world growth

world growth

Friday, September 23, 2011

China Economy growth rate in 2011, estimate to be 9.5%

China’s economy will indeed slow this year, but not by much and not enough to warrant fears of a hard landing.

According to the International Monetary Fund, the Chinese economy will growth a healthy 9.5% in 2011, down from 10.3% growth in 2010. That forecast suggests a relative failure of the central government to slow growth to the 7% it had targeted earlier this year. If the government is serious about slowing the economy in an effort to curb inflation and burst any sectoral bubbles, it might have to consider raising interest rates again, something the market expects to end soon.

Calls for a more flexible forex policy, letting the yuan float against the U.S. dollar, are unlikely. The yuan has been appreciating on average of 5.5% annually to about 6.5 yuan to the dollar.

The IMF warned that the overall global economy was on hair trigger alert, mostly due to the European sovereign debt crisis and the continuing need for monetary stimulus to keep the U.S. out of a recession.

The IMF predicted China’s output would slow next year to 9%.

Asia Pacific is expected to see a growth rate of 6.2% overall in 2011 and 6.6% in 2012, the IMF said Wednesday.

China would continue to outpace other economies but the average economic growth of 9% to 9.5% during 2011-2012 was less than the average of about 10.5% between 2000 and 2007. A combination of weaker international demand for made in China goods and domestic policies have cut into growth.

Wednesday, September 14, 2011

China buying gold to diversify foreign holdings

U.S. still has the largest gold reserve in the world, it will takes years for China to reach U.S. level.

According to a recently released WikiLeaks cable, China is shifting some of its massive foreign holdings into gold and away from the U.S. dollar, undermining the dollar's role as the world's reserve currency.

"They [the U.S. and Europe] intend to weaken gold's function as an international reserve currency. They don't want to see other countries turning to gold reserves instead of the US dollar or Euro," the 2009 cable states, quoting Chinese Radio International. "China's increased gold reserves will thus act as a model and lead other countries towards reserving more gold."

Entitled "China increases its gold reserves in order to kill two birds with one stone," the cable is taken together with recent policy announcements from Chinese banking officials. The news may indicate moves by China to eventually replace the US dollar as the world's reserve currency.

European business officials have announced that China plans to make its currency, the yuan, fully convertible for trading on international markets by 2015. Zhou Xiaochuan, governor of China's central bank, said the offshore market for the yuan is "developing faster than we had imagined." The yuan currently can't be easily converted into other currencies, because of government restrictions.

China's gold holdings are small compared to other major economies. It has 1,054 tons, the sixth-largest reserves in the world, according to data from the World Gold Council.

Buying gold and allowing the yuan to be traded freely would definitely weaken the U.S. dollar's dominance as the international reserve currency. The move would force the U.S. government to borrow money and to run perpetual trade and budget deficits.

"The U.S. is used to having the position of having the key reserve currency, but others are eager to replace it," Josh Aizenman, a professor of economics at the University of California and president of the International Economics and Finance Society says.

As a reserve currency, the U.S. dollar is the default for international transactions. Being a reserve currency allows the US to borrow at low interest rates, as central banks around the world are eager to buy US government debt.

"Any country that can finance its expenditures by printing money or selling bonds is essentially getting a free lunch," Aizenman told Al Jazeera.

Monday, September 5, 2011

China's double-edged trade with Latin America

China has in recent years become Brazil's largest trading partner, overtaking the United States, and in 2010 was the largest investor in the South American nation, pumping in some $30 billion.

For China, Brazil is an important source of raw materials -- oil, iron ore and soybeans account for 80 percent of Chinese imports and 90 percent of its investments in the largest Latin American economy.

Soy from Argentina, copper from Chile, iron ore from Brazil: China's seemingly insatiable appetite for Latin America's raw materials is credited with fueling blistering economic growth for both.

China's rise in bilateral trade with Latin America is the greatest of any region in the world -- an astonishing 18-fold increase over the past decade, thanks mostly exports of raw materials from the region.

But experts are warning the increasingly closely tethered economic ties to China may not be entirely to Latin America's benefit, and may even hamper its long-term aspirations of becoming a major exporter of manufactured goods.

Part of the reason for this is China's insistence on buying almost exclusively unprocessed raw materials from the region while refusing to purchase more sophisticated "value added" exports.

"It's essentially one commodity per country and this is quite remarkable," said Mauricio Cardenas, director of the Latin America program for the Brookings Institution think tank in Washington.

There are also risks, like one flagged recently by the Nomura economic analysis firm, which raised the concern in a recent statement that the economic boom in countries like Brazil stems from overdependence on its exports to China.

"We think Brazil's much vaunted 'new middle class' is a direct result of Chinese commodity demand," the company wrote recently in its analysis.

Another economist who specializes in economies of the region put it even more bluntly, pointing out that when it comes to export of value-added goods from Latin America, China must be viewed more as a fierce competitor than likely market.

"I don't think that with China, India, and the rest of Asia in the game, the region stands any chance of becoming a major exporter of manufacturing goods," said Mauricio Mesquita, senior economist at the Inter American Development Bank (IADB)

"I think this window is closed with a very few exceptions," he said.

And experts raise another concern -- that the seemingly bountiful resources that Latin America has been exporting to the Asian behemoth could start running out by mid-decade.

But the export of manufactured products, which most economists say is the cornerstone of healthy economic development for emerging countries, is beginning to stagnate.

Companies in the region are themselves to blame in part for making the mistake of many other developed and industrializing economies in sending many of its manufacturing jobs in China, as Brazil did in the case of giant aircraft manufacturer Embraer.

Over the years, the manufacturing sector in Brazil has declined by three percent as a share of the country's gross national product (GNP) while other countries in the region, such as Colombia, have seen a two percent drop.

Experts said it is unlikely that there will be a reversal in that trendline anytime soon.

"The long-term trend for Brazilian employment is not manufacturing. The only place is services," said Gary Hufbauer of the Washington-based Peterson Institute for International Economics.

A report by Mauricio Cardenas his colleague Adriana Kluger for Brookings reached the same conclusion.

"The region has to be prepared to find alternative sources of trade and growth," Cardenas and Kluger wrote.

The United States has been watching China's growing economic prowess in Latin America with some concern, especially after China last year supplanted the United States as the top trading partner with several South American nations, and vies to be a major investor in the region.

"Its activities in Latin America are increasing slowly over time. They start from a very low base but they have been progressively growing in recent years," said David Helvey, an Asia expert at the Pentagon said at a US congressional hearing in April.

"I think most of their activities in Latin America (are) motivated primarily by commercial and economic interests, where they are seeking to expand access to trade for resources and secure access to markets" for their manufactured goods," he said.

US exports to Latin America have dropped from 55 percent of the region's total imports in 2000 to 32 percent of the region's imports in 2009, according to UN figures, which found that the share of US investment in the region also has dropped significantly.