world growth

world growth

Wednesday, May 27, 2009

China closing in on Japan as world’s 2nd for GDP

China could replace Japan as the world’s second highest producer in gross domestic product, according to an expert at Japan’s Nomura Institute of Capital Market Research.

If China’s economic growth hit eight percent, as its leaders claim, the Chinese GDP will exceed Japan’s and stand only second to the United States in economic power, said Kwan Chi Hung, senior fellow at the Nomura Institute.

Kwan pointed out various indications that China has recovered quickly from the global economic shock, especially in auto sales. According to Kwan, auto sales in China dropped temporarily after the collapse of Lehman Brothers in September, but increased rapidly this year due to the government’s measure to reduce a tax on purchasing small cars.

“If the trend continues, both auto sales and production will exceed 10 million units this year, making China the largest car market in the world,” said Kwan.

Saturday, May 23, 2009

China grants Brazil $10B financing in exchange for oil

As a result of negotiations with China's government by Brazil's President Luiz Inacio Lula da Silva who was in China from May 18 to May 20, state-owned oil company Petrobras informed that it has concluded negotiations with China Development Bank (CDB) for a bilateral loan of $10 billion for 10 years.

China does not receive any stake in any Brazilian oil field or any contracts for providing services in the oil fields. The loan carries an interest rate of 6.5% and will be repaid in cash, not oil. Sinopec will end up paying for the oil in cash too.

The loan will be used to finance the Petrobras' $174.4 billion 2009-2013 investment plan and includes financing goods and services bought from China.
Within the scope of the contract signed with China Development Bank (CDB), it was agreed an increment on the actual crude oil export volumes from Brazil to China, said Petrobras.

Amongst the documents signed it was a long term export agreement between Petrobras and UNIPEC ASIA was inked. Unipec is a wholly-owned subsidiary of SINOPEC, which provides for export volumes of 150,000 barrels of oil per day for the first year and 200,000 barrels of oil per day on the 9 subsequent years, from Brazil's enormous pre-salt discoveries.

It was also signed between Petrobras and Sinopec a MOU - Memorandum of Understanding which covers for the cooperation in several areas of mutual interest comprising exploration, refining, petrochemical and the supply of goods and services.

"The US has a problem," Sergio Gabrielli, Petrobras' CEO, said recently when asked about the loan talks. "There isn't someone in the US government that we can sit down with and have the kinds of discussions we're having with the Chinese."

Gabrielli was referring to the fact that Chinese government banks are willing to extend huge foreign loans to further China's long-term energy-security goals: ensuring diverse global supplies and winning entree into competitive regions for its oil companies. A string of recent oil loans to Russia, Kazakhstan and others has pushed China's total commitments to more than $45 billion.

"In 2009, China became Brazil's first trading partner. Now we still face the challenge of exploring the full potential of investments that our economies can offer to each other," China's Xinhua news agency quoted Lula as saying.

China for the first time displaced the US as Brazil's top trading partner in April, a trend that is expected to continue as the resources-hungry Asian economy and the major agriculture and minerals producer expand commerce, say trade analysts.

"This visit will create new opportunities for the development of bilateral relations between China and Brazil," Chinese President Hu Jintao said at the Great Hall of the People where the two nations signed 13 accords. The agreements included the loan that the China Development Bank will provide to Petrobras and another $800 million the bank will provide to Brazil's development bank. The cooperative agreements include oil, equipment, financing, loan, science, space, law, port, agricultural products, among others.

The Petrobras loan is very welcome because the oil company needs to find alternative sources of financing after crude prices plunged about 60 percent from a record $147.27 a barrel last year, say analysts.$10B-financing-in-exchange-for-oil-/

Wednesday, May 20, 2009

China earns more than $50 billion a year in interest from the United States ?

An article from New York Times:

China Grows More Picky About Debt

Few interesting pieces of information in this article:

That said, recent Chinese and American data suggest that an astounding 82 percent of China’s $2 trillion in foreign reserves is in dollars, according to calculations by Standard Chartered.


China now earns more than $50 billion a year in interest from the United States, Mr. Setser at the Council on Foreign Relations calculated.


China’s leaders were able to buy more Treasuries in recent months without buying more dollars because they have abruptly turned their back on the market for securities issued by government-sponsored enterprises.

China was the world’s biggest buyer of these securities a year ago, splashing out more than $10 billion a month.

But in the 12 months through March, it actually had net sales of $7 billion, and ramped up purchases of Treasuries instead.


After six years of silence, China unexpectedly disclosed last month that it had been gradually buying gold from domestic producers. The country’s reserves had climbed from 600 tons in 2003 to 1,054 tons, worth $31.8 billion at prices late Wednesday.

Thursday, May 14, 2009

Morgan Stanley ups 2009 China GDP forecast to 7%

Morgan Stanley on Thursday raised its forecast for China's GDP growth this year to 7.0 percent from 5.5 percent, saying that the government's policy response to the slowdown at the end of last year had been stronger than expected.

Morgan Stanley's revision followed a series of upgrades by analysts after China last week reported an annual growth rate of 6.1 percent in the first quarter, which marked a recovery in quarter-on-quarter terms despite being the slowest annual pace for any quarter on record.

"In the revised forecasts, more resilient private consumption and investment are envisaged to help offset weaker exports," Morgan Stanley analysts said in their note.

Goldman Sachs raised its forecast for China's growth this year to 8.3 percent from 6.0 percent. UBS raised its forecast for gross domestic product growth this year to 7-7.5 percent, from 6.5 percent.

Royal Bank of Scotland lifted its 2009 forecast to 7 percent from 5 percent, while Barclays Capital raised its 2009 forecast to 7.2 percent from 6.7 percent.

Saturday, May 9, 2009

China seen growing 7 percent in Q2

Chinese annual economic growth will rise to 7 percent in the second quarter, according to a key Chinese government think-tank forecast in a report published on Monday, up from the first quarter's 6.1 percent.

The State Information Centre (SIC) also said in the report published in the official China Securities Journal that China would continue an appropriately loose monetary policy but that record loan growth was not sustainable.

Interest rates and reserve requirements should be adjusted reasonably, and open-market operations should be conducted flexibly, to maintain sufficient liquidity in the money market,' said the think tank under China's powerful economic planning agency.

It added that the central bank should implement a policy of preferential interest rates and easier credit for small companies and households.

China should make contingency plans as the global economy may weaken further, but the priority for the second quarter was to implement existing policies, the think tank said.

The SIC said strong fixed-asset investment would be the key driver of the expected modest recovery in the second quarter.

But exports, another engine of China's economic growth, were likely to fall 20.2 percent in the second quarter.

Other government economists agreed that the best thing to do was to stay the course on policy.

Zhang Yutai, head of the cabinet's Development Research Centre, said in an interview with the People's Daily that China was in no rush to launch new stimulus as the current economic performance was 'better than expected'.

'For now, the most important thing is to properly implement existing policies,' Zhang told the ruling Communist Party's mouthpiece.

But Zhang added it was still too early to say that China's economy had bottomed out, citing weak activity in the private sector, slow growth in residents' incomes, and continuing uncertainty in the global economy.

SIC Forecasts on Q2 economic indicators

Q2 (Expected) Q1 (Actual)

GDP 7.0 6.1

Industrial Output 7.1 5.1

Urban FAI 27.3 28.6

Retail Sales 14.0 15.0

Exports -20.2 -19.7

Imports -25.5 -30.9

Surplus ($ bln) 62.1 62.3

CPI -1.3 -0.6

PPI -7.5 -4.6

M2 21.0 25.5

(Reporting by Edmund Klamann in Shanghai and Zhou Xin in Beijing; Editing by Chris Lewis)

Sunday, May 3, 2009

ASEAN, China, Japan, Korea finalize crisis pact

NUSA DUA, Indonesia (AFP) — Ten Asian countries plus China, Japan and South Korea agreed Sunday to set up a 120-billion-dollar emergency currency pool to boost liquidity and help the region overcome the global crisis.

Finance ministers of the 10-member Association of Southeast Asian Nations (ASEAN) plus China, Japan and South Korea announced the deal after talks alongside the Asian Development Bank (ADB) annual meeting in Indonesia.

"We are pleased to announce that we have reached agreement on all the main components of the CMIM (Chiang Mai Initiative) and decided to implement the scheme before the end of the year," the ministers said in a joint statement.

Japan and China will contribute 38.4 billion dollars each, with China's share including 4.2 billion dollars from Hong Kong. South Korea was the next largest with 19.2 billion dollars.

Among the ASEAN countries the biggest contributors were Indonesia, Singapore, Thailand and Malaysia, which agreed to provide 4.77 billion dollars each.

The ministers were careful to explain the scheme was intended to "supplement" existing international financial institutions amid concerns from some quarters that it is a bid to circumvent the International Monetary Fund (IMF).

ASEAN member states were forced to implement unpopular economic reforms in exchange for massive IMF bailouts after the 1997-1998 Asian crash, leading to calls for the creation of a regional crisis fund.

But the finance ministers played down any suggestion they were snubbing the IMF and its sister lender, the World Bank, saying the move was only a "natural" step on the path of closer regional economic cooperation.

ADB managing director general Rajat Nag said the scheme was "very much complimentary" to the IMF. He said the Bretton Woods institution was in no danger of losing its place as the global economic watchdog.

"We certainly see this as a very welcome step to help in the current financial crisis," he told reporters at the ADB meeting at the luxury beach resort of Nusa Dua, Bali.

"I should make the point that the ASEAN plus Three finance ministers do not see this in any way being a substitute for the IMF," he added.

The move comes amid China's rise as a global economic power and as the world economy suffers its worst slump since the 1930s Great Depression thanks to a banking crisis triggered by bad mortgages in the United States.

Chinese Vice Finance Minister Li Yong, who is attending the talks here, last month condemned the dollar-dominated international monetary system as "a major defect in the current international economic governance structure."

The Asian ministers said the currency swap initiative met the region's two "core objectives" -- to address short-term liquidity difficulties and "supplement existing international financial arrangements."

"The total size of the CMIM is 120 billion dollars, with the contribution proportion between ASEAN and the plus-three countries at 20:80," the statement said. The plus-three countries are China, Japan and South Korea.

In addition to the Chiang Mai fund, Japanese Finance and Economy Minister Kaoru Yosano said Tokyo was considering a scheme to offer yen swaps worth up to six trillion yen (60.4 billion dollars) to be tapped in emergencies.

Such swap agreements can be tapped to ease liquidity trouble as they boost the amount of foreign currency regional banks can access while helping companies that use foreign currencies when trading.

ADB president Haruhiko Kuroda said Asia's main export markets had experienced a "massive contraction in demand" due to the downturn in the world economy and the region had to end its heavy reliance on export sales.

He said any recovery in Asia would likely be driven by domestic demand.

"Over the longer term, developing Asia is starting the process of rebalancing growth from excessive dependence on external demand to greater resilience on both consumption and investment," he said.

"Already there are signs that domestic consumption is remaining strong in Asia and may well lead the way out of this downturn."

The ADB is predicting growth of 3.4 percent for the region this year, compared with more than nine percent in 2007.