China’s inflation rate reached the highest level in more than a decade in November, while the country’s trade surplus continued to soar.

The government said the country’s consumer prices — a key indicator for inflation — went up 6.9% compared to a year earlier. This is the highest inflation level since December, 1996.

Andrew Freris, chief economist for the Asia Pacific region at BNP Paribas Bank in Hong Kong, says the reason the consumer price index was so high in November was not a further increase of food prices. Rather, he says, the government had raised state-set prices for diesel and gasoline by 10% in an effort to curb demand amid a fuel shortage.

He said, ‘Meat prices are now stationary in the sense that they stopped accelerating and I expect that the December prices will show that they are now coming down.’

And he expects the inflation rate to come down to about 5% in December.

Inflation has surged in recent months — mainly because of double-digit increases in food prices especially of pork, China’s staple meat. This is due to shortages after a disease killed millions of pigs and because of the rising cost of feed grains.

China’s trade surplus, meanwhile, remained high in November, totaling more than $26 billion.

The numbers suggest that the demand for goods made in China remains strong, despite mounting worries over product safety and several recalls by foreign toy companies this year.

The country exported goods worth more than $117 billion — up 22% from the same month last year.
Source: China Confidential

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

Financially, things are not too hot in the United States. Basically because of the collapse of the sub-prime market.

If that phrase has been puzzling you for a while you are not alone. Sub-prime simply means very dodgy loans.

As in giving mortgages on houses to people who live in trailer parks and have no savings and, probably, no steady income. The sort of people who you would not think of lending ten dollars leave alone a mortgage.

That is a sub-prime loan and when the going gets tough they nick back to the trailer park and stop paying the mortgage and all the financiers, who loaned the money in the first place, run around in little circles asking for government support.

There are those who say that former Federal Reserve Chairman Alan Greenspan is to blame because he allowed these silly perishers to carry on when the economy was sound. In fact, he gave warning after warning but there is none so deaf as a mortgage seller looking forward to a large yearly bonus.

Alan Greenspan has just published a memoir, The Age of Turbulence: Adventures in a New World. In it he wrote: ‘Much of how the world will look in 2030 rests on this outcome. If China continues to press ahead toward free-market capitalism, it will surely propel the world to new levels of prosperity.’

The prediction comes in the 531-page book’s final chapter. This does not mean that what he writes is true. After all, he is a big fan of ex-prime minister Tony Blair.

He writes: ‘The success of every nation — big or small — will depend on the extent to which it allows free trade and open markets:

‘Even as nations as mighty as the United States and China vie for economic supremacy in that new world, they may find themselves partially bending to a force more powerful still: full-blown market globalization.’

Greenspan, 81, served as Fed chairman from 1987 until his retirement in January 2006. Before that, he was a private economist in New York, advising many of the biggest U.S. companies, and worked for about two years as chairman of the Council of Economic Advisers under President Gerald Ford.

Greenspan helped guide the longest economic expansion in U.S. history, lasting from 1991 to 2001.

In China, Greenspan sees economic growth in the context of capitalism and democracy potentially replacing Communist rule. Already, the country’s ‘embrace of free-market competition’ has it ‘on the path to greater political freedom.’ China’s economy grew 11.9% in the second quarter from a year earlier. The world’s most populous country surpassed the U.K. in 2005 as the fourth-largest economy. The value of China’s gross domestic product is $2.6 trillion.

He is less bullish on prospects for Japan, Russia and India.

Japan is ’strongly resisting immigration’ and will have difficulty raising productivity growth according to Greenspan.
Russia is benefiting from its energy resources, yet with a falling population and President Vladimir Putin’s ’selective enforcement’ of laws, the country ‘has a long way to go before it joins the club of developed nations.’
India is fettered by bureaucracy and still has three-fifths of its workforce in agriculture. That may keep the country from becoming as prominent as China, though the ‘glitter’ of India’s services industries ‘is just too evident to dismiss’.

Remember that Alan Greenspan is, in the United States in this case, a prophet and he did not see the sub-prime debacle coming. So. at the moment, he is a prophet without honor in his own land.
Source: Bloomberg

According to economists a post-Olympics economy crash is highly unlikely.

Jonathan Anderson, chief Asia economist at UBS, dug up some numbers suggesting that Beijing 2008 will barely leave a dent on China’s economy. Comparing the populations of recent Olympics host cities to their corresponding national populations, Beijing came in last place, representing 1.1% of China’s population and less than 3% of its GDP. The impact of the games was strongest in South Korea and Greece — Seoul has 20% its country’s population and Athens 40%.

There will, of course, be some effects. Retailers and hoteliers, for example, will probably experience demand ‘lumps’ during the games, but this is unlikely to affect annual averages. And the Olympics infrastructure can be adapted for commercial use. On top of which only two years after the Olympics China will host Expo 2010.

Still there are assorted forecasters who insist that a correction, a downturn is coming.
Jonathan Anderson said, ‘We don’t expect the markets to crash in the near future — but in our view this has nothing whatsoever to do with the Olympics. If there were to be a correction, it could happen before or after.’

So there may be a slump at some time. But it will not be connected directly to the Olympics. For which relief, much thanks.

The illustration is of the Guangdong Olympic Stadium which is pretty damn impressive.
Source: BusinessWeek

By 2010, more than 90% of trade goods between China and the ASEAN countries will be exempted from any tariff.

Xu Ningning, deputy executive chairman of the China-ASEAN Business Council also said trade volume between China and ASEAN countries will exceed the $200 billion mark two years ahead of schedule.

The statement came during the 2007 Pan-Beibu Bay Economic Cooperation Forum.

In 2001, China started a project to set up a free trade zone between China and ASEAN countries. ASEAN countries are Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.

In 2005, bilateral trade volume between China and ASEAN countries exceeded $100 billion. In 2006, $160.8 billion.

According to a related development plan, by 2010, trade volume between China and ASEAN countries will reach $200 billion. Which, at the current rate of growth, seems more than likely.

However, Xu Ningning said that as trade cooperation between the two parties gets closer, by 2007 bilateral trade volume between China and ASEAN countries ‘will reach $190 billion and will further hit the $200 billion by 2008. This means Sino-ASEAN trade volume will hit its target two years ahead of schedule.’

By 2010, after the construction of Sino-ASEAN Free Trade Zone is basically completed, it will contain 1.8 billion consumers. It will produce about $2 trillion of GDP and its total trade volume will reach 1.2 trillion US dollars. By then, zero tariff will be applied to over 90% of the goods.
Source: China News

In the first five months of this year China’s industrial-company profits swelled 42.1% which, to some extent, nullified government efforts to cool investment in the world’s fastest-growing major economy.

The National Bureau of Statistics said today in an e-mailed release that combined net income increased to RMB902.6 billion ($119 billion). Sales jumped 27.4% to RMB14.2 trillion.

Premier Wen Jiabao is trying to prevent a rebound in factory investment that would increase the risk of overcapacity. Besides curbs on bank lending, the government has ordered state companies to start paying dividends to trim the money available for investment.

Qu Hongbin, chief China economist at HSBC Holdings in Hong Kong, said, ‘The strong growth will fuel increased investment. Monetary tightening needs to be continued.’

The government announced the trial dividend program last month. China has also tightened project approvals, curbed land use, increased energy costs, and cut export rebates. The central bank has raised interest rates twice this year. More monetary tightening is likely.
Source: Shanghai Daily News

China’s factory and property investment has surged. This has added to speculation that an interest-rate increase is imminent after inflation, exports and industrial production growth accelerated.

The National Bureau of Statistics said fixed-asset investment in urban areas rose 25.9% in the first five months from a year earlier to RMB3.2 trillion ($420 billion).

That topped the 25.5% increase in the first four months and the 25.4% median estimate of 17 economists surveyed by Bloomberg News.

Inflation is at a 27-month high and the key stock market index has doubled this year. Premier Wen Jiabao this week said ‘moderate tightening’ is needed to prevent the world’s fastest-growing major economy from overheating.

Reinforcing this, Tao Dong, chief Asia economist at Credit Suisse Group in Hong Kong, said, ‘The government will need to take some action and do more monetary tightening.’

The CSI 300 Index of stocks has rebounded by 16% since a June 4 plunge.

China has raised borrowing costs and deposit rates twice this year and ordered lenders to set aside more reserves five times. Increases on May 18 pushed the benchmark one-year lending rate to 6.57% and the deposit rate to 3.06%.

Wang Qing, chief China economist at Morgan Stanley in Hong Kong, said more tightening may come within days.

A Bloomberg News survey showed the central bank will probably increase interest rates at least once more in 2007 and banks’ required reserve ratios at least twice more.
Source: Shanghai Daily

China’s trade surplus soared 73% in May from a year earlier to $22.45 billion. That’s more than the $19.5 billion median estimate of 18 economists surveyed by Bloomberg News. The surplus brings the gap for the first five months to $85.76 billion, an 84% increase on a year earlier.

The Chinese government last month said it will boost imports to narrow a trade surplus with the United States that last year reached $232.5 billion. It will take some big time boosting to get over that. The Ministry of Finance raised export taxes on 142 products and cut tariffs on 209 types of imports from June 1.

The World Bank last month raised its estimate for China’s growth this year to 10.4% from 9.6% because of improved prospects for exports to Europe and developing countries.

China’s economy, the world’s fourth largest, expanded 11.1% in the first quarter.

According to a forecast by the National Development and Reform Commission, the country’s top economic planner, the trade surplus may swell to $250 billion-$300 billion in 2007 from a record $177.5 billion last year.

While on the one hand this is plainly a good thing for China it does create havoc with other economies, specifically the United States where there is definitely an anti-China movement growing over this surplus.

Anent which an odd story.

Containers go from China to Britain on a daily basis. There is not much Britain is selling China and so often the containers are coming back empty. Relatives of the writer are buying these containers once they have made one trip from China to Britain. Then the containers are painted on the outside and sprayed with foam on the inside. The total cost per container is about $2,000. The containers are then assembled on sites on the edges of town and rented out as the ultimately secure storage container at a very reasonable price.

This has now built into a sizable business with seven major depots currently running and another three starting this year. The writer has just spent two days driving around these repurposed containers and is impressed and dizzy. So for at least one business in Europe, the trade surplus has turned out to be a major benefit.
Source: China Daily Online

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 World Bank raised its forecast for China’s economic growth this year to 10.4% from 9.6% on strong first-quarter growth and it also added that the nation’s economy doesn’t appear to be overheating.

The World Bank’s forecast indicates China’s 2007 growth in gross domestic product will be above 10% for the fourth straight year. In the first quarter, China’s GDP expanded 11.1% from a year earlier.

The World Bank said in its quarterly update that the top issue for China’s economy is its massive trade surplus, and Beijing should focus policy on rebalancing the economy.
Source: Wall Street Journal