For two reasons China will dominate the coming week, despite the floods in Australia and Brazil, the American reporting season and the flow of other news.
The first reason is Friday night’s first tightening in monetary policy for 2011, with another increase in the reserve assets ratio for banks.
The second is the combination of the visit this week to the US by Chinese President Hu Jintao, and Thursday’s release of growth, inflation, production and other data for the month of December, the December quarter and for calendar 2010.
China raised its banking sector reserve requirement ratio by 0.50% points to a record 19.5% (the fourth move in the past two months and the seventh in the past year).
This was after reports last week that Chinese banks lent an incredible 500 billion Yuan in the first 10 days of this month.
That was despite the rate rise on Christmas Day (the second in three months) and the six increases in the reserve ratio in 2010.
So the Chinese authorities lifted the reserve ratio again on Friday, but some analysts said it seems all a bit too little too late.
The banks seem to be ignoring the impact of the rate rises and especially the increases in the reserve assets ratio, even though they are all state-controlled.
The surge in reported loans in early January came after the banks extended 7.95 trillion Yuan ($US1.2 trillion) of new loans in all of 2010, more than the official target of 7.5 trillion Yuan.
Now the government says it has abolished the loan target idea and will deal with the banks on a group basis, calling them in for chats every three weeks or so to discuss and monitor lending.
If that means the monthly lending figures will be abandoned, it means the government has become embarrassed at the lack of control and discipline among the very financial groups it controls.
China’s move follows on the heels of Thursday’s unexpected 0.25% hike in official South Korean interest rates to 2.75% as inflation heads rapidly towards the high end of the central bank’s range (2% to 4%).
And that was two days after Thailand’s central bank lifted rates by 0.25% to 2.25% because of rising inflation fears.
A rate rise is expected in India on January 25 after wholesale price inflation rose sharply last month.
China’s two rate rises continue the trend in Asia for the past 10 months of a gradual tightening in monetary policy (Australia included) because of a need to ‘normalise’ monetary policy, and lately worries about the impact of rising inflation.
South Korea’s move came after it again tightened controls on foreign currency dealings and foreign investment in the country to try and check the flow of hot investment funds into the economy.
Thailand has also ventured down that path, but the Chinese government is continuing to ease restrictions on trading its currency, the Yuan, ahead of the meeting this week between Mr Hu and President Obama.
That meeting finishes on Thursday night, our time, but ahead of that we get the flood of economic data for December, the December quarter and for 2010.
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Growth for the year will be around 10%, or a touch more, but it will be the December producer and consumer inflation figures that are the most watched numbers.
Consumer prices in November rose 5.1% from a year earlier, the fastest pace in more than two years, fuelling worries that prices could be edging beyond levels acceptable to the government.
(The producer price was up more than 6% in the year to November.)
In the January-through-November period, the consumer price index rose 3.2% from a year earlier, exceeding the government’s full-year target of 3%.
Food prices jumped by 11.7% in the year to November and have been a major cause of the rise.
Now a leading Chinese economist says the CPI likely rose by 3.5% or less for the year.
That would indicate another rise of 5% or more for December.
His suggestion, reported in the official Chinese People’s Daily, carries the usual weight that it has been ‘officially allowed’ to be reported, meaning that his forecast carries a lot of official clout.
China last month lifted its inflation target for 2011 to 4% from the 3% one that will be breached by the 2010 outcome on Thursday.
Other Chinese data due out on Thursday will include quarterly figures for fixed-asset investment, industrial output, growth, property prices and retail sales.
Last week saw China’s trade figures for 2010 released.
The country’s trade surplus fell 6.4% to $US183.1 billion, with exports up 31.3% in the year to $US1.58 trillion and imports up 38.7% to $US1.39 trillion.
The European Union remained China’s largest trade partner in 2010, with EU-China trade up 31.8% year on year to $US479.71 billion.
China’s trade with the US rose 29.2% year on year to US385.34 billion, while China-Japan trade jumped 30.2% year on year to $US297.77 billion.
A report from the State Information Center released last Monday forecast China’s imports would climb 20% while exports would rise by 16% in 2011.
The trade surplus is forecast to fall 13.2% to $US165 billion year on year.
Meanwhile the World Bank said last week China’s economy likely grew by 10% in 2010, up from the restated 9.2% rate in 2009 (9.1% originally).
But it added that China’s growth will likely cool to 8.7% this year and 8.4% in 2012, as Beijing continues to unwind its fiscal stimulus, applies new measures to cool the housing market, and tightens liquidity in an attempt to cool down inflationary pressures.
China’s Shanghai Composite Index of stocks dropped 1.3% on Friday on concern that monetary tightening would hurt corporate earnings.
The loss brought the decline over the past 12 months to 13%.
