Chinese Finance Minister Xie Xuren says China will maintain a ‘prudent’ fiscal policy to maintain stable and rapid economic growth as well as basically stable consumer prices.

In an article in the official People’s Daily, Minister Xie said the fiscal policy will be implemented along with a tight monetary policy to prevent economic overheating and widespread inflation.

In truth, there is nothing overly new in this.

When China concluded its three-day 2007 Central Economic Work Conference, which ran from December 3 to 5, 2007, the official communique said that China will maintain a ‘prudent’ fiscal policy for the coming year.

The conference said various monetary instruments would be used to regulate liquidity and to strictly control the size of loans and frequency of credit extension, so as to better regulate domestic demand and balance international payments.

The December conference said that with a prudent fiscal policy and a tight monetary policy, China will be able to achieve ‘the Two Prevents’ in the coming year: to prevent economic growth developing from rapid to overheating, and to prevent price rises evolving from structural to evident inflation.

In truth, China has been implementing a prudent monetary policy since 1997. From 1998 to 2002, the country increased money supply to counter deflationary pressure.

From 2003 to 2007, the monetary policy began to tighten in order to help address changes in economic development, including rapid growth in credit extension, investment and foreign exchange reserves.

Now Finance Minister Xie Xuren states the government plans to improve its consumption tax system adding that the government is also waiting for a suitable time to launch a planned new fuel tax. A new tax to protect the environment is also under consideration.

China’s annual legislative meeting, bringing thousands of delegates to deliberate the country’s economic and political issues, opens tomorrow, March 5, in Beijing.
Source: RTT News

Chinese officials held a high-profile meeting in Beijing to review economic strategies for the next year. Window of China reported that the primary concerns of Chinese people with the future economy are reflected in the following catchphrases:

CPI. China’s consumer price index, an inflation indicator, was pushed up to 4.4% in the first ten months. Monthly CPI was above 6% for three straight months from to August to October. The National Bureau of Statistics has forecast the annual CPI at 4.5 to 4.6% this year.
Energy conservation and emission reduction. China has earmarked RMB23.5 billion (US$3.18 billion) to save energy and reduce emission. Concrete measures are paying off, as the energy consumption per GDP unit fell by 3% in first three quarters.
Low rent housing. The housing prices of 70 large and middle-sized cities in China surged 9.5% year-on-year in October alone.
Interest rate rises. China raised the benchmark interest rates by 27 basis points to 3.87% and 7.29% respectively for deposit and loan from September 15, the fifth time the country has done so this year. The move did not end China’s negative real interest rate, but it helped to offset the influence of high inflation on people’s money in bank.
Renminbi appreciation. The Chinese renminbi hit a new high of 7.3872 against the U.S. dollar on November 27.
Shanghai Composite Index.China’s benchmark Shanghai Composite Index rocketed to over 6,000 points by October this year from below 3,000 points in January.
Property income. Property income refers to the capital gains from bank deposits, securities, real estate, automobiles and collections. Currently, China’s per capita property income contributed only 2% to the country’s per capita disposable income on average after it rose 26.5% to RMB240 (US$32) last year.
Unified company income rate. The enterprise income tax law, adopted by Chinese legislature on March 16, set unified income tax rate for domestic and foreign companies at 25%. The new tax on foreign firms is still a moderate one compared with many other countries.

The editor for this splendid piece was Yan Liang. Click on Source to read a much fuller version.
Source: Window of China

The People’s Bank of China has said on its web site China will raise the reserve requirement ratio by half a percentage point for commercial banks in an effort to cool the booming economy.

The move, which will take effect from November 26, will push the ratio to a ten-year high of 13.5%.

It is the ninth hike this year aimed at ’strengthening liquidity management in the banking system and checking excessive credit growth.’ This according to the central bank on its Web site.

The move came shortly after the central bank announced earlier this week its prediction that China’s economy would expand more than 11% for the whole of 2007, with inflation rising 4.5%.

To ensure rational credit growth, the central bank also said it would continue to implement a tightened monetary policy and take a variety of measures to strengthen the macro-control.

By the end of September, the M2, which covers cash in circulation plus all deposits, grew by 18.45% from a year ago to RMB39.3 trillion (US$5.2 trillion.)

China’s commercial banks lent out RMB3.36 trillion in the first nine months of this year, surpassing the full-year figure of 2006.

Shi Weigan holds a PhD in economics from the Chinese Academy of Social Sciences. He has written an article in which he acknowledges the rise in the consumer price index (CPI ) but does not think it is a signal of overheating.

He writes:

CPI growth over 3% is usually regarded as a signal of inflation and of possible economic over-heating. . . .
The data for calculating the CPI can be divided into food and non-food commodities. Food prices account for 33.2% of the CPI and the prices of non-food commodities account for 66.8%.
Among the seven categories of foods, meat and poultry products account for 8%; eggs, 1%; and grain, 3%. Meat and egg prices have nearly three times the CPI weight of grain prices.
According to statistics from the Ministry of Agriculture, pork prices rose by more than 100% over July 2006 and were 70% higher than this past March. A natural consequence is the CPI increase. . . .
The CPI growth of over 3% in May will not put long-term pressure on economic growth.
Judging from the current situation, we can conclude that the recent CPI growth is unlikely to lead to comprehensive inflation.
The investment growth in industry is the major source for inflationary pressure in China, especially the investment in manufacturing iron, steel and nonferrous metals.
The higher-than-normal growth rate of investment in these industrial sectors was not checked until the central government issued several policies against the production and export of energy-intensive and resource-intensive products and products with high emission pollutants.
With the policy tools taking effect one after another, we have full reason to believe that inflation is not going to be set off by the rapidly rising price of meat and eggs.

Source: China Daily

Stanford University professor Michael Spence shared the 2001 Nobel Prize for Economics. His is a view not to be ignored. He said that China has been in a high growth mode since it started economic reforms in the late 70s. Its almost three decades of high growth is the longest among the 11 high-growth economies in the world and part of ‘a recent, post-World War II phenomenon’.

And, he said, the Chinese economy will sustain its fast growth for at least two more decades.

Michael Spence told the Shanghai Forum 2007 at the Fudan University that in the post-War period, 11 economies have recorded high growth, with eight of them being in Asia: the China, Hong Kong, Taiwan, Singapore, Indonesia, South Korea, Malaysia and Thailand. Going by gross domestic product (GDP) figures, ‘high growth’ means above 7% expansion, and an economy is said to have ‘sustained growth’ if it keeps growing for 25 years or more. Growth at such rates produces very substantial changes in income and wealth.

China’s almost three decades of high growth is the longest among the 11 high-growth economies in the world.

The high levels of savings and investments both in the public and private sectors, resource mobility and rapid urbanization are the important characteristics of China’s high growth.

China’s saving rate of between 35 to 45% is among the highest despite the relatively low level of income of its people. Resource mobility has generated new productive employment to absorb surplus labor.

He said the most important feature of sustained high growth is that it leverages the demand and resources of the global economy. He said, ‘The systematic reduction of barriers to trade and investment in the last 55 years and the dramatic fall in costs of transportation, information and communications technologies have combined to raise the level of that integration. It is the combined effect of these trends that has made the global economy an increasingly powerful source of potential growth.’

He said, ‘The economy is more global in every dimension and it just seems to me that there is lot of potential. The reason I am optimistic is that I don’t see anything in the way.’
Source: China Daily

The Organization for Economic Cooperation and Development (OECD) said the Chinese economy is expected to grow at rates above 10% over the next two years.

The Paris-based group, in its annual global survey, said China’s Gross Domestic product (GDP) would increase by 10.4% in 2007 and 2008, with domestic demand set to keep expanding.

The 30-nation group forecast in its Economic Outlook that the inflation rate will drop to 2.5%, down 0.3 percentage points from last year

The current account surplus, which is the broadest measure of trade, should rise to $314.6 billion this year and to $368 billion in 2008. It added that the growth rate of China’s exports may decrease due to slower world demand and a somewhat stronger Chinese currency, the RMB, over the next two years.

However, an increasing consumption capacity in China’s rural areas and the revitalized real estate sector would rapidly expand the domestic demand.

The Chinese economy grew 10.7% in 2006, the fourth consecutive year of double-digit growth.

In March, Chinese Premier Wen Jiabao said in a government work report that China plans to gear this down to 8% this year. That is the intent. The actuality may be very different.
Source: People’s Daily Online

Li Ka-shing, the Hong Kong entrepreneur and Asia’s richest person, said China’s stock valuations ‘must be a bubble’ and that prices were likely to decline.’

He told reporters in Hong Kong, ‘As a Chinese, I’m worried about the stock market in China.’

Li Ka-shing has great influence over Hong Kong investors who follow his career closely and often make their own decisions based on his.

‘Mr. Li has a reputation of making the right calls,’ said Kenny Tang, associate director at Tung Tai Securities in Hong Kong. ‘But I don’t think his comment will immediately trigger a panic sell-off. It’ll probably remind people to be more cautious and stay alert.’

Li Ka-shing is not alone in voicing his worries. Zhou Xiaochuan, governor of the Chinese central bank, has said China’s stock prices are excessive and spoke a day after Prime Minister Wen Jiabao warned of ‘problems’ for the economy.

China’s benchmark stock index, the CSI 300 has risen this year by 85%. The CSI has a valuation of 43 times estimated earnings. By comparison, the Hang Seng index in Hong Kong is at 16 times. Big difference,

Teo Joo Wah of Fullerton Fund Management, a unit of Temasek Holdings, Singapore’s state-owned investment company said, ‘Domestic investors are getting too sanguine about investing in the market.’

According to China Depository & Clearing the number of brokerage accounts set up to buy mainland shares and mutual funds amounted to 327,019. Investors opened a record 385,121 new accounts on May 8th.

Teo Joo Wah said, ‘You’ve got to be cautious when you see that many investment accounts being opened.’
Source: Jongo News

All the figures connected with China are mind boggling. Take private enterprise as an example and take a deep breath.

In 2006 China had 4.981 million private enterprises, an increase of 680,000 or 15.8% from 2005. By the time you read this China has five million private enterprises.

Note only are the numbers growing but so is the amount of registered capital. Private enterprises had a combined registered capital of RMB7.60285 trillion, an increase of RMB1.46974 trillion from 2005. (Note carefully we are talking trillions here. Not billions.)

The scale of enterprises expanded continually and there were 1.186 million real private enterprises with over RMB1 million in registered capital, an increase of 270,000 from 2005.
Source: People’s Daily Online

The National Bureau of Statistics reports that China’s retail sales in April climbed 15.5% year-on-year.

Retail sales, the major measurement of consumer spending, reached RMB667.3 billion ($87 billion) in April, 0.2% down from RMB668.6 billion in March.

From January through April, retail sales increased by 15.1% over the previous year.
Source: People’s Daily Online

According to the State Information Center the country’s gross domestic product (GDP) is expected to grow by 10.8% in the second quarter of this year, though the expansion of the trade surplus should slow somewhat. The State Information Center is a research body under the National Development and Reform Commission.

The consumer price index (CPI) is expected to reach 3% in the second quarter of this year and the country’s GDP will grow by 11% in the first half of this year.

The center said the economy’s consistently strong growth in the second quarter would be backed up by brisk growth in consumer spending and investment despite the tightening measures that have been put in place.

The report said state controls on investment have helped reduce the number and scale of newly launched projects in recent months, but existing construction projects that started before the macroeconomic regulations took effect will continue to boost investment growth in the second quarter.
Source: China View