China Data Signal Continued Economic Strength

Sunday, 11 Sep 2011 01:25 PM

 

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China’s record imports and a rebound in lending signaled strength in demand that offers a bright spot in a global economy contending with Europe’s debt crisis and weakening U.S. job gains.

Shipments from abroad jumped 30 percent and new local- currency loans were a more-than-forecast 548.5 billion yuan ($86 billion), government reports in the past two days showed. At the same time, August figures released Sept. 9 indicated that policy makers have made progress in stemming inflation, which eased from a three year high, to a 6.2 percent year-on-year pace.

The data may bolster confidence that the world’s second-largest economy is weathering both Premier Wen Jiabao’s campaign to defuse price pressures and financial turmoil abroad. Group of Seven finance chiefs vowed “a concerted effort” to support expansion on Sept. 9 as Europe’s debt woes and zero jobs growth in the U.S. increase the risks of a renewed recession.

“This all points to a robust economy, and a hard landing looks an increasingly distant scenario,” said Liu Li-gang, a Hong Kong-based economist with Australia & New Zealand Banking Group Ltd. who previously worked for the World Bank. “China is less reliant on external demand and more dependent on investment and consumption, so the deteriorating global outlook will have less of an impact than during the previous financial crisis.”

China, the biggest contributor to world growth last year according to the International Monetary Fund, may expand more than five times faster than the U.S. and 16-nation euro zone this year, according to forecasts from Citigroup Inc. and HSBC Holdings Plc.

Food Costs Ease

Citigroup estimates China will grow 9 percent this year and next year after a 10.4 percent pace in 2010, as Wen’s campaign to rein in consumer prices takes effect and export growth slows.

August’s inflation rate declined for the first time in four months as gains in food costs eased to 13.4 percent, the statistics bureau said on Sept. 9. Industrial output growth moderated to 13.5 percent and expansion in fixed-asset investment in the first eight months of the year slowed to 25 percent.

The data “fell short of signaling any acute economic difficulties while inflation showed only modest improvement,” said Yao Wei, a Hong Kong-based economist with Societe Generale SA. “The authorities are most likely to wait and see for another month at least before making any clear shifts in policy direction.”

Wen reiterated last month that stabilizing prices remains the top priority and that the government won’t alter the direction of economic policies after a global stocks rout and fears that developed nations will sink into recession triggered speculation he may start to unwind monetary tightening.

Crude Imports Jump

Growth in August imports, which topped the estimates of all 29 economists in a Bloomberg survey, adds to evidence tightening measures aren’t choking expansion.

Purchases of crude oil rose to a three-month high, copper climbed to the highest since January and iron-ore purchases were the largest since March, the customs bureau said on Sept. 10.

Exports in August jumped a more-than-estimated 24.5 percent to $173.3 billion, just shy of the previous month’s record.

“There’s a huge amount of resilience in the economy, which is supporting higher imports,” said Alastair Thornton, a Beijing-based economist with IHS Global Insight. “But it’s inevitable that weakness in the U.S. and euro zone economies will slow export growth.”

The People’s Bank of China has raised interest rates five times over the past year and curbed lending by boosting banks’ reserve requirements nine times to a record 21.5 percent for the biggest institutions. The benchmark one-year lending rate is 6.56 percent and the one-year deposit rate is 3.5 percent.

Credit Squeeze

Domestic loans used to fund fixed-asset investment grew only 9 percent in the first eight months of the year while so- called “self-raised funds” jumped 29.4 percent, according to statistics bureau data.

Some companies are taking advantage of the credit squeeze to lend at higher interest rates using banks as intermediaries. Time Publishing and Media Co. made an entrusted loan of 60 million yuan through the Bank of Communications at an annual interest rate of 25.4 percent, according to an Aug. 29 statement to the Shanghai stock exchange.

Time is among 35 listed companies that made a combined 16.9 billion yuan of entrusted loans at rates higher than the benchmark in the first eight months of the year, the official People’s Daily reported on its website on Sept. 5. Many of the borrowers were property developers, the newspaper said.

Lending Rebounds

New local-currency loans by banks in August rebounded from a 2011 low the previous month and were 3 billion yuan higher than the same period last year, PBOC data released yesterday show, indicating credit restrictions may be easing.

M2, the broadest measure of money supply, expanded 13.5 percent last month, the slowest pace in almost seven years.

Economists at Capital Economics and Standard Chartered say money-supply growth may be distorted as savers, suffering from negative real interest rates, shift funds out of deposit accounts into wealth management products to earn higher returns. These products aren’t included in M2.

New local-currency deposits totaled 696.2 billion yuan in August, 373.6 billion yuan less than the same period last year, the PBOC said yesterday. Deposits fell 668.7 billion yuan in July.

“The central bank needs to address the issue of negative interest rates as soon as possible because it’s leading to distortions in the financial system and could bring huge potential risks to the financial system,” said ANZ’s Liu.

© Copyright 2014 Bloomberg News. All rights reserved.

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