed 18 percent in the first quarter from a year earlier to 6,524 yuan ($932).




The government declared it would tighten monetary policy this year to fight inflation, but it has yet to raise interest rates after six increases in 2007.

Instead, it has drawn on an array of tools, from bank lending curbs to faster yuan appreciation – the central bank last Monday set the highest daily reference rate for the yuan, 6.8920 per dollar, since it ended a fixed peg to the US currency in July 2005.

Friday, May 09, 2008

China Exports April 2008

China's export growth slowed in April and the trade surplus was little changed as economies around the world weakened. Exports rose about 21.8 percent from April 2007, following a 30.6 percent gain in March, according to figures derived from Ministry of Commerce data. The trade surplus was about $16.8 billion compared with $16.7 billion a year earlier.

Central bank Governor Zhou Xiaochuan said on May 4 that weaker export growth has been a factor in the yuan's failure to appreciate versus the dollar after a 4.2 percent jump in the first quarter. Smaller gains in shipments reduce the risk that inflows of cash from overseas sales will fuel 11-year high inflation and overheat the world's fastest-growing major economy.

The gain in overseas shipments compares with the 21.4 percent pace in the first quarter and the 26 percent increase for all of last year. Imports grew about 26.1 percent in April from a year earlier after gaining 24.6 in March. The increase partly reflects rising commodity prices.



The world's fourth-biggest economy expanded 10.6 percent in the first quarter from a year earlier and inflation accelerated to 8 percent, the fastest pace since 1996. The yuan had its biggest gain since a fixed-exchange rate ended in 2005.

China's currency has climbed 18 percent versus the dollar since the peg to the U.S. currency was scrapped, making the nation's products more expensive in overseas markets and cutting import costs. Since April, it has gained only 0.3 percent.

Inflation, driven by food and wage costs, climbed to an 11-year high of 8.7 percent in February, more than the central bank's target for the year of 4.8 percent. Producer prices rose 8.1 percent in April, the fastest pace in more than three years, the statistics bureau said today.


The Ministry of Commerce released data for shipments of mechanical and electrical products for the first four months on a ministry Web site today. It gave the value of exports of those products, $251.3 billion, and said they represented 59.2 percent of total exports. It also gave the value for imports, $173.3 billion, said they were 47.3 percent of total imports.

Wednesday, April 16, 2008

China Inflation and GDP Growth March 2008

Inflation dropped back slightly in March, but it would be premature to begin to draw any substantial conclusions for the future of Chinese inflation from this. Consumer prices rose 8.3 percent in March over March 2007, down only slightly from February's 8.7 percent, which had been the highest rate in nearly 12 years, according to the National Bureau of Statistics this morning. The cost of food is up 21 percent since the beginning of the year.





The price spike that began in mid-2007 has been blamed on shortages of pork, grain and other food. The government is trying to increase output by raising farm subsidies and curbing exports, but that effort was hampered by snowstorms in January and February that wrecked crops.

And March inflation is still well above the 4.8 percent target that Premier Wen Jiabao has set for this year. Li Xiaochao, the statistics bureau spokesman, said that to meet Wen's target, inflation has to fall below 4.2 percent each month for the rest of the year.

On Wednesday, the central bank raised the amount of money Chinese banks must hold in reserve by 0.5 percentage points to a record high of 16 percent in a new effort to curb lending.

China's economic growth slowed in the first quarter and the world's fourth-largest economy grew 10.6 percent in the first three months of 2008 from a year earlier, the National Bureau of Statistics said in a news conference in Beijing. This was an easing from 2007, when China's economy expanded by 11.7 percent in the first quarter and 11.9 percent for the year, according to data from the bureau.



Industrial output, a key measure of the activity level in China's plants and factories, was up 16.4 percent in the first quarter from a year earlier. It compared with 18.3 percent growth in the first quarter of 2007.

China's fixed-asset investments, the main indicator of state-funded spending on new productive capacity, rose 24.6 percent in the first quarter of 2008 from a year earlier, the bureau said. This figure did not seem to follow the general slowing trend, as in the first three months of 2007, it had risen by 23.7 percent.

One reason for the acceleration in fixed asset investments might well be that such investments are fuelled by continued ample liquidity in the system. That liquidity, in turn, is boosted by incoming foreign funds, in the form of exports earnings, foreign direct investments, and speculative money banking on short-term gains.

Chinese retail sales rose 20.6 percent in the first quarter from a year earlier, according to the bureau. The growth was 5.7 percentage points higher than in the same three-month period last year. A large chunk of this increase simply reflects the fact that the inflation level was up from the 3% level in Q1 2007, since retail sales data are given in nominal terms, but even stripping out the 8% inflation, real sales are up 12.6% year on year, which certainly isn't a slowdown and may well indicate a slight increase.

One analysts response, widely quoted in the press coverage is "Now we really need some rate hikes,". But this is more complicated than it seems, since - as reported here - China's foreign-exchange reserves, the world's largest, surged to $1.68 trillion at the end of March, adding pressure on a government already trying to prevent money inflows from fueling inflation already at an 11-year high. Currency holdings expanded 40 percent from a year earlier, according to data from the People's Bank of China. The assets grew a record $153.9 billion from the end of December, after a $94.6 billion increase in the fourth quarter.

China has systematically held off from raising interest rates after six increases last year as the U.S. Federal Reserve cuts borrowing costs and the fear grows that an increase in yield differentials would only attract even more liquidity. China last raised interest rates at the end of December when the benchmark one-year lending rate was increased by 0.18 percentage point to a nine-year high of 7.47 percent. This compares with the 2.25% which is currently on offer for the Federal funds rate. It isn't really so obvious to me at least that what China most needs is another round of interest rate rises, although what to do about the inflation is a real head-cracker.

Friday, April 11, 2008

China's Foreign Currency Reserves Soar 40% Year on Year

China's foreign-exchange reserves, the world's largest, surged to $1.68 trillion at the end of March, adding pressure on the government to prevent money inflows from fueling inflation already at an 11-year high. Currency holdings expanded 40 percent from a year earlier, according to data from the People's Bank of China today. The assets grew a record $153.9 billion from the end of December, after a $94.6 billion increase in the fourth quarter.

To tame liquidity, the central bank has pushed the required reserve ratio for lenders to a record 15.5 percent. China has held off raising interest rates after six increases last year as the U.S. Federal Reserve cuts borrowing costs.

The central bank today cited slower money-supply growth as evidence that its ``tight'' monetary policy is having an effect. M2, the broadest measure, grew 16.3 percent in March from a year earlier, the slowest pace since January 2007. M2 was up 17.5 percent year on year in February. Outstanding local-currency loans rose 14.8 percent from a year earlier, the central bank said. Lenders extended 283.4 billion yuan ($40.5 billion) of new loans in March, taking the total to 1.33 trillion yuan for the first quarter.Outstanding local-currency deposits climbed 17.4 percent from a year earlier, the central bank said.


A falling dollar contributes to the build-up of China's foreign reserves as the assets are quoted in the U.S. currency, according to UBS economist Jonathan Anderson. Anderson takes the view that:

"The onset of the credit crisis and the crumbling of the U.S. housing bubble precipitated a significant sell-off of the dollar. That has boosted the value of the assets that China holds in other currencies. A sizable portion, 35 percent to 40 percent of China's foreign-exchange reserves, is held in European and Japanese assets"

Thursday, April 10, 2008

Chinese Wages on The Up and Up

China's official statistics agency has confirmed what some of us have been suggesting was the case for some time now: labor costs have been rising fast. The National Bureau of Statistics reported on Tuesday the fastest growth in average wages in six years. But the figures mask a widening gap between workers in privileged occupations that receive heavy state protection and their counterparts in bricks-and-mortar manufacturing and extractive industries more or less exposed to the full brunt of competition.

The mean annual wage for a typical urban Chinese employee grew at a 18.72% rate in 2007, to 24,932 yuan ($3,556.63), or 99.32 yuan ($14.17) per day, the National Bureau of Statistics said, adding that it was the fastest growth in six years and higher than the 14% on average of the preceding six years.

While the news hardly came as a surprise to foreign investors grappling with the rapidly climbing costs of doing business in China, it was met with incredulity from Chinese critics, who were quick to highlight the stark disparities in fortune among Chinese workers that the national average wage figures hide.

The statistics agency did not release a detailed industry-by-industry profile, but China Business News, a business daily, pointed to earlier data released by the Beijing municipal government indicating that state-protected industries--in securities, banking and aviation--had reported average yearly wages exceeding 100,000 yuan ($14,265.34) in 2007, more than five times those for nonmetals mining and extraction, farming and traditional manufacturing lines such as textiles and sportswear, which paid less than 20,000 yuan ($2,853.07) to their workers. The figures were for Beijing itself but were broadly in line with those issued in recent years by the central government.

Industries enjoying a monopoly or near monopoly position, such insurance, legal services, telecommunications, tobacco, oil and gas are now paying a mean annual wage of between 80,000 yuan ($11,412.27) and 100,000 yuan.

In addition to the stark discrepancies among industries, complaints targeted the yawning gap between highly paid executives and low-level staff, as well as the geographical disparities in wages between workers living in the prosperous cities, especially those near the coast, and those in outlying districts. Attention was also directed to the increasing number of migrant workers who have dropped out of the national statistics as a result of employers' reluctance to put them on staff, as they strive to reduce their cost basis.

China's First Quarter Trade Surplus Falls and the Yuan Also Rises

China's quarterly trade surplus shrank for the first time in more than three years in the first quarter of 2008, offering additional evidence that cooling exports are starting to slow economic growth. The trade surplus narrowed 10.2 percent to about $41.6 billion in the three months to March 31 when compared with the same period a year earlier. The trade surplus for March alone doubled to about $13.6 billion from a year earlier. Last year's surplus of $6.8 billion was depressed by changes to export taxes and China's Lunar New Year.



China's exports expanded 21.4 percent to $306 billion in the first quarter, slowing from an increase of 27.8 percent a year earlier. Imports climbed 28.6 percent to about $264 billion. China's exports of machinery and electronics products rose 23.1 percent to $181.4 billion in the first quarter from a year earlier, accounting for 59.3 percent of the nation's shipments. Machinery and electronics imports rose 16.4 percent to $125.3 billion, making up 47.4 percent of imports.


Foreign direct investment almost doubled to $27.4 billion from a year earlier, the Ministry of Commerce said today, adding to the cash flooding the economy from exports and fanning price increases. Investment by foreign companies climbed 39.6 percent to $9.3 billion in March from a year earlier. In the first quarter of last year companies invested $15.9 billion in China.

In separate news from the central bank we have learnt that China's wholesale prices jumped 10.2 percent in March from a year earlier. That was the fastest pace since at least November 2000 and doesn't bode at all well for the CPI numbers which are due to be released in the next few days.

Meanwhile the yuan continues to be on the up and up, rising past 7 to the dollar for the first time since China scrapped its fixed-exchange rate in 2005 as policy makers accelerate gains to cool inflation at an 11-year high. The currency strengthened as much as 0.16 percent today to 6.9907, bringing the yuan's advance to 18.4 percent since the end of the peg. The yuan subsequently dropped back, gaining 0.14 percent on the day and holding at 6.9916 at the 5:30 p.m. close in Shanghai, according to the China Foreign Exchange Trade System. The yuan has taken less than six months to break 7 to the dollar after taking 1 1/2 years to climb to 7.5 from 8. Forward contracts show traders are betting on an 11.2 percent advance to 6.2898 in the next 12 months.

The currency's gain against the dollar since the peg ended compares with 5.5 percent for the Taiwan dollar, 9 percent for India's rupee and 34 percent for the Philippine peso. The yen has climbed 11.9 percent and South Korea's won 6 percent.

It is also worth remembering that the yuan has fallen 10 percent against the euro since July 2005 and has declined against a number of other currencies such as the Australian dollar and Brazilian real, an effect which is largely a result of the dollar's slump.

The International Monetary Fund yesterday cut its 2008 economic growth forecast for China to 9.3 percent from 10 percent. China was the biggest driver of world growth last year, contributing 19 percent, according to an IMF estimate.

Tuesday, April 01, 2008

China's Industrial Output Recovers in March

China's manufacturing activity bounced back strongly again in March following disruptions in February from some of the worst snowstorms in half a century, according to the findings of two surveys published today.

The CLSA Purchasing Managers' Index rose to 54.4, the highest level in five months, from 52.8 in February, while a separate PMI report, published jointly by the China Federation of Logistics and Purchasing and the statistics bureau, registered its highest reading in almost a year.

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. A reading over 50 indicates expansion. The output index rose to 55.6 in March from 53.2 in February, while the index of new orders climbed to 57.8 from 55.1. The index of export orders fell to 50.9 from 51.9.

The government index is based on a survey of more than 700 companies in 20 industries, including energy, metallurgy, and automobile and electronics manufacturing and attempts to track - on a seasonally adjusted basis - changes in output, new orders, export orders, employment, inventories, input costs and output prices. The output index in the government report jumped to 64.1 in March from 55.4 in February, while the index of new orders climbed to 63.8 from 56.9. The index of export orders rose to 59.1 from 51.3. All of this tends to suggest that there is still quite a strong level of underlying expansion in the Chinese economy.

Wednesday, March 19, 2008

China's Economic Development - People ... I see no People

Guest Post by Claus Vistesen

Most eyes these days are centered, and rightfully so, on the steady deterioration of economic conditions in the US and thus by derivative the USD. The last event to keep our gaze fixed was the trouncing of the Bear Sterns stock, a US securities firm, on the back of the news that the Fed had supplied emergency funding for the company. Furthermore, we learned today that the Fed has exited the weekend by lowering the discount rate (from 3.25 to 3.00) as well as provided JPMorgan with funds to aim them in their buy of Bear Sterns.The situation in the US is of course turning into a real cliffhanger at the moment with the Fed working at all cylinders trying to allow the economy to emerge from one of the worst economic and financial crises in the US since, dare I say it, the 1930s. One thing is for sure, the US economy is down ... it most definitely is. But by peering across the commentary landscape you could easily get the idea that as the USD continues its decline the US economy is going to sink into the ground, move to Mars or whatever and the world can point to it as an example of what not to do and move happily forward. This is obviously not going to happen and my guess is that we are not going to get very far with this the US v. Europe et al. football match discourse but at this point in time, this is what we have.

Meanwhile, in terms of the global economy and the future sustainability of whatever economic/social system we want to preserve China would perhaps be a better place to look. And why would I be saying that you might ask?

Quite simply, an awful lot seems to depend on China in terms of solving some of the most pressing structural challenges for the global economy and the yoke is not for the faint of heart. On the main global macro level we have the pressures for China to revalue its currency to lead the way in an adjustment process of the global macroeconomic current account balances. As a part of this adjustment process China is also supposed to switch almost two decades' of development strategy into one where consumption and not investment/exports becomes the main driver of growth. In this respect, China also still has more than a trillion dollars worth of FX reserves it needs to allocate. Even more pressing, China now seems to be a net contributor to rising global inflation pressures through rising domestic consumer prices and wage costs (transmitted through) as well as China's hunger for energy and commodities which is providing a high floor for world base commodity and energy prices even if growth slows. Coupled with the newfound focus on global climate changes this is further putting the heat on China.


I don't deny that China is changing and that China has the power to surprise but when I look at the evidence presented to us from the data and reports from China I am increasingly worried that she simply won't be able to muster the load we are piling onto her shoulders and if a faltering US economy is bad for the global economy hick-ups in China could prove just as menacing if not more. At the heart of my argument lies demographics which should not surprise my readers. As such and if we want to fully understand the Chinese economy we need to realize the effects of a prolonged period of tough enforcement of one-child policy which are now set to enter the stage alongside the rest of the economic factors noted above.


In order have an anchor on which to tie my argument and the points I want to emphasise I am going to move in behind my colleague Edward Hugh who recently took the China issue under his clout in two most worthwhile notes. As Edward points to this may very well be a question of 'it's the fertility stupid' and in this light the tendencies we are currently observing in China should be watched very closely. The reports and incoming data all seem to point in one and the same direction. The double digit growth rate seems to be continuing as ever before even if exports recently waned to reflect the growing effect from a struggling US economy. However, and where China hitherto only had to worry about bubbly asset prices core prices and most strikingly wages are also now beginning to increase at levels which should have our eyebrows raised more than a bit. Curiously, this tendency coincides with the growing number of reports indicating how the idea that China is sitting on an endless pool of cheap labour to fill the factories is a myth in serious need for debunking. As Edward points to ...


For decades most labor economists saying that China’s vast population would supply a nearly bottomless pool of workers. So many people would be seeking jobs at any given time, this reasoning went, that wages would be stuck just above subsistence levels, probably for decades. As recently as four years ago, some experts estimated that most of the perhaps 150 million underemployed workers in the countryside would be heading to cities. The reality however has been quite different. Instead, from 2003 onwards sporadic labor shortages started to appear with growing intensity at factories in the Pearl River delta of southeastern China. Now those shortages seem to have spread to factories up and down the Chinese coast.

Only this week the Economist reports - in an article entitled Where is Everybody - that the vast annual migration of around 20m people that has been fuelling the manufacturing boom in southern China over the past two decades is rapidly diminishing.

Back in August 2007 Keith Bradsher had a good article in the NYT in which he makes the much cited connection between rising wage costs and rising import prices from China thus pointing to end of global labour arbitrage and what has been known as the Great Moderation. Of course, the picture is a bit more complex than this or as Scott Peterson notes in a recent piece, it may simply be a question of China trying to move up the value chain;


It seems that now that China has raised the standard of living for a sizable chunk of its workers, the rest of the work force isn't willing to accept the difficult working conditions that gave China its manufacturing cost advantage. This puts China in the same stage of workforce condition as Western countries. By that I mean that holders of capital can't find workers willing to take jobs at the wage on offer, so the country must either import workers willing to work at that wage as the US has done with agricultural workers, or outsource the work to foreign labor. Since bringing foreigners in is politically and practically nonsensical for China, the work goes overseas.


In fact, China may not in fact be lacking labour as such but there does indeed seem to be a lack of young labour with respect to ensuring the continuation of the Chinese growth model where investment and cheap factory capex have been the main driver. It still is of course but now the ill-wanted companion of inflation now seems to be slotted in on the passenger seat threatening to pull the gear lever and the steering wheel to make the car stray off the road. Paraphrasing Edward in his quote of Keith Bradsher the following is a fine summation of the problem at hand ...


"Plant owners’ refusal to hire blue-collar workers over 35 or 40 is colliding with the demographic reality of China’s one-child policy".
The evidence presented so far seems to be confirmed if we hit the world of academic journals. Consequently, a recent paper published in 'China and the World Economy' A Counterfactual Analysis on Unlimited Surplus Labor in Rural China starts out by debunking the myth of the unlimited supply of surplus labor from Rural China. The paper is about more than that however and thus enters the very pertinent discussion about how China is to integrate the rural regions with its coastal urban counterparts and how to manage the flow from one end of the value chain to other. At the heart of this rapid depletion of Chinese labour resources is then first and foremost the very rapid economic development which in itself has feasted upon the cheap labour supply. However, in the background of all this the one-child policy has surely and steadily exerted its effect and now the curves might just be intersecting. And the result? Well, there now seems to be mounting evidence that growth is now accompanied by ensuing effects of wages costs and inflation grapping hold not least because the composition of China's population is changing at a time where China is thundering ahead at double digit speeds. China's demographic profile and by derivative its fertility patterns are notoriously difficult to get a hold on. In a paper from March 2007 (Population and Development Review) four Chinese scholars embark on the formidable task of extracting an overall pattern from the very heterogeneous nature of Chinese fertility regimes as they vary between provinces ...


At both the prefecture and province levels, policy fertility ranges from the one-child rule to a policy that allows two children and more. At the same time, birth control regulations drafted and implemented by China’s provinces allow numerous kinds of exemptions to the one-child rule, based on considerations ranging from the demographic to the political. These results highlight the complex nature of Chinese birth control policymaking and implementation. Both regional and demographic distributions of policy fertility show that the mode of the policy falls into the category of 1.3 to 1.5 children per couple (38 percent of the prefectures and 53 percent of the population, respectively). The majority of the Chinese population (more than 70 percent) live in areas with a policy fertility level at 1.3 to 2.0 children per couple.

(...)

Based on local fertility policies and corresponding population distributions, we estimate that the overall average fertility targeted by the fertility policies for China as a whole is 1.47 at the end of the 1990s. This level is far below replacement.


The difference between policy and actual action has been frequently cited in a Chinese context as couples have attempted to circumvent the official policies to have more than one child. However, on the other hand it also seems that especially fertility rates in urban are persistently underestimated. The picture we are left with is that the TFR is (and has been for around a decade) in the region of 1.5 (with the pessimists tending towards 1.3 and the optimists 1.7). In the grand scheme of things these numbers are not so important when it comes to pointing out a path for China's population in the immediate future. What we know is that China is not set to age very rapidly and that the composition of the population will undergo a change of historical proportions as China irrespective of what happens to economic development now is set to join the league of economies with a steadily rising median age. In fact, China's size here aids us tremendously in our analysis as immigration to mitigate the effects is completely out of the question due to the size of the Chinese population. All this does not of course spell doom for China but it does mean that China is now entering a new stage of its economic development process. As Edward points out and as is echoed by this piece by one of the blogosphere's main China savants Michael Pettis this means that the number of young workers (aged 15 to 19) is now set to steadily decline as a proportion of China's population. We also know that the demographic changes will come very swiftly now and there does not seem to be many remedies on the table at this point. And those that we have are simply not adequate I am afraid and to pick (perhaps unfairly) on one I could refer to Yi Zeng's paper from June 2007 in which he sketches the 'options' for a fertility transition bringing China out of the vice of below-replacement fertility.


(...) the author concludes that China needs to begin a gradual modification of its fertility policy as soon as possible. He proposes a three-stage "soft-landing" strategy for fertility policy transition: (1) a 7-year initial smooth transition period; (2) from approximately 2014-15 to 2032-35 a universal two-child policy combined with late childbearing in both rural and urban areas; (3) after 2032-35 all Chinese citizens would be free to choose family size and fertility timing. This strategy will enable China to have much more favorable demographic conditions and socioeconomic outcomes, as compared to keeping the current policy unchanged.'



If we leave aside the rather dubious point that Chinese women are programmable robots who can actually be submitted to such a transition we also need to consider the speed with with the current process is moving along. The suggestion above simply denotes an understanding of the demographic transition which is wholly out of sync with the way it actually works in the real world. I won't be picking extensively on this paper and if anything we should be acknowledging the fact that this is actually narrated as a problem which needs to be addressed. Yet, we also need to understand that given the trajectory of China's demographics and its rampant growth rates any actions, on this front, taken in a post 2015-2020 perspective will literally be subject to such long term projections before they may have a concrete effect that it does not, in a scientific or policy related context, makes sense to discuss their merits.

So what the hell am I getting at here?

In the main, I have tried to take sketch, or take proprietorship of, the part of the discourse on China's economic development and its role in the global economy which should be specifically related to demographics. But how does it link in with the general narration of China in the global economy? Well, demographics are not destiny and you should not leave this note thinking that this is what I am advocating. However, there is mounting evidence that once fertility (TFR) drops into the 1.5 region and stays there for a prolonged period the forces of demographics steadily and rapidly begin to take center stage as one of the main macroeconomic explanatory variables.


In China's case this becomes rather preoccupying. In this way and if we return to my introductory remarks I would argue that the rapidly changing demographic profile of China quite simply is at odds with all those changes we believe China is to make in order to, as least partially, lead the process of global macroeconomic adjustment. In fact, there may be a rather worrying precedent for the process China is now set to enter. If we consequently peer a bit to the West from the Chinese mainland we run into Russia and then further on the Eastern European economic edifice. What we have seen in this region since the end of 1980s is a process by which these countries have been in a veritable race against time to move up the value chain fast enough to escape the burden of completely lopsided demographics as fertility collapsed in the beginning of the 1990s and outward migration steadily began to drain their labour markets (Russia is an exception here). This process is now set to come to a very abrupt standstill prompted by the simple fact that these countries are now out of road in terms of having qualified labor to continue to process.

Moreover, the process itself has been one which rampant inflation and wage costs have followed in the heels of the build-up of large negative external positions. And what is at the heart of this then? Well, surely it is not all about demographics but in the main I think it is. In essence these countries have quite simply not had the demographic profiles to support the massive expectations of growth opportunities which were vested on them in an external context and whatever importance we ascribe to institutional reform (and nobody can argue that this is unimportant) the speed by which this has happened has left traditional reforms completely helpless in keeping up.

Allow me then to end this piece on a rather ominous note. I don't deny for a minute that China needs to correct, not for a minute and 'yes Virginia, exchange rates do indeed matter'. However, the global economy also has a distinct stake in not allowing China to enter on a road like the one we have seen in Eastern Europe. It takes a strong back bone to act as the global importer of last resort and at the heart of that backbone is a strong demographic profile. Yet, if China now is on the path of engaging in a breathtaking race against time to fulfill the obligations to become the new consumer driven nation of the world we at least need to look at what the potential consequences could be. One common fallacy in this respect would be how an appreciation of the Yuan would have a mitigating effect on inflation and overheating pressures. Of course, this is what theory tells us and I think that everybody can see that a revaluation is badly needed at this point. But such an adjustment process would also require that China invested more of its reserves in the domestic economy as well as foreign money and goods would come pouring in at a pace which itself could stoke a lot of bubbly tendencies. At the end of the day, I may be too pessimistic here.

Recent data out of China show that income is growing and that domestic demand is booming as a consequence. That is good. But if the process is too fast and too abrupt lingering inflation is likely to take hold and that would not be welcome by any standards. In a more immediate context I have this year's Olympic games as a sort of litmus test. There is no doubt that China will race through this at her traditional pace but what happens afterwards?


Post script ...

If we leave aside the rather dubious point that Chinese women are programmable robots who can actually be submitted to such a transition we also need to consider the speed with with the current process is moving along. The suggestion above simply denotes an understanding of the demographic transition which is wholly out of sync with the way it actually works in the real world. I won't be picking extensively on this paper and if anything we should be acknowledging the fact that this is actually narrated as a problem which needs to be addressed. Yet, we also need to understand that given the trajectory of China's demographics and its rampant growth rates any actions, on this front, taken in a post 2015-2020 perspective will literally be subject to such long term projections before they may have a concrete effect that it does not, in a scientific or policy related context, makes sense to discuss their merits.
So what the hell am I getting at here?
In the main, I have tried to take sketch, or take proprietorship of, the part of the discourse on China's economic development and its role in the global economy which should be specifically related to demographics. But how does it link in with the general narration of China in the global economy? Well, demographics are not destiny and you should not leave this note thinking that this is what I am advocating. However, there is mounting evidence that once fertility (TFR) drops into the 1.5 region and stays there for a prolonged period the forces of demographics steadily and rapidly begin to take center stage as one of the main macroeconomic explanatory variables.

In China's case this becomes rather preoccupying. In this way and if we return to my introductory remarks I would argue that the rapidly changing demographic profile of China quite simply is at odds with all those changes we believe China is to make in order to, as least partially, lead the process of global macroeconomic adjustment. In fact, there may be a rather worrying precedent for the process China is now set to enter. If we consequently peer a bit to the West from the Chinese mainland we run into Russia and then further on the Eastern European economic edifice. What we have seen in this region since the end of 1980s is a process by which these countries have been in a veritable race against time to move up the value chain fast enough to escape the burden of completely lopsided demographics as fertility collapsed in the beginning of the 1990s and outward migration steadily began to drain their labour markets (Russia is an exception here).

This process is now set to come to a very abrupt standstill prompted by the simple fact that these countries are now out of road in terms of having qualified labor to continue to process. Moreover, the process itself has been one which rampant inflation and wage costs have followed in the heels of the build-up of large negative external positions. And what is at the heart of this then? Well, surely it is not all about demographics but in the main I think it is. In essence these countries have quite simply not had the demographic profiles to support the massive expectations of growth opportunities which were vested on them in an external context and whatever importance we ascribe to institutional reform (and nobody can argue that this is unimportant) the speed by which this has happened has left traditional reforms completely helpless in keeping up.

Allow me then to end this piece on a rather ominous note. I don't deny for a minute that China needs to correct, not for a minute and 'yes Virginia, exchange rates do indeed matter'. However, the global economy also has a distinct stake in not allowing China to enter on a road like the one we have seen in Eastern Europe. It takes a strong back bone to act as the global importer of last resort and at the heart of that backbone is a strong demographic profile. Yet, if China now is on the path of engaging in a breathtaking race against time to fulfill the obligations to become the new consumer driven nation of the world we at least need to look at what the potential consequences could be. One common fallacy in this respect would be how an appreciation of the Yuan would have a mitigating effect on inflation and overheating pressures. Of course, this is what theory tells us and I think that everybody can see that a revaluation is badly needed at this point.

But such an adjustment process would also require that China invested more of its reserves in the domestic economy as well as foreign money and goods would come pouring in at a pace which itself could stoke a lot of bubbly tendencies. At the end of the day, I may be too pessimistic here. Recent data out of China show that income is growing and that domestic demand is booming as a consequence. That is good. But if the process is too fast and too abrupt lingering inflation is likely to take hold and that would not be welcome by any standards. In a more immediate context I have this year's Olympic games as a sort of litmus test. There is no doubt that China will race through this at her traditional pace but what happens afterwards?


Post script ...

China and her economy obviously commands much attention in the general debate and as always it is difficult to find time to read everything. I suggest you go for quality then. Brad Setser and his global imbalances watch is a must and even though Brad and I have our little exchange rates v demographics argument I still think that he is indispensable. Another author you need to read here is Michael Pettis (who recently had a guest posting spell on Setser's blog). Michael writes exclusively on China and you would be hard pressed to find a better one-stop source. Finally, this small space tracks the quarterly journal China in the World Economy as well as Edward and I have our small China Economy Watch which will be updated on an ad-hoc basis.

Monday, March 17, 2008

Too Little Pork, Too Much Money, Or Both of These Plus Too Few People To Work The Land, To Grow The Pork, To Move The Money.......?

The yuan today climbed yet one more time to its highest level (against the dollar, but not of course against the yen or the euro) since China its peg in the summer of 2005 as the central bank stepped up efforts to curb inflation which is currently running at an 11-year high. China has so far permitted a 3.4 percent gain in the currency so far this year, almost half the advance for the whole of 2007, as it seeks to cut the cost of imported goods and slow export growth. The precipitating factor in today's rise was yesterdays decision by the People's Bank of China that banks should set aside more reserves. According to the new ruling banks must now place a record 15.5 percent of deposits with the central bank, up from the previous 15 percent. This is the second time this year it has done this foolwing ten similar hikes last year (all but one of which were by 50 bp) , and, although the increase is not especially large, it does give us some indication of the difficulty the central bank is encountering in its ongoing effort to slow down expansion in China's money supply.

One indication that such measures may well fall far short of what is needed is provided by today's movement in government bonds, which gained after the finance ministry sold 10- year notes at a yield which was sloghtly lower than the market generally anticipated. The finance ministry auctioned 27.9 billion yuan ($3.95 billion) of the securities at 4.07 percent, compared with the 4.1 percent general estimate among analysts. The yield on the 4.16 percent note due in February 2023 also fell 3 basis points to 4.17 percent, according to the China Interbank Bond Market. The price of the bonds was up 0.34 per 100 yuan face value to 99.9. All of this suggests there is still very ample liquidity left in the system, and considerable "draining" yet to do.

The yuan was up by 0.26 percent on the back of the news - to 7.0630 to the dollar - as of 5:30 p.m. in Shanghai, the biggest gain so far this month, according to the China Foreign Exchange Trade System. The currency has so far climbed around 0.6 percent in March alone. However gains in the yuan have trailed behind some other Asian currencies over the past month, suggesting the central bank may have been intervening to slow its appreciation. The yuan has risen 1.2 percent against the dollar in the period, while the yen has gained 8.3 percent and the Taiwan dollar 3.3 percent. Obviously the yen is a somewhat special case, since the unwinding of the carry trade is an important part of the picture here, but still a rather greater increase in the yuan could really have been expected.

China's stocks rose, giving the CSI 300 benchmark index its biggest increase in six weeks. Yuan-denominated A shares listed on China's two exchanges, gained 124.91, or 3.3 percent, to 3,888.86 at the close today. This is the biggest rise since Feb. 4, and follows hard on the heels of a five-day, 15 percent loss. Only yesterday the index tumbled 5.1 percent yesterday - to its lowest since July 16 - after Premier Wen Jiabao said the government will take "forceful" measures to battle inflation. In more general terms the index is now down by about 40% from its November peak.


Obviously, as I keep signally, inflation is definitely the biggest worry, with consumer prices rising at an 8.7 percent annual rate in February, the fastest pace in 11 years, as wahes continued to increase at a 20% plus annual rate, and food and energy prices held steady to their long upward march.





Michael Pettis over at China financial markets blog had a relevant posting on the inflation front yesterday. Alongside a detailed analysis of the breakdown of the inflation data, he reports on the February wholesale price index reading which was released yesterday. February wholesale prices were up 9.2% year on year and 1.1% month on month (which amounts to an annualized 14%). Thus inflation is at this point well engrained inside the system.

As Michael notes we do have some quite stunning differences in the components of price inflation. Foodstuffs - which constitute some 33% of the basket - increased by 23.3 percent year-on-year. Of the foodstuffs total, the price of meat, poultry and associated products surged 45.3 percent (of which, that pork component which has attracted so much of ken Rogoffs attention increased 63.4 percent).At the same time price deflation persisted in other areas. The price of clothing declined 1.4 percent year-on-year, while the price of garments alone dropped by 1.6 percent. The price of durable consumer goods was up a mere 0.8%, while household services, maintenance and renovation (which is of course very labour intensive) were up 8.5. Not surprisingly communication services were down by 19.9%.

Housing costs were up by 6.6 percent year-on-year, and included in this category are the price of water, electricity and fuels, building and decoration materials, and renting, which were up 6.5, 5.9, and 4.5 percent respectively. What this indicates - when we consider these price rises along with the rise in wages - is that second round effects are now well into the system, following a pattern which is all too familiar already from Russia and Eastern Europe.

But given the great variance in prices we seem to have structural constraints in some areas and not in others. Agriculture seems to be the bigggest issue, given the percentage of additional income that Chinese families are liable to spend on food. So what is happening?

Well perhaps one clue is provided in another piece of information which Michael has dug out for us from the pages of the People's Daily;

Tian Chengping, Minister of Labor and Social Security, said on March 9 that there are 24 million job-seekers in cities and towns every year, including the new additional urban workforce and the people carried over from the previous year who did not find work. But there are only a little more than 12 million jobs available in cities and towns every year. Approximately 8 million additional rural laborers move into cities and towns every year; and this phenomenon will continue for quite some time. The current employment situation remains grim.

Tian Chengping said that in the future, we should promote employment in six ways that include regulating and controlling unemployment; establishing an early warning system for unemployment; and making efforts to maintain stable employment conditions.


So what we may well have here are some rather important structural mismatches between jobs on offer and the people who are applying to do them. I do find it hard to see how there can be year on year wage increases in the 20 percent plus range if there are serious surplus labour pressures.




What we have are 8 million people flooding into the cities and towns from the countryside every year, and 12 million jobs being created there. What this means is that you can have a backlog of people already in the cities who are finding it difficult to obtain work, some of them being unemployed of over one years duration. But just how many of the over one year unemployed people are actually employable? This is a question which we have been having to ask in country after country across Eastern Europe, and I doubt the situation is that different in China.

What there may be are a lot of people over 40 (for example) underemployed, or something like that, there may also be too many people arriving in some urban areas looking for work for those areas to absorb, while in other areas - and especially some rural ones - severe shortages develop. Some of this then gets knocked on to the food prices issue.

But this "buffer overflow" in the urban labour market is not at all inconsistent with labour shortages in other areas of the economy, particularly in the rural ones, where in fact food prices may be rising due to the unavailability of sufficient labour to work the land intensively enough, and the very low productivity of labour which can't simply be changed overnight. If this is the case then the "pork barrel inflation" (my apologies to Ken Rogoff) may well be about more than money and only money. As he admits why we didn't get inflation before in China, given that the monetary conditions were already present, is rather surprising:

Inflation of more than 6 per cent is the immediate problem. Those who think inflation is caused by too little pork rather than too much money are wrong. China’s relatively pegged exchange rate system has led the authorities to flood the economy with renminbi. ... The real surprise is that inflation did not sprout earlier. The authorities must stuff the inflation genie back in the bottle. It is not going to be easy...


Could it be that before living standards hadn't risen far enough or fast enough, and that there was still sufficient surplus labour out there in the heartlands, surplus labour which - like that legendary liquidity over at Paribas on the 9th August last - has suddenly and astonishingly evaporated as the Olympic driven boom finally takes the system near to breaking point. Remember that the Economist reported that 7 million people failed to return to work in the "growth hothouse" Guandong region after this year's New Year holiday. So could it be that despite all that excess liquidity there are now be deep seated structural questions lying behind China's recent inflation surge. Some additional evidence for this is provided by a paper that Claus Vistesen dug out and reported on in this post.

Basically in the February 2008 issue of the journal "China and the World Economy" Fang Cai (Director of the Institute of Population and Labor Economics, Beijing) and Meiyan Wang publish a paper entitled "A Counterfactual Analysis on Unlimited Surplus Labor in Rural China". Here is the abstract.


Using a counterfactual analysis approach, the present paper examines a host of conventional wisdoms relating to issues of farmer, the countryside and agriculture, which are believed to be all originated from the existence of mass surplus laborers in China. When analyzing various sources of statistics, evidence shows that there is no longer a large pool of surplus laborers in rural China as most people believe. Based on this counterfactual result, all related events, such as the direction of agricultural technological changes, the level of comparative productivity of agricultural labor, and the degree of rural-urban income gap must be reconsidered.


So what this suggests is that China may indeed be finding it difficult to increase food production due to rural labour shortages which are a direct consequence of the one child per family policy. What I feel is that if this view is right we shouldn't be treating increasing food prices as a temporary blip in inflation, since the shortage of rural population (and the low productivity of Chinese agriculture given the labour quality of what is left) and the increasing living standards of the urban population is going to put an upward pressure on prices for some time to come. Add to this labour shortage generated pressures on wages and you are into all sorts of problems.

Evidently, given they will continue to need to increase the volume of food imports, letting the yuan rise can ease the internal inflationary pressure, but this will only result in exporting Chinese inflation out into global food prices for the rest of us. So really, you could say you are going to see the direct impact of thirty years of one child per family policy sitting right on your dinner plate.


Postscript

Those interested in a more growth-theoretically oriented explanation of the argument in this post may find my "Has China's Economic Growth Passed It's Peak? post well worth reading.

And for a fuller explanation of the inflation dynamics problem in another context see my "Inflation in Russia: Too Much Money Chasing Too Few People?".

Also of general interest are my "China's Inflation and Labour Shortage Problem, It's The Fertility Stupid!" and Claus Vistesen's "China's Economic Development - People ... I see no People"