world growth

world growth

Friday, October 31, 2008

China may allow local govts to issue bonds

This is going to be a major policy change.

China may allow local govts to issue bonds

BEIJING (XFN-ASIA) - The finance ministry is drafting a plan to allow local governments to issue bonds, a practice currently not allowed under Chinese law, the 21st Century Business Herald reported.

The report cited sources close to the matter as saying that the plan has been submitted to the State Council for approval.

In addition, the report said an office in charge of local government debt management has been established at the ministry's budget management department, the report said.

China is likely to set a high threshold for local governments to issue bonds, and only provincial-level governments may be allowed to do so in the early stages, the report added.

No further details were given.

Tuesday, October 28, 2008

Russia, China sign landmark oil pipeline deal

MOSCOW (AFP) — Russia and China on Tuesday signed a long-awaited deal to build an oil pipeline from Siberia to China after talks between Prime Minister Wen Jiabao and Russian counterpart Vladimir Putin.

The leaders watched as Chinese state energy major CNPC and Russian state pipeline monopoly Transneft signed the deal to build the pipeline from the Siberian town of Skovorodino to the Chinese border.

The pipeline agreed on Tuesday would have a capacity of 15 million tons of oil per year and would be a branch of the main East Siberia-Pacific Ocean trunk pipeline, which is still under construction, officials said.

"We should deepen cooperation in the energy sphere. Long-term cooperation will help economic development and stability on world markets," Wen said at the opening of a Russia-China business conference with Putin in Moscow.

Even after lengthy negotiations on energy ties between the two neighbours, Russia is still only the fifth-largest exporter of crude oil to energy-hungry China, despite being the world's number two producer after Saudi Arabia.

Amid lower energy prices, analysts say China is now seizing its chance.

"We have to aim for real results. We've discussed this for many years but the results do not correspond to what they should be for two neighbouring powers," Zhang Guobao, China's top energy official, told the conference.

"We need to build oil and gas pipelines, increase downstream and upstream cooperation and increase cooperation in the nuclear sphere," said Zhang, head of China's State Energy Bureau, speaking through a Russian interpreter.

The length of the pipeline to the Chinese border would be around 70 kilometres (44 miles). The pipeline is then planned to link into the Chinese pipeline network to reach the oil hub of Daqing in northern China.

Russian newspapers on Tuesday also reported that talks were underway for a multi-billion dollar credit from the Chinese government to Transneft and Russian state-run oil company Rosneft that would help boost energy exports.

The Vedomosti daily quoted Sergei Sanakoyev, a government expert, saying Moscow and Beijing had agreed a contract to supply China with 15 million tons of oil per year in exchange for up to 25 billion dollars (20 billion euros).

But Vedomosti also quoted an official saying there was no deal yet.

"The question of credits for Rosneft and Trasneft was discussed into the evening." If no agreement is reached on Tuesday "then the signing of the deal on oil supplies could be delayed," the official was quoted as saying.

The Kommersant daily quoted a source close to the management of Rosneft saying on Monday: "There is no final agreement but we are oriented on these parameters. We have the whole night ahead to find an agreement."

Rosneft, Russia's biggest oil producer, has been hit by the financial crisis because of a slide in Moscow's stock markets and its massive exposure to foreign loans that it has used to expand the company in recent years.

During his visit, Wen also said that Russia and China could help boost global economic stability through greater cooperation.

"Russia and China are growing economies with major influence in the world... They can help strengthen the world economy," Wen told investors in Moscow.

"We should strengthen ties, look together at anti-crisis measures and coordinate macroeconomic policy," he added.

Sunday, October 19, 2008

GDP grows 9.9% in first three quarters

China's economy grew 9.9 percent year on year in the first three quarters of this year, according to official figures released on Monday, showing a trend of slowdown amid the current global financial crisis.

The growth rate was 2.3 percentage points lower than the same period of last year, or 0.5 percentage points lower than the first quarter of this year, the National Bureau of Statistics (NBS) said on Monday.

In the third quarter, the growth rate slowed down to 9%, the lowest in five years.

The consumer price index (CPI), the main gauge of inflation, rose 4.6 percent in September over the same period last year.

Fixed assets investment, one of the three major propellers of the Chinese economy, totaled 11.6246 trillion yuan ($1.66 trillion) in the first three quarters, up 27.0 percent over the same period last year, according to the bureau.

The growth rate was 0.7 percentage points higher than the first half of this year, or 1.3 percentage points higher than the year-earlier level.

The State Council said on Sunday China's economy can weather the effects of the global financial turmoil, but growth will decline as the expansion of business profits and public revenues slows.

In a statement at the end of an executive meeting led by Premier Wen Jiabao, it said the turmoil and economic instability will have a "gradual" effect on the country.

It said China's economic growth will slow along with corporate profits and public revenues, and as capital markets continue to fluctuate.

"Unfavorable international factors and the serious natural disasters at home have not changed the basic growth situation of our country's economy," said the statement posted on a government Web site. "Our country's economic growth has the ability and vigor to resist risks."

China must "adopt flexible and cautious macroeconomic policies" to maintain stable growth, the statement said.

The council said that in the fourth quarter, China should focus on developing the rural economy, while striving to control inflation.

The government should also help local small and medium enterprises to grow by encouraging financial institutions to provide more loans to them, the statement said.

Monday, October 13, 2008

China posts another record trade surplus despite global slowdown

by Robert J. Saiget

BEIJING (AFP) - China said Monday its trade surplus hit a monthly all-time high of 29.3 billion dollars in September despite slowing global demand brought on by the financial crisis.

Exports in September reached 136.4 billion dollars, up 21.5 percent over the same month last year, while imports during the period were 107.1 billion dollars, up by 21.3 percent, the General Administration of Customs said.

The previous monthly surplus record was 28.7 billion dollars in August.

China's trade surplus for the first nine months of the year reached 180.9 billion dollars, down 2.6 percent year-on-year, the administration said on its website.

Despite the unexpectedly high trade surplus for September, China's exporters would not be able to avoid the global economic downtown that has been exacerbated by the crisis embroiling financial markets, analysts said.

"September's new record high surplus was mainly a reason of slowing import growth, due to the pullback of international raw materials prices," Ma Qing, Beijing-based economist with CEB Monitor Group, told AFP.

"We are holding a cautious attitude to the outlook of China's import and exports. We expect both to fall further in the future because Sino-US trade will definitely go down with the slowing US economy, while Europe is expected to experience economic meltdown."

Ma said he did not expect China's peaking export performance to greatly bolster China's GDP growth in the first three quarters of 2008, which is scheduled to be announced next week.

Ma said he expected GDP growth in the second half of 2008 to weigh in at 8.8 percent, down from 11.9 percent growth last year and 10.1 percent in the second quarter of 2008.

Stephen Green, chief China economist at Standard Charter, called China's export growth in September "extraordinary," but added that it would not be long before the global economic turn down caught up with the export juggernaut.

"There will be impacts. It's just a matter of time before Chinese exporters get hit over the head again," Green told AFP.

"There are lags with Europe in recession now, the US in recession, the effects are filtering out to the rest of the world."

According to the customs administration, China's exports for the first three quarters of the year hit 1.074 trillion dollars, up 22.3 percent over the same period in 2007.

Imports during the period increased by 29 percent to 893.1 billion dollars.

Meanwhile, China's crude oil imports in the first nine months of the year rose 8.8 percent year-on-year to 140 million metric tonnes, or an average of about 3.75 million barrels a day, the customs administration said.

The data indicated China's crude oil imports for September set a monthly record, according to Dow Jones Newswires.

Previous figures from the customs bureau showed China imported 119.98 million tons of crude in the first eight months of this year.

This means China's crude oil imports in September totaled around 20 million tons, equivalent to 4.89 million barrels per day, Dow Jones said.

In the first nine months of the year, automobile imports rose 40.3 percent year-on-year to 310,000 units, the customs bureau added.

Sunday, October 12, 2008

China's communists approve key land reforms

by Robert J. Saiget

BEIJING (AFP) - China's ruling Communist Party approved a major economic reform plan Sunday that will allow farmers to trade and mortgage their land rights and help bolster the nation's food security.

The move is part of a wider package of reforms aimed at reducing a gaping rural-urban income gap that has expanded during 30 years of capitalist market policies.

The package was approved at an annual meeting here chaired by President Hu Jintao of up to 500 members of the party's central and disciplinary committees and other key officials, according to a statement carried by Xinhua news agency.

The communique did not give specific details about the reforms. Beijing-based academic Russel Leigh Moses said policies approved by the party are traditionally placed before the National People's Congress, China's parliament, for approval at its annual session the following March.

"I don't think we will see anything specific until the NPC next year when they start to set out the legal framework and when we will be able to see more of the internal debate over the programme," Moses told AFP.

But in the final statement, meeting participants called for an end to rural poverty, improved food security, and the doubling of China's per capita rural income of 4,140 yuan (591 dollars) by 2020.

"The issues facing agriculture, rural areas and farmers are linked to the overall task of development facing our party and state," the communique said.

"We must solidify and strengthen the status of agriculture and place as top priorities the running of the nation and resolving once and for all the basic problem of food for hundreds of millions."

China must adopt a "cautious and flexible macro-economic policy" to address the ongoing international financial crisis, the communique said.

"We must depend on ourselves... add impetus to expanding domestic demand, especially consumer demand, and maintain a stable economy and stable financial and capital markets," it said.

Under the reforms, farmers would be able to trade, rent and mortgage their land use rights for profit in a land transaction market, Dang Guoying, a rural scholar at the Chinese Academy of Social Sciences, told the China Daily newspaper.

"The move will speed up the country's urbanisation by bringing more farmers to the cities with the big farm contractors promoting modern farming in rural areas," it quoted Dang as saying.

Building large-scale industrial farms is seen as key to China's long-held policy of remaining self-sufficient in grain production and being able to feed its population of 1.3 billion people, state press say.

Most of China's farm plots are small and held individually at a time when hundreds of millions of farmers are leaving the land to seek better lives in the nation's quickly developing urban centres.

According to China's constitution all land is owned by the state, so the reforms under discussion are not expected to result in private ownership of land.

Although farmers have been leasing their land rights for years in many places, the party communique clearly acknowledged that many rural dwellers have been left behind in China's economic boom.

The rural focus of the ruling party meeting is also a nod to this year's 30th anniversary of China's opening and reform policies, which began in 1978 with policies returning collectivised farmlands back to individual farmers.

The 1978 reforms ended decades of China's disastrous experimentation with Maoist-style collectivisation that left the nation impoverished and backward.

While the market reforms have led to spectacular economic growth in the world's most populous nation, the income gap between China's 800 million or so farmers and the increasingly prosperous urban areas has also become a huge headache for policymakers.

The communique said both the Communist party and government needed to find new policies capable of stimulating the economy in a way similar to that seen in 1978.

"Only when the party places priority on resolving problems facing agriculture, rural areas and farmers... can we continue to develop rural productivity and maintain the comprehensive development of the rural economy," it said.

Wednesday, October 8, 2008

China Exports to U.S. `Small Beer' for Economy

By Lee J. Miller

Oct. 7 (Bloomberg) -- A U.S. recession won't ``drag China down with it,'' because only 7 percent of China's economic output is generated by exports to America, with half of those being consumer goods, according to TD Securities Ltd.

``History shows very little in the way of a correlation between U.S. consumer spending and Chinese gross domestic product,'' said Stephen Koukoulas, head of global foreign exchange and fixed-income strategy at TD Securities in London.

``The start of the U.S. consumer boom in about 1995 coincided with a major slowing in Chinese gross domestic product,'' he said by telephone. During the U.S.'s recession in 2001, GDP in China ``took off'' even while America's personal consumption growth slowed to 2 percent from about 5 percent.

The CHART OF THE DAY shows China's annualized GDP growth and U.S. personal consumption in constant dollars. Though there has been a decline in both U.S. spending and China's economic growth the past year, there is little or no correlation in most periods.

In the extreme, ``catastrophic'' case of a 10 percent drop in demand from the U.S. for consumer goods, China's GDP would be trimmed by about 0.3 percentage points, Koukoulas said, calling the amount ``small beer.''

China's economy is slowing, ``but this is in direct response to the series of policy tightenings through 2007 and early 2008,'' he said. ``Massive urban infrastructure development and gradual easing of interest rates or regulations should enable China to skate through the current episode with GDP bottoming at about 8 percent.''

Tuesday, October 7, 2008

UBS lowers China 2009 GDP growth forecast to 8 percent

BEIJING (Reuters) - UBS on Monday lowered its forecast for China's gross domestic product growth in 2009 to 8.0 percent from 8.8 percent, citing a much weaker global growth outlook and forecasts of a deeper and longer U.S. recession.
It is the second time in less than three months that UBS has lowered its forecast for Chinese GDP growth next year.
The bank's China economist, Tao Wang, also lowered her forecast for GDP growth this year to 9.6 percent from 10 percent.
"We expect growth of exports and real estate investments to slow significantly in the coming months, but think that the government's counter-cyclical fiscal and monetary policy measures could help stimulate domestic demand and partially offset the negative external shock," Wang said in a report.
Wang added that she expected annual consumer inflation to drop to 4 percent by the end of the year and to average 2.6 percent in 2009.
Inflation eased to 4.9 percent in August from a decade-high 8.7 percent in February and is expected to cool further, giving policy makers more leeway to support growth.
The revision is the first to be issued since a Reuters poll on Chinese growth conducted in late September. The median forecast of economists was for the economy to grow 9.9 percent this year, slowing to 9.0 percent in 2009.
UBS on Sunday lowered its forecast for global growth to 2.2 percent from 2.8 percent.

Sunday, October 5, 2008

China must step up spending

Judged from a western perspective, China has an enviable problem. After expanding by 12 per cent in 2007, the Chinese economy will grow more slowly in the coming year, perhaps by around 8 per cent. A moderate reduction in growth would hardly spell disaster. But for all the talk of de-coupling, the Chinese economy still depends on how the US, Europe and Japan fare.

The longer the financial turmoil lasts in the US and Europe, the more severe will be any economic downturn. Credit markets are gummed up, curtailing company investment and consumer spending. Lower imports over the coming months look certain.

With more than a third of its exports going to the US and Europe, China will be affected. Low-cost exports may not collapse, but anecdotal evidence suggests that exporters are already feeling the pinch. A looming recession in Japan makes switching exports to other high-income markets a remote option.

It seems unlikely that the Chinese consumer – accounting for only about a third of Chinese output – could fill the gap left by a major drop in export demand.

Incentives for a substantial consumer spending spree are meagre. Share prices have fallen nearly 60 per cent over the past year and local property markets are now taking a dive. Wage growth has moderated. While retail sales measures suggested strong growth over summer, individual industries sagged. Car sales fell as much as 6 per cent in August.

But China’s leaders have the means to step in. Thanks to dwindling global demand, commodity prices have fallen from their peaks, and inflation in China eased to 4.9 per cent in August from 8.7 per cent in February. Looser monetary policy followed: the People’s Bank of China cut rates for the first time in six years in September in an effort to encourage spending.

Government spending should also be revved up. Public debt is small and Beijing is running a budget surplus. To stimulate growth, the government could increase investment in infrastructure. But expanding social safety nets would have a much bigger effect on consumption: by improving health care provisions and reforming the pension system, consumers would feel less need for individual saving.

The widening gap between rich and poor is resulting in social tensions. A sharply slowing economy is the last thing China’s leaders need. If they are committed to changing the focus of the economy from exports to domestic consumption, now is certainly the right the time to do it.