Chinese Economics Thread

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Easing inflation may leave room for ’greater policy loosening’

Newly released economic indicators show that China’s economy continued to slow in April, raising expectations that the government will resort to greater policy easing to help stimulate the GDP.

Quickly cooling industrial production and fixed-asset investment, together with disappointing trade figures, have overtaken inflation as the key concern for Chinese policymakers.

This is driving Beijing to raise concerns about potential downside risks in the coming months, analysts said.

"The pace of economic growth in April may slow to its lowest ebb this year, mainly dragged down by weak exports and the slumping real estate market," said Liu Yuanchun, deputy head with the economics school of Renmin University of China in Beijing.

In April, China’s consumer price index, a main gauge of inflation, eased to 3.4 percent year-on-year from 3.6 percent in March, according to data released by the National Bureau of Statistics on Friday.

Food prices increased 7 percent last month from a year earlier, compared with 7.5 percent in March, as falling pork and fruit prices offset rising vegetable prices.

A research report from the Bank of Communications forecast that the years’ average CPI may decline to 3.3 percent from 5.4 percent in 2011.

Inflationary pressure may ease in the first three quarters, while rebounding slightly in the last quarter of this year, the report said.

"Inflation is set to trend down further, which provides ample room for additional policy easing, including both a quicker pace of fiscal spending and a more supportive credit policy," said Sun Junwei, a Chinese economist with HSBC Holdings.

Meanwhile, the world’s second-largest economy witnessed industrial production growth of 9.3 percent last month — the lowest in three years — while retail sales growth slowed to 14.1 percent year-on-year from 15.2 percent in March.

Electricity production, an indicator of the industrial manufacturing sector, increased at its slowest pace since May 2009, rising 0.7 percent from a year earlier to 371.8 billion kilowatt-hours.

Duncan Freeman, research fellow at the Brussels Institute of Contemporary China Studies, said the slowdown in China’s economy is partly related to its domestic situation and largely connected with the problems in its main markets — the United States and Europe.

“The current economic situation in Europe and in the United States explains broadly the decrease of China’s exports,” Freeman said.

Data published on Thursday showed that both import growth slowed to 0.3 percent in April and export growth to 4.9 percent.

These worse-than-expected economic indicators generated market unease on Friday. The benchmark Shanghai Composite Index fell 0.6 percent to close at 2394, the lowest since April 24.

The slowdown of the global economy even curbed the enthusiasm of some Chinese investors to expand their businesses overseas, said Shong An-An, legal consultant of China Desk of Grant Thornton, based in Netherlands.

While China is encouraging enterprises to go abroad, “we find there is distance between the reality and the goals”, Shong said. “The situation is closely linked to the status quo of economies both in Europe and China.”

Liu Ligang, chief economist in China with the Australia and New Zealand Banking Group, said a main factor for the deteriorating business environment was a continuing tightened monetary policy.

In April, China’s new yuan loans were 681.8 billion yuan ($108 billion), down from 1.01 trillion yuan in March and much less than the predicted 750 billion yuan, the People’s Bank of China said on Friday.

“The central bank may further cut the reserve requirement ratio by 50 basis points in May to inject more liquidity into the market and boost economic growth,” Liu said.

“Amid this gloomy situation, the government may slightly adjust economic policies to speed up GDP growth in the second quarter, said Liu Yuanchun from the Renmin University of China. “It is expected to be higher than the first quarter’s 8.1 percent.”

In addition, Beijing should keep alert to election politics in France and Greece, said Kevin Liu, director of marketing of Exclusive Analysis, a London-based consultancy company.

He said the uncertainties are looming large in Europe mainly because of new French President-elect Francois Hollande’s attitude toward austerity measures and the debates on Greece staying in the eurozone.

“What I suggest is that China stimulate consumption in its domestic economy to gradually replace the market in the US and in Europe,” Freeman said.

For those seeking a remedy to infectious optimism or irrational exuberance, might I refer you to the office of Dr. Ambrose Evans-Pritchard:

, by Ambrose Evans-Pritchard, The Telegraph, 13 May, 2012:

All key indicators of China's money supply are flashing warning signs. The broader measures have slumped to stagnation levels not seen since the late 1990s.

Narrow M1 data for April is the weakest since modern records began. Real M1 deposits – a leading indicator of economic growth six months or so ahead – have contracted since November.

They are shrinking faster that at any time during the 2008-2009 crisis, and faster than in Spain right now, according to Simon Ward at Henderson Global Investors.

If China were a normal country, it would be hurtling into a brick wall. A "hard-landing" later this year would already be baked into the pie.

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Much more at the link. A glass of good scotch or cognac will help make taking the medicine a little easier...

Sorry, but right now I just have to giggle. Whether or not this or any other warning turns out to occur, sooner or later, there is still considerable instability caused. Certainly the central government authorities seem at least implicitly concerned, lest they would not attempt some of the policies they are trying now. And AEP is no hack, and while he certainly adds colour, he's also been very good following the economic events of the past few years. If you don't care for his views, that's your decision, but don't be insulting about it.

Seems the china haters are getting very desperate.
They HOPE china collapses, because the west is pretty much economically and financially finished.
Europe is in a depression, Britain is in recession, US is barely growing.

The only thing the west has is to hope for doom on China to ease their heartburn.

Chinese economy is doing fine, 8.1% in Q1 was very good considering every other country is dramatically slowing. India is in a mess financially, their twin deficits are causing a loss of confidence in the Indian rupee, the rupee is collapsing. Brazil is slowing significantly, Russia is doing relatively well considering their strong fiscal position.

Then we come to china, yes china has slowed, but these collapse theories are mental masturbations.
Chinese fiscal revenues are growing, auto sales picked up in April, inflation-adjusted retail sales was good, inflation is coming down, manufacturing for medium and large firms are expanding, non-manufacturing is expanding for all firms(small,medium, large), exports to developing world are growing very fast, industrial production is expanding fast, etc.

China has slowed but the worst is over, the 2nd half should see a rebound.
All these collapse theories are only for nutjobs. Been hearing a china collapse for decades and everyone china has come out of it well.

Remember china is still in an ultra tight policy environment in monetary, housing and automobiles. RRR is close to 20%, interest rates at 3.5%, housing policy is ultra tight with 40% down payment for 1st house, 60% down payment for 2nd housee and can't even buy a 3rd house even with 100% down payment, etc.
And still China is growing at 8.1%.

Now put these same tight monetary, housing and automobile conditions on any other economy and see how they do. They will be lucky if their economies don't collapse immediately.

So let's put things into perspective, I know china bashing is now the trendy thing to do these days, but atleast have some common sense.

It's not so much the Chinese haters per se, but more like the Communist hater who are still stuck in their Cold War mentality and stubbornness.

gjy2105 said:

That depends on who you talk to. Some are plain Chinese haters rather than communist haters. To them, mainland Chinese are a combination of two evils; Chinese people under a non-democratic government. I say non-democratic rather than authoritarian. Why? Let's be honest here. If there were a third type of system that was neither democratic nor authoritarian, people would still find a way to demonize it all the same.

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True, so it's a battle for cultural and historical legitimacy then perhaps for some, not all of course, is their reason for the hate? That's just ridiculous in IMO.

There is only a very thin line between ideology and religion.

no_name said:

There is only a very thin line between ideology and religion.

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True, through out history there's always will be those who are in-tolerate of the new or old beliefs due to religion, because man kind still fears death.

escobar said:

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I don't believe in these stats. They are heavily manipulated and only the good figures were used in reports. This is a widely known secret in China. Even the chief scientists and department officials indirectly admitted this, which is saddening.

---------- Post added at 12:21 PM ---------- Previous post was at 12:16 PM ----------

China's problem is it's economy is overheating and the human side of the infrastructure buildup is not catching up. It needs to slow down first, soothing the internal problems, whether it's political, social, foundational plus any other related problems. Right now China as a country, and its economy, are both floating in the air without a solid foundation. It needs to calm down first.

Like in a professional kitchen, rush hours often create a lot of mess, you have to clean up and organize everything first before further proceed. If not, you could end up getting stabbed by a random knife or slip on grease.

A country and its economy works the same way.

CottageLV said:

I don't believe in these stats. They are heavily manipulated and only the good figures were used in reports. This is a widely known secret in China. Even the chief scientists and department officials indirectly admitted this, which is saddening.

---------- Post added at 12:21 PM ---------- Previous post was at 12:16 PM ----------

China's problem is it's economy is overheating and the human side of the infrastructure buildup is not catching up. It needs to slow down first, soothing the internal problems, whether it's political, social, foundational plus any other related problems. Right now China as a country, and its economy, are both floating in the air without a solid foundation. It needs to calm down first.

Like in a professional kitchen, rush hours often create a lot of mess, you have to clean up and organize everything first before further proceed. If not, you could end up getting stabbed by a random knife or slip on grease.

A country and its economy works the same way.

Click to expand...

personally i have more trust in chinese economic data than american and british economic data.
the americans are the kings when it comes to manipulating the numbers. the american inflation rate is so laughable that many people know its made up. and since the inflation number is understated, the gdp number is totally fake due to the gdp deflator, i dont think the US economy grew last year at all, its all a political game those numbers. so is the unemployment number. the american media is so powerful no one questions them thus they receive no scrutiny.

china's economy is not overheating, it WAS overheating to due 2009-2011 lending, thus the government introduced very tough monetary measures including raising RRR to 21%(US RRR is currently at 10%) and interest rate to 3.5%(US interest rate is at 0.25%), then house buying was tightened incredibly with 40% down payment for 1st house, 60% down ayment for 2nd house and banned from buying 3rd house, auto buying was tightened.

under this tight environment, the economy will slow, it was designed to slow. inflation was running too high due to the lending but also hot money inflow from QE2 from bernanke. because of QE2 china didnt raise interest rates further because speculators will buy the assets of the country with the higher interest rates, the higher china raised interest rates, the more money would come into china, thus worsening inflation. that is why RRR was used instead. another problem for china was the out of control property prices due to the lending in 2009-20011, which had to be brought down to reasonable levels so the average chinese can afford them and to destroy the property speculators.

these tight conditions have been in force for a while now and you are seeing inflation coming down and property prices are falling. these were the 2 things china wanted to achieve.

now you will see china loosen policies both in monetary, fiscal(tax cuts, increase spending), and in the 2nd half loosen housing policies.