Still the direction is up. China’s factory and property spending rose 24.3% in January and February. At some point it has to stop and the government will have to hose down the world’s fastest-growing major economy. It is overheating.

The worst snowstorms in half a century did not cool it: real estate development promptly jumped by a third. No one is willing to guess what would have happened if the weather had stayed clement.

The govenment has some options: hasten gains on the renminbi, raise interest rates; increase banks’ reserve requirements.

Fixed-asset investment in urban areas rose to RMB812.1 billion ($115 billion) from a year earlier. That was more than the 24% median estimate of 21 economists surveyed by Bloomberg News and the 23.4% pace in January and February 2007.

Sherman Chan, an economist at Moody’s Economy.com in Sydney, said, ‘China’s economy is still very strong. The biggest challenge for policy makers this year is to cool inflation and at the same time to sustain growth and employment.’

A Bloomberg News survey of economists this week suggests rates and reserve requirements will rise this year.

The remininbi will gain 12% versus the dollar in the next 12 months, compared with a 7% increase in 2007, forward contracts indicate. Currency appreciation cuts import costs.

Premier Wen told lawmakers last week that monetary policy is intended to tackle ‘the strong possibility of a resurgence in fixed-asset investment.’
Source: Bloomberg

There may be a downturn in the United States but it is, at the moment, difficult to see a knock-on effect in China. China’s factory and property spending rose 24.3 percent in January and February, maintaining pressure on Premier Wen Jiabao to prevent the world’s fastest-growing major economy from overheating.

Fixed-asset investment in urban areas rose to RMB 812.1 billion yuan ($115 billion) from a year earlier, the statistics bureau said today. That was more than the 24 percent median estimate of 21 economists surveyed by Bloomberg News and the 23.4% pace in January and February 2007.

The worst snowstorms in half a century failed to prevent a 33% jump in spending on real-estate development.

China may hasten gains by the renminbi, raise interest rates and increase banks’ reserve requirements after inflation in February accelerated to an 11-year high.

Sherman Chan, an economist at Moody’s Economy.com said, ‘China’s economy is still very strong. The biggest challenge for policy makers this year is to cool inflation and at the same time to sustain growth and employment.’

A Bloomberg News survey of economists this week suggests rates and reserve requirements will rise this year. The renminbi will gain 12% versus the dollar in the next 12 months, compared with a 7% increase in 2007, forward contracts indicate. Currency appreciation cuts import costs. (You could write this another way. The dollar will lost 12% compared to the yuan. This would seem damned near certain.)

The acceleration in property investment from the 30.2% pace for all of 2007 is even after the government tightened land-use rules, raised mortgage costs and increased down payments.

No one nows what the goverment will have to do next in order to control these increases. Something quite drastic would be needed. Probably involving boiling oil.

China’s economy, the world’s fourth largest, grew 11.4% in 2007, the fastest pace in 13 years.

The People’s Bank of China lifted borrowing costs six times in 2007 and has pushed banks’ reserve requirements to 15%, the highest ever. The key one-year lending rate is 7.47%. What is there left to do with what could only be thought of as a runaway economy?

Our illustration is of two confused investors. We know the feeling well.
Source: Bloomberg

China’s economy in 2008 will maintain a robust and stable momentum despite uncertainties ahead.

This comes from the country’s top legislative and political advisory sessions where the opinions voiced pretty much reflected this.

Liu Shucheng, a political adviser and director of the Economic Research Institute of the Chinese Academy of Social Sciences (CASS), believes it is almost impossible for China to score 10% of gross domestic product (GDP) growth this year.

He said, ‘China’s economy has maintained a long period of continued and stable growth, which is unprecedented since the founding of New China (in 1949).’

Justin Yifu Lin, a deputy to the National People’s Congress (NPC) and the World Bank’s chief economist, shown in our illustration, holds a similar view, saying China’s economy would be affected little by the U.S. subprime crisis.

Justin Yifu Lin said, ‘The demand by the United States, China’s second largest trade partner, would not decrease by a large margin as most of Chinese exports to it were low- and middle-end.’

China’s GDP in 2007 reached RMB24.66 trillion, an increase of 65.5% over 2002 and average annual increase of 10.6%. However, the consumer price index (CPI) in 2007 rose 4.8% year-on-year, the highest since 1997 and well above the 3% target, mainly due to rises in food and housing costs.

In January this year, monthly CPI rose 7.1%, the highest monthly surge in the past 11 years. Most of this was due to rises in the cost of food, especially pork.

In general, the impact from U.S. subprime crisis on global economy is not clear. And there is no consensus on how international oil price and price hikes would impact on inflation.

Indeed, Premier Wen Jiabao’s report showed strong concern on the issue of prices, and came up with nine measures, short- and long-time, to increase effective supply and curb unreasonable demand.

These measures include expanding production, especially the production of the basic necessities of life such as grain, vegetable oil and meat as well as other commodities in short supply, speeding up improvement of the reserve system, promptly improving and implementing measures to aid the low-income sector of the population and to make sure that the prices of the means of production, particularly agricultural supplies, do not rise rapidly.
Source: China View

After Chinese Premier Wen Jiaobao pledged, in his policy address to the opening of the National People’s Congress (NPC) session, to ensure the healthy and steady development of the country’s securities market, market analysts are increasingly optimistic about the market outlook this year despite the current downturn pressures.

Analysts believe an imminent measure the government could take is to the cut stamp duty on stock transactions.

Some Chinese economists and media commentaries have already been urging the Ministry of Finance to consider a cut to the stamp duty to bolster investors’ confidence. This nine months after the tax was tripled to 0.3% from 0.1% in an attempt to cool speculation that had sent shares to record highs since the beginning of 2007.

The Ministry of Finance’s announcement of the higher stamp duty rate had an immediate effect and the Shanghai Composite Index dropped about 13% in the following week.

The 0.3% stamp duty is applicable to both buyers and sellers of stocks.

Looking to boost investor sentiment, He Qiang, a member of the National Committee of the Chinese People’s Political Consultative Conference, said he will submit a proposal calling on the government to change its bi-directional stamp tax to one way.

He Qiang, a professor at the Central University of Finance and Economics, said that action on his proposal, in addition to boosting investor sentiment and stimulating stock turnover, would be good for the healthy development of China’s stock markets.

He said, ‘Cutting the stamp tax from bilateral [on purchases and sales] to unilateral not only stimulates stock turnover, but also encourages retail investors to play the stocks as a long-term investment rather than for short speculative gains. If the stamp duty is applicable only to sellers of stock, buyers will be taught to see beyond just making a short-term profit.’

Government income from stamp taxes reached RMB200.5 billion in 2007, a 10-fold increase from 2006, and surpassing the dividends of RMB180 billion distributed by listed companies.

Australia is the only other country that levies such a tax bilaterally. Our illustration is of a small investor immediately after the introduction of the bilateral stamp tax.
Source: Asia Times Online

Edinburgh-based Scottish Widows Investment Partnership — sadly known as Swip — is to launch a commercial property fund in China over the next two years.

The company itself is renowned in Britain for the way it ran an advertising campaign. The advertisements showed the Scottish Widow, plainly having been widowed at an untimely young age, looking positively scrumptious in her widow’s weeds. The latest model to don the cloak is Hayley Hunt, from Virginia Water in Surrey.

There is no suggestion that this epic campaign will be used in China, more’s the pity. Instead fund management group Swip, which already has about $14 billion of its $194 billion assets invested in UK and overseas property will be investing in China.

Leading the drive will be Malcolm Naish who joined Swip as head of property last year from DTZ Investment Management.

Swip’s plans are at an early stage, with the company talking to potential partners, including developers and investors who have a knowledge of the local market in China.

Malcolm Naish said: ‘I suspect we’ll invest in more developed markets on the Eastern seaboard of China, such as Shanghai, but that depends on which partners we find.

‘When you go into a market such as China you need access to the right people who understand how the system works. . . .

‘We’re currently assessing what cycle in the market China is at.

‘We’re more likely to launch institutional funds in the first instance, but we’re open minded about retail funds.’

He added: ‘Some property fund investors took fright last year but those who have ridden through this storm should see sensible returns over the longer term.

‘The current downturn looks different from those in the mid 1970s and 1989-90. The economy is more stable, for example.’

Swip is drawn to China include its growing and urbanizing population and high GDP, 9% per annum between 1995 and 2005, compared with 2.7% in the UK.

Not many UK fund managers have commercial property funds investing in China.
Source: The Scotsman

BMO (Bank of Montreal remembering that this is French speaking Canada) started in Montreal in1 817. There are 29 member banks in Guangzhou and therefore to be named top foreign exchange bank two years in succession is laudable.

CFETS, which is the interbank trading and foreign exchange division of China’s central bank, has recognized two BMO Capital Markets employees as ‘Excellent Traders of 2007.’

Regine Ou and Bofeng Jiang based in BMO’s Guangzhou office are among a total of 11 traders from 10 banks to receive the special award.

Jamie Thorsen, Global Head of Foreign Exchange Products & China Capital Markets for BMO Capital Markets, and seen in our illustration, said, ‘These are fantastic achievements and a testament to our growing capabilities in China as well as our excellence in foreign exchange. As the Guangzhou market continues to evolve into a more competitive arena, BMO is well positioned to continue providing high quality services and execution.’

BMO is a Canadian bank in China, with branches in Beijing, Guangzhou and Hong Kong. BMO also has a representative office in Shanghai and an Investment Banking Representative office in Beijing.

BMO’s long history in China dates back to the early 1800s — almost as soon as it was founded — when it completed its first foreign exchange transaction helping the United States finance its growing trade with China.
Source: Fox Business

National Australia Bank bought 20% in Union Trust and Investment Limited, making it the first foreign investment in China’s trust sector.

The investment by nabCapital, NAB’s capital markets and institutional banking division, makes the bank the third largest shareholder in UTI. Neither party revealed the price for the transaction.

nabCapital’s CEO John Hooper said, ‘With UTI’s focus on property this deal represents an opportunity for NAB to bring our expertise in structured financing to China’s burgeoning market.’

NAB is one of the largest listed financial institutions on the Australian Stock Exchange and has strong experience in structured property finance, which brings together property, finance, equity capital markets and cooperative finance.

John Hooper said, ‘Our cooperative venture will concentrate on developing new products, particularly in infrastructure and construction - two tremendous growth areas in China. The bank will have a chair on UTI’s board and several other top management members in charge of risk management.

John Hooper is still quite optimistic about the country’s real estate sector, but shows little interest in investing in China’s banking sector.

He said, ‘For the time being, we have no plan to buy a stake in China’s commercial banks’ although he added NAB would like to be a more ‘active’ investor in the banking sector.

One of the largest attractions of UTI, according to John Hooper, is the company is relatively small, with high growth potential and sound corporate governance.

According to Wang Xichao, UTI chairman, the partnership will help the company explore creative businesses in QDII, infrastructure trusts, pension products, REITs and real estate trust funds.

In 2006, the company was one of two trust companies approved by the central bank to run REITs, on a pilot basis.
Source: China Daily

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

China received $74.7 billion in foreign direct investment in the non-financial sectors last year, ahead of all developing countries for the 15th successive year.

The Ministry of Commerce said the figure reflects a year-on-year increase of 13.59%.

Total foreign direct investment (FDI) — including capital flows to the financial sectors such as banking, insurance and securities — was $82.7 billion in 2007, up 13.8 % from a year earlier.

Wang Zhile, director of the Multinational Enterprise Research Center affiliated to the Ministry of Commerce, said, ‘The growth is higher than my expectations. It shows China’s role as a crucial link for multinationals’ global manufacturing, purchasing and research.’

This year may well be a bit different.

Income tax rates for domestic and foreign companies were unified at 25% from the beginning of 2008. Prior to this, domestic companies paid 33% income tax while foreign companies, which benefited from tax waivers and incentives, paid an average of 15%.

The effect will be considerably muted by the fact that foreign companies registered before the new rates took effect will pay tax at the preferential rate for another five years.

It is true that foreign investors are also paying more for labor and material costs, such as oil, plastics and steel, and face tighter policies on polluting and resource-intensive industries. On the other hand, China has, by a considerable margin, a more attractive manufacturing climate — not using that in the weather sense — than any country in the west and this is likely to last for many more years. It is expected that China will continue to be a magnet for foreign development and investment as Beijing’s policies to woo foreign investors and open up continue.

Wang Zhile said, ‘The Chinese leadership assured foreign investors at the 17th Party congress late last year that China will stick to its reform and opening-up policies. It is taken as a good opportunity by many foreign investors.’
Source: China Daily

The official Shanghai Securities News reports, citing sources, that the China Development Bank, one of the country’s three policy banks, is planning to invest over RMB7 billion in Shenzhen Financial Leasing, taking a 90% stake in the latter.

The capital injection will make SFL the largest financial leasing firm in China.

Shenzhen Financial Leasing currently has registered capital of RMB716 million, with Hainan Airlines Group the largest current shareholder with a 21.66% stake.

Xi’an Aircraft Industry, the parent of Xi’an Aircraft International, also owns 18.16% of Shenzhen Financial Leasing.

In October 2007, State Grid, one of China’s two state-owned power transmission firms, said it was selling its 3.21%t stake in Shenzhen Financial Leasing for a minimum of RMB16.10 million.

State Grid said in a statement to the Shanghai United Assets and Equity Exchange that Shenzhen Financial Leasing reported a 2006 net profit of RMB11 million, compared with RMB1.26 million a year earlier.

In January 2007, China’s banking regulator issued new rules permitting qualified local and overseas-incorporated commercial banks to apply to set up directly-controlled lease finance companies. Leading domestic lenders including Industrial and Commercial Bank of China , China Construction Bank and Bank of Communications all of which have since established lease financing units.

China Development Bank has reportedly won central government approval to restructure itself into a commercial bank. The bank is expected to bring in strategic investors ahead of going public.
Source: Forbes