Financial Communique » China

The Chinese economy gives signs of cooling

Viliyana Filipova — Wed, 11 May 2011 12:33:21 +0000

The Chinese inflation slows in April, and this, combined with some other economic indicators signal a cooling economy. This fact in turn would alleviate pressure on the authorities in Beijing to keep a tighter monetary policy and currency. In April, the appreciation of life in China is 5.3 per cent per annum. A month earlier, inflation reached 32-month high of 5.4 percent. Thus, signals appear that in the second half of 2011 can expect a weakening of inflationary pressures, analysts. Food prices, which are a major driver of inflation generally fell by 0.4 percent in April on a monthly basis. Annual increase was reported by 11.4 per cent. The official target of government is the annual average inflation in 2011 should not exceed 4 per cent. For this purpose, since October the central bank increased the base rate four times and the minimum reserve requirements were very high. In industrial production and retail sales data are also published today, is reported greater than expected slowdown. These are additional signs that economic growth will cool. The industrial production growth reported by 13.4 percent yoy in April, after one month earlier was moving with an increase of 14.8 per cent. Expectations index were to rise by 14.7 per cent. The retail sales are also slowing its growth – from 17.4 percent in March to 17.1 percent in April. If the projections were for speeding up the increase to 17.6 per cent yoy.
The money supply in China as measured by M2 monetary aggregate, has its weakest growth in the last 29 months. It increased by 15.3 per cent against forecasts for an increase of 16.5 per cent. All this will likely weaken pressure on the country to change the monetary policy towards an increase in the rate of local currency. In April yuan rose by 0.9 percent against the dollar since early this year appreciation is 1.5 percent. From June 2010 onwards, when the reform was implemented in the formation of the exchange rate in China, the yuan has appreciated by 5 percent against the U.S. dollar.

Russian economy increased with 4.5% during the last quarter of 2010

Viliyana Filipova — Fri, 01 Apr 2011 12:58:28 +0000

In the fourth quarter of 2010 the Russian economy grew by less than expected, despite the higher commodity prices and investment growth induced demand. In the fourth quarter, gross domestic product (GDP) of the country increased by 4.5% yoy compared with 3.1 percent in the previous quarter. Analysts’ expectations were for growth of 4.8 percent. Federation president Dimitri Medvedev wants to 5 years the growth of the Russian economy to reach 10%, so that Moscow – the largest exporter of energy resources – to align this indicator with China, Brazil and India. In the third quarter the Russian economy has lost momentum after the country experienced the worst drought in half a century. Analysts say the drought has slowed growth to 0.8 percent. “The recovery is still very hesitant, especially if you look at the growth of Russian economy a few years ago,” said Neil Shearing, an analyst at Capital Economics in London. “There is evidence that income growth is slowing in the country and this is reflected in poor sales. The recovery of Russia lags behind the rest of the group BRIC (Brazil, Russia, India and China). In the last quarter of last year the Chinese economy grew 10.3 percent, India with 8.2 percent and Brazil by 5%.

China should reduce the inflation and the budget deficit

Viliyana Filipova — Sat, 05 Mar 2011 13:53:17 +0000

Fighting the inflation is a key economic priority for China this year because the government aims to limit the risk of social unrest, Prime Minister Wen Jiabao in a speech to the country conditions.
“We can not afford the price increases to affect the normal life of people with low incomes,” said Wen in the report the annual meeting of The Chinese meeting of MPs in Beijing today. “This problem affects the welfare of the people has common interests and concerns social stability.”
The 64-year-old Wen confirmed targets 4 percent inflation for the whole year and 8% growth against attempts by the Communist Party to provide support for the 61-year rule. Over the past two weekends government sent hundreds of police in Beijing and Shanghai after the Internet calls for protests, inspired by bunks in the Middle East and North Africa.
“Inflation has the potential to trigger social unrest,” said Liu Li-Gang, an economist at Australia & New Zealand Banking Group in Hong Kong. The government should increase interest rates on loans and deposits by 0.75 percentage points by year’s end, and to raise wages and to grant aid the poor, he said.
Among the major problems of society Wen highlighted the illegal seizures of land, food safety, “excessive” increases in housing prices and “massive corruption” in some places. The government will oppose inflation “decisively” and would turn it into a “top priority for macroeconomic control,” the Chinese premier.
Lower budget deficit
The budget deficit may be 900 billion yuan (137 billion dollars) in 2011, or 2% of GDP by 150 billion yuan less than the target for 2010, said Wen Jiabao. He confirmed that the country supports “proactive” fiscal policy and “prudent” monetary policy. Yesterday the Shanghai Composite index rose to a four-peak because of investor expectations for measures to support consumption. The Chinese government plans to reduce dependence on exports and investment and strengthen consumer spending – a move that could help reduce global economic imbalances blamed for financial crisis.
“Increasing the domestic demand is a long term strategic basis,” said Prime Minister in the report. The granting of subsidies for urban population with low incomes and for farmers and conservation incentives for the purchase of household appliances in rural areas will contribute to increased costs, he said. The government also provides support for private investment. To control inflation, the government will manage liquidity to ensure agricultural production and will resort to price controls when required, said Wen Jiabao. According to him, state officials will limit speculation in real estate and will “adjust and improve the” fiscal policies in the property.
“The main challenge to control inflation bubble in property prices that comes from too free cash terms to the price of assets,” said economists days ago in a report from China International Capital Corp. Ltd.

China increased the control over mergers and acquisitions

Viliyana Filipova — Mon, 14 Feb 2011 12:34:19 +0000

The Chinese government announced that it would strengthen controls over the projects for mergers and acquisitions by foreign companies in order to “safeguard national security” – an initiative that could limit the ambitions of some companies from abroad. The Chinese government said it will establish a body to examine foreign investment in the national defense, agriculture, energy, natural resources, infrastructure, transport, technology and industrial facilities. This body will be placed under the control of the National Development and Reform and the Ministry of Commerce, reported on your site Chinese government. The foreign investment will be judged according to their economic and social stability of China and the country’s ability to continue research and development activities concerning technologies relating to homeland security, noted in the message. The country is realizing good financial policy and just a few months ago was claimed as a second economy force in the world.

Fed owns higher state debt than China

Viliyana Filipova — Wed, 02 Feb 2011 19:45:46 +0000

The Federal Reserve (Fed) surpassed China and is now the largest owner of U.S. federal debt, although it has not gotten half the bonds worth 600 billion dollars from the program announced in November for the infusion of liquidity. On Thursday last week the Fed has held U.S. bonds to 1.108 trillion dollars. According to the latest data on foreign creditors of the U.S., the government bonds, which China holds are about 896 billion dollars, and for Japan – to 877 billion dollars.
“By June the Fed has accumulated to U.S. bonds worth 1.6 trillion. dollars – roughly the total U.S. debt held by China and Japan combined, “said Richard Gilhuli, strategist at TD Securities. Fed surpassed China as the largest creditor of the U.S. government a few months ago, “he notes. Fed buys U.S. debt in two programs. The largest is the program for injection of liquidity known as the QE2, which was launched in November and the buying of U.S. bonds to 600 billion dollars by June. Fed buys U.S. bonds and also for $ 30 billion each month, reinvest the payments of mortgages it holds. By June the Federal Reserve plans to acquire federal debt of $ 800 billion in both programs. Since November he bought bonds of 284 billion dollars. Fed provides 67% of bonds purchased QE2, have a maturity of between 4.5 and 10 years. Only 5% of acquired so far are bonds with a maturity longer than 17 years. Last Friday, the yield on 30-year U.S. Treasuries briefly climbed to their highest levels since April.
“The end of the QE2 will be a big test because yields on U.S. debt will probably increase after the Fed stops to buy bonds,” said David Allen, strategist at CRT Capital. “We still do not know whether this increase will be 20, 30 or even 50 basis points,” he said. Total world’s central banks hold U.S. bonds to 2.604 trillion. dollars. After intensified the pace of buying in June, when they have bonds to 2.250 trillion. dollars in November, when the Fed started Q2, central banks retain their positions in U.S. bonds at around 2.6 trillion. dollars. This indicates that after the intervention of the Fed’s other central banks have reduced the pace of buying the U.S. debt. Before the financial crisis, the Fed held the bonds to 775 billion dollars. This amount was reduced to 300 billion dollars in the first half of 2008, when the Fed sold bonds in an attempt to stabilize the financial system. The first program for injection of liquidity, launched in 2009 was about $ 300 billion.

Monetary policy of China decreased crude oil price

Viliyana Filipova — Mon, 15 Nov 2010 11:45:22 +0000

The worries about the financial markets that China will continue to tighten monetary policy, which will cool the growth of Chinese economy and reduce demand for energy commodities in the country, the price of oil fell to its lowest level in two weeks. The crude oil prices fell heavily by 3% yesterday after Chinese Premier Wen Jiabao said the government develop measures to curb inflation in the second largest economy in the world, which is the largest user of energy resources. The prices of traded goods fell and fears of worsening debt crisis in the eurozone. Finance ministers from the European Union discussed in Brussels today’s debt crisis in Ireland, Portugal and Greece, as well as possibilities for a rescue package for banks in Ireland. The crude oil for cheaper despite the message of the American Petroleum Institute yesterday that reserves of U.S. crude oil fell last week to its fastest pace since September 2008 they fell by 7.7 million barrels, which was more than expected. Today and the weekly report released by the Ministry of Energy, U.S. oil reserves and demand for energy commodities last week which is more comprehensive because it covers all oil refineries in the country.
In the hours electronic trading on the New York Petroleum Exchange today, oil for December delivery traded with a fall of 0.3 percent to 82.11 dollars per barrel. The price of U.S. light crude fell 2.52 dollars, or 3 percent, to 82.34 dollars a barrel yesterday, which is the lowest price level since October 29th. The rate of the euro against the dollar fell heavily earlier this week and remains almost unchanged today because of the debt crisis in Ireland, which reduces the interest of investors in foreign currencies to the dollar traded commodities. The Brent for January delivery while losing 0.3 percent to 84.51 dollars per barrel. Its price fell 2.03 dollars yesterday, or 2.3 percent, to 84.73 dollars per barrel. Oil prices rose by 3.8 percent since the beginning of this year.

Chinese Industry increased its pace of growing

Viliyana Filipova — Wed, 01 Sep 2010 05:06:22 +0000

Manufacturing in China increase its growth rate in August, which fell to its lowest level since early 2009 in July. Better than expected data on Chinese industries have shown that Asian country is able to maintain its growth momentum despite the economic climate deteriorated globally in recent months. Index of business activity in the factory sector rose to 51.7 points in August compared to 51.2 points in July. Its value lies within the area of growth over 50 points for the 18th straight month, topped market expectations, as reported by China Federation of Logistics and purchases (CFLP). They were in line with those of HSBC Bank Institute and market Markit Economics, which in turn is calculated index of business activity in the manufacturing sector of China. Its value for August rose to 51.9 points in July after having fallen to 49.4 points. The growth of manufacturing sector in China in August soothe concerns that the gross domestic product will significantly reduce its growth rate in the second half of the year. Oil prices rose, while the regional MSCI Asia Pacific Index advanced by 0.5 per cent in the first September session in Asia. China’s GDP grew by 10.3% yoy in the second quarter, reducing its growth rate to 11.9 percent growth recorded in the first quarter.
The Chinese government introduced restrictions on bank lending and purchases of more than one property this year to reduce the risks of excessive inflation of asset prices and the overheating Chinese economy. However, demand in China continues to be an incentive for the world economy showed strong growth data for the GDP of Australia earlier today.

Chinese industry began to decrease

Viliyana Filipova — Sun, 01 Aug 2010 12:24:27 +0000

Another evidence of slower growth in the global economy in the second half of this year came from China after it became clear today that the manufacturing sector of the country has shrunk for the first time in 17 months in July. Data for China’s manufacturing sector are important for global financial markets because the country’s third largest economy in the world and one of the biggest consumers of raw materials. Index of HSBC, which monitors business activity in the factory sector, China dropped to 49.4 points in July from 50.4 points the month before. Its value thus fell into the pessimistic zone below 50 points for the first time since April 2009, says CNN. Separate data on China Federation of Logistics and purchases (CFLP) on the weekend showed that the official index of the Chinese government for business activity in the manufacturing sector fell to 51.2 points in July from 52.1 points the month before. That is its lowest level, also from April 2009 onwards. Most clearly for the contraction in the sector said the drop in the volume of new orders. Contraction in production in China may worsen the economic mindset of investors, especially since the U.S. government announced late last week that the U.S. economy has slowed more than expected to 2.4 percent pace its growth in the second quarter.
China led the world economy to recover in 2009, during the second quarter gross domestic product (GDP) of the country increased by 10,3 percent. However, this was significantly less than reported in the first quarter growth of 11.9 per cent. According to the Chinese Government’s economy has surpassed that of Japan in size. Estimates of Analysts for the Chinese economy are contradictory, according to some it grows too fast, which can lead to excessive appreciation of some assets as securities and real estate. But others fear more of the measures the Chinese government to curb bank lending and investment in real estate.

Heads of IMF are split on whether the Chinese yuan is undervalued

Viliyana Filipova — Wed, 28 Jul 2010 09:36:58 +0000

The heads of the International Monetary Fund (IMF) are split on whether the Chinese yuan is undervalued. Thus, the organization transferred the differences between U.S. and China on monetary policy in the Asian country. Some board members say the organization that claims that China’s exchange rate is undervalued, based on “vague forecasts for the current account surplus country, it is clear from the statement distributed after the last meeting of the organization. The Chinese yuan rose is less than the rate against the dollar for the last month, although U.S. push for faster appreciation of yuan. On 19 June the authorities in China announced that they no longer practical policy fixed exchange rate of yuan to the dollar and that will be pursued more flexibility. “Directors welcomed the decision to return to the regime of managed floating exchange rate,” it said in the opinion of the meeting. “This decision will increase the flexibility of the central bank to tighten monetary policy,” said the heads of the IMF. Today, the Chinese yuan was at 6.7792 yuan to the dollar after a period of two years – from July 2008 to June 2010 was held at 6.83 yuan to the dollar. “Many directors maintain that over time a strong yuan will help the transition from investment to exports and private consumption as the main driver of growth, it is clear from the opinion.
However, there are those who want additional data to be formed with one voice on monetary policy of Beijing.

EU: China should open the market for public orders

Viliyana Filipova — Thu, 22 Jul 2010 15:08:19 +0000

The Labour Commissioner Karel De Guh said that China should improve investment opportunities for foreign companies in the country, said “serious questions” that puts European business practices in connection with the Chinese procurement market, says the Wall Street Journal. During his visit to the Shanghai World Exposition (World Expo) Guh stressed that China should ensure transparency and openness of its market procurement and noted that all the rules that distort competition, hampering economic growth. In response to remarks by European Commissioner, Chinese Vice Minister of Commerce Gao Huchan said that the policy of the Chinese government is strongly opposed to protectionism. Guh said that Chinese investment in Europe remain relatively low until the GAO sees possibilities for cooperation between Europe and China in high technology and green energy. Between 2004 and 2008, European imports from China grew by an average of 16.5 percent per year, although because of the global financial crisis experienced a drop of 13% in 2009.
China remains the largest importer in Europe Last year in the European Union (EU) imported Chinese goods for 215 billion.