China Watch: China’s economy is definitely slowing, but inflation remains a concern. Figures today from the country’s National Statistics Bureau Industrial production in May was up an annual 16.5%, down from the 17.8% rate in April and 19.1% annual rate earlier in the year. Steel production in May was all but steady at 56.14 million tonnes from 55.40 million tonnes in April. The CPI rose the leaked 3.1% (annual rate) in May and producer prices were up 7.1% annual, from the 6.8% rate in April. Retail sales rose marginally to 18.7% over the 18.5% (annual) in April. And urban investment was up 25.9% (annual) in the first five months of the year, down a touch from the 26.1% rate in the four months to April.

China saves the day, again: that leak in Beijing of China’s 50% jump in exports in May certainly did the job. When the figures came out yesterday, the 48.5% rise (and 43% rise in imports) sent markets around the world rising sharply, US interest rates fell, oil rose, other commodity prices also rose. Relief all around and those concerns about BP faded into the background and the oil company recovered nearly all its US losses from the day before. BP’s board has gone missing in this brawl. Americans want the oil giant to postpone its dividend, due next week.

China imports less: with world prices for oil and metals and grains lower in May, imports fell from April’s 49% jump (from April last year). But there were a couple of portents that should frighten Australian mining companies and investors (and the Rudd government). China’s iron ore imports fell 6% to 51.9 million tonnes in May from the previous month. They are now down 11% from the 59.01 million tonnes in March. Steel production (to be confirmed today) is down to about 56 million tonnes. Oil imports fell 16% from April because of the fall in prices and copper imports were also lower. The cooling policies of the central government seem to be working.

Property cooling? House prices rose by an annual 12.4% in the year to May, down from the 12.8% rate in the 12 months to April., The value and number of square metres sold fell, the value sliding 25% as prices and transactions dropped in some major cities such as Beijing and Shanghai, where local governments have introduced tougher rules on purchases and ownership than the national government. Chinese analysts say the prices of cheaper apartment and houses are falling, but developers have not started cutting their prices to try and match this downturn. As a result the prices of expensive houses and flats remain high. The price slump is coming and possibly a property tax.

US household wealth up: figures from the Federal Reserve show that the America’s household wealth rose by $US1.1 trillion in the first quarter, driven by the stock market rise in the quarter, which pushed up the value of shares by 4% to $US7.9 trillion. The value of mortgages held by American household continued to fall,  however, down to $US10.24 trillion in the March quarter. Overall household net worth rose to $US54.6 trillion, but was still well below the peak $US65.9 billion in the second quarter of 2007, according to the central bank’s quarterly flow of funds report. If the 6% fall in the stock market is maintained until the end of this month, the measure will turn negative again this quarter, ending four successive quarters of growth.

Foreclosures continue: the pace of growth in foreclosure actions in the US continues to slow, not because banks are getting more generous, but because of myriad schemes for modifying home loans that are under water. In fact these schemes make no difference and only give the banks time to build reserves against losses and the home owners more time to do a deal on existing their homes, or top leave before losing them.  RealtyTrac reported that bank home repossessions hit a record monthly high in May. Lenders took back 93,777 properties, up 1% from April’s record and 44% from the same period a year earlier. Foreclosure filings, meanwhile, fell by 3% from a month earlier and edged up less than 1% from May 2009. Nevada, Arizona and Florida again top the state foreclosure rates in May, though the pace is easing.

Club Austerity: now we can see the cost of Greece’s austerity drive; first quarter economic growth dropped an annual 2.5% in the March quarter of this year (The eurozone grew by 0.2%). According to the country’s National Statistics Agency, this was higher than the earlier estimate of 2.3%. The forecast from analysts is for a 4% contraction over this year, so a lot more pain and shrinking to happen as the country lowers spending, increases taxes to bring down its deficit and start cutting its deb. The drivers behind the contraction make grim reading: industrial production down and still falling with a 5.1% annual fall in April, imports down 6.6%, exports, 0.5%, government spending, off 20% in the first three months of the year.

Japan brighter: in contrast Japan’s first quarter annual growth was revised up to an annual 5% rate, with the quarter-on-quarter rise of 1.2% left unchanged as higher consumer spending offset a sharp fall in business investment. The rise was 0.4% from April as higher prices for oil, gas, iron ore and coal hit business costs. Oil and metal costs have fallen since, iron ore and coal are going higher, so perhaps deflation won’t be such a concern for business from now on. But bank lending fell 2.1% in May.

Peter Fray

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