Chinese Economics Thread


FriedRiceNSpice

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On Thursday, the PRC published official figures on 2007 GDP and growth rate. China's GDP grew at 11.4% in 2007, to 3.4 trillion USD. This bring's China's economy ever closer to overtaking Germany as the world's third largest economy. The German GDP is predicted to be just under 3.5 trillion USD for 2007.
 

Norfolk

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, Opinion, People's Daily (English version):

China is enjoying its fifth straight year of double-digit economic growth, and therefore it is desirable to strengthen and improve its macro economic controls to prevent the relatively fast economic growth from overheating.

Fueled by the consecutive food price hikes, China's consumer price index (CPI) has jumped by nearly seven percent starting from last November, and has so far showed no signs of ceasing increase.

China has been fighting fast-rising prices for the past months, and trying to keep CPI, the highest level in 11 years, in check, which could be viewed as a bellwether of inflation.

Due to the CPI's continuous rise, the actual interest rate would be kept negative, which distorts the pricing scheme in the financial market, ruins the fair distribution of social wealth, and counters the anticipation of market players. All this could finally affect the soundness of national economy.

Even worse, bank loans were on a steep rise last year, with 3.58 trillion yuan in new loans granted
in the first eleven months, compared with 3.18 trillion yuan for all of 2006.

Despite the fact that the central bank raised the reserve requirement ratio 10 times and lifted interest rates 5 times in 2007, many commercial banks had already exceeded their anticipated loans target for the whole year in the first three quarters

High bank loans created high liquidity in the capital market, forcing up the prices of securities and property. The increase therefore triggered bank loans lent in a frenzy for real estate investment. A recent study conducted by the country's banking watchdog, China Banking Regulatory Commission, revealed that a considerable amount of bank loans were involved in fake or deceptive property deals.

It has been proved that excessive liquidity also plays a conspicuous role in the price hikes of consumer goods, pushing up CPI, and thus exerting pressure on the authorities to curb inflation expectation in 2008.
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by AP at Newsday.com:

On Friday, government agencies announced higher purchasing prices for wheat and rice and ordered coal bound for export to be diverted to shore up domestic supplies.

The newest government order called on police and roadway departments to give food trucks preferential treatment, waive all tolls and halt the spot inspections and fines that often produce long lines on highways.

Gas stations are prohibited from raising prices and must allow food trucks to fill up their tanks, the directive said, squashing the sales limits some stations have used to make up for recent shortages in petrol supplies.
More at the link.

These prudent measures by the Government may help to mitigate some of the pressures - at least temporarily - brought on by inflation at home and economic disruptions abroad, and of course, to faciliate the distribution of food staples in the wake of disruptions caused by severe weather.

It remains unclear if the Government's approach to dealing with inflation and overseas economic problems (especially in the U.S.) by tightening monetary policy is an effective approach, or only a case of short-term gain for long-term-pain. The structural difficulties within the Chinese economy, either aggravated or brought on in part by Government policy (even as many of those same policies have been quite successful in promoting China's economic prosperity to begin with), do not have as much leeway to deal with serious disruptions as might be comfortable.
 

Norfolk

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, South China Morning Post, 29 January, 2008:

89 coal-fired power plants have coal supplies down to alarm level;

18 million kW of power generation capacity down due to coal shortage

126 million yuan allocated to six provinces for disaster relief...

...6.86 million hectares of crops in 16 provinces damaged
This does not even take into account the number of lives lost so far in the storms that are afflicting much of China - 53 as of the 29th according to the SCMP. Very sad:(; makes things that much harder than they already are for many people.


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by Katherine Ng, The Standard, 31 January, 2008:

Analysts yesterday said they will not revise their forecasts for GDP growth until material impact has been reported. Standard and Poor's said it maintained the mainland's economic growth forecast at 9.3 percent in 2008.

But power shortages, crop losses and food transportation interruption could help push inflation to a record 7 percent in January, economists said.

The combination of snowstorms and economic downturns has sown doubts in Beijing about whether to sustain the monetary tightening campaign while keeping the economy on track.

"It's a higher risk for the central government to overvalue its tightening measures in such a situation," said Tan Kim Eng, associate director of sovereign and international public finance ratings at Standard & Poor's.
This may only decrease the Government's flexibility and options with which to deal with future economic disruptions.
 
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Soviet General

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I don't care about the relation of America with China. America has enough problems with Iraq, the war on terror, and from the looks of it Iran is fighting in small warship battles in the Gulf. If the Americans loose this 2 Vietnam, Americans might stop being( feeling)Americans.Good By Patriotism and hello to another Civil War, in my case REVOLUTION!!!:china:
 

SampanViking

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Hi Norfolk

Well I think that the Fed cutting its base rate by 1.25% will help as this will cause the dollar to stop climbing which it has been doing since last Autumn.

As many Chinese Imports are priced in dollars this will take off part of the Inflationary pressure here. It does though mean that the Dollar is going to be less attractive as an Investment and so it that sense is simply swapping one set of problems for another.

Anyhow we will see as we move into Springtime.
 

Norfolk

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Hi SampanViking,

Yes, I see though that the Chinese stock markets have recovered in recent days, so that's a good start.

Well, the big news right now of course is Justin Lin Yifu's appointment as Chief Economist of the World Bank. See
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, by Jane Cai, South China Morning Post, Wednesday, February 6, 2008, at LexisNexis News:

The World Bank has appointed Justin Lin Yifu , a Chinese national, as its new chief economist and senior vice-president for development economics, the first time the post has gone to a candidate outside Europe or the United States.
 

SampanViking

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Yes interesting news about about the World Bank, but I guess there's no point in giving the job to someone who doesn't have any money;)

More interesting though is studying what happened to the Stock Markets the other week. What seems to be coming out of this is that the global movements may have more to do with condition of the International Financial Institutions that shop on the Bourses rather than the local economies who's shares they sell.

To put it another way, many countries trading positions are actually very strong, but the Banks and other Institutions are the ones with dodgy finances. There is a lot of speculation that many profitable Chinese stocks were being dumped in order to have sufficient liquidity in order to make margin calls and other dodgy trading positions that they had to settle. Nerves were hardly settled by the revelations coming out of France!!

If this is true, then we have a largely unforeseen consequence of Globalisation that will have come as a rude wake up call to everybody!
 

Autumn Child

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Still higher CPI for January...

Experts: January CPI growth may see another new high
Last Updated(Beijing Time):2008-02-14 07:52

Driven by the snowstorms and surging demand during the Chinese Lunar New Year holiday, rising food prices may have pushed China's January consumer price index (CPI) growth to another monthly high, said the China Securities Journal quoting analysts on Wednesday.


Zu Jianfang, a macro-economy analyst with CITIC Securities, said that given the foregoing factors and a relatively low figure last January, the year-on-year growth of CPI may reach 7.4 percent in January. The CPI growth may be 7.1 percent for the first quarter and five percent for the whole year.

Meanwhile, investment bank Goldman Sachs drew a similar conclusion. Rising food prices in snow-hit areas and demand during the holiday may have driven the CPI growth to 7.1 percent in January, it said in a report, adding that the figure for the first quarter will remain above seven percent.


Although the monthly consumer price index figures are scheduled to come out early next week, a series of statistics from the National Development and Reform Commission (NDRC) may, to some extent, support the above forecast.


Rising food prices


According to a recent NDRC survey covering 36 major Chinese cities, prices of meat, eggs, edible oil, and vegetable went up in January over the previous month. While services prices remained stable.


Specifically, wheat and flour prices in these cities remained stable; while meat and egg prices rose widely. Retail prices of pork, deboned beef, mutton, chicken, and eggs grew by 4.53 percent, 9.51 percent, 4.36 percent, 1.81 percent and 0.28 percent respectively over last December.


Meanwhile, retail prices of bean oil, rap oil and bottled peanut oil grew 9.14 percent, 8.63 percent and 4.81 percent respectively. Average prices of 15 kinds of major vegetables reached 4.04 yuan per kilogram (kg), up 5.21 percent over last December.


In contrast, among 37 major service items surveyed, prices of 32 items remain stable. Average price of liquefied natural gas fell 1.89 percent to 6.76 yuan per kg.


PPI growth to shrink


According to NDRC data, average coal prices at major mines were 480 yuan per ton, up 5.93 percent over last December. Steel product and nonferrous metal prices went up in general, while major chemical product prices remained flat.


However, the lagged effects of falling oil prices on the international market may drag down January's producer price index (PPI) growth a bit, said Li Huiyong, a macro-economic analyst with Shenyin Wanguo Securities.


Either way, since prices of the foregoing industrial products do not fell substantially, January PPI growth is not likely to go below five percent from 5.4 percent from last December, Li added.
 

FuManChu

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China has had its first defeat at the World Trade Organization (WTO), in a case centred on restrictions on the importation of foreign-made car parts.

Upholding a complaint from the European Union, Canada and US, the preliminary WTO finding agrees that current Chinese practice is protectionist. Under existing Chinese rules, its carmakers must use 60% Chinese-made parts - or pay higher taxes. The ruling says China must end this policy to meet its WTO obligations.

"We can confirm that, in all major respects, the panel has agreed with the United States that China has acted inconsistently with its WTO commitments," a US trade official told the Reuters news agency.

The WTO report says that foreign-made car parts are currently in a "less favourable" position than their Chinese-made alternatives.

"The dispute settlement body requests China to bring these inconsistent measures as listed above into conformity with its obligations," says the ruling.

The WTO is now due to make its final report later this year, when the Chinese government will have the opportunity to appeal.

Based in Switzerland, the WTO is tasked with increasing global free trade, and rules on such disputes between countries. China first joined the organisation in 2001, pledging to open up its domestic market to overseas firms and abide by WTO rules for international trade. However, Western governments have repeatedly complained that China is not moving quickly enough.

The US announced last year that it was seeking a WTO inquiry over whether Chinese limits on imports of copyrighted US goods broke trade rules. America has also complained against continuing high levels of music and film piracy in China. Separately, the EU said earlier this month that it was considering launching WTO action against Chinese restrictions on foreign financial news groups.

China in return has complained about EU limits on Chinese shoe exports.
 

Schumacher

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Two more good pieces from the Economist. I wouldn't recommend their political commentaries but the financial & economics sections are quite in depth.
Whether one agrees or not, they at least go deeper into the issues with numbers etc compared with many others which basically just repeat that China has large trade surplus therefore will slump with recession in its major markets then proceeded with wishful thinkings disguised as analysis.

The first one is how they think the Chinese internal economy is strong enough to withstand external shocks & how slowdown in its major markets may in fact help with the overheating issue.

As for the second one, ignore the part abt India. I don't intend this to be China vs India thing but instead just focus on what it says abt China's fiscal position relative to OECD & other major economies.

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From Mao to the mall
Feb 14th 2008

Amid all the global gloom, the good news is that China is turning into a nation of spenders, as well as sellers

THE past year has seen a lively debate among economists about China's rapid economic growth. Some, such as Brad Setser from the Council on Foreign Relations, believe that exports have been the main generator; others, like UBS's Jonathan Anderson and The Economist, think that domestic demand—spending on roads and railways, cars and clothes, and the like—has been the driving force. Just now, a lot turns on this argument: both how badly China's economy could be hurt by an American recession and also the extent to which Chinese spending could help to prop up the rest of the world economy. Some new figures suggest Chinese demand is rising strongly enough to help offset the increasing weakness in China's export markets. That could be good news for the world at large.

It is certainly true that China's current-account surplus rose to a record 10% of its GDP last year, which means that it produced a lot more than it consumed and so relied on foreigners to buy the excess. But it is the change in a country's trade surplus, not its absolute size, which matters for GDP growth. The increase in net exports (exports minus imports) has never been the main source of China's growth. It contributed two to three percentage points to annual GDP growth between 2005 and 2007, whereas domestic demand (consumption and investment) added eight to nine percentage points. But the latest figures show that exports have become even less important as a driver of growth. The World Bank's latest China Quarterly Update suggests that net exports contributed only 0.4 percentage points to GDP growth in the year to the fourth quarter of 2007 (see left-hand chart). Overall GDP growth slowed only modestly (to 11.2%) because of faster growth in domestic demand, which contributed an impressive 10.8 percentage points.


The significance of all this is that although China's headline GDP growth is widely tipped to slow to 9-10% in 2008, if a bigger chunk of this growth comes from domestic consumption and investment, then in absolute dollar terms China could well contribute more to global demand this year than in 2007.

Dragonomics, a Beijing-based economics-research firm, forecasts that the contribution of net exports to GDP growth will actually fall to zero during 2008, but this will be partly offset by strong growth in investment and consumption. After growing by an average of $80 billion during each of the past three years, China's trade surplus is likely to remain more or less flat this year. Export growth fell from 28% in the year to the first quarter of 2007 to 22% by the fourth quarter because of weaker American demand and the impact of a stronger yuan.

Meanwhile import growth surged from 18% to 26% on the back of strong industrial and consumer demand. In other words, Chinese imports are now growing faster than exports. China's trade surplus widened by only 12% (in dollar terms) over the year to the fourth quarter, compared with an increase of almost 90% in the first half of last year. This was partly due to higher oil prices that increased the value of imports, but even in inflation-adjusted volume terms the surplus stopped growing in the latter part of last year.

Time to open their wallets

Not only did more of China's growth come from domestic demand late last year, but there were also signs of a “rebalancing” of the economy from investment towards consumption. Using figures from China's National Bureau of Statistics, Mark Williams, an economist at Capital Economics, a London-based research firm, calculates that in 2007 consumption accounted for a bigger slice of GDP growth than investment for the first time in seven years. Government restraints on bank lending caused investment growth to slow slightly, whereas consumer spending picked up. The often-quoted monthly figures on fixed-asset investment still show annual growth of over 20%, but these figures are misleading. Measured on the same national-accounts basis as GDP, to exclude property and land sales, real investment rose by a more modest 11% in the year to the fourth quarter, less than the growth in real consumption.

China's consumer-spending data are notoriously murky. The annual rate of growth in retail sales has surged from 13% in early 2006 to 20% in December of last year (see right-hand chart). Some sceptics argue that this increase is mainly due to a rise in inflation. However, the consumer-price index is not the appropriate deflator because it gives a much higher weight to food (the main source of the recent surge in inflation) than the share of food in total retail sales. Frank Gong, an economist at JPMorgan, argues that using a more appropriate deflator, real spending has clearly accelerated, especially on household goods. One important stimulus is that last year real urban disposable income per head rose faster than GDP for the first time in five years. This should help to keep consumption growing rapidly in 2008.

A growth rate in China driven more by consumption than by exports and investment is exactly what the American government has been demanding for several years. Indeed, it might be hoped that if China's trade surplus stops expanding and consumer demand plays a bigger role in growth, international trade tensions should subside. The snag is that even if net exports were no longer contributing to China's growth, its trade surpluses with America and Europe would continue to loom embarrassingly large. And, says Mr Williams, as Chinese exporters move into higher-value products, they will become more of a threat to Western producers.

In 2008 China will probably suffer its first slowdown in growth for seven years. But strong domestic demand should mean that an American recession would not bring the Chinese economy to a screeching halt. Indeed, to the extent that the economy was starting to overheat, a slowdown will be welcomed by Chinese policymakers. And if almost all of the slowdown comes from net exports, while domestic spending remains robust, then the whole world can cheer, too.


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Poles apart
Feb 14th 2008 | HONG KONG
From The Economist print edition


China has plenty more room than India to stimulate growth

THE Chinese invented the abacus; India invented the binary and the decimal systems. So both nations are deft at playing with numbers. All the more reason to look carefully at their governments' finances (see chart).

According to official estimates, China's government ran a budget deficit of around 1% last year. But some economists reckon that the cautious government is understating its true fiscal health: it probably had a small surplus. Indeed, Jiming Ha, chief economist at China International Capital Corporation, an investment bank, reckons that if the profits of state-owned firms were also added in, the government could have a surplus of around 3% of GDP. China's public debt has also fallen to only 17% of GDP, well below the average ratio of 77% in OECD economies. Indeed, China has the best fiscal position of any big country, giving the government plenty of room to cushion the economy if demand suddenly falls.

By contrast, India, though improving, has one of the worst fiscal positions in the world. The government tries hard to conceal this fact, boasting that it has reduced its deficit to an estimated 3.3% of GDP in the year ending March, from 6.5% in 2001-02. However, in a recent report the IMF argued that the true total deficit is closer to 7% of GDP once you add in the state governments' deficits and various off-budget items (such as bonds that the government issues to oil companies to compensate them for holding down prices). If the losses of state electricity companies are also added in, the total deficit could top an alarming 8% of GDP. India's public debt is also uncomfortably high at about 75% of GDP.

The IMF has urged the government to tighten fiscal policy. But since India's budget, due to be presented on February 29th, is the last opportunity to boost spending before a general election next year, the government is likely to turn a deaf ear and instead present its more rosy, more misleading numbers.


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