Editor’s Note: This is the first installment of a new column, CDT Money, a once-a-week roundup of business and economic news from China. We’ll be giving an overview of business and economic trends from the world’s second-largest economy, as well as collecting the best news and analysis of the week from newspapers and the blogosphere. CDT Money is written by a freelance journalist living in Beijing. He writes regularly about Chinese foreign policy and politics as well as the economy for online media.
Trade and domestic price figures from the last week suggest that the Chinese economy is slowing down after taking a major hit to the export sector from the ongoing crisis in Europe. China’s trade surplus fell far short of $25 bn forecasts at $17 bn – although, as MarketWatch writes, this gap is being closed from both sides as imports rise faster than anticipated:
Exports were 15.9% higher than a year earlier, though missing the average 16.5% growth projection from a Reuters survey of economists, and below the 17.1% rise in September.
Imports gained 28.7% compared to a 20.9% increase in September…
Daiwa’s Lai said the real surprise in Thursday’s data was weaker shipments to countries considered little affected by Europe’s sovereign-debt crisis, including weaker demand from manufacturing powerhouses in Northeast Asia and commodity-focused economies such as Canada.
Tom Orlik in the Wall Street Journal adds that export growth is even slower when denominated in RMB, since the currency has been gaining value against the dollar. Slower growth in the Consumer Price Index – up 5.5 percent year-on-year in October, down from 6.1 percent in September – is consistent with a slowing economy, but will give Chinese central bankers room to maneuver by lowering interest rates, raised over recent months in an effort to combat inflation and deflate an alleged housing bubble.
The real estate and auto markets seem to confirm weak domestic demand, with land prices down about 40 percent from their September 2009 peak and new car sales down 4.2 percent year-on-year. Falling real estate prices are the most dangerous of these trends – China’s heavily indebted local governments rely on land sales for as much as 40 percent of their budget, so falls will constrain their ability to service bank loans and to begin new projects in another round of stimulus spending. The FT suggests that local governments are already feeling the pinch, as figures from the housing ministry show that they have fallen far behind schedule on affordable housing quotas set out in the Five-Year Plan:
“For the final third of the 10m units, because the preparation was quite hurried, the construction started a little bit late. We are requiring that basic foundations should be built by the end of the year,” Qi Ji, deputy housing minister, told state television last week, in comments that were widely reported in Chinese media on Monday.
Guandian, a leading property sector website, said it had information that the housing units described by Mr Qi were “holes that have been dug awaiting construction”.
The revelation helps resolve a conundrum that had emerged in Chinese data. Chinese housing starts closely matched figures for domestic steel and cement consumption before 2010, but over the past year a wide gap has opened, with reported housing starts exceeding steel and cement consumption.
Meanwhile, American banks with investments in Chinese banks have been selling down their stakes, in moves that many interpret as a flight from risky Chinese financial markets. Goldman Sachs sold a major part of its stake in the Chinese bank ICBC, losing over a billion dollars on the investment – however, Goldman, having recently paid out $2.6 bn in lawsuits stemming from the financial crisis, had other reasons to sell its shares. Bank of America announced Tuesday that it is selling almost all of its remaining shares in China Construction Bank, after getting rid of half last quarter.
Beijing investigates itself
Two major Chinese state-owned companies are being investigated under China’s anti-monopoly law by the powerful National Development and Reform Commission., according to a Wednesday report by CCTV. China Unicom and China Telecom, which together hold two thirds of China’s broadband internet market, are accused of using their market power to exclude competitors and overcharge consumers. Caixin reports:
China Telecom books about 50 billion yuan a year in revenue from broadband Internet services and China Unicom pockets 30 billion yuan a year from this operation. They will be subject to a one to 10 percent fine on annual revenues if they are found guilty, said Li, vice director of the Price Supervision and Examination and anti-Monopoly Bureau of the NDRC.
With effective market competition, Internet connection costs will drop by up to 38 percent in the coming five years, CCTV cited unidentified sources as saying.
According to a report by the Advisory Committee for State Information, China’s broadband access speed ranked 71st in the world last year, but such costs are at three to four times of the average level in developed nations.
China’s major Central SOEs have never been called to account for monopolistic behavior before – indeed, it is widely assumed that they are intended to function as monopolies. The South China Morning Post argues that the formal case is a boiling over from a behind-the-scenes dispute between the NDRC and the powerful Ministry of Industry and Information Technology (paywall):
On October 17, the NDRC met officials from the State Council Office of Legislative Affairs, the Supreme People’s Court and the MIIT to discuss the matter, Xinhua said. It said the officials were divided on how to proceed and urged caution. The NDRC agreed to get more opinions from the MIIT and the State-owned Assets Supervision and Administration Commission before reporting to the State Council for guidance.
However, Xinhua said the NDRC made its announcement through CCTV on Wednesday without consulting relevant ministries or telecoms firms.
On Friday, the People’s Posts and Telecommunications News, under the control of the MIIT, fired back in a front page article, blasting the CCTV report for triggering a sharp plunge in share prices of the two telecoms companies listed in Hong Kong, and for misleading the public and upsetting tens of thousands of workers in the two companies. The strongly worded rebuttal seems to suggest that mainland leaders are also split over the issue, allowing their proxies to slug it out in the open. Conspiracy theories are flying around the internet, with some suggesting that the announcement merely reflected a power struggle between the two ministries and others saying China Mobile, another major telecoms giant, was the instigator as it tried to muscle into the lucrative broadband market.
SOEs have been accused of holding monopolies in plenty of other sectors – especially energy and “strategic” heavy manufacturing – and liberal economists express hope that regulators will look at other state-owned companies. As one told the SCMP in another story, “China has got an anti-monopoly law, but it’s been hibernating.”