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China's investment growth slows, prices fall

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NEWS - China Finance

Written by The Wall Street Journal Tuesday, 11 August 2009 16:37

BEIJING -- China's investment growth slowed in July, and consumer and ex-factory prices extended declines, government data showed Tuesday, buttressing the case for the government to keep its expansionary policies in place.

While industrial production growth quickened, the pickup was slight and well below market expectations.

The data support Beijing's assessment that the economic rebound's foundation isn't firm, given the world remains in a recession. Top leaders, including Premier Wen Jiabao, have repeatedly pledged in recent days to continue the moderately loose monetary policy and stimulus spending program.

Urban fixed-asset investment between January and July rose 32.9% from a year earlier, slowing from the first half's 33.6% rise, according to the data issued by the National Bureau of Statistics. The growth rate was also lower than the survey's median estimate of a 34.0% increase.

In recent weeks, Beijing has warned that it will curb blind investment, indicating it is concerned over possibly wasteful investments under the stimulus. The investment data Tuesday show growth of investment projects under central and local governments and by state-controlled companies in the January-July period slowed from the first half.

Value-added industrial production expanded 10.8% in July from a year earlier, below the median 11.5% gain forecast by 13 economists polled earlier by Dow Jones Newswires. The rate of growth was slightly higher than June's 10.7% rise.

China's retail sales rose 15.2% in July from a year earlier, accelerating from June's 15.0% growth rate. While the data include government purchases, they suggest private-consumption remains resilient.

Reflecting weak demand in the economy, China's consumer price index fell 1.8% in July from a year earlier, the sixth straight monthly decline, government data showed.

July's CPI decline was in line with the median forecast of a 1.8% fall in a Dow Jones Newswires survey of 14 economists, but was slightly larger than June's 1.7% drop.

China's producer price index fell 8.2% in July from a year earlier, declining for the eighth month in a row and accelerating from June's 7.8% fall. The median forecast in a survey of 13 economists was for June PPI to fall 8.2%.

Friday, People's Bank of China Vice Gov. Su Ning brushed aside concerns about inflation, citing first-half declines in consumer prices. "There is no inflation problem now," he said. Economists predict prices will start to rise again later this year and say Beijing will likely scrutinize the risks of wasteful investments and bad loans associated with the expansionary policies.


China Premier: to maintain active fiscal policy

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NEWS - China Finance

Written by The Wall Street Journal Monday, 10 August 2009 17:14

BEIJING (Dow Jones)--China will maintain its current macroeconomic policies stance, including active fiscal policy and moderately loose monetary policy, said Premier Wen Jiabao over the weekend.

"The reason for us to maintain the current policies is that we are still facing many difficulties and uncertainties, including global economy outlook is still not clear, and external demands decline pressure is still relatively high," said Wen, according to a statement posted on the central government's Web site Sunday.

The effect of some of China's stimulus policies will weaken over time, said Wen in a three-day trip to east China's Jiangsu province.

Beijing announced CNY4 trillion stimulus package earlier this year to support the country's economy growth.

But as China's property and stock markets rebound, the government has struggled to find a way to deal with the risks of inflation and asset bubbles.

Fears that China will withdraw some stimulus programs put in place to deal with the global financial crisis had pushed the benchmark Shanghai Composite Index down 4.4% this week, after rising for seven weeks in a row.


China launches action at WTO to keep US, EU markets open

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NEWS - China Finance

Written by The Wall Street Journal Monday, 03 August 2009 13:39

BRUSSELS -- China launched formal complaints at the World Trade Organization in a bid to take down trade barriers set up by the European Union and U.S., a sign Beijing is fighting more aggressively to keep foreign markets open for its exports.

The targets of its two complaints are high EU import tariffs on Chinese screws and a U.S. ban on the import of Chinese poultry. Beijing had already announced the suit against the U.S.

China insists it is countering protectionism and fears about job losses at home in a slumbering global economy. Brussels and Washington say the sanctions are justified by lax business and health rules in China. The EU and the U.S., the two biggest buyers of Chinese goods, combined for $610 billion of imports from China last year.

In both cases, the WTO could dismiss the complaints or give China the right to reduce imports by as much as it lost in trade by imposing higher import tariffs on some EU and U.S. goods by the end of 2010.

The two suits are signs of China's coming-of-age in global trade politics, say trade experts. When China joined the WTO in 2001, its exports took off so fast that minor impediments to trade weren't even noticed.

"It took them a few years to care about and understand the process," says Simon Lester, chief administrator at WorldTradeLaw.net LLC, a Washington-based consultancy.

At a multilateral trade summit in Geneva in July 2008, China played a leading role for the first time, says Mr. Lester. China has recently built a sparkling trade mission down the street from WTO headquarters in Geneva. It has started spending more money on legal advice, say lawyers for major trade-law firms.

On Friday, Chinese trade officials accused the EU of failing to follow WTO procedure when it raised tariffs on the import of steel fasteners, the technical word for screws and similar parts, earlier this year.

The EU said Chinese companies were benefiting from tax breaks and bargain raw-material costs, then illegally "dumping," or selling below cost, fasteners on the EU market. Chinese prices were 30% to 50% lower, the EU said.

Under WTO law, if domestic companies are losing substantial sales, countries can fight dumping with increases in import tariffs. That is what the EU did in January, hitting Chinese fastener imports with duties of 26.5% to 85% for the next five years. Sales -- almost a billion dollars a year -- fell off dramatically.

The suit on Friday is the first time China has challenged a European antidumping duty at the WTO. Brussels has levied over 140 antidumping duties against China since 1979. China filed a similar complaint against the U.S. last year over paper products.

EU officials defended the duties. "Antidumping measures are not about protectionism, they are about unfair trade," said Lutz Guellner, a spokesman for the European Commission. "The EU's decision to impose measures was taken on the basis of clear evidence that unfair dumping of Chinese products has taken place with state distortion of raw material prices.'

China also petitioned the WTO to launch an investigation of a U.S. ban on chicken imports. Beijing had already announced its intention to launch the suit a month ago. The U.S. has banned the import of Chinese poultry products on health grounds since 2007.

In its suit, Beijing complained Washington was imposing "naked discriminative measures." U.S. officials say they are still studying whether Chinese chicken is safe to eat. China still imports U.S. poultry, mostly feet and other products.


China stocks gain, rebounding from biggest drop in 8 months

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NEWS - China Finance

Written by Bloomberg Thursday, 30 July 2009 15:59

July 30 (Bloomberg) -- China’s stocks gained, with the Shanghai Composite Index rising from its biggest loss in eight months, as lenders climbed after the central bank damped speculation it will rein in bank lending.

The benchmark gauge advanced 1.7 percent to 3,321.56 at the close, after changing direction at least 10 times, as the People’s Bank of China affirmed a “moderately loose” monetary policy to support the nation’s economy. Industrial & Commercial Bank of China Ltd. and China Construction Bank Co., the nation’s two largest lenders, jumped more than 3 percent.

The Shanghai measure tumbled 5 percent yesterday amid concern the government will curb inflows into a market that had more than doubled from last year’s low. Beijing-based Caijing magazine reported yesterday on its Web site that the central bank may order lenders to set aside larger reserves.

“As long as the scenarios of economic recovery and ample liquidity don’t change, the upward trend on the market won’t be reversed,” said Chen Wenzhao, a strategist at China Merchants Securities Co. in Shanghai. “Given the recovery is still at an early stage, it’s unlikely the government will change its policies.”

The CSI 300 Index, measuring exchanges in Shanghai and Shenzhen, added 2.1 percent to 3,634.82. A gauge of 50 financial companies on the index climbed 3.1 percent, accounting for 60 percent of the CSI 300’s gains today.

In the second half of this year, the central bank will “emphasize the use of market tools instead of quantity controls to guide appropriate growth in money supply and lending growth,” said People’s Bank of China Deputy Governor Su Ning in Shanghai, according to a statement on its Web site.

Banks Rally

Industrial & Commercial Bank, the nation’s biggest listed lender, added 3.3 percent to 5.34 yuan. Construction Bank, the second largest, jumped 6 percent to 6.52 yuan. Shenzhen Development Bank Co., controlled by buyout firm TPG Inc., climbed the daily 10 percent limit to 26.18 yuan.

The Shanghai index is up 82 percent this year, the world’s second-best performer after Peru among 89 equity benchmark measures tracked by Bloomberg. Stocks surged after the government unveiled a 4 trillion yuan ($586 billion) stimulus package in November and dropped lending restrictions to cushion the economy from a record slump in exports.

China’s credit growth will slow from the “unsustainable” pace seen this year to about 15 percent in 2010 as a strengthening economy may reduce need for loan support, Goldman Sachs Group Inc. analysts led by Roy Ramos said in a note dated yesterday.

Broader Perspective

“The Chinese authorities are actually not very happy with the stock market moving up as quickly” as it has, Arnout van Rijn, chief investment officer of Robeco Hong Kong Ltd., said in a Bloomberg Television interview today. “They will think about things, how to put this into a broader perspective and take things more slowly.”

Loans worth about an estimated 1.16 trillion yuan were invested in the stock market in the first five months of this year, China Business News reported June 29, citing Wei Jianing, a deputy director at the macro-economics department of the Development and Research Center under China’s State Council.

Bank lending and government stimulus spending helped the nation’s GDP expand 7.9 percent in the second quarter, making it the first major economy to rebound from the global recession.

China’s economy is “gangbusters compared to the rest of the world, why would they try to kick that?” said Kenneth Fisher, who has about $900 million invested in Chinese shares among the $28 billion he manages as chief executive officer of Fisher Investments Inc. in Woodside, California. “They have zero incentive” to curb lending, he said.

Aluminum, Copper

Commodity producers gained on optimism loan growth will spur demand for metals. Aluminum Corp. of China Ltd., the nation’s biggest maker of the metal, jumped 4.9 percent to 18.16 yuan, snapping a two-day, 10 percent drop. Jiangxi Copper Co., the country’s largest copper producer, added 2.5 percent to 43.67 yuan. The stock’s more than quadrupled this year. I

Stocks on the Shanghai index trade at 35.9 times reported earnings, the highest since January 2008 and more than twice the average of emerging markets. The gauge slumped 65 percent in 2008 after doubling in 2006 and 2007.

Individual investors have rushed to buy equities as regulators lifted a nine-month moratorium on IPO share sales and the economic growth accelerated. More than a million stock accounts were opened in the two weeks to July 24, data from the nation’s clearing house showed, the most since January 2008.

Wu Ruiling, 70, a retired elementary school teacher, said yesterday’s slump cost her a paper loss of 30,000 yuan, paring the value of her investments to about 700,000 yuan. Wu owns 18 stocks including Wuhan Iron & Steel Co. and Huaxia Bank Co.

“I’m not afraid of the plunge and I wouldn’t sell my stock because the upward trend is still there and a correction like that is quite normal,” she said, sitting at an outlet of Shenyin & Wanguo Securities Co. in Shanghai’s Luijiazui financial district. “Stock programs on the TV and radio all said it’s a good opportunity to buy.”


US, China pledge to sustain stimulus, rebalance world growth

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NEWS - China Finance

Written by Bloomberg Wednesday, 29 July 2009 15:17

July 28 (Bloomberg) -- U.S. and Chinese economic leaders pledged to keep up stimulus efforts and to rein in trade and investment imbalances that contributed to the global crisis.

“It is vitally important for China and the United States to see through their commitments to repair the financial system and lay the foundation for recovery,” Treasury Secretary Timothy Geithner said at the end of the first Strategic and Economic Dialogue talks under the Obama administration in Washington. China’s Vice Premier Wang Qishan said the two will press for an “expansion” of the recovery.

The U.S. pledged to curb the budget deficit and boost household savings, and China committed to rely less on overseas demand for its goods. There were few signs of the disputes over the yuan and market access that characterized talks in the Bush administration. Analysts expressed skepticism whether the two governments can secure “balanced” growth.

“These statements are made in good faith, but the issue is that you can’t just wave a magic wand and get there overnight,” said Huw McKay, senior international economist at Westpac Banking Corp. in Sydney. “These things take long periods of time.”

The two sides indicated that while economic data improved in recent months, a self-sustaining rebound has yet to emerge. In the U.S., President Barack Obama is implementing a $787 billion fiscal stimulus and Federal Reserve Chairman Ben S. Bernanke doubled the central bank’s balance sheet to about $2 trillion. China has a 4 trillion yuan ($585 billion) stimulus.

‘Strong’ Responses

“Both countries pledged to maintain their strong policy responses until recovery is secured,” the U.S. Treasury said in a statement.

Zhou Xiaochuan, the Chinese central bank governor, said China will wait for the U.S. to begin to pull back on its stimulus measures before deciding whether it will do the same.

“If we see that the U.S. starts to exit its expansionary fiscal and monetary policies, then China will see what it will do at that time,” Zhou said at a press briefing today.

The People’s Bank of China governor also said that “I believe that the Federal Reserve of the U.S. will make appropriate arrangements to prevent high inflation.”

The U.S. Treasury highlighted China’s commitments to liberalize business and investment rules, including letting international banks underwrite Chinese bonds, raising the threshold for foreign direct investments that need government approval, and loosening limits on interest rates.

‘Sustainable’ Deficit

China’s officials reiterated their concern at the record American budget deficit, and were told by Obama’s aides that there’s a plan to achieve a “sustainable” deficit by 2013. Their comments today indicated they accepted the U.S. presentation.

“Credible steps will be taken by the U.S. to control the deficit,” China’s Finance Minister Xie Xuren said at a press briefing today. “The Treasury secretary stated clearly that they are placing a lot of importance on this issue.”

At stake is sustaining demand for U.S. debt from China, the largest foreign holder of Treasuries. The federal deficit is on course to reach $1.8 trillion this year; China’s investments in Treasuries reached $801.5 billion in May, about 100 percent more than at the start of 2007.

“We are joined at the hip with China and that means both countries need to be sensitive to each other’s needs, each other’s problems,” Mickey Kantor, a former U.S. Trade Representative, said in an interview from Los Angeles.

Yuan Policy

China’s Treasuries holdings also are the result of holding down the value of the yuan, a policy that U.S. lawmakers have charged is designed to provide a subsidy for its exports. The yuan has hovered around 6.83 per dollar since July last year after gaining about 21 percent since China lifted a strict peg to the dollar in July 2005.

Zhang Xiaoqiang, vice chairman of the National Development and Reform Commission, told reporters yesterday that “compared with previous meetings” between Chinese and U.S. officials, “the U.S. side doesn’t lay as much emphasis on renminbi exchange-rate reform and opening of capital markets.” The yuan is a denomination of the renminbi.

The effort to produce more “balanced” growth comes after Bernanke and other officials blamed imbalances in trade, spending and investment for helping spark the crisis.

Trade, Investment

U.S. consumers relied on borrowing to finance their purchases, contributing to an export boom from Asia. As China and other Asian nations accumulated dollars from trade surpluses, they bought bonds and depressed global yields. Lower borrowing costs helped stoke the housing and credit booms that turned to bust in 2007.

China and the U.S. will aim to “bring about more balanced and sustainable global economic growth after a global recovery is firmly established,” the two sides said in a fact sheet on the economic side of the talks.

“Building a consumption-based economy is overdone and overhyped” with regard to China, Donald Straszheim, who heads Straszheim Global Advisors Inc. in Los Angeles. “It will take a generation, not just a few years, for China’s consumer sector to really develop.”

In the U.S., officials will take steps to reduce its current-account deficit, boost private savings and cut its budget deficit once a recovery is “firmly established,” Geithner said.

The U.S. savings rate reached 6.9 percent in May, the highest level since 1993, as Americans consumers curtailed spending. Geithner said he expects those gains to be part of a more permanent shift.

“We’re more likely to decide that these changes we’ve seen in private savings already are durable,” Geithner said. “We’ve learned some tough lessons as a country. I think the basic lesson, the importance of living within our means, is best for the country, and at the household level, is an important, necessary lesson.”


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