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.

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.

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.

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.

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.

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"

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.