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

Finance officials from the Group of Seven nations — U.S., Japan, Germany, the U.K., France, Italy and Canada — called for China to strengthen its currency against all its major trading partners. What, in fact, they were saying was that China, Asia’s second-largest economy, should to bear a greater burden of the global slowdown. There is little moral logic in this although it might be strategic logic. No one has, as yet, accused China of starting the sub-prime —- dodgy loans — problems in the United States although that may yet come.

G-7 finance ministers and central bankers said in a statement that China should do more to defuse trade tensions by allowing the renminbi to climb at a quicker pace not only against the dollar but also other currencies.

Canadian Finance Minister Jim Flaherty is in a good position to speak on this subject as his country is the U.S.’s largest trading partner, and has seen a 52% gain in its currency against the dollar over the past five years.

Jim Flaherty said, ‘Countries with large surpluses must allow greater flexibility in their exchange rates, and I say this as a finance minister from a country that has played the role of a shock absorber.’

Tim Condon, head of Asian research at ING Groep NV in Singapore, said, ‘I thought China would be under the radar at this meeting given the rapid pace of yuan appreciation that China has been observing this year.’ Adding, ‘I’m a bit surprised by the pressure.”

Former People’s Bank of China Deputy Governor Wu Xiaoling said on Feb. 2 that authorities will tighten credit growth further and make the renminbi more flexible. China’s inflation rate was 6.5% in December, receding from an 11-year high of 6.9% in November.

The G-7 also repeated that ‘excess volatility’ in currencies is ‘undesirable’ and that the group will continue to ‘monitor’ markets closely.

Our illustration shows Chinese Finance Minister Xie Xuren, left, being welcomed by his Japanese counterpart Fukushiro Nukaga prior to the reception dinner for the G7 Finance Ministers and Central Bank Governors.
Source: Bloomberg

The Ministry of Finance reports China’s state-owned enterprises posted a 31.6% rise in 2007 total profits. They reached a record RMB1.62 trillion ($221.9 billion), from RMB1.23 trillion a year earlier.

The 119,000 state-owned enterprises paid a record RMB1.57 trillion in taxes last year, up 21.8%. Their sales revenues grew 20.1% to RMB18 trillion.
State-owned enterprises administered by the central government contributed 67.9% of the total profits, or RMB1.1 trillion, up 29.2%. Their sales revenues rose 19.1% to RMB11 trillion.

China has 152 centrally administered enterprises, all under the supervision of the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council.

Although the number of such enterprises dropped to about 160 by the end of 2006 from more than 190 in 2002 due to economic restructuring, their total sales jumped 146% and profits increased by 219%.
Source: China View

The National Development and reform Commission (NDRC), China’s top economic planning body, has urged local authorities to watch out for the effects of inflation.

Bi Jingquan, deputy minister of NDRC at a national meeting on the price supervision held Friday in this capital of south China’s Guangdong Province, said, ‘When the price of a certain product increases sharply, measures should be made immediately to curb its spreading effects. The rising margin of the price should be strictly controlled, when it surpasses the increasing range of its cost.’

He said that the combination of price rises on the global market and the exorbitant money supply on the domestic market will make it difficult to totally contain inflation next year.

Yao Jingyuan, chief economist of the National Bureau of Statistics and seen here, said the consumer price index, a major gauge of inflation, is likely to climb 4.7% in 2007.

Bi Jingquan said price supervision by market regulatory authorities will be one major way of stabilizing market prices.

He warned local price regulatory authorities to watch out for situation which might encourage inflation such as the Spring Festival (China’s Lunar New Year, which will start on Feb. 6, 2008), the Olympic Games in August and the National Day holiday in October.

He asked local authorities to check irregular price rises,
Source: China View

China-US economic and trade cooperation will be seriously harmed if the US Congress passes pending China-related bills in their current form, Finance Minister Xie Xuren, shown here, was reported as saying by the official Xinhua news agency.

Xie made the remarks in an interview with Xinhua prior to the Third China-US Strategic Economic Dialogue (SED) this week.

He was referring to 50 items of legislation concerning US economic and trade ties with China proposed by some members of Congress since the beginning of the year.

He said the uncompleted legislation represents ‘noise’ in the US-China relationship but added that he believes ties can weather the wave of protectionism.

He further said, ‘The noise we hear now cannot impede the further development of China-US economic and trade cooperation. These achievements have not come easily and should be all the more cherished. The two sides should properly address issues in current economic and trade relations through dialog and consultation to jointly safeguard the mutually beneficial and win-win economic and trade relations between China and the United States.’

The third SED, which will be held in Beijing from Dec 12-13, will be co-chaired by the special representatives of the two presidents — Chinese Vice Premier Wu Yi and US Treasury Secretary Henry Paulson.
Source: Thomson FX Hub

For the 10th time this year China will order banks to raise the amount of reserves they keep on hand in order to curb inflation and prevent the economy from overheating.

The central bank said it had ordered banks to increase the reserve ratio by a full percentage point, to 14.5%, in an effort to curb lending. It was the largest single increase in the reserve ratio in four years.

Analysts said the move showed that Beijing was growing increasingly worried about growing inflationary pressure and the threat of a meltdown before next summer, when Beijing is set to hold the Olympic Games.

This year, a fast-growing economy has taken flight, growing by as much as 12% with China piling up another year of record trade surpluses with the rest of the world, particularly the European Union and the United States.

China is under mounting pressure to appreciate its currency, which some economists say may help ease those trade gaps and better balance the global economy. But China has largely resisted that pressure, saying it has already allowed its currency to gradually appreciate, up about 10% since 2005.

Over the past few years, Chinese stock prices have risen more than 300%, investor frenzy has turned mad and initial public offerings have created more than 100 new billionaires, at least on paper.

In a report, Hong Liang, an economist at Goldman Sachs, said the larger-than-usual increase in the reserve ratio should strengthen the credibility of the central bank but could also hurt share prices.
Source: International Herald Tribune

According to its chairman, Lou Jiwei, shown here, China Investment Corp. (CIC), China’s sovereignty wealth fund, is looking to be a stabilizing force in the international equity markets.

CIC, which manages 200 billion U.S. dollars of China’s massive foreign exchange reserves, seeks to stabilize global equity markets through investment.

Lou Jiwei told a forum it would boost corporate transparency when it does not affect company interests.
The majority of its investments would be in publicly-traded securities with a smaller part for alternative investments. The company would also seek direct investments.

Lou said the management was under huge pressure as the fund’s capital was raised by the Ministry of Finance through the issuance of a special treasury bond. CIC has to bear the 5% cost of the capital.

He said this means the fund has to make a profit of RMB300 million a day to make ends meet.
Source: China View

The People’s Bank of China has announced that China’s foreign exchange reserve reached $1.43 trillion dollars by the end of September. That is up 45.1% year-on-year.

In September alone, the forex reserve rose by $25 billion.

China’s trade surplus for the first nine months of the year reached $185.7 billion dollars, exceeding the total trade surplus of $177.47 billion dollars for 2006.

Which results in excess liquidity in China, as the central bank has to spend quantities of basic money to purchase foreign exchange, thus aggravating the problem of surplus fluidity.

In a move to make better use of the country’s huge forex reserve, China announced the establishment of China Investment Corporate, the country’s state forex investment company. The state-owned investment company will invest in overseas financial markets.
Source: China View

The People’s Bank of China has raised its economic growth forecast. According to the report published in the China Securities Journal the economy may expand 11.6% this year, faster than the agency’s previous estimate of a 10.8% expansion. Inflation this year will be 5%, up from 3.2% forecast previously, and the trade surplus will widen to about $250 billion this year from $177.5 billion in 2006.

The Government is concerned that a surge in lending is creating a bubble, which would drive up bad loans should it collapse. Investment in real estate development jumped 29% in the first eight months of this year.

On September 12 the World Bank raised its 2007 China growth forecast to 11.3%. One forecast is factory and property spending which it is thought will rise 25 to 26% this year.
Source: Sydney Morning Herald

Caijing finance magazine has reported that China’s central government is expected to receive about RMB17 billion in dividends for 2006 from major state-owned enterprises (SOEs).

The report, which quotes unidentified sources from the Ministry of Finance, states the government will start taking 10% of the after-tax profits earned by the oil, coal, power, chemicals, telecommunications and tobacco industries.

Other state enterprises will hand over 5.0% of their after-tax profits. Scientific research institutions and military enterprises will be exempt from the plan for three years.

It was reported earlier that China’s 159 key central government-controlled state-owned enterprises posted a combined profit of RMB754.69 billion in 2006, up 18.2% from the previous year.

Beijing stopped collecting dividends from state enterprises in 1994 during the financial crisis.

The illustration is Hu Shu-li, the editor of Caijing, which means Finance and Economy. She was named one of the Wall Street Journal’s Ten Women to Watch in Asia.
Source: Forbes