Latest on China: All is Well and "Economic Growth is Stabilizing"
Author:
Walter Kurtz
Location: Tokyo
Date: 2012-08-30
Here are some of this morning's key economic news coming out of China. Given that China has been the largest component of the global GDP growth, the situation is worth monitoring closely. 1. China's stock market hit a new post-2009 low. It seems that the PBoC is not in a hurry to implement a massive stimulus program, sending stocks lower. The global stimulus addiction continues. Reuters: - Mainland Chinese markets underperformed after the People's Bank of China surveyed demand for a new long-term money market instrument, suggesting it remained reluctant to resort to blunter policy measures such as reducing bank reserve requirements.
The "long-term money market instrument" would presumably be
used to sweep out liquidity, which is already relatively
tight (see
discussion).
2. Imported iron ore prices are collapsing, pointing to extreme weakness in industrial demand. Steel and coal prices remain weak as well. There have been speculations that this is a coordinated attempt by China to control commodity inflation and stick it to the Australians. It's not clear if there is merit to these rumors.
3. China's Index of Leading Indicators declined further, suggesting that the slowdown is not over.
4. At the same time food prices continue to rise. It's interesting that the news on food prices is coming directly from the official sources. China Ministry of Finance: - The price of eggs in Beijing, Shanghai and Guangzhou saw an increase of 6.8%, 5.9% and 2.9% as compared with that of the previous week. The wholesale prices of 18 vegetables rose by 1.2% compared with that of the previous week, 1 percentage points lower than that of the same period, of which eggplant, Chinese cabbage and celery were up by 7.5%, 7.1% and 5.1% as compared with that of the previous week. The wholesale price of meat was widely on the increase, of which the price of pork rose by 0.8% as compared with that of the previous week, still decreased by 22.7% [YoY]. Pork price in Chongqing, Beijing and Xiamen rose by 3.7%, 2.3% and 0.6% respectively compared with that of the previous week; beef, chicken and lamb rose by 0.6, 0.3 and 0.2% respectively. The wholesale price of 8 aquatic products were up by 0.3% as compared with that of the previous week, of which crucian carp, grass carp and carp up the most, saw an increase of 1.4%, 1.2% and 0.4%. Retail price of grains and oil maintained a steady rise, of which peanut oil, rapeseed oil and soybean oil were up by 0.5%, 0.3% and 0.2% respectively compared with that of the previous week; the price of rise was up by 0.3%; while the price of rice and wheat flour remained unchanged.
Note that the year-over-year decline in pork prices has to
do with the Chinese government dumping a big slug of its
220,000-ton strategic pork reserves into the market last
year. Now meat prices are on the rise again. Vegetable
prices have now increased for a 6th consecutive week. The
spike in global soy prices is yet to propagate through
China's wholesale food markets. Further increases are
coming and this is likely the reason that the PBoC remains
cautious on additional monetary easing.
5. It seems China's government is more interested in providing stimulus on the fiscal side via tax reform and tax rebates. Reuters: - Finance Minister Xie Xuren also told parliament that the government would continue to revamp its tax system by carrying out various reforms, including expanding property ownership tax and deepening reforms of resource tax and consumption tax.
6. But of course according to government officials, all is
well and China's economy is stabilizing.
Xinhua: - "The current situation shows that the government's policies and measures have been effective. Economic growth is stabilizing at a slow pace," Zhang said, commenting on the performance of China's economy in the first half of the year. |