Capacity is one thing, inclination another and right now the Chinese Government’s proclivity is domestic (aside from taking a near 1% stake in GM in its IPO). Inflation is rampant, especially in food and not only are interest rates almost certain set to rise, but also price controls and the mobilisation of food reserves are imminent.
The latter measures are, of course, artificial and may only have a short shelf-life. More fundamental is the issue of liquidity both imported and domestic. This has led a number of commentators to recommend treating the ‘illness’ not the ‘symptoms’. For example, Sandford Bernstein expects new bank loans to fall 12% next year to Yuan 6.6 billion (and other estimates are lower). Similarly, Standard Chartered sees three interest rate rises next year (in addition to the probable one of 0.25 to 5.56% before end-December). What’s wrong, too, with letting the Yuan appreciate further, which is a pretty painless way to reduce inflation?
Understandably, the Shanghai Composite is not a happy camper and, even after today’s respite, it has fallen almost 9% since its November high on the 8th (when it was also back to April’s level). And while I might sit on my hands for a day or two, I would not panic.
The OECD says China will grow by “about 10%” in 2011 and 2012. It also says that China’s current account surplus will stabilise at about 5.5% of output, and that the Government should allow the Yuan to strengthen further. “The stability of the domestic economy would be enhanced if the exchange rate policy were more oriented to allowing an appreciation against a basket of currencies. In addition, Government spending should continue to be reoriented to social objectives”. Note, too, the OECD has just reduced it global economic outlook bringing down its GDP forecast from 4.5 to 4.2% and is talking about a “soft spot” as stimulus spending fades – before investment spurs revival in 2012.
“Ireland is where strange tales begin and happy endings are possible” - Charles Haughey
Shanghai Composite:
Today: +0.81% to 2,888.57 at close
This week: -3.2%
In November: -3.0%
Since 5 July: +22.2%
YTD: -11.9%
Hang Seng:
Today: -0.13% to 23,605.71 at close
This week: -2.6%
In November: +2.2%
YTD: +7.9%
Oil futures: $85.42
Gold futures: $1359.50
(new ‘immediate delivery’ high of $1424.30 on 9 November)
Euro/$ spot: 1.3684
HEADLINES
EQUITIES
- Buy A-shares and ‘short’ H-shares as prices drop, says Credit Suisse; while JF is more positive
YUAN & RATES
- Money market rates point the way to higher rates
- Interest rate rise around the corner because price controls may be “insufficient”
- Yuan fails “freely usable” test for SDR basket, says IMF
- Bank lending target may be reduced 12% to Yuan trillion, says Sanford Bernstein
- China to raise rates twice more and Yuan to rise, says Aviva
ECONOMY
- OECD says China will grow by “about 10%” in 2011 and 2012
INTERNATIONAL
- OECD cuts Global growth outlook for next year to 4.2% and predicts “softspot”
- GM sells $500 million (0.97%) stake to Chinese partner SAIC as part of IPO
- World food import costs are $1 trillion+ this year says UN
- Nobel Committee may not present its Peace Prize to Liu (as it must be made to him of family member)
DOMESTIC
- China pledges adequate grain supplies
- China to give local governments more power on taxes
- Tibet lures hoteliers as China's big cities are over-supplied
- Chinese man uses SUV to knocks down 11 officials who were demolishing his house
HONG KONG & TAIWAN
- Hong Kong is said to be planning new property curbs
- IMF says Hong Kong economy risks boom and bust
- Yuan's Hong Kong premium shrinks from 2.6 to 0.6%
- Taiwan's GDP grows 9.8% in Q3 which underlines Asia’s recovery and capital flows
IRON & STEEL
- Baosteel and Taiwan’s China Steel in iron ore move
- Wuhan and Angang reduce steel prices for December, according to Mysteel
- Rio Tinto’s CEO says Governments face “populist pressures” on foreign bids; but adds that China’s economic strategy is “sensible”
- Baosteel expects quarterly iron ore pricing to stay
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