Birthday gifts

Michelle Obama’s birthday is on 17 January (she will be 47) and there is no truth in the rumour that President Hu Jintao was not asked to the party; he arrives for a State Visit on the 18th – and it was simply that he had too much to do ahead of shipping out Stateside. Michelle, however, made it very clear (by way of Mrs Hu) that there was only one thing she wanted; and, altruistically, this was ‘an appreciated Yuan’.

Wise men say ‘be careful what you wish for’ but, nonetheless, Michelle may very well have hers fulfilled as the Yuan rose close (6.5919) to a 17 year high today. Momentum, too, is building (aided by Tim Geithner) and forecasts from a clutch of investment banks are for a Yuan of 6.0 to 6.37 by the end of the year or, broadly, +9.0 to 3.5%. That said, Yuan Forwards are still only looking for +2.7% and actually dipped today for the first time since 7 January.

Of course, a higher Yuan would have benefits at home, too, in terms of reining in inflation (which could be 4.5 to 5.0% this year); a fact not lost on either Hu or the PBOC. By way of lead indicators are the central bank’s three month bill sales (where yields moved from 2.1777 to 2.2588%) and the repo rate which saw its largest rise today since 29 December (+22 basis points to 2.56%). This meant that the Shanghai Composite was spooked (down 1.3% today; as Hong Kong bounces) by the expectation of a further interest rate rise and, perhaps, a seventh move in bank reserve requirements. Bank lending growth also looks to be constrained to +14% this year after 2010’s above-target-surge of 19.9% to Yuan 7.5 trillion.

On a brighter note, China’s foreign currency reserves are now at £2.85 trillion having risen 18.7% last year; they may also top $3 trillion by mid-year according to UBS. Similarly, (and with the help of statistical jiggery pokery), the Peterson Institute says that China overtook the US last year as the largest global economy in terms of purchasing power: $14.8 plays 14.6 trillion. Elsewhere, the World Bank says China’s GDP growth will slow this year from 10 to 8.7%, although a median estimate of 18 economists (in a Bloomberg survey) is at 9%; which is still fine to be getting on with. Note, too, that vehicle sales, last year, soared 32% to 18 million and will rise by a further 10 to 15% this year.

In real estate, the expected tax in Shanghai is reported to be 0.5 to 0.6% for buyers of new homes exceeding 70 square metres per person. I could live with that and so, probably, can the market. More broadly, Cushman & Wakefield says that 2010 saw “the first year of the era of commercial property” as it morphs from a residential focus to malls, office and industrial buildings. Last year real estate investment jumped 42% amid a volume of transactions 20% larger. Keep the faith.

“Everything comes down to China. That’s where the growth is” - Seiuemon Inaba, Chairman of Fanuc of Japan, the World’s largest maker of robot controls

Shanghai Composite:
Today: -1.29% to 2,791.34 at close
This week: -1.7%
December: -0.4%
2010: -14.3%
Since 5 July: +18.1%
YTD: -0.6%

Hang Seng:
Today: +0.18% to 24,283.23 at close
This week: +2.5%
December: +0.1%
2010: +5.3%
Since 25 May: +27.9%
YTD: +5.4%

Oil futures: $90.97
Gold futures: $1371.90
(new ‘immediate delivery’ high of $1431.25 on 7 December)
Euro/$ spot: 1.3436

ECONOMY

• China pips US to become the largest global economy by purchasing power
• GDP growth in China to slow to 8.7% in 2011 (from 10%), says World Bank
• ….other commentators are more positive
• CNPC says net imports of oil product may fall 23% as GDP slows
• 2010 vehicle sales hit 18 million (+32%); forecast for 2011 are at +10 to 15%
• 2011 inflation may exceed target say leading commentators

MONEY

• Yuan rises to near 17 year high ahead of Hu’s visit to Washington next week
• PBOC raises three month bill yields
• Money rate see largest rise since end-December
• Currency reserves rise to record $2.85 trillion
• Largest banks ‘expect’ to limit growth in lending to 14%
• New loans beat target in 2010
• Monetary policy in China exerts strong push/pull on international capital flows

REAL ESTATE

• Shanghai property tax to 0.5-0.6% on new homes exceeding 70 square metres per person
• Chinese developers shift focus to commercial properties, says Cushman & Wakefield
• Developers are using ‘synthetic’ bonds to raise funding internationally; and so so more easily
• Disney’s Park in Shanghai Park may attract 7.3 million visitors per annum
• Property results soar with 2010 sales at Poly Real and Gemdale ahead by 53% and 35% respectively

INTERNATIONAL

• BlueStar to buy Orkla silicon business for $2 billion in one of largest ever Chinese acquisitions in Europe

HONG KONG

• Hong Kong office rents increased 32% last year

IRON & STEEL

• Baffinland bidding involves Chinese company, says Government official
• North America’s largest iron ore producer, Cliffs, also buys in Canada: Consolidated Thompson for $4.97 billion
• Iron ore prices to rise after Queensland floods
• Baoshan Steel sees its 2010 net income more than double