China and its rebounding economy remains our great white hope to avoid the really rough water of the global economic recession.
The Government, Reserve Bank and other commentators all point to the recovery in the country: indeed RBA Governor Glenn Stevens was quite optimistic in a speech on the Australian economy in Townsville yesterday:
“The clearest signs of growth are in China, where our estimates are that industrial production had recovered all the losses by March. China does not publish quarterly GDP growth rates, but our best estimates are that the March quarter growth rate picked up relative to the weak outcome in the December quarter. The improvement in conditions in other emerging economies in Asia may be partly related to the pick-up in China. Quite a marked bounce in industrial output has occurred in Korea and Taiwan, and a similar pattern looks to be emerging in several other countries in the region.”
So how’s China travelling?
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Well, electricity consumption fell again in May, the Government’s trying to boost property development by lowering the loan to valuation ratio for the first time in 13 years and a senior trade official has warmed up the market by warning that the country’s “foreign trade sector now faces unprecedented difficulties”. That’s according to a report on Xinhua, the official newsagency, where nothing appears without official blessing.
In reality the export warning by Vice Minister of Commerce Zhong Shan is a message that China now expects exports to remain weak for the rest of the year: “It’s increasingly difficult to make a quick turnaround and the situation will remain gloomy in the second half year, Zhong said.
Xinhua said he made the remarks at a national meeting on export credit insurance held by the Ministry of Commerce (MOC) and the China Export and Credit Insurance Corp. (Sinosure) – a policy-oriented insurer.
“Zhong urged more focus on exports of labour-intensive products and high-tech products and stressed the importance of upgrading trade structure.”
Another report quoted on Xhinhua and other Chinese news websites centred on the continuing fall in China’s power generation in May.
The reasons for this fall and its meaning have become a major discussion point inside China among analysts and externally: one view says it shows the continuing flatness in the economy, others that the impact of restructuring and the closing of high power consuming older production facilities and this was disguising the recovery in consumption.
Anyway, the media reports said China consumed 289.7 billion kilowatts of electricity in May, down 3.54% from May 2008. That was little changed from April’s fall of 3.55% from April last year. But it is better than the 9.6% fall last November.
And the Chinese Government has cut the “financial requirement ratio of commercial property investment” with the obvious objective of boosting the commercial and residential property markets which have refused to show any life, despite claims that there have been signs of increased activity as a result of the Government’s stimulus package.
According to Xhinua, China’s State Council, (the country’s cabinet), announced this week that, for the first time in 13 years, the minimum capital requirements for starting a new commercial property or an affordable housing project had been lowered from 35 percent of the total project cost to 20 percent. Xinhua said “The move was seen as a key adjustment in the government macroeconomic measure to fight the economic slowdown and revive the housing market, as the reduction indicated a lowered threshold for real estate developers to apply for bank loans.”
China’s real estate investment grew 4.1% in the first quarter of this year; the figure was 28.2% a year earlier. That’s a slowdown. Despite this impression of sluggish economic activity, the Government released information Thursday showing that it had allocated 562 billion Yuan (or $US82.3 billion) for public works projects as of May 31, or nearly 62% of its central budget this year.
The Ministry of Finance (MOF) said that more than half of the allocated money went toward rural development and prominent infrastructure construction and a total of 138.1 billion Yuan was put into projects to enhance rural infrastructure and improve living standard in the countryside through the construction of irrigation facilities, power grids and paved roads.
“Another 163.5 billion Yuan went toward infrastructure projects such as railway, highway, airports and harbor construction. Other spending included 84.8 billion Yuan for reconstruction in areas hit by the May 12 earthquake last year, 42.7 billion Yuan for low-income housing project, 44.2 billion Yuan for education, medical care and cultural development, 41.2 billion Yuan for industrial upgrades, 27.8 billion Yuan for environmental protection and energy saving as well as 19.7 billion Yuan for public service facility buildings.”
The impression from this statement is that the Government continued to spend heavily on domestic projects, such as infrastructure, to maintain demand in the economy, even though exports will remain weak. We had better hope so, because as the RBA Governor pointed out China is taking more of our exports at a time when others aren’t (that was before the collapse of the Chinalco-Rio Tinto deal).
If China cuts its purchases of our raw materials, we will face troubles, but there are few countries with the iron ore, coal and bauxite mines (not to mention uranium and a few other minerals) with good management, scale and efficiency to deliver material to China.
Indonesia, Brazil, Canada, South Africa and India all are less efficient producers or higher cost exporters for reasons of distance and time.