Medicine: domestic and international

We have all heard of cases when the medicine was so strong that it killed the patient. In China, though, there is a healthy chance that the administered dose was the correct one. Herein, the first symptom is February’s bank lending which is reported, by the China Securities Journal, to be less than Yuan 600 billion (or $91 billion). We will have to wait until around 11 March to know the official number, but the smart doctor knows that it is most likely true; and that it compares with Yuan 1.04 billion in January and Yuan 700 billion a year ago. Secondly, the seven day repurchase or ‘repo’ rate has fallen to its lowest level (2.22%) since 7 December.

Numbers three, four and five are a hat trick of Purchasing Manager’s Indices (PMIs) which showed that manufacturing expanded at its slowest pace in six and seven months in February (Logistics Federation and HSBC/Markit respectively); and the same for Non-manufacturing (National Bureau of Statistics/LF). Okay, the holidays impacted the later (but it would have still been lower) and input prices remain a concern; but at the same time, a measure of business prospects inched up.

Then, under the heading of rehabilitation it is also rumoured that the Government will reduce tax rates for individuals and ease the tax burden for low income earners. This comes ahead of the National People’s Congress which kicks off tomorrow and which will showcase the Nation’s new five year plan. Lower tax would of course assist the growth of domestic consumption which is a stated policy objective. On this tack, it is also interesting to note that China’s richest man, Zong Qinghou (worth $12 billion says Hurun), who is also Chairman of soft drink maker Wahaha, is planning to open 100 department stores.

Turning, to real estate it is wise to seek a second opinion. On the one hand, new home sales in Shanghai (-83%) and Beijing (-70%) in February were truly awful. This was most likely driven by Government policy but could also be something of a knee-jerk reaction. More sanguine is the fact that SouFun said, nationally, prices in February (+0.5%) rose at their slowest pace in six months. More broadly, Soho China, Beijing’s largest CBD developer, while ultra cautious on housing, expects a “significant increase” in commercial property prices this year. Plus, in the fit and healthy camp, China Vanke said that its sales in February rose 142% by value (Yuan 6.1 billion) and 160% by volume (to 549,000 square metres).

Construction (China is now the global leader in scale), cement (new investors/investment) and railroad building are in peak condition too, although there are some concerns on the latter’s funding. Plus, there has even been some soothing rain in drought affect areas.

Turning to the international medical profession, it is worth pointing out the Shanghai Composite has risen 10% since the first shoe was thrown in Egypt on 25 January. This is also despite an incipient Jasmine consciousness in China and, although the police have been strong arming any flag wavers, Wen has taken notice of what has been said and has hinted at policy change. Dr China has also increased its holdings of US Treasuries to over $1 trillion and comfortably retains its number one spot on the US creditors list. Being America’s banker (as former Aussie PM Kevin Rudd said) has a lot of health benefits.

And the final word goes to Michael Holland (who may or not be a doctor) Chairman of boutique investor Holland & Company: “the market had been very, very adverse to accepting the good news out of China, always looking for the last several quarters at what could go wrong. In the case of China, it’s only a matter of time, along with Taiwan, before investors come back to realise that this thing has been working and will continue to work”.

Shanghai Composite:
Today: +1.35% to 2,942.31 at close
This week: +1.3%
February: +4.1%
Since 5 July: +24.5%
Since 8 Nov: -6.7%
YTD: +4.8%

Hang Seng:
Today: +1.24% to 23,408.86 at close
This week: +1.7%
February: -0.5%
Since 25 May: +23.3%
Since 8 Nov: -6.2%
YTD: +1.6%

Oil futures: $102.75
Gold futures: $1416.90
(new ‘immediate delivery’ high of $1441.00 in March 2011)
Euro/$ spot: 1.3956

EQUITIES
• China’s ETF assets to out perform ROW, says BlackRock
• China's stock exchanges plan to double ETFs

ECONOMY
• Manufacturing PMIs fall (to 52.2 and 51.7) as monetary policy begins to take effect
• Non-Manufacturing PMI falls sharply (to 44.1) in February on seasonal factors
• Personal tax thresholds and rates to fall
• China's richest man plans to expand into department stores
• China’s energy use to rise 4.24% per annum through 2015 when it will cap energy use at the equivalent of 4 billion tons of coal

MONEY
• February’s new loans decline to less than Yuan 600 billion, claims China Securities Journal
• Money market rate falls to lowest (2.22%) this year
• CBRC’s Liu sees only gains for the Yuan
• Yuan may strengthen faster on liberalisation, says Societe Generale
• NDRC is to ease limits on outward bound investment
• China’s holdings of US Treasuries rises to $1.16 trillion

REAL ESTATE
• Shanghai’s new home sales in February fall 83%, says Uwin
• Beijing new home sales in February fall 70%, says Xinhua
• Shanghai house price also fell 10%, says Uwin
• National house price growth was the slowest in six months in February, says SouFun
• Shanghai makes it is easier to qualify for low cost housing
• China Vanke says that February’s sales rose 142% to Yuan 6.1 billion, year-on-year
• Soho China reports 2010 net profit up 10% and expects commercial real estate prices to rise

CONSTRUCTION
• China builds way to top of global construction league

CEMENT
• Taiwan’s Far Eastern Group plans to buy more cement companies in the People's Republic of China
• West China Cement plans a Yuan 3 billion investment

RAIL
• Railroad yield gap is at a six month high as debt sales increase

DOMESTIC
• Wen welcomes billionaire members to the National People’s Congress - as the wealth gap widens
• China’s drought affected regions have had rain
• China’s defense budget to rise 12.7% to $91 billion this year

HONG KONG
• Hong Kong to give individuals $6,000
• Hong Kong says February home sales rose 37% versus January; and 10% year-on-year

IRON & STEEL
• Australia economics bureau, ABARES, is bullish on iron ore; but says prices will fall as supply rise
• Australia's iron ore exports to rise 5.5% in 2011, says ABARES
• Iron ore shipping rate end 10 day decrease
• Indian iron ore exports fall for seventh month in a row
• ENRC to spend $6.8 billion on iron ore in Kazakhstan and Brazil
• Fortescue in new billion ton iron ore discovery after its H2 2010 prices more than doubled to $138.50
• China International Fund to invest $100 million in Bellzone’s Guinea iron ore project; as Bellzone’s losses increase
• Rio Tinto and Baoshan sign three year coal deal