There was a lot of comment on china’s May economic report, but the one thing we in Australia can take away from the various reports is that the country isn’t collapsing as many American and European economists and analysts are forecasting.
Industrial production is slowing, urban investment is weakening, but all from their recent very high levels
In fact China is in pretty good shape: property is definitely on turning down and the big danger is that it goes into freefall, triggering a knock-on effect among the country’s banks.
But these banks are state-controlled and will be bailed out by the government: its happened in the past (the most recent was the Agricultural bank of China in 2008 which is now trying to launch a share issue this month in Hong Kong and Shanghai).
Inflation isn’t a problem, it will slow soon: producer prices are more of a worry and will continue to rise as the spate of big wage rises are passed through.
But the damage from the rising wages won’t be as bad as some predict; the domestic market is very, very competitive, prices for consumer goods are falling or not rising.
Its consumer and other products made for export which will feel the pain, and the buyers of the Apples, Nokkias dell and other goods in the US, Europe and Australia.
China’s trade surplus jumped in May thanks to a rise in exports and a small slowing in imports.
This surplus will fall in coming months as the momentum goes out of exports, but import demand will be maintained.
Ministry of Commerce spokesman Yao Jian said at a briefing at the weekend in Beijing that export growth would slow after July, adding to the downward pressure on the surplus, which fell 60% in the first five months of 2010, compared wit the same period of 2009.
China’s trade surplus in the first five months of this year was $US35.39 billion.
The 2009 annual surplus topped $US196 billion which was down 34% on 2008.
At the current rate of decline, it is quite possible that China’s trade surplus could more than halve to less than $US100 billion in 2010.
The Government believes China’s export outlook has been hit by European sovereign debt crisis, rising commodity prices (iron ore and coking coal especially) and labor costs.
So don’t expect any move to float the Yuan or to lift interest rates.
But China is back in favour as a destination for investment.
The government issued figures at the weekend revealing that foreign direct investment (FDI) into China in May rose by 27.48% year on year to $US8.13 billion.
That brought the country’s FDI to $US38.92 billion in the first five months of this year, up 14.31% from a year earlier.
China’s exports surged by 48.5% year on year in May, while the imports climbed 48.3% (which remains a better sign of the strength of the country’s economy).
The CPI will ease next quarter as food prices fall, but the impact of the recent big wage rises remains to be seen.
The Government sees the CPI in the first half of 2010 averaging 2.6%, up from a May estimate of 2.5%.
Figures from the country’s national statistics bureau showed 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 AMP’s Dr Shane Oliver, who was in China for 10 days recently, says the bottom line from the May data "is that measures to cool the Chinese economy and property market are working and that further tightening is unlikely.
"As such we remain confident in our view of a soft landing for the Chinese economy which will see growth fall back to around 9 to 10%.
"While much is made of the fact that 20% of Chinese exports go the European Union, it is worth noting that only 3.5% go to the key at risk countries of Portugal, Italy, Ireland, Greece and Spain."
