We will learn next week just how the Chinese economy travelled in the first quarter (and the month of March), with property prices (houses especially), inflation, exports, growth, output and retail sales the figures to watch.
Quarterly and monthly economic data will be released on April 15 and analysts will be watching to see if recent tentative tightening in monetary policy has had any impact.
Judging by the way commodity prices have kicked higher in the last 10 days, the answer is no.
Expectations are for a rise in inflation and a jump in growth to an annual rate for the quarter of 11% or more from the 10.7% in the 4th quarter of 2009.
Beijing reports also suggest that the country will report a trade deficit for March and a sharp fall in the first quarter’s surplus as imports (and their cost) soar.
That would return growth to the ‘hot’ pace of 2007 when it peaked around 12.7%.
In fact a senior Chinese banker has been worried enough about the strong levels of growth, to voice his fears in an interview with the Financial Times earlier this week about the sustainability of the Chinese economy growing at 9.5% or more for much longer.
"GDP growth of 9.5 per cent or above would “be very problematic”, China Construction Bank CEO, Guo Shuqing told the Financial Times. “It will mean more duplication of construction, more excess capacity and higher waste of capital.”
The economy is already at the 9.5% annual rate forecast for this year, based on the 4th quarter 2009 performance (and 8.7% for 2009 as a whole after starting the year with a 6.1% rate).
The government wants growth this year to be 8% or more. That will be easily exceeded.
In fact the FT joined several other forecasters in topping an annual growth rate for China for the March quarter of 11% or more.
Now there’s a report that China could raise rates this quarter because of this expected 11% growth.
The rate hike is being considered as economic growth in the first quarter may exceed 11%, according to Beijing reports which quoted People’s Bank of China adviser Li Daokui in comments made to the China Securities News.
The pace of economic growth in China is expected to cool slightly in the second half, bringing the expansion for the full year to around 9.5%, the report said.
The World Bank sees China’s growth around that level at a forecast 9.7%.
On Wednesday, the People’s Bank of China set the trading range for its currency, the Yuan, at its highest level since the second quarter of last year.
The mid-point of the trading band was lowered 6.8259 Yuan to the US dollar.
It also sold 3 year bills into the market to mop up cash for longer than the usual 12 month period, a sign local economists said, of an approaching rate rise.
That was the first time three year bills had been sold since mid 2008, which is when China also pegged the Yuan to the value of the US dollar.
The sharp economic growth can’t be maintained for much longer without an almighty crunch developing, especially as authorities have been hitting the housing sector with an increasingly larger stick.
Eventually the cuts to loan targets, jawboning on lending and restrictions on just how money can be lent, and to whom and for which purpose, will strangle demand in the housing and property sector.
The danger then is that any fall in activity spreads to the rest of the economy.
So will Chinese demand for commodities of all types hold at recent levels?
Optimists say yes and reckon that China will continue to stockpile commodities, underpinning demand, as it did in 2008 and 2009 in commodities like copper, aluminium, lead and zinc.
Sceptics say not even booming China can avoid having to cool the economy by increasingly dramatic means and that will mean cuts in purchases.
A sharp rise in inflation in next week’s report could push the government towards some action for the freeing of the Yuan to start ‘floating’ more easily and perhaps lift rates as well.
The two asset ratio increases for banks this year, cuts to loan targets and heavy pressure and direction to cut lending to property of all types, may have to be boosted by interest rate rises.
The normally super bullish Chinese stock market investor is nowhere near as confident about the country’s prospects as some companies and offshore investors.
The Shanghai market fell 5% in the March quarter, which will be at odds with the strong growth in the economy.
The rapid increase in iron ore and coal prices means higher steel prices and soon, higher prices for construction, cars, appliances, roads, bridges and property construction.
Oil prices have kicked over $US87 a barrel this week, the highest they have been for more than 17 months. Nickel is at two year highs, copper at 20 month highs and rubber has hit its highest level ever, breaking a price level last visited 58 years ago.
Spot iron ore prices have continued to surge, hitting the $US160 a tonne mark on Tuesday and around $US181 a tonne two days later.
Chinese food prices remain high because of the impact of a big drought in the southwest of the country for much of the past 9 months.
Consumer inflation in China has risen, driven by weather (the bad winter) and the higher food and energy prices.
However, wholesale price inflation in the wider economy is running at 5%-7% a year and will be further boosted by the steel price rises coming.
Chin
