Jigsaw

Mr Lin of Taipei had a bad day when he accidentally shredded $200,000 worth of Taiwan dollars ($US 6,645), according to Reuters. However, he was also lucky that a local forensic scientist pieced together the remains of 200 bills. “The “jigsaw expert”, Liu Hui-fen, is a 30 year veteran with the Justice Ministry's special investigations unit who also described the task as “difficult” and that it “required patience”.

As they gathered this morning for the so-called Central Economic Work Conference, President Hu, Premier Wen and their cohorts are faced with a “monetary jigsaw” and will need similar degrees of diligence and patience as shown by Liu above. But they have also been counting the pieces ahead of time. For example, tomorrow’s announcement of inflation data for November has been brought forward from next Monday. Furthermore, two newspapers, today, both said that the CPI will be a gut-busting 5.1%. This compares with a consensus forecast of 4.7% and October’s two-year peak of 4.4%. It must have been a leak (albeit a non-Wiki one).

Similarly, after hours today the PBOC released November’s new lending figures which were also ahead (13%) of forecast at Yuan 564 billion ($85 billion). The number also means that this year’s total lending is now just Yuan 50 billion short of the Government’s target maximum of Yuan 7.5 trillion.

Also after hours today, China told its banks that they will need to lodge more money with the PBOC (the third such request in five weeks) – as a means to counter inflation. The increase in the reserve requirement is 0.5% which takes the number to 18.5% for the biggest banks (excluding any additional non-promulgated moves). Market debate ensued, too, about the timing of this move and whether it might be a substitute for an interest rate hike – which most analysts believe will come tomorrow. The Yuan and swap rates agree, whilst equities shrugged it off and rose 1%.

In the broader economy, China reported a larger-than-forecast November trade surplus as exports reached a record. This, too, adds to the case for higher interest rates and an appreciating Yuan as steps to containing inflation. Exports rose 35% to $153.3 billion year-on-year and imports advanced 38% to an unprecedented $130.4 billion, leaving a $22.9 billion excess. The surplus was the fifth this year over $20 billion which have all added flammable cash to the inflation pyre. Nor will the US be best pleased but then as Bloomberg’s William Pesek has said, with holdings of US Treasuries of some $884 billion, isn’t China “America’s Banker”?

Two enlightened US academics (Alberto Alesina and Luigi Zingales) have, this week, also said that China’s surplus is due to its excessive saving, not to its undervalued currency. China saves some 54% of GDP versus an average of 33% among developing countries and 17% among OECD economies. What is more, most of this doesn’t come from household savings, but from the corporate sector, especially State-owned enterprises. Thus, “a redistribution of income would benefit the Chinese people and the world alike”.

More in the here and now, is the real estate market where, although price increases are slowing, volumes remain voluminous. In November, home prices in 70 cities climbed 7.7% from a year earlier (the slowest in 12 months) and increased 0.3% from October. However, sales volumes increased 14.5% from a year earlier (to 10.1 million square metres or 1.09 billion square feet – the most in 11 months); and month-on-month the rise was 9% in November from October. More broadly, too, China’s property investment rose 36.7% to Yuan 462.8 billion ($69 billion) in November from the same month a year earlier and, for the first 11 months of the year, the gain is 36.5% to Yuan 4.27 trillion.

“Beijing will be pleased that house price inflation is continuing to ease” said RBC. “But the pick-up in volumes suggest that conditions are still buoyant in the property sector and that more policy measures are required”. However, CLSA Asia said the month-on-month data “is more relevant and appears quite modest”, while China Real Estate Information added that “the Government is trying to control the home prices, but they certainly don’t want to see the death of developers”.

Elsewhere, China’s top diplomat, Dai Bingguo, met with Kim Jong-il in North Korea and talks were said to have ”reached important consensus”. No such luck in Oslo, where there was an empty chair at today’s Nobel Peace Award to Chinese dissident Liu Xiabo. This does China no favours and indelibly underlines the disparity between economic and social wealth. However, it is also significant that 19 from 64 countries are not attending the ceremony; and the Norwegian Institute of International Affairs said that this reflects China’s growing global influence as its economic power expands. Would you bet against it?

“If you’re good at anticipating the human mind...it leaves nothing to chance” – Jigsaw

Shanghai Composite:
Today: +1.07% to 2,841.04 at close
This week: no change
Since 5 July: +20.2%
YTD: -13.3%

Hang Seng:
Today: -0.04% to 23,162.91 at close
This week: -0.7%
YTD: +5.9%

Oil futures: $88.60
Gold futures: $1386.40
(new ‘immediate delivery’ high of $1431.25 on 6 December)
Euro/$ spot: 1.3239

ECONOMY

• November inflation rate maybe 5.1%, say two newspapers – ahead of tomorrow’s release
• China trade surplus exceeds estimates
• Surplus raises tension with the US

EQUITIES

• Stocks rise as export gain overshadows interest rates

MONEY

• Bank reserve requirement ratio raised for the third time in five weeks
• New lending of Yuan 564 billion in November leaves the total just Yuan 50 million short of the full year target
• Government sells Yuan 10 billion of 273 day bills at 2.8451%
• Yuan has weekly gain on bets interest rates will rise; Forwards point to +2.2% appreciation over 12 months
• China swap rates gain as trade data point to rate increases; but money market rates weaken as PBOC injects funds
• China credit “bubble” set for to burst, says Blackhorse

REAL ESTATE

• China property prices rise at a slower pace
• Homes “over-priced” by 30%

INTERNATIONAL

• North Korea’s Kim Jong Il meets Chinese diplomat and reaches “important consensus”
• China’s economic growth lifts ROW, says IMF
• Sinopec to buy Occidental’s Argentina Unit for $2.45 Billion
• Youku.com leaps 161% in best rise for a US IPO since Baidu some five years ago
• Russia’s VTB is the first company from emerging market, outside Asia, to issue a Yuan bond
• China to lend Sri Lanka $760 million for road development
• Absentees from Nobel Peace Prize ceremony underline China’s growing global influence

DOMESTIC

• China orders a freeze on 2011 thermal coal contract prices
• Crackdown yields 3000 cases of commercial infringement
• Bayer to double sales in China to $6.7 billion by 2015
• Agricultural growth may not be sustainable, says State Council