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Friday, June 20, 2008

China Increases Energy Prices

China increased energy prices across the board yesterday in an important policy shift that is likely to have an impact both inside and outside the country.

On the one hand the measure is bound to add to the country’s already high inflation rate. On the other, if the rate of demand increase were to slow inside China itself, then this would perhaps take some pressure off global oil prices.

Global oil prices fell immediately following the announcement in Beijing that petrol and diesel prices would go up by to 18 per cent and electricity tariffs would rose by just under 5 per cent. Oil prices – which were already under pressure from a possible Saudi announcement this weekend that they are going to increase oil production – fell more than $4 a barrel to $132.32.

Before the announcement, petrol prices in China were about 40 per cent below those in the US. In the last month, India, Taiwan, Malaysia and Indonesia have all cut their subsidies amid mounting fiscal cost and in spite of concern about high inflation, and the Chinese decision does of course follow last weekend's Group of Eight finance ministers statement said last weekend that “reducing subsidies” was an important step on the way to lessening the rate of increase in oil prices.

We will now need to watch and wait to see what impact the decision will have on China's internal inflation, and on Chinese demand for fuel products. We may well not see lower Chinese oil use in the short-term, since the decision may well be more effective in stimulating supply than it will be in curb demand.

The previous price caps had caused significant problems of shortages, and the two large state-owned refiners had been continuously complaining about their losses and the shortages which had been produced at petrol stations across the country as many small refineries stopped operations. So ironically the increase in retail prices could now boost Chinese demand, rather than reduce it, at least in the short term, simply because higher prices will probably encourage refiners to import more oil and boost sales in order to to ease current petrol and diesel shortages.

The IEA said earlier this month that the fuel shortages that have beset China since 2007 suggest that “pent-up demand remain considerable”.

Tuesday, June 17, 2008

China Factory Investment May 2008

China's spending on factories and real estate grew 25.6 percent through May, led by property development and boosted by reconstruction work after snowstorms in January and February. Urban fixed-asset investment rose to 4.03 trillion yuan ($585 billion) in the first five months from a year earlier, according to the latest data from the Chinese statistics bureau. This follows a gain of 25.7 percent in the four months to April. Im May the year on year increase over May 2007 was 25.7 percent.

Investment in real-estate development was up 31.9 percent in the first five months from a year earlier. Spending on non- ferrous metals jumped 41.5 percent and coal surged 47 percent. China is rebuilding roads, power lines, factories and homes after the worst snowstorms in half a century and the May 12 earthquake that killed more than 69,000 people.

New investment projects rose by 9,667 in the first five months from a year earlier to 84,368. Planned spending on those ventures was 2.72 trillion yuan, down 2.5 percent.

Monday, June 16, 2008

China Industrial Output May 2008

China's industrial-production growth accelerated on rising exports, signaling that the world's fourth-biggest economy is weathering a global slowdown. Output rose 16 percent in May from a year earlier after gaining 15.7 percent in April, the statistics bureau said today.

Overseas shipments surged last month and retail-sales growth was close to the highest in nine years, keeping factories busy even as the deadliest earthquake in 32 years disrupted output in Sichuan province. The shortening of a weeklong May holiday to a three-day break boosted production.

Sichuan's small role in China's manufacturing limited the May 12 disaster's effect on production. Quake reconstruction work is boosting output of some products like steel sheets for housing.

Raw-coal production rose 18.5 percent in May from a year earlier after gaining 13.9 percent in April. Crude-oil output climbed 1.8 percent in May after increasing 0.5 percent in April.

China's export growth accelerated to 28.1 percent in May from a year earlier. Retail sales gained 21.6 percent. For the first five months, industrial production climbed 16.3 percent from a year earlier, the statistics bureau said. China's economy expanded 10.6 percent in the first quarter from a year earlier.

Thursday, June 12, 2008

China Inflation May 2008

China's inflation rate slowed to 7.7 percent in May 8.5 percent in April, the statistics bureau said. Aprils number was not far from February's twelve year high of 8.7%.

However China's money-supply growth accelerated to the fastest pace in four months in May, adding pressure on the central bank to prevent cash inflows from fueling inflation. M2, the broadest measure, rose 18.1 percent from a year earlier to 43.6 trillion yuan ($6.3 trillion), according to the People's Bank of China today, after gaining 16.9 percent in April.

The trade surplus, foreign direct investment and inflows of capital from investors betting on currency gains are flooding the world's fastest-growing major economy with cash. The People's Bank of China earlier this week ordered lenders to increase the proportion of deposits that they set aside as reserves to a record 17.5 percent (as of June 25) in an attempt to slow down monetary growth.

Wednesday, June 11, 2008

China Export Growth Accelerates in May

China's export growth accelerated in May, easing concern that a strengthening yuan and a slowdown in U.S. demand may be in the process of slowing excessively the Chinese economy. Overseas sales rose 28.1 percent from a year earlier, after gaining a revised 21.9 percent in April, according to the Chinese customs bureau today.

Exports to the U.S. accelerated, withstanding a 10 percent gain in the yuan against the dollar in the year through May. Imports jumped 40 percent because of soaring raw-material costs, supporting the central bank's case that inflation is a bigger threat than weakening global demand. Surging prices for iron ore, crude oil, oil products, coal and soybeans drove the biggest increase in imports in almost four years, according to the customs bureau. The gain was 26.4 percent in April.

The trade surplus was $20.2 billion, down from $22.4 billion a year earlier and less than the $21.3 billion estimate in the survey of economists. For the first five months, the surplus has narrowed 9 percent from a year earlier.

Exports to the U.S. rose 9.1 percent in the first five months from a year earlier, up from the 6.9 percent gain through April, the customs bureau said. Shipments to the European Union climbed 27.4 percent, an increase from 25.4 percent.

Machinery and electronic exports climbed 59 percent from a year earlier. Trade with India surged 70 percent in the first five months, the quickest gain among China's top 10 trading partners, the customs bureau said.

Producer prices rose 8.2 percent in May, the biggest increase in more than three years, the statistics bureau said today, indicating consumer-price inflation which may have fallen back in May to 7.7% (according to recent "leaks") from the 8.5% peak in February could well rebound in the not too distant future.

The producer price of gasoline rose 11 percent in May from a year earlier after gaining 10.8 percent in April. Ferrous metals jumped 26.7 percent after climbing 24.8 percent, the statistics bureau said.

House prices in China's 70 major cities rose 10.1 percent in April from a year earlier, slowing for a third month after the government raised mortgage rates and imposed stricter down- payment requirements.

China's Central Bank told lenders earlier this week to set aside more money for the fifth time this year in an attempt to cool inflation. Banks must put aside a record 17 percent of deposits as reserves starting June 15, and this figure will rise to 17.5 percent from June 25, according to the People's Bank of China. The move is expected to drain about 422 billion yuan ($60 billion) from the financial system. Local-currency deposits stood at 42.2 trillion yuan at the end of April.

Monday, June 02, 2008

China Manufacturing PMI May 2008

China's manufacturing growth slowed in May according to two different measures which are published monthly.

Growth slowed from the fastest pace in four years according to a survey of purchasing managers by CLSA Asia-Pacific Markets. The CLSA China Purchasing Managers' Index fell to a seasonally adjusted 54.7 from 55.4 in April.

The CLSA index, started in April 2004, is based on a survey of more than 400 manufacturing companies. The survey tracks changes in output, new orders, export orders, employment, inventories, input costs and output prices. A reading above 50 shows an expansion in business activity, below 50 a contraction.

The output index dropped to 56.7 in May from 57.9 in April, while the index of new orders fell to 57.3 from 58.6. The export orders index in the CLSA survey rose to 52.2, a four-month high, from 52.

At the same time the Purchasing Managers' Index published jointly by the China Federation of Logistics and Purchasing and the government's statistics bureau fell to 53.3 in May from a record 59.2 in April.

The index of export orders on this measure fell to 53.4 from 58.9. The index of new orders declined to 55.4 from 65. The output index dropped to 55.7 from 66.5.

The index is based on a survey of more than 700 companies in 20 industries, including energy, metallurgy, textile, automobile and electronics. A reading above 50 reflects an expansion, below 50 a contraction.

Whichever way you look at it, and no matter the differences between the two surveys, manufacturing seems to have slowed somewhat in China in May.