China...worlds leading exporter

China 'overtakes Germany as world's largest exporter'

Customs officials said China had come through a weak trading period

China's exports rose 17.7% in December, state media have reported, suggesting the country has overtaken Germany as the world's largest exporter.

The rise, compared to a year earlier, breaks a 13-month decline in trade as a result of the global downturn.

Xinhua said total exports for 2009 were $1.2tn (£749bn), but total foreign trade over the year was down 13.9%.

Correspondents say the figures will lead to new demands from China's competitors that it revalue the yuan.

Last year saw a continuing decrease in China's trade as the global economic downturn led to a fall in demand for its products.

But in the last few weeks of the year, there was a far greater rise than forecasters had expected, with foreign exports reaching $130.7bn, up 17.7% on the previous December.

China's General Administration of Customs (GAC) said exports overall in the year were $1.2tn, down 16% from in 2008, while imports were 11.2% down from a year earlier at $1.01tn.

The politically sensitive total trade surplus was down 34.2% to $196.1bn.

The figures suggests China will surpass Germany's export total for the whole of 2009, although this will not be confirmed until Germany's full-year data is published in February.

Yuan demand

A spokesman for GAC said the increase was "an important turning point" for the country.

Many of China's exporters are low-cost manufacturers

"It is safe to say now that Chinese exporters have come right through the period of weakness," Xinhua quoted statistician Huang Guohua as saying.

The BBC's Chris Hogg in Shanghai says many of China's producers are low-cost manufacturers who assemble equipment such as i-Pods using foreign components.

The latest figures are being seen as an indication that those manufacturers have proved resilient in the downturn and are benefitting as their customers restock, says our correspondent.

But the figures are likely to lead to renewed complaints from China's trading competitors that its currency is undervalued, he added.

Led by the US, they say it is unfair that China has been able to make its good cheaper by keeping the yuan weak, but Prime Minister Wen Jiabao has said China "will not yield" to foreign demands that it revalue the currency.

Beijing has long said that it will not allow the yuan to trade freely until its domestic economy was strong enough to pick up any resulting decline in exports.

The slowing decline in Chinese trade has also been taken as a sign that the country's stimulus package is working.

Beijing raised tax rebates on exports several times in 2009, increased tax refunds and improved export credit insurance.

China's balancing economic acrobatics

Is China's economic stimulus too much of a good thing?

Reuters

CHINESE growth was already the envy of the world. Now recession-stricken countries will be turning an even brighter green. On Thursday July 16th new figures showed China’s GDP growth quickened to 7.9% in the year to the second quarter. That is healthy enough by anyone’s standards but the headline number conceals a more astonishing rebound. Goldman Sachs estimates that GDP grew at an annualised rate of 16.5% in the second quarter compared with the previous three months. Over the same period, America’s economy probably contracted again. China’s economic stimulus has clearly been hugely effective. So effective, indeed, that some economists are now worrying it may be working rather too well.

In the year to June fixed investment surged by 35%, car sales rose by 48%, and purchases of homes by more than 80%. After falling last year, home prices are now rising briskly in some big cities, and share prices have soared by 80% from their November low. Domestic spending has been spurred partly by the government’s stimulus package, but probably even more important was the scrapping of restrictions on bank lending late last year. In June new lending was more than four times larger than a year earlier.

One reason why the economy has rebounded so quickly is that much of the slowdown was self-inflicted, rather than the result of America’s economic collapse. In 2007 concerns about overheating prompted the government to curb the flow of credit for construction and home buying. This caused China’s economy to slow sharply even before the global financial crisis. Then, last November, the government turned the credit tap back on full.

That has given a big boost to domestic spending but raised concerns that the flood of liquidity will push up inflation, fuel bubbles in shares and housing, and store up bad loans. The M2 measure of money surged by 29% in the year to June. In fact the risk of high inflation in the near future appears low: Chinese consumer prices fell by 1.7% in the year to June, and spare capacity at home and abroad is holding down prices. But asset prices could be a bigger danger. According to one estimate, 20% of new lending went into the stockmarket in the first five months of this year.

It is probably too soon to use the word “bubble”. The stockmarket is still at only half its 2007 peak and, although house prices have risen sharply this year in Shanghai and Shenzhen, the nationwide average is barely higher than it was a year ago. But the pace of bank lending is unsustainable, and America’s recent experience suggests that it is better to prevent bubbles forming than to mop up the mess afterwards. Several officials at the central bank People’s Bank of China (PBOC) have said lending should be curbed.

At the moment, the prime minister, Wen Jiabao, is signalling that he wants monetary policy kept fairly loose. Exports remain weak and the government fears premature tightening could derail the recovery. It is also keen to create jobs and maintain social stability in the months before the 60th anniversary of Communist Party rule in October.

Still, the central bank has begun to tug gently at the reins. It has nudged up money-market interest rates and warned banks that it intends to increase its scrutiny of new bank loans. The China Banking Regulatory Commission has warned banks to stick to rules on mortgages for second homes, which require a down-payment of at least 40% of a property’s value.

The recent rebound in house sales is, in fact, exactly what the government is aiming for, since it is using property as a way to spur private consumption. Higher house sales encourage more spending on furniture and consumer appliances. Construction also creates lots of jobs; indeed, it employs almost as many workers as the export sector. Since October the government has encouraged people to buy houses by cutting the minimum mortgage down-payment on their main home from  30% to 20% and by reducing stamp duty and other taxes on property transactions. Stronger sales are now feeding through into new house building: housing starts rose by 12% in the year to June, the first growth in 12 months.

Given the importance of property to domestic demand, the government is highly unlikely to want to clamp down hard on the housing market. Despite the recent lending boom, Chinese banks’ mortgage lending is still very conservative compared with that in America—at the peak of America’s housing bubble it was easy to get a mortgage for 100% or more of the value of a home. Nevertheless, the lesson of America’s financial crisis for China’s government is plain: overly loose lending should never be ignored.

Coca-Cola in China :Squeezed out

China indicates the real targets of its anti-monopoly law: outsiders

AP

LAST August, after 14 years of debate, the Chinese government at last imposed what was informally referred to as its “economic constitution”, a broad anti-monopoly law for a country rife with state-imposed monopolies. In the subsequent months, people have wondered how the law would be applied, and whether it would advance China’s transformation into a market economy, or serve as an impediment to genuine competition. On Wednesday March 18th an answer emerged with the rejection of the largest outright acquisition by a foreign company, a $2.4 billion offer by Coca-Cola for China Huiyuan, the country’s largest juice company.

When the deal was announced last September, it was at a price three times Huiyuan’s valuation at the time. Since then, as global markets have collapsed, it has only become more appealing. Huiyuan is a private company and juice had previously been free of government control, so theoretically it should have been available for purchase. “It is a very unfortunate outcome in an industry that has no economic or national-security significance,” says Lester Ross of WilmerHale, a law firm, in Beijing.

The most benign interpretation of the rejection being bandied about by lawyers and bankers is that it reflects a political response to critical comments by America’s new administration—a warning, of sorts, that could dissipate quickly if the economic relationship between China and America can find a firm footing. The more dire interpretation is that even as China publicly urges other countries to commit to opening their markets to Chinese investment and trade, it is imposing yet another barrier to outsiders. Worse still, the barriers are in its domestic consumer sector, one of the rare global economic bright spots.

Adding irony to the decision, it comes just as the Chinese government is indicating that it is actively encouraging, if not forcing, consolidation and greater market concentration in a number of areas, including steel, cars and airlines, and just after it imposed a new oligopoly in telecommunications. No domestic Chinese transaction has fallen foul of the new monopoly law.

Signs that foreign companies might be the primary targets of the law began to emerge in November, when a merger between two brewers, America’s Anheuser-Busch and Belgium’s InBev, was endorsed by Chinese regulators only on the condition that the combined firm’s existing interest in several domestic breweries be frozen. In particular, Anheuser-Busch’s non-controlling 27% stake in Tsingtao, a leading Chinese brewer, was largely liquidated in January after what is presumed to be pressure from the government.

The Coca-Cola Company holds as much as half of the domestic Chinese market for carbonated beverages, but the juice business is highly fragmented. Estimates are not particularly reliable, but various accounts suggest the two companies would control more than of 20% of the juice business. In a brief statement, China’s ministry of commerce said Coke’s “dominant status” might “imperil” small competitors and force consumers to face higher prices and less choice.

After the decision was announced, investment banks were left wondering, in the words of one employee, whether “a key plank in their business had just blown up.” Coke has spent years developing its presence in China, and has invested heavily, presumably making it one of the world’s more acceptable buyers. It is also one of the few companies able to finance a big deal in today’s difficult circumstances. If Coke was not acceptable to the Chinese authorities, then who is? The rejection will inevitably be used as evidence of non-reciprocity, and the collusion between the country’s state and private sectors, by anyone opposed to China’s recent efforts to buy companies abroad.

Deepening the gloom, another new Chinese law comes into effect on May 1st, subjecting any transfer of a state-controlled asset to yet another layer of review, this time by a local commission. Theoretically this is not aimed at any particular kind of acquirer, and would not block well-conceived deals, but that, of course, was said about the monopoly law as well. The new law had not received much attention. It will now.

Why China is not to blame for the surge in global inflation

Inflated claims

Aug 14th 2008
From The Economist print edition

Why China is not to blame for the surge in global inflation

MANY people in America and Europe think that the recent surge in inflation, like almost everything else these days, is “made in China”. For a number of years, cheap Chinese goods helped to reduce prices in rich economies, but more recently wages and prices have surged in China. On top of this, the hungry dragon’s insatiable appetite for food, energy and other raw materials has given cartoonists an emotive image for the surge in global commodity prices. As a result, it is claimed, China is no longer exporting deflation to the rich world, but inflation.

China’s inflation rate did indeed hit almost 9% earlier this year (by July it had fallen to 6.3%). And after declining for several years, the prices of America’s imports from China jumped by 5.3% in the year to July, pushing up the prices of goods in Wal-Mart, where many Americans shop. However, import prices from China are rising more slowly than the cost of goods from elsewhere: the average price of manufactured goods imported into America from industrialised countries rose by 10.1% over the past year (see left-hand chart). Moreover, all of the increase in the price of Chinese imports reflects the fall in the dollar against the yuan, not higher costs in China. In yuan terms, average Chinese export prices are still falling.

There is something to the claim that China’s huge demand for food and energy is pushing up global commodity prices. China has accounted for a big slice of the growth in global consumption of oil and especially metals this decade, helping to drive prices higher. But its effect on global prices over the past year (when rich-world inflation took off) is easily overstated. The pace of growth in China’s oil demand slowed to 4% last year. That is still relatively high, but not nearly as much as its annual rate of 12% in 2001-04, a period when the Fed was fretting about deflation, not inflation. And China’s food production has grown faster than consumption over the past few years. As a small, but growing, net exporter of wheat, maize and rice, China has, if anything, helped to ease world grain prices.

A more nuanced argument, suggested in a recent speech by Donald Kohn, the Federal Reserve’s vice-chairman, is that lax monetary policies have recently caused emerging economies such as China to grow too fast, putting extra demand on resources. Mr Kohn concluded that central banks in emerging economies should tighten policy to restrain economic growth and so reduce global inflation. There are merits to this argument, but there is also a danger that Mr Kohn may be trying to pass the buck. After all, America’s interest rates have been historically low for most of the past decade and thus it must share much of the responsibility for higher global inflation.

Mr Kohn used to argue that globalisation had a muted impact on American inflation. In 2006 he said that emerging economies were mildly disinflationary, because by running current-account surpluses they were adding more to global supply than to demand. China still has a large external surplus, so—using the same logic—how can it now be fuelling world inflation? Other inconsistencies abound. Some economists accuse China of overheating and exporting inflation, at the same time as they criticise it for overinvesting and creating excess capacity, which would imply downward pressure on prices. Last year it was fashionable to argue that China should boost its domestic demand to reduce its excess saving; now it is being told to tighten monetary policy, which would slow the growth in demand.

Cheap at twice the price

Some of this confusion reflects a widespread misunderstanding about how China’s integration into the world economy affects prices in the rich world. A common mistake is to assume that falling export prices mean that China is exporting disinflation, whereas rising export prices imply it is exporting inflation. The truth is that the level of Chinese prices matters much more than their rate of increase. China helped to hold down inflation in developed economies not because its prices were falling, but because its goods were much cheaper.

In theory, global trade should cause prices in different countries to converge: the prices of low-cost producers should gradually increase as wages rise (ie, China’s falling prices were a temporary anomaly), while the prices of high-cost producers should fall. Thus so long as China’s wages and the prices of its goods remain well below those in rich countries (see right-hand chart, above), its increasing penetration of world markets will continue to depress prices for many years. For example, according to BCA Research, a firm of economic analysts, the prices of Chinese exports of electric motors and generators doubled over the past five years, yet because they remain much cheaper than American-produced products, their share of the American market has more than doubled, forcing local producers to cut prices. As China moves up the value chain, it will export cheaper products in new industries, such as cars. This will help to hold down global prices—although possibly by less than in the past.

Perhaps the best way to determine China’s impact on world inflation is to gauge whether its net impact is to increase aggregate global demand or supply. China is boosting both, but so far its “positive supply shock” has been the more important. The integration of China and other emerging economies into the world trading system has, in effect, more than doubled the global labour force, and by curbing workers’ bargaining power it has restrained pay demands in most developed economies in recent years. Despite higher consumer prices in America and the euro area, wage growth has remained subdued and real wages have fallen, which has prevented inflation from becoming entrenched.

Imagine if China did not trade with the rest of the world. Oil prices would be cheaper, whereas clothes, DVD players and computers would be dearer. China’s biggest global impact is on relative prices. The net result, however, is still disinflationary. China is a handy scapegoat, but the real blame for the rise in inflation in the rich world may lie with monetary policy closer to home.

taken from:http://www.economist.com/finance/displaystory.cfm?story_id=11920640