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BBC: As Economy Slows, China Eases Monetary Policy
China Daily: Analysts: Gov't may consider further oil price hikes
CCTV: China mulls hikes in retail electricity prices
Associated Press: China industrial output growth lowest in 18 months
Morningstar: The Next Rev of China's Growth Engine
TradingMarkets.com: China Aug. Passenger Car Sales Down 5.4%
Forbes.com: China Chops Taxes
FN Arena News:
China Daily: 80% netizens against cancelling National Day golden week
India Times: China should up investment, cut taxes -economist
CCTV: China´s macro economic control policies having intended effect
The Age (AU): China's slowing growth rules out cavalry charge to rescue Western markets
Xinhua: GE to launch 5 regional headquarters in China
"We all knew that there would be monetary policy relaxation in China, but we didn't expect the move would be so quick," said Gao Huiqing, an economist at the State Information Centre, a government think tank.
All but the biggest banks will be allowed to reduce the proportion of deposits held in reserve from 25 September - the first time the central bank has cut reserve requirements since November 1999.
All but the biggest banks will be allowed to reduce the proportion of deposits held in reserve from 25 September - the first time the central bank has cut reserve requirements since November 1999.
"With the successful conclusion of the 2008 Beijing Olympic Games, Chinese policymakers will refocus on macroeconomic management, so energy price normalization will likely feature prominently in the post-Olympic policy package," Morgan Stanley analyst Wang Qing tells China Business Weekly.
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Jin Sanlin from the Development Research Center of the State Council says refined oil prices are likely to surge 5 to 10 percent, which might cause CPI to increase by 0.1 percent, even taking higher raw material costs into account. "So the oil price hikes will not have a big impact," he says.
Although all experts and industry insiders agreed that China's leadership had achieved the consensus on putting refined oil prices into market operation, they still thought the government might not consider further price hikes until early next year.
Tong Lixia, a researcher from the Ministry of Commerce, says before the consensus turns into reality, the government will gradually boost refined oil prices to bridge the gap with the international market.
That's because the main problem the government faces now is about how to prevent an economic slump, while oil prices hikes will restrict consumption and increase inflation. "Raising oil prices is contradictory to the stimulation of economic growth, so it is not a good moment for price deregulation now," she says.
Jin Sanlin agreed. He says although it is possible that there will be further boosting of energy prices this year, it is not the best time to put the prices in the hands of the market. "Next year will be more reasonable," he says.
But chief economist with Galaxy Securities Zuo Xiaolei says price reform should be put into place promptly. "China hasn't suffered double-digit inflation like its neighbor Vietnam, so it has the capacity to bear the energy price restructuring," she says.
Morgan Stanley's Wang Qing also says CPI inflation may have dropped from 6.3 percent in July to 5.5 percent in August, paving the way for another round of energy price hikes in the coming months.
Morgan Stanley suggests if the prices of refined products, electricity power and coal are raised by 10 percent for the second round, it will cause PPI inflation to increase by 0.88 percent, 0.44 percent and 0.23 percent respectively, while CPI inflation will increase by 0.35 percent, 0.52 percent and 0.03 percent respectively.
Morgan Stanley employed a 62-sector model to quantify the impact of energy price hikes. The sectors that are most negatively affected by refined fuel price hikes include gas production, coking, chemicals, and transportation, while the sectors that are most negatively affected by power tariff and coal price hikes include coking, non-metal minerals, and chemical fertilizers.
"Although the impact of energy price normalization on CPI inflation seems affordable, the energy price will not be raised by 10 percent. Refiners have been under less pressure recently due to a sharp fall in the price of crude oil," says Wei Weixian, an economist from the University of International Business and Economics. The international crude oil price recently tumbled below $108 a barrel from $147 per barrel in July.
"And many industries have suffered from rising prices of raw material costs and labor costs, so I predict the energy prices will not surge to 10 percent in a short period, probably up to 5 percent," he adds.
Economist Cai Zhizhou from Peking University disagreed.
"Energy prices rising by 10 percent is normal and will not have a big impact on CPI inflation," he says. "And energy price hikes are a crucial method to optimize the industry structure, so that hi-tech and environmentally friendly industries will distinguish themselves."
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Jin Sanlin from the Development Research Center of the State Council says refined oil prices are likely to surge 5 to 10 percent, which might cause CPI to increase by 0.1 percent, even taking higher raw material costs into account. "So the oil price hikes will not have a big impact," he says.
Although all experts and industry insiders agreed that China's leadership had achieved the consensus on putting refined oil prices into market operation, they still thought the government might not consider further price hikes until early next year.
Tong Lixia, a researcher from the Ministry of Commerce, says before the consensus turns into reality, the government will gradually boost refined oil prices to bridge the gap with the international market.
That's because the main problem the government faces now is about how to prevent an economic slump, while oil prices hikes will restrict consumption and increase inflation. "Raising oil prices is contradictory to the stimulation of economic growth, so it is not a good moment for price deregulation now," she says.
Jin Sanlin agreed. He says although it is possible that there will be further boosting of energy prices this year, it is not the best time to put the prices in the hands of the market. "Next year will be more reasonable," he says.
But chief economist with Galaxy Securities Zuo Xiaolei says price reform should be put into place promptly. "China hasn't suffered double-digit inflation like its neighbor Vietnam, so it has the capacity to bear the energy price restructuring," she says.
Morgan Stanley's Wang Qing also says CPI inflation may have dropped from 6.3 percent in July to 5.5 percent in August, paving the way for another round of energy price hikes in the coming months.
Morgan Stanley suggests if the prices of refined products, electricity power and coal are raised by 10 percent for the second round, it will cause PPI inflation to increase by 0.88 percent, 0.44 percent and 0.23 percent respectively, while CPI inflation will increase by 0.35 percent, 0.52 percent and 0.03 percent respectively.
Morgan Stanley employed a 62-sector model to quantify the impact of energy price hikes. The sectors that are most negatively affected by refined fuel price hikes include gas production, coking, chemicals, and transportation, while the sectors that are most negatively affected by power tariff and coal price hikes include coking, non-metal minerals, and chemical fertilizers.
"Although the impact of energy price normalization on CPI inflation seems affordable, the energy price will not be raised by 10 percent. Refiners have been under less pressure recently due to a sharp fall in the price of crude oil," says Wei Weixian, an economist from the University of International Business and Economics. The international crude oil price recently tumbled below $108 a barrel from $147 per barrel in July.
"And many industries have suffered from rising prices of raw material costs and labor costs, so I predict the energy prices will not surge to 10 percent in a short period, probably up to 5 percent," he adds.
Economist Cai Zhizhou from Peking University disagreed.
"Energy prices rising by 10 percent is normal and will not have a big impact on CPI inflation," he says. "And energy price hikes are a crucial method to optimize the industry structure, so that hi-tech and environmentally friendly industries will distinguish themselves."
August saw CPI growth dip to 4.9 percent, the fourth consecutive monthly drop in consumer inflation, after a 12-year high of 8.7 percent was hit in February.
And some think the latest figure provides a good basis for adjustment of retail electricity prices.
Gao Huiqing, Director Strategic Planning Division, State Information CTR., said, "Price hikes in electricity, coal and oil will be a focus of the government's new round of reforms. The price adjustments of these basic resources will definitely affect prices of other products. And in turn, this may lead to a higher CPI growth rate. For this reason, the CPI is a crucial reference for prices hikes for resources."
Experts say the price hikes will help transfer the pressure of rising coal cost to end users.
Over the past two months, domestic on-grid electricity prices have been raised twice. So far, the on-grid prices have been increased around 0.04 yuan on average. The electricity regulator says grid companies will find it hard to handle rising costs if they are not allowed to raise retail prices.
The watchdog says there is little possibility for a rebound in CPI growth rates, providing further room for raising retail prices. But it says the exact time still needs to be fixed.
And some think the latest figure provides a good basis for adjustment of retail electricity prices.
Gao Huiqing, Director Strategic Planning Division, State Information CTR., said, "Price hikes in electricity, coal and oil will be a focus of the government's new round of reforms. The price adjustments of these basic resources will definitely affect prices of other products. And in turn, this may lead to a higher CPI growth rate. For this reason, the CPI is a crucial reference for prices hikes for resources."
Experts say the price hikes will help transfer the pressure of rising coal cost to end users.
Over the past two months, domestic on-grid electricity prices have been raised twice. So far, the on-grid prices have been increased around 0.04 yuan on average. The electricity regulator says grid companies will find it hard to handle rising costs if they are not allowed to raise retail prices.
The watchdog says there is little possibility for a rebound in CPI growth rates, providing further room for raising retail prices. But it says the exact time still needs to be fixed.
"The root problem is sluggish consumption in the Western economies," said Sherman Chan, a Moody's Economy.com analyst, in a report to clients.
"The housing crisis in the U.S. has triggered global credit market turmoil, and this has severely damaged business and consumer demand in China's largest export markets — the U.S. and Europe," Chan said. "Although strengthening domestic consumption on the mainland has helped to support industrial production, overall output growth will not be as stunning as the previous year."
Analysts have cut forecasts of China's economic growth this year to as low as 9 percent, down from last year's stunning 11.9 percent. That still would be by far the highest growth for any major country. But Chinese leaders need high growth to reduce poverty and create jobs for millions of new workers entering the economy.
The government has given tax breaks to textile exporters and is expected to roll out other measures to help struggling industries.
"The housing crisis in the U.S. has triggered global credit market turmoil, and this has severely damaged business and consumer demand in China's largest export markets — the U.S. and Europe," Chan said. "Although strengthening domestic consumption on the mainland has helped to support industrial production, overall output growth will not be as stunning as the previous year."
Analysts have cut forecasts of China's economic growth this year to as low as 9 percent, down from last year's stunning 11.9 percent. That still would be by far the highest growth for any major country. But Chinese leaders need high growth to reduce poverty and create jobs for millions of new workers entering the economy.
The government has given tax breaks to textile exporters and is expected to roll out other measures to help struggling industries.
We believe the government is now in a better position to focus on growing the economy, which has slowed in the past four quarters amid a global economic slowdown and Chinese currency appreciation. China has already taken several actions to try to put the economy back on the growth track. We learned that the lending quota has been expanded to small businesses, and that exporters are seeing a gleam of hope as the Chinese currency remained flat against the dollar since August and as the government cuts export taxes for garment and textile firms. At the same time, however, high CPI remains a key concern for the government, in our opinion. The high August PPI indicates that inflation may flare up again later in the year, requiring the government to stay vigilant. Or, if Chinese firms fail to pass along rising product costs, they will see significantly lower profit margins.
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We think the slow growth is attributable to weaker demand in major export markets of the U.S. and the European countries, as well as power shortage problems in major industrial provinces such as Liaoning and Hubei. Transportation restrictions and temporary plant shutdowns before and during the Beijing Olympics in August may have also led to lower production.
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We think the slow growth is attributable to weaker demand in major export markets of the U.S. and the European countries, as well as power shortage problems in major industrial provinces such as Liaoning and Hubei. Transportation restrictions and temporary plant shutdowns before and during the Beijing Olympics in August may have also led to lower production.
434,271 passenger vehicles were sold in China in August 2008, sagging 5.4% from a year ago and 6% from a month ago, respectively, according to the National Passenger Car Information Exchange Association.
It was the first time that the country's monthly passenger car sales volume had witnessed a year-on-year decline in recent four years.
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The roaring growth of China's automobile market ended with excessive passenger car consumption, so the passenger vehicle sale volume growth for the entire 2008 will likely slip to between 6% and 8%, said Rao Da, secretary-general of the National Passenger Car Information Exchange Association.
However, several experts estimated that the declining tide would not lead to fierce price wars in the second half of this year and prices of most car models would rise step by step. In the not-too-distant future, more domestic automakers are predicted to strive for success in technology, quality, marketing, brand, and service competitions.
China's automobile sales volume had narrowed for five consecutive months ended July 31, 2008, citing the report released by the China Association of Automobile Manufacturers (CAAM).
It was the first time that the country's monthly passenger car sales volume had witnessed a year-on-year decline in recent four years.
[..]
The roaring growth of China's automobile market ended with excessive passenger car consumption, so the passenger vehicle sale volume growth for the entire 2008 will likely slip to between 6% and 8%, said Rao Da, secretary-general of the National Passenger Car Information Exchange Association.
However, several experts estimated that the declining tide would not lead to fierce price wars in the second half of this year and prices of most car models would rise step by step. In the not-too-distant future, more domestic automakers are predicted to strive for success in technology, quality, marketing, brand, and service competitions.
China's automobile sales volume had narrowed for five consecutive months ended July 31, 2008, citing the report released by the China Association of Automobile Manufacturers (CAAM).
China plans to give its domestic manufacturers a $22 billion tax break aimed at spurring business investment.
The government will allow businesses to use their fixed-asset investments as tax write-offs, the State Administration of Tax confirmed to the South China Morning Post. The planned changes, estimated to slice 150 billion yuan ($21.9 billion) a year off of the tax bills of China's eight million companies, lets industries with investments in assets such as factories, machinery, and equipment to pay less in value-added taxes to Beijing.
Expected to take effect next year, the new rules aim to encourage businesses to make major investments. Beijing gave the changes a trial run in 2004 in China’s northeastern provinces, a region where heavy industry was struggling. This time, though, the tax changes will also affect service-related businesses...
The government will allow businesses to use their fixed-asset investments as tax write-offs, the State Administration of Tax confirmed to the South China Morning Post. The planned changes, estimated to slice 150 billion yuan ($21.9 billion) a year off of the tax bills of China's eight million companies, lets industries with investments in assets such as factories, machinery, and equipment to pay less in value-added taxes to Beijing.
Expected to take effect next year, the new rules aim to encourage businesses to make major investments. Beijing gave the changes a trial run in 2004 in China’s northeastern provinces, a region where heavy industry was struggling. This time, though, the tax changes will also affect service-related businesses...
If we take into account that the Chinese government booked its first fiscal surplus in 20 years last year, and tax revenues are up more than 30% in the first half of this year, it becomes clear that the government will have plenty of clout to stimulate growth where needed and to curb inflation when necessary.
...according to an online survey carried out by sina.com, one of the country's largest online communities...Some 78.31 percent of the 49,422 respondents thought cancellation of the National Day golden week will leave them less time for travelling or family reunions, as the paid vacations system is hard to implement.
While Cai Jiming, a professor with Tsinghua University and an advocator of national holiday reforms, said the National Day golden week should be cancelled just as the May Day golden week was, if the paid vacations system is strictly followed by businesses.
The best holiday method should combine both national holidays and paid vacations, Cai said.
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According to feedback, the cancellation of the weeklong May Day Holiday this year relieved pressures on the traffic and environment and embodied traditional culture, Cai said.
China introduced the golden week system in 1999 to promote the idea of going out and help stimulate domestic consumption. Yet this year, the May Day golden week was cancelled and three more traditional holidays, including the upcoming Mid-Autumn Festival, have become public holidays.
Meanwhile, the State Council, China's cabinet, regulated that employees who have worked from one to ten years would have five days paid vacation; those who have worked for 10 to 20 years would have ten days; and those with more than 20 years 15 days.
While Cai Jiming, a professor with Tsinghua University and an advocator of national holiday reforms, said the National Day golden week should be cancelled just as the May Day golden week was, if the paid vacations system is strictly followed by businesses.
The best holiday method should combine both national holidays and paid vacations, Cai said.
[..]
According to feedback, the cancellation of the weeklong May Day Holiday this year relieved pressures on the traffic and environment and embodied traditional culture, Cai said.
China introduced the golden week system in 1999 to promote the idea of going out and help stimulate domestic consumption. Yet this year, the May Day golden week was cancelled and three more traditional holidays, including the upcoming Mid-Autumn Festival, have become public holidays.
Meanwhile, the State Council, China's cabinet, regulated that employees who have worked from one to ten years would have five days paid vacation; those who have worked for 10 to 20 years would have ten days; and those with more than 20 years 15 days.
China should aim to maintain reasonable expansion of investment and cut taxes to sustain its strong growth, a senior government economist said in remarks published on Monday.
Lu Zhongyuan, deputy head of the Development Research Centre, said Beijing needed such measures to avoid a drastic fall in economic growth, as weakening property and automobile markets implied China would have limited room to further boost consumption demand in the second half.
He told the official People's Daily that China should increase investment in projects that would help save energy, clean up the environment and upgrade technology. Beijing also needed to cut value-added taxes and increase export tax rebates, Lu said.
His think-tank falls under the State Council, China's cabinet. JPMorgan Chase said in a report last month that China was considering a stimulus package of at least 200-400 billion yuan, which would include tax cuts and measures to support the domestic stock and property markets.
Lu Zhongyuan, deputy head of the Development Research Centre, said Beijing needed such measures to avoid a drastic fall in economic growth, as weakening property and automobile markets implied China would have limited room to further boost consumption demand in the second half.
He told the official People's Daily that China should increase investment in projects that would help save energy, clean up the environment and upgrade technology. Beijing also needed to cut value-added taxes and increase export tax rebates, Lu said.
His think-tank falls under the State Council, China's cabinet. JPMorgan Chase said in a report last month that China was considering a stimulus package of at least 200-400 billion yuan, which would include tax cuts and measures to support the domestic stock and property markets.
Over the next half year, the government plans to carry out macro economic policies that will be more relevant and flexible. The policies will encourage investment in sectors like agriculture, infrastructure and innovation. They will also encourage consumption.
Zhang Liqun, Researcher Dev't Research Center, State Council, said, "The policies will give more support to small and medium-sized enterprises."
Chen Dongqi, Deputy Director, NDRC Macroeconomic Research Institute, said, "The government has said our macro control measures will try to be more proactive, to subtly adjust to changes that do happen and to help influence the industrial structure."
Zhang Liqun, Researcher Dev't Research Center, State Council, said, "The policies will give more support to small and medium-sized enterprises."
Chen Dongqi, Deputy Director, NDRC Macroeconomic Research Institute, said, "The government has said our macro control measures will try to be more proactive, to subtly adjust to changes that do happen and to help influence the industrial structure."
Domestic consumption is accounting for an increasingly large share of activity as living standards rise, but it is still only responsible for about a third of growth, with investment supplying another third, and exports the final third.
It is therefore still impossible for a downturn in the Western world not to have an impact on China. An export-induced slowdown is occurring — and it's happening as the Chinese economy undergoes significant structural change that is a natural product of its initial success as a low-end, low-labour-cost manufacturer.
Small and medium-sized Chinese factories that punched out clothing, footwear and other simple manufactured goods are closing, and investment capital that supported their growth is being directed to other countries where labour costs are lower and profit margins higher, including Vietnam, Bangladesh and India.
The common estimate given to me when I visited China last month was that in the southern Pearl River delta industrial zone alone, 20,000 small and medium-sized export-oriented factories have shut down.
The forces behind this are not only unstoppable, they are being encouraged by the Chinese Government, which understands that there is no long-term future for the country in sweatshops. Wage rates, for example, doubled between 2002 and the end of last year, and the Government has raised the bar again this year by introducing labour laws that include overtime rates, redundancy payments and pension payments.
[..]
We are witnessing a momentous transformation. The continued existence of companies in Japan, Korea and the West that control the markets for sophisticated heavy machinery and heavy engineering will be threatened as China upgrades its manufacturing base, and there are already harbingers, in companies like Shanghai Zhenhua Port Machinery Co (ZPMC), a maker of dock cranes that listed on the Shanghai sharemarket in the late 1990s, and has built 75% of the global dock crane market since then. ZPMC's shares are down 64% this year, caught up in the Chinese sharemarket's 63% slide, but it still has a market capitalisation of $US4.4 billion ($A5.8 billion), and its shares are 40 times higher than they were at the turn of the century.
The risk of direct financial contagion from the market meltdown is fairly low in China. The main credit exposure is through China's two banking giants, Bank of China and Industrial & Commercial Bank of China (ICBC) — but Bank of China said recently it was carrying $US3.6 billion of subprime-related securities, 1.5% of its total investment book, and ICBC earned $US9.42 billion in the June half to become the world's most profitable bank. Subprime-related write-downs at ICBC were $US702 million, against a $US1.4 trillion asset portfolio. And while the Chinese sharemarket has slumped, both margin lending and short-selling are outlawed in China. There is some concern that investors with access to company balance sheets may have shifted debt into sharemarket plays before the slide, but the curbs on market gearing should contain the damage.
I am no China bear. China's economy is becoming more internally driven, and its shift into higher value-added industries will deliver long-term economic strength: the transition from low-end manufacturing to more sophisticated production actually reinforces the long-term scenario for China to be a key engine of world growth and, for Australia, of high commodity prices.
But the slump in global demand for Chinese exports that still generate a third of the economy's growth, the structural adjustment and the temporary production pause that accompanied the Olympics is combining to slow the economy more quickly than many observers expected...
It is therefore still impossible for a downturn in the Western world not to have an impact on China. An export-induced slowdown is occurring — and it's happening as the Chinese economy undergoes significant structural change that is a natural product of its initial success as a low-end, low-labour-cost manufacturer.
Small and medium-sized Chinese factories that punched out clothing, footwear and other simple manufactured goods are closing, and investment capital that supported their growth is being directed to other countries where labour costs are lower and profit margins higher, including Vietnam, Bangladesh and India.
The common estimate given to me when I visited China last month was that in the southern Pearl River delta industrial zone alone, 20,000 small and medium-sized export-oriented factories have shut down.
The forces behind this are not only unstoppable, they are being encouraged by the Chinese Government, which understands that there is no long-term future for the country in sweatshops. Wage rates, for example, doubled between 2002 and the end of last year, and the Government has raised the bar again this year by introducing labour laws that include overtime rates, redundancy payments and pension payments.
[..]
We are witnessing a momentous transformation. The continued existence of companies in Japan, Korea and the West that control the markets for sophisticated heavy machinery and heavy engineering will be threatened as China upgrades its manufacturing base, and there are already harbingers, in companies like Shanghai Zhenhua Port Machinery Co (ZPMC), a maker of dock cranes that listed on the Shanghai sharemarket in the late 1990s, and has built 75% of the global dock crane market since then. ZPMC's shares are down 64% this year, caught up in the Chinese sharemarket's 63% slide, but it still has a market capitalisation of $US4.4 billion ($A5.8 billion), and its shares are 40 times higher than they were at the turn of the century.
The risk of direct financial contagion from the market meltdown is fairly low in China. The main credit exposure is through China's two banking giants, Bank of China and Industrial & Commercial Bank of China (ICBC) — but Bank of China said recently it was carrying $US3.6 billion of subprime-related securities, 1.5% of its total investment book, and ICBC earned $US9.42 billion in the June half to become the world's most profitable bank. Subprime-related write-downs at ICBC were $US702 million, against a $US1.4 trillion asset portfolio. And while the Chinese sharemarket has slumped, both margin lending and short-selling are outlawed in China. There is some concern that investors with access to company balance sheets may have shifted debt into sharemarket plays before the slide, but the curbs on market gearing should contain the damage.
I am no China bear. China's economy is becoming more internally driven, and its shift into higher value-added industries will deliver long-term economic strength: the transition from low-end manufacturing to more sophisticated production actually reinforces the long-term scenario for China to be a key engine of world growth and, for Australia, of high commodity prices.
But the slump in global demand for Chinese exports that still generate a third of the economy's growth, the structural adjustment and the temporary production pause that accompanied the Olympics is combining to slow the economy more quickly than many observers expected...
The U.S. giant now operates two regional headquarters in Shanghai and Beijing. The new locations will be in Shenyang, Wuhan, Chengdu, Xi'an and Guangzhou -- provincial capitals in the country's northeast, central, southwest, northwest and south, according to Chen Xiangli, president of China Technology Center under GE.
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The new headquarters would help existing functional departments in different regions to further explore the market and develop more China-oriented products, Wang added.
Since last year, GE has invested 55 million U.S. dollars to the center on the research and development of new products for China, with a focus on clean energy, water treatment and new materials, among others.
The center now boasts more than 60 advanced labs and employs some 1,400 people.
[..]
The new headquarters would help existing functional departments in different regions to further explore the market and develop more China-oriented products, Wang added.
Since last year, GE has invested 55 million U.S. dollars to the center on the research and development of new products for China, with a focus on clean energy, water treatment and new materials, among others.
The center now boasts more than 60 advanced labs and employs some 1,400 people.
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