“The central bank aims to ease policies prudently and pace loan growth at the beginning of the year so as to avoid a replay of the credit explosion in 2009 and 2010 and prevent inflation from rebounding,” said Lu Zhengwei, a Shanghai-based economist at Industrial Bank. Lu now sees a reserve-ratio cut in February to add liquidity and spur growth after the reverse-repurchase contracts expire.

Some analysts backed away from their reserve-ratio predictions when they saw the central bank inject 353 billion yuan ($55.7 billion) into the financial system in the week before the holiday, using the 14-day contracts. Barclays said the move had an effect similar to a cut in the bank requirements.

Postponing a reserve ratio cut indicates monetary easing “is meant to be moderate and controllable,” Hong Kong-based JPMorgan economists led by Zhu Haibin wrote in a Jan. 20 report after forecasting a pre-festival move in a Jan. 17 report. A cut “in the coming weeks” remains likely because market liquidity will be tight when the 14-day reverse repurchase contracts mature, they said.

The central bank is allowing the nation’s five biggest lenders, including Industrial & Commercial Bank of China, to increase first-quarter lending by a maximum of about 5 percent from a year earlier, two people at state lenders said previously.

© melissa chan for China Digital Times (CDT), 2012. | Permalink | No comment | Add to del.icio.us
Post tags: bank reserve ratio, central bank, economic slowdown, inflation
Download Tools to Circumvent the Great Firewall

1) The run-up to Beijing’s once-in-a-decade political transition in October 2012 is likely to generate intensified clampdowns internally and assertive rhetoric abroad as China faces rising domestic challenges, and finds itself constrained internationally. Fearful neighbors may further strengthen ties with the United States. Pariah/failed state “allies” North Korea, Pakistan, and Iran will likely experience problems that affect China’s own interests. Externally, China is likely to be more intransigent than before. Internally, Beijing will resist making difficult decisions about economic reforms, particularly reforms that might harm key state-owned enterprises and monopolistic/oligopolistic concerns connected with families of political elites. Domestically and internationally, Chinese leaders will attempt to postpone difficult policy decisions until after the transition.

2) Slowing economic growth will likely increasingly expose the flaws and unsustainable nature of China’s infrastructure-driven growth model.One local banking regulator cited by Minxin Pei claims only 1/3 of the investment projects currently under construction will produce cash flows large enough to cover their debt service burden. This may rapidly reduce economic growth and commodity demand in 2012.

Damien Ma writes in The Atlantic that 2011 “saw the democratization of the China narrative,” and assesses the likelihood of rebalancing in 2012 as a number of “structural maladies” – including high inflation, employment, healthcare and education costs – continue to fester:

To me, one of the biggest questions next year is whether China can create the necessary political conditions, amid one of the most important transitions in a decade, to forge ahead with its restructuring. With the anticipated slow down in growth and a shrinking export surplus, there appears to be an opportunity to steer the ship of state in a different direction. Yet with a political leadership still unsettled, I find it hard to be optimistic over the extent of progress next year. But I am fully open to being surprised.

See also warnings by Wen Jiabao of a “difficult” start for China’s economy in 2012, via CDT.

© Scott Greene for China Digital Times (CDT), 2012. | Permalink | No comment | Add to del.icio.us
Post tags: 2012, economic growth, education, healthcare, inflation, leadership succession
Download Tools to Circumvent the Great Firewall

“We will continue to manage well the relationship between stable and relatively quick economic growth, structural adjustment and inflation,” Hu said. “Global interdependence is deepening while instability and uncertainty in the world economy’s revival is increasing.”

The government is wrestling with the aftermath of past stimulus, including the debt burdens of local-government investment vehicles. Companies also face rising labor costs, and Communist Party leaders have recently sought to defuse protests over illegal land use and environmental pollution.

While the 25-member Politburo affirmed an unchanged “proactive” fiscal stance for 2012 in December, a Nov. 30 cut in banks’ reserve requirements indicated a shift toward a bigger emphasis on supporting growth.

Earlier today, the head of China’s central bank, Zhou Xiaochuan, said the country would maintain a “prudent” monetary stance and ensure that policy remains stable in 2012.

While Hu addressed the economy, he also addressed the status of Hong Kong, Macau, and Taiwan. China Daily translates Hu’s speech:

In the new year, we will unswervingly adhere to the road of socialism with Chinese characteristics, follow the guidelines of Deng Xiaoping Theory and the important thought of Three Represents, and further carry out the Scientific Outlook on Development. We will continue to properly deal with the relationship among maintaining a stable and relatively fast economic growth, adjusting economic structure and managing inflation expectations. We will accelerate the change of economic development mode and structural adjustment, focus on ensuring and improving people’s livelihood and work hard to consolidate the healthy momentum of economic and social development.

We will uphold the principles of “one country, two systems”, “Hong Kong people governing Hong Kong” and “Macao people governing Macao” with a high degree of autonomy. We will work together with our compatriots in Hong Kong and Macao to maintain long-term prosperity and stability in the two Special Administrative Regions. We will adhere to the principles of “peaceful reunification and one country, two systems,” continue to promote the peaceful development of cross-Straits relations, maintain the essential interests of the Chinese nation and enhance the common interests of compatriots on both sides of the Taiwan Straits.

© melissa chan for China Digital Times (CDT), 2012. | Permalink | No comment | Add to del.icio.us
Post tags: economic recovery, economic slowdown, Hong Kong status, Hu Jintao, inflation, macau, Taiwan relations
Download Tools to Circumvent the Great Firewall

“It has become ever clearer that the Chinese economy is moving to a soft landing,” Zhu said. “The Chinese economy today is really moving to an inflection point, moving to more services and capital-intensive economy.”

Zhu and Fan, speaking on the same APEC panel, said economic expansion would slow from the 9.1 percent growth in the third quarter of this year, with Fan saying sustainable growth in gross domestic product was about 8 percent. Their forecast for a soft landing is in contrast with some observers including hedge fund manager Jim Chanos, who has forecast since at least February 2010 that the property market will slump, saying that China is on a “treadmill to hell” because of its reliance on real estate for growth.

“We must be firmly committed to maintaining growth and promoting stability, with a special emphasis on ensuring strong growth in order to add momentum to the economic development in the Asia Pacific and beyond,” Hu said. China will “focus more on increasing imports while maintaining a stable level of exports.”

See also: Real Estate Prices Tumble as China Government Tries to Contain Bubble via CDT.

© melissa chan for China Digital Times (CDT), 2011. | Permalink | No comment | Add to del.icio.us
Post tags: apec, asia economy, economic slowdown, global economy, imports, inflation, real estate
Download Tools to Circumvent the Great Firewall

One of the world’s few remaining real estate bubbles finally seems to be losing air. Real estate transactions have slowed so quickly that in the last two weeks, brokerages across China have laid off thousands of brokers and closed hundreds of offices.

News media have reported on at least five street demonstrations in Shanghai since Oct. 22 as early buyers in condo projects have protested discounts offered to later buyers, even breaking into sales offices and smashing models of the buildings and apartments.

A 32-year-old protester said that he and his wife had paid $173,000 last January for an 850-square-foot apartment in a building on the outskirts of Shanghai. But the developer later cut the price for the remaining units of this size in the building to $124,000, wrecking the resale value of the condo.

To add insult to injury, the building is not scheduled to be completed until May.

AFP is reporting that cash-strapped developers are offering a series of enticements, including luxury cars, to lure potential apartment buyers. Today, The Diplomat’s Mu Chunshan placed China’s housing bubble in the context of broader economic uncertainty and the European debt crisis:

Europe is the largest single market for Chinese exports, and the crisis in Greece and Italy will naturally put pressure on China’s economy. Indeed, figures released today already show China’s exports rising at their slowest pace in two years. To protect growth and prevent a hard landing, China may consider easing monetary policy, a move that would risk exacerbating the property bubble that the government has busily been trying to deflate.

Such concerns aren’t unfounded. I remember during the global financial crisis of 2008 receiving half a dozen marketing text messages a day. I sometimes even received cold calls from sales agents. At the time, China’s property market was still depressed, with properties within a six to seven kilometer radius of the Forbidden City being priced at as little as 10,000 yuan ($1,580) per square meter.

…

And now, my phone is once again ringing with sellers highlighting the falls in property prices. Is the Chinese real estate bubble bursting? Could falling property prices and a possible slowing of European demand prompt the Chinese government to ease monetary policy once more? And would this spark another property boom just as prices look to be falling in some areas?

Similarly, the Wall Street Journal questions how the Chinese government will walk the tightrope if property prices fall too far and fast:

An unanswered question is whether China can gently let the air out of its real-estate bubble or whether the bubble will burst, undermining economic growth. With the European Union and U.S. struggling to kick-start their own economies, global growth depends increasingly on the health of the Chinese economy, the world’s second-largest.

Beijing’s top officials say they plan to stay the course. “I will especially stress that there won’t be the slightest wavering in China’s property-tightening measures—our target is for prices to return to reasonable levels,” Premier Wen Jiabao said in a speech on Sunday in Russia.

See also previous CDT coverage of China’s attempts to curb debt and regulate inflation, and growing signs of a credit crisis in Wenzhou, where property developers and entrepreneurs have turned to the shadow lending market after monetary tightening hindered their access to traditional funding sources.

© Scott Greene for China Digital Times (CDT), 2011. | Permalink | No comment | Add to del.icio.us
Post tags: debt crisis, economic slowdown, hard landing, housing bubble, inflation, interest rates, monetary policy, property prices, Wen Jiabao
Download Tools to Circumvent the Great Firewall

But one thing that cabs have going in their favor is price. The flag fall is usually 10 rmb, 11 rmb at night ($1.55/$1.75) for the first 3 km, and then 2 rmb (30 cents) per subsequent kilometer, up to 15 km, at which point the price rises to 3 rmb (45 cents). By way of comparison, a 5-mile trip in Beijing would cost about $3.50. In Chicago it would cost you more like $10 before tip. Beijing’s rates have been in place since 2006 (story in Chinese) and the only increase has been a 2 rmb fuel charge added this spring for trips over 3 km. That makes cabs a rare bastion of price stability in a place where most everything else—food, fuel, housing, wages—is going up. A 5 gallon jug of water that cost 11 rmb in 2007 now runs 19 rmb.

…

In other cities in China, the cab market is handled differently. In Shenzhen and Shanghai, the cabs are just more expensive. In other cities, like the southeastern factory town of Wenzhou, where I traveled last week, the cabs are effectively more expensive, because none of the drivers agree to go by metered rates. Instead every trip is a negotiation between passenger and driver, and the trip price starts at around 100 rmb. Beijing cab drivers have less leeway. Enforcement is more strict in the capital, making it hard for drivers to ignore metered rates. And a strike, which drivers in several Chinese cities resorted to in 2008, would not be tolerated here, Beijing cabbies say.

This summer, taxi drivers in Hangzhou and Shanghai went on strike against rising fuel costs, a lack of benefits and the high accommodation charges that Ramzy notes in his piece.

© Scott Greene for China Digital Times (CDT), 2011. | Permalink | No comment | Add to del.icio.us
Post tags: Beijing, black taxis, gas prices, inflation, taxis
Download Tools to Circumvent the Great Firewall

The report did not explain why the business owner did not want to pay his taxes. But a local doctor surnamed Zhao contacted by The Associated Press said he had heard that town authorities were imposing a higher tax rate for migrant businesses than for local ones, causing unhappiness among the group who were from neighboring Anhui province.

The Huzhou Online said police had detained five suspects and that another 23 suspects were being held as part of the investigation.

Around 100 protesters swarmed toward the township government offices, hurled rocks and destroyed street lamps, smashing the windows of more than 30 private cars, said the Zhejiang Online, a provincial news website. It added that several police and urban management officers were injured.

Protesters also smashed an Audi car, whose driver ran the vehicle into the group, knocking down 10 people, the Zhejiang Online said. All 10 were hospitalized and the driver was being held by police, it said.

Reuters published a set of photos from the scene, and reported that searches for Zhili on Sina Weibo had been blocked, though photos posted of the riots could be found through other search terms. The riots indicate growing agitation among migrants, middle- and lower-class households and private businesses in a Chinese economy marked by stagnant incomes and high inflation. From The Wall Street Journal:

The protests come as smaller private-sector firms, many of which are concentrated in the area near Shanghai, have been squeezed by government efforts to tap the brakes on economic growth in order to tame inflation. Those efforts have limited credit for some small firms, which in turn prompted new government measures this month to help small- and medium-size businesses.

See also previous CDT coverage of the credit squeeze underway in the mid-section of China’s economy and the surge in “mass incidents” as a means to address grievances.

Update: The Zhili government announced Friday it will rescind the tax in question as more details surrounding the cause of the riots emerged. From The Wall Street Journal:

According to people interviewed by telephone in Zhili, the disturbance followed aggressive collection of new charges for the use of machines used to make children’s wear, the town’s mainstay product. The tax was targeted at small, independent workshops that often aren’t licensed and are manned mostly by migrant laborers who earn money per piece produced.

They said workshop managers were being charged between 300 yuan (about $48) and 600 yuan for each machine used, in what Chinese discussing the matter online called the “sewing-machine tax.” It amounts to about twice as much as was collected in the past. An unidentified man who apparently objected to the payment rallied others to join this week’s protest, locals said.

…

China’s economy is slowing and the Zhili government’s pullback on tax levies reflects a strategy Beijing is increasingly likely to take to soften pain of the deceleration, according to analysts. This week, the central government said it would reduce double-taxation of certain transportation in China, a move expected to encourage some business activity and amounts to a philosophical change, according to analysts.

This tax reform is part of the structural tax reduction, and thus can be viewed as a signal of expansionary fiscal policy,” Minggao Shen, a Citigroup economist said in a research note Friday.The influence on China of a weak global economy is clearly being seen in Zhejiang province, home to nearly 50 million people and by some measures the country’s wealthiest region. Nearly 12% of China’s total exports came from the province in August. But Zhejiang factory owners say their already-thin margins are disappearing.

© Scott Greene for China Digital Times (CDT), 2011. | Permalink | No comment | Add to del.icio.us
Post tags: Chinese migrants, inflation, riots, sina weibo, taxes, Zhejiang
Download Tools to Circumvent the Great Firewall

China normally prohibits local governments from issuing bonds directly or from taking bank loans, confining such bonds to those issued by the central government on their behalf.

Local governments owe about 10.7 trillion yuan ($1.7 trillion) in debt through financing vehicles set up mainly to support construction projects, according to Beijing. Issuing bonds would help them to honor those obligations.

Aside from government debt, the China Banking Regulatory Commission (CBRC) is trying to address private debt and slow the credit growth. This has given rise to an increase in private lending. BBC adds:

Liu Mingkang, chairman of CBRC, said the commission was taking measures to ensure such activities do not put the financial system at risk…

These loans come with exorbitant interest rates, ranging from 14% to as much as 70%.

Mr Liu said the commission was “strictly against shadow banks and the risks associated with private financing”.

The rise in lending was followed by an increase in property prices, and this increase caused concerns about asset bubbles and bad debt . Premier Wen Jiabao commented that housing prices and job creation are critical points. The China Post reports:

“Currently, economic growth is slowing and external demand is falling, and we should make employment even more of a priority in economic and social development, doing our utmost to expand employment,” Wen told officials in Guangxi, a poorer region next to export-driven Guangdong province, the official People’s Daily reported.

Wen also said another plank of the government’s efforts to contain price rises — containing housing costs — was at a crucial stage.

As of August, China had built 8.68 million units of homes for rental or sale to poorer families this year, putting it on track to fulfill its full-year goal of 10 million homes.

© melissa chan for China Digital Times (CDT), 2011. | Permalink | No comment | Add to del.icio.us
Post tags: economic slowdown, inflation, jobs, Premier Wen Jiabao, property prices, special economic zones
Download Tools to Circumvent the Great Firewall

China’s consumer inflation dipped to 6.1 percent in September, retreating further from three-year highs, although stubborn food price pressures will deter the central bank from loosening its policy reins anytime soon.

A slowdown in price rises would be welcomed by policymakers as confirmation that a flurry of increases in interest rates and bank reserve requirements is working, just when China’s economy is showing increasing strains from the global downturn.

The dip in inflation in September was right in line with a poll of economists’ forecasts and lower than August’s reading of 6.3 percent.

Food price pressures remained strong, however, rising 13.4 percent from a year earlier, unchanged from the pace in August’s data. Non-food inflation eased to 2.9 percent from 3.0 percent in August, the data showed.

China’s producer price index in September came in below market expectations with a 6.5 percent rise from a year ago, compared with August’s 7.3 percent.

Despite decreasing inflation, there have been some other troubling economic indicators, such as China’s export growth falling to its weakest in seven months. From SF Gate:

China’s export growth cooled to the weakest in seven months and officials said that trade faces “severe challenges” as the yuan strengthens and confidence slides in developed nations.

Exports climbed a less-than-forecast 17.1 percent in September from a year earlier, customs bureau data showed in Beijing today. The trade surplus fell to $14.51 billion from $17.76 billion in August. Imports rose 20.9 percent, also less than forecast.

The risk of a slump in trade may encourage Chinese officials to refrain from further interest-rate increases and add to support for companies after the State Council yesterday announced tax breaks for small businesses. The world is relying on China, the biggest contributor to global growth, to sustain an expansion that was 9.6 percent in the first half of the year.

“The leading indicators from the developed economies indicate that worse will follow” for exports, said Yao Wei, a Hong Kong-based economist at Societe Generale AG.

China Premier Wen Jiabao said China will keep the yuan basically stable to avoid hurting exporters too much, sending a signal that Beijing is unlikely to allow any dramatic yuan appreciation for now as the country’s exporters have started feeling the pressure from a slowing global economy.

Mr. Wen’s remarks came after trade data showed both exports and imports weakened more than expected but the yuan had undergone a bout of relatively fast appreciation over the past few weeks, partly due to political pressure from Washington. Tuesday, the U.S. Senate voted to pass a bill to penalize China for its alleged devaluation of the yuan.

China will keep its export policy generally stable, maintain its export-tax-rebate policy and increase its credit support for exporters, Mr. Wen was quoted as saying, according to the state radio on Saturday.

The report also said that Mr. Wen said the global financial crisis isn’t over, and that it is more severe than those in the past.

China will try to balance its international payments by expanding imports while stabilizing exports, the state radio quoted Mr. Wen as saying.

In related news, the U.S. Treasury Department will delay a ruling on whether or not China is manipulating its currency, postponing it until later this year. From Reuters:

The Treasury Department said on Friday it would delay until later this year a ruling on whether China is manipulating its currency as Democratic Party lawmakers tried to overcome Republican opposition to a bill that would punish Beijing for its currency policies.

The decision to delay the sixth semiannual report to Congress under the Obama administration, which was due on Saturday, came days after the Senate approved legislation that aims to pressure Beijing to let its yuan rise in value faster.

The delay “will give us a chance to assess progress following several international meetings,” the Treasury Department said in a statement.

Ministers and leaders of the Group of Twenty major global economies and the Asia Pacific Economic Cooperation forum, bodies in which the United States and China are key players, are scheduled to meet this month and in November.

© cdtstaff for China Digital Times (CDT), 2011. | Permalink | No comment | Add to del.icio.us
Post tags: currency exchange, inflation, u.s. treasury department, Wen Jiabao
Download Tools to Circumvent the Great Firewall

The National Bureau of Statistics said Friday that the country’s consumer price index rose 6.2% last month from the previous August. That was down from 6.5% in July, which was a 37-month high.

Though inflation remains well above the government’s 4% annual target, analysts said the problem may have peaked, reducing the need for the government to employ tightening measures that could slow its economy.

“The moderation in the CPI reading is encouraging and could give the government more policy leeway at a time when market concerns have shifted toward the potential for slower growth in the global economy,” said Jing Ulrich, JP Morgan’s chairman of global markets for China.

Falling food prices were largely responsible for tempering inflation last month, rising 13.4% from a year earlier compared with 14.8% in July.

© Sophie Beach for China Digital Times (CDT), 2011. | Permalink | No comment | Add to del.icio.us
Post tags: inflation
Download Tools to Circumvent the Great Firewall