by Si Tingting, Efforts underway to cool hot money flow, China Daily, Nov. 27, 2009 --

After a string of emerging countries - including India, Indonesia, Thailand and Brazil - began to target the flow of short-term speculative capital, many experts believe China will step up its efforts to control the flow of so-called hot money.

The deputy governor of China's central bank, Yi Gang, said on Wednesday Chinese authorities will increase surveillance on flows of speculative money. And on the same day, the State Administration of Foreign Exchange tightened rules on individuals transferring yuan and foreign exchange between bank accounts.

Many analysts interpreted the rules as a way to control cross-border transfers, an important channel for hot money flowing into China.

Under the rules, individuals and companies from overseas can no longer send foreign currency to five or more Chinese individuals for conversion into yuan on a single day or on consecutive days.

In addition to more scrutiny of cross-border fund flows, China's policymakers are "likely to increase support for outbound investments", said Jing Ulrich, chairman of China Equities and Commodities at JPMorgan.

However, Liu Yuhui, director of the Center for Chinese Economic Evaluation at the Chinese Academy of Social Sciences, warned that the rule may have limited impact on the influx of hot money, because there are other ways speculative capital can enter China - including through current accounts.

Although there is no official data on how much hot money flows into China, Liu and other economists believe it is substantial.

"Since the second quarter of this year, there has been a mysterious infusion of about $30 billion poured into the nation's already huge foreign exchange reserves each month," said Liu.

Wang Yuanhong, senior economist with the State Information Center, said China is attractive to speculators because equity and property prices are at a relative low level and because there are fewer risks of policy tightening this year than next year.

Hot money has already helped fuel bubbles in the equity and property markets and added inflationary pressures.

Shanghai's dollar-denominated B-share index plunged 7.3 percent on Tuesday, after surging 26 percent earlier this month. Analysts blamed the rise on hopes that China would allow the yuan to appreciate. They suspect Tuesday's fall was down to a cooling off of such talk.

Li Wenjie, general manager of property agency Centaline China (North China region), told China Daily there had been a strong speculative sentiment in China's property market since mid-2009 and confirmed that many foreign investors were buying apartments in China, betting on surging property prices.

Chinese authorities will soon find themselves in a trap. Once the country starts to see inflation in 2010, the obvious response will be to appreciate the currency or raise interest rates, both of which will attract more hot money and fuel inflation.

The dilemma is deepened by recent indications that the US Federal Reserve may hold its rates steady until 2011.

WSJ, Nov. 25, 2009 --

A small bubble popped in China on Tuesday. Its formation illustrates one of Beijing’s worries as pressure builds on its exchange-rate policy, says Heard on the Street.

Source: Andrew Peaple, Heard on the Street.

Bloomberg/China Daily, Nov. 26, 2009 Print Edition --

China likely to allow blue-chips to issue debts within  12 months

SINGAPORE: Foreign companies may be able to sell bonds in China within a year as the government expands its domestic capital markets, according to China International Capital Corp (CICC), the No. 2 underwriter of yuan debt this year. “The first group of future international issuers is likely to be blue-chip companies,” John Cheng, CICC’s investment banking manager director, said in an interview on Tuesday. Overseas “firms will increase their  presence in China and they’ll need to march their growing yuan assets with instruments in yuan, be it debt or equity,” he said.

China is urging domestic companies to tap bond and equity markets for funding and reduce reliance on banks after regulators said record loan growth poses risk. Authorities will consider allowing sales of high-yield corporate bonds to provide new sources of funding, People’s Bank of China Deputy Hu Xiaolian said on Nov. 18.  Outstanding corporate debt rose almost threefold to 2.1 trillion yuan at the end of October compared with 2006, Hu said at a forum in Beijing.

The government has encouraged a $1.3 trillion credit boom this year to complement its monetary and fiscal stimulus plans, propelling the economy last quarter to its fastest pace of expansion in a year. The government may need to rein in loan growth to “prevent the emergence of inflationary pressure and asset bubbles,” the Organization for Economic Cooperation and Development said on Nov. 20.

The five biggest banks – Industrial & Commercial Bank of China Ltd, China Construction Bank Corp, Bank of China Ltd, Agricultural Bank of China and Bank of Communications, Ltd – extended a record 4.7 trillion yuan this year, according to data compiled by Bloomberg. Beijing-based CICC underwrote 174 billion yuan of transactions, ranking second after ICBC, the world’s biggest bank by market value. Minor modifications to regulations would be required for foreign companies to be able to tape the market, Cheng said. Some “companies have expressed interest but no formal applications have been made,” he said, declining to name any companies. . . .

As China’s corporate bond market develops, so will its fledging derivative market, according to Cheng. “When you buy bonds in China now you cannot lay off different risk components,” he said. “In order to do this, domestic derivatives instruments are needed. For a full market to develop, you need these auxiliary tools.”

Agencies-China Daily, Nov. 24, 2009, Print Edition --

China’s net gasoline exports fell to the lowest in three months because of increased domestic demand for the motor fuel, Customs data shows. Net gasoline exports dropped to 344,885 metric tons last month from 505,505 tons in September. Net coal imports fells to 9.09 million tons, the lowest since May, from 10.53 million tons in September, as small coalmines resumed output after an industry restructuring.

[by Zhang Jiawei, China Daily, Nov. 16, 2009] --

China's big four banks extended about 136 billion yuan ($20 billion) yuan-denominated new loans in October, up 23.6 percent from September's 110.4 billion yuan.

The September total was the lowest amount so far this year for the big four, which include Bank of China, China Construction Bank, Industrial and Commercial Bank of China, and Agricultural Bank of China.

Bank of China extended 44 billion yuan-denominated loans in October, the most of any of the four banks. That is a huge increase from its total of just 3 billion yuan in September. The bank's chairman Xiao Gang said earlier that the bank would steadily increase new loans in the coming months. China Construction Bank...

The full text is available in the November Issue of China Banking. Please visit E-Shop for more subscription details.

[Banks turn to SME financing for profits, People’s Daily, Nov. 10, 2009] --

The Q3 2009 reports of listed Chinese banks showed that they are working to strengthen SME (Small and medium-sized enterprise) financing. SME financing has become one of their strategic choices for more profits.

More SME loans
By the end of September, outstanding Renminbi dominated loans for the SMEs have grown by 28 percent this year, according to statistics released by the People's Bank of China (PBOC) and China Banking Regulatory Commission (CBRC).

China's listed banks including the Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB) and China Minsheng Bank have switched their focus to SME loans. In the first three quarters, ICBC's SME financing increased 27.07 percent, or 493.05 billion yuan (72.23 billion U.S. dollars) and CCB's SME loans increased by 16.5 percent, or 169.3 billion yuan (24.80 billion U.S. dollars). The Bank of Communication recording 126 percent of growth in its "Zhanyetong" program, the increase rate is 15.5 billion yuan higher compared with the same period last year.

Small and medium-sized shareholding banks have also adopted their "blue sea" strategy to support SMEs. By the end of the third quarter, outstanding SME loans issued by China Merchants Bank accounted for 46.82 percent of its total Renminbi loans to domestic enterprises, 3.72 percentage points higher than the beginning of this year. Bank of Beijing reported 83.9 billion yuan of outstanding SME loans, 29.5 billion yuan or 54 percent higher compared with the beginning of 2009.

New engine for profits
In recent years, domestic banks have been expanding their retail banking, cash management, investment banking and financial derivative business. Their degree of dependence on company business is declining. However, they are expanding SME financing service.

Research reported by the CCB showed that the increase of SME loans was the result of not only policy guidance but also the banks' marketized operation. Large-scale enterprises are experiencing lower equity and debt financing cost compared with credit financing. Banks are disadvantaged in pricing negotiation with large enterprises, and thus witnessed negative growth in interest income in the first half of 2009.

Researchers pointed out that the wholesale banking business may contribute less and less to the banks' profits, but their interest margin in SME financing business will remain profitable. A survey showed that commercial banks' loan interest rate to SMEs was 10 to 30 percent higher than the benchmark interest rate. The "blue sea" of SMEs will be a new growth engine for domestic commercial banks' profits, said analysts.

[Xinhua, Nov. 18, 2009] --

Dominique Strauss-Kahn, managing director of the International Monetary Fund(IMF), said Tuesday the Fund fully supports China's efforts to shift its growth model "from heavy reliance on exports toward private consumption."

"Chinese government strategy will be good not only to Chinese people but also to the world economy," said the IMF chief at a press conference in Beijing. Meanwhile, he noted his personal gratitude to China for its continued support for the IMF. He said the IMF and China have unique opportunities to improve the international monetary system, and "to make it more balanced and take into account more currencies apart from US dollar and make some rules for the Special Drawing Rights (SDR) issued by the IMF."

Strauss-Kahn also said IMF management needed more officials from developing world like Africa, Latin America and Asia. He stressed the importance of international cooperation in fighting the financial crisis. He said the global economy appears to have avoided the worst. "This was no accident. In fact, it was the result of the unprecedented policy of collaboration that encompassed more countries than ever before".

[People's Daily Online, Nov. 6, 2009] --

"Although currently Chinese economy is still facing many difficulties, the economic stimulus package itself is very comprehensive. As long as China develops and perfects the package, there is no need to turn to a second round. It is expected that there will not be too much change in next year's central government policy to encourage the expansion of spending," Yao Jingyuan, chief economist at the National Bureau of Statistics made the above remark in an interview recently.

Q: How do you evaluate the performance of China's economy in this round of the international financial crisis?

Yao: From the second half of last year, affected by the global financial crisis, China's economy has encountered unprecedented difficulties and challenges. The challenge is reflected in that due to economic recession in the developed countries brought by world financial crisis, demand fell rapidly, leading to a sharp decline in China's external demand and export enterprises were affected. Late last year, 15% of the enterprises stopped production or cut to half production. There has been massive unemployment, and tens of millions of migrant workers were forced to return home.

State Council issued a timely and decisive economic stimulus package. Since the second half of last year, the State Council issued new policy or measures almost every week. Thanks to the economic stimulus package, in the first three quarters GDP growth reached 7.7% on average, and there is no doubt that China can achieve the goal of "maintaining 8% growth rate" in 2009. Generally speaking, China has achieved a decisive victory over the impact of this crisis.

Q: What do you think of the current economic situation?

Yao: We need to see two points: on the one hand, we have already achieved decisive results in overcoming this difficulty. China's economy is stabilizing and getting better, and the foundation for the recovery is continually being consolidated. On the other hand, it should be noted that compared with previous month China's exports grew, but compared with the same period last year, in the first nine months of 2009, China's total imports and exports experienced negative growth of 20.9%.

We must put expanding domestic demand as the fundamental point of China's economic growth, and can not put all the efforts in praying for earlier and faster recovery of the world economy. In addition, deep-seated problems in China's economy have not been fundamentally resolved, such as economic structure, industrial structure and so on. Now China is facing the problem of excess production capacity. The average GDP growth rate in the first three quarters is 7.7%, among which investment contributed 7.3%. From this perspective, China's economy is now in an extremely important and crucial period, and we must ensure policy's continuity and stability.

Q: How can we improve the current economic stimulus package? Does China need a second round of stimulus?

Yao: China's economic stimulus package includes: maintaining growth, promoting reform and structural adjustment, as well as benefiting the people's livelihood. This is in itself a very comprehensive package. As long as China develops and perfects the package, there is no need to turn to a second round.

As for how to improve the economic stimulus package, I think that the Chinese economy still has to address the difficulties it is currently facing and its deep-seated problems. China should enhance policy to support increasing farmers' incomes and take more action in structural adjustment.

Q: In your opinion, will those preferential policies introduced to stimulate consumption this year continue next year?

Yao: In general, first of all, we are to maintain the continuity and stability of policies. In this respect, at least policies to encourage consumption and expand consumption will not have much change. From the scientific development perspective, we should change the current growth pattern of over-reliance on investment, making consumption the most important pulling power of national economic growth. We must do everything possible to develop new economic growth. Policy in this area will only be strengthened.

[by Zhang Jiawei, Chinadaily.com.cn, Nov. 3, 2009] --

A major Chinese oil corporation says the latest string of overseas acquisitions by Chinese-based enterprises is motivated by financial reasons, and not by any pressure from the government, as is being suspected by some foreign media. The Shanghai Securities News quotes Shan Lianwen, director of corporate strategy at China National Offshore Oil Corporation, China's third-largest oil producer, as saying the enterprises are acting entirely on their own behalf.

Shan's remarks came as China's three oil giants -- China National Petroleum Corporation (CNPC), China Petrochemical Corporation (Sinopec) and China National Offshore Oil Corporation (CNOOC) -- put themselves in the international spotlight with a series of acquisitions around the world. "China's oil firms' overseas acquisitions are beneficial to the country's energy safety but that is not the main aim," Shan said, adding that their ultimate goal is to make money while working strategically to keep up with globalization. The insurance of China's oil safety comes last on their list of priorities, Shan said.

Li Junfeng, deputy director of the Energy Research institute under the National Development and Reform Commission, echoed Shan's remarks and said China's three oil giants are all market-oriented despite being State-owned. The investments made by the three oil giants are purely initiatives of the enterprises rather than the government's, Li was quoted by the newspaper as saying.

Several eye-catching acquisitions have been made by China's three oil giants since the beginning of this year, including Sinopec's $7.24 billion takeover of Geneva-based oil and gas producer Addax Petroleum Corp; the $41 billion liquefied natural gas deal between Exxon Mobil and PetroChina (whose parent is CNPC), which brought PetroChina's total liquefied natural gas purchase from the project to a total of 3.25 million tons per annum for 20 years; and Sinopec and CNOOC's joint purchase of a 20 percent stake in Angola's offshore deepwater Block 32 for $1.3 billion from Marathon Oil Corp.

[by Li Fangfang, China Daily, Nov. 10, 2009] --

(GM sold 1.459 million vehicles in China in the first 10 months; Photo/Hao Ran).

China's vehicle sales have breached the 10-million barrier for the first time ever, with 10.9 million automobiles sold in the first 10 months of this year, up 37.8 percent over the same period last year, the China Association of Automobile Manufacturers said yesterday in an emailed statement.

This has consolidated its top position in the global automobile market, indicating that the nation has been the first to walk out of the global industry downturn, analysts said.

The robust average growth rate of over 20 percent seen so far this year, up from the 6.7 percent average seen in 2008, has been attributed to the government's successful stimulus package, including tax cuts and vehicle upgrade subsidies for rural residents. It is a development that provides confidence and hope to global automakers to offset their losses in Western markets, analysts said.

General Motors Co, which stepped out of bankruptcy protection in July, announced yesterday that the automaker and its joint ventures in China would surpass 1.5 million in vehicle sales for the year. With a strong October, the GM China family continued its string of record monthly sales that began at the start of the year, it said.

GM China expects to be the first automaker to cross 1.5 million in annual sales in China, after being the first in 2007 to sell 1 million vehicles in a year. "This has been a year of records for GM in China," said Kevin Wale, president and managing director of the GM China Group. "With our new engine and transmission technologies, we are able to present winning products that offer good fuel efficiency to satisfy local market needs." For the first 10 months of 2009, GM's sales in China totaled 1,459,460 units. This was a rise of 59.8 percent from the first 10 months of 2008 and a new record for the period.

Despite the National Day holiday at the beginning of the month, the automaker and its joint ventures ended October with 166,911 vehicles sold. This was more than double the number sold in October 2008. Its passenger car joint venture Shanghai GM sold 68,505 vehicles domestically in October, which represented an increase of 109.7 percent from the same month last year, finishing the month number one in sales among domestic passenger car manufacturers.

China's battery and carmaker BYD Co also announced yesterday that the Warren Buffet-backed company sold 30,008 units of its F3 car, making the model one of the best selling vehicles in the domestic market and the first car to sell more than 30,000 units in a single month in China. The homegrown model, which hit the market four years ago, has topped China's monthly best selling model for six months since October 2008. The company, ranked the seventh among Chinese car manufacturers last month, sold 46,600 cars in October.

[Xinhua, Nov. 12, 2009] --

World Bank senior vice president and chief economist Justin Yifu Lin has warned that China's sustained development will require re-balancing the economy. China had sound fiscal position and 2 trillion U.S. dollars of foreign reserves, plus room for industrial and technological upgrading, Lin said during the 2009 Nobel Laureates Beijing Forum on Wednesday.

I think it's a good time for the government to focus more efforts on rebalancing the economy and getting more growth out of the domestic economy," he said. "Besides industrial restructuring, China should pay more attention to the restructuring in the financial sector." Small and medium-sized enterprises, which employed 80 percent of workers, lacked access to financial services because the sector was dominated by large banks that mainly served large companies, he said. "The small businesses' lack of access to financial services curbs their growth and employment, which would cause larger income gaps."

He said the Chinese government had succeeded in dampening the impact of the global economic crisis, especially with its 4-trillion-yuan stimulus package unveiled last year. Eighty percent of the package would go to infrastructure construction, of which half of the funds were expected to be spent in projects relating to energy conservation and environmental protection. "These investments can boost consumption and create more jobs in the short term. In the longer term, they can lead to a sustainable development," he said. "People think investment would cause inflation, but I'm more worried about deflation," he said. "A major challenge faced by the Chinese and global economy is the risk of excess capacity. If the problem isn't eliminated, it may cause deflation. More jobs may be lost and corporate bankruptcies surge as spending and investments slide, compounding the crisis."

The Washington-based World Bank last week raised its 2009 growth forecast for China from 7.2 percent to 8.4 percent, following similar moves by the International Monetary Fund and the Asian Development Bank. Economists expect China to be the first major economy to emerge from the worst global slump since the 1930s.

[People’s Daily, Nov. 10, 2009] --

Foreign banks operating in China are generally healthy, with good asset quality and adequate capital, liquidity and provision. The indicators have reached regulatory requirements, said an official with China Banking Regulatory Commission (CBRC). Their capital adequacy ratio, liquidity ratio, bad loan ratio and adequacy ratio of allowance for loan impairment are respectively 21.14 percent, 59.01 percent, 1.06 percent and 123.55 percent. The official said that the CBRC would continue to work to protect the depositors and financial consumers, and to ensure that China's financial system remains stable.

[China's industrial output up 16.1% in Oct, Xinhua, Nov. 11, 2009] --

China's industrial output rose 16.1 percent in October from a year earlier, as the economy saw a consolidated recovery of growth with massive government spending. The increase rate was 7.9 percentage points higher from a year earlier and 2.2 percentage points higher than September, according to figures released by the National Bureau of Statistics (NBS) Wednesday.

Industrial output of the world's third largest economy increased 9.4 percent year-on-year over first 10 months this year. Although the growth rate was 5 percentage points lower than that of a year earlier, it was 0.7 percentage points higher than that of the first nine months, said the NBS.

[by Bettina Wassenger, NY Times, Nov. 11, 2009] --

HONG KONG — Strong data from China released Wednesday, especially in factory output and retail sales, underscored the speed of the giant economy’s rebound, thanks to extensive government stimulus measures that have put the economy on track to grow more than 8 percent in 2009. Industrial output and retail sales for October both topped analysts’ expectations, with jumps of 16.1 percent and 16.2 percent, respectively, from a year earlier. The increases also were higher than in September, showing that the pace of recovery was continuing to pick up steam.

Separately, the customs office said exports in October had been 13.8 percent below the level of a year earlier, while imports had fallen 6.4 percent, more than expected. The drop in exports was less than that of a month ago, but the decline in imports accelerated slightly.  As a result, China’s trade surplus for the month swelled to $24 billion, nearly double the level in September, a development likely to fuel pressure on China to let its currency appreciate. . . .

[by Chris Kahn, AP Energy Writer, Nov. 11, 2009] --

Oil prices increase as OPEC expects more demand in 2010 and China says economy is rebounding

AP - In this Nov. 2, 2009 photo, a Hess Corp. oil storage facility is shown in this aerial photo . . . .

NEW YORK (AP) -- Oil prices ticked higher Wednesday as OPEC said the world would consume more crude in 2010 than previously expected, and China said its economy improved. Benchmark crude for December delivery added 9 cents to $79.14 a barrel on the New York Mercantile Exchange. In London, Brent crude for December delivery rose 35 cents to $77.85 on the ICE Futures exchange.

The Organization of Petroleum Exporting Countries revised its previous estimates for global oil demand growth to 750,000 barrels per day, up 50,000 barrels a day from last month's estimate. But OPEC also warned that higher oil prices "could dampen world oil demand in the coming year."

Meanwhile, China said industrial output and retail sales rose sharply, and exports fell by the smallest amount in 10 months. China's economy, the third largest in the world, is expected to draw heavily from global oil supplies next year and help drive prices higher.

The reports pushed oil higher despite indications that crude supplies in the U.S. are growing. . . .

Source: Oil rises as China's economy rebounds - Yahoo! Finance

[Xinhua, Nov. 11, 2009] -

With China's growth trend and Beijing's efforts to internationalize its currency, the Chinese yuan can develop into the alternative to the U.S. dollar as a global reserve currency in 15 years, World Bank President Robert Zoellick said Wednesday.

In an investment summit held on the sidelines of the 17th Asia-Pacific Economic Cooperation (APEC) Leaders' Week meetings, Zoellick said though the Chinese currency now can not be used easily overseas, he believes that it will become more internationalized over the next 10 to 15 years. This does not mean that the yuan will replace the U.S. dollar but it can provide an alternative and you have the multiplicity of the exchange rates, Zoellick said, noting the rise in the number of currency swaps arrangements being inked between Beijing and governments around the world.

China signed these arrangements with its trading partners to avoid the risks posed by a volatile dollar. Since mid-December 2008, Beijing has signed currency swap contracts worth 650 billion yuan (95.6 billion U.S. dollars) with central banks in the Republic of Korea, Malaysia, Belarus, Indonesia and Argentina and the monetary authorities of Hong Kong. These swap accords allow other overseas central banks to sell yuan to local importers who want to buy Chinese goods.

But the World Bank chief said the internationalization of the yuan is still a long way off and as of today it is relatively secure to keep the dollar as the reserve currency. Zoellick said to develop the multiplicity of the global reserve currency is part of the efforts to create a new global balance of growth in the post-crisis era as U.S. consumers can no longer be the sole engine of global demand as in the past. Zoellick said Americans should be reminded of the possibility of the dollar losing today's predominance as a global reserve currency. "My caution to the United States is that you have to fix your deficit and budget issues and don't take it for granted this incredibly blessing we earned through the hard work in the first 200 years or so," he said.

[by Keith Bradsher, NY Times, Oct. 15, 2009] --

GUANGZHOU, China — The mood of participants here at the world’s largest trade show on Thursday depended largely on how they were being affected by the weak American dollar.

As throngs of prospective buyers swarmed the exhibitions, equal to five times the floor space of the Empire State Building, Chinese exporters were upbeat. By keeping China’s currency, the renminbi, tightly yoked to the weak and weakening dollar, Beijing had made Chinese exports increasingly competitive around the world. . . .

European exporters were despondent that their products were being priced out of Asian markets because of the relatively dear euro. Americans were witnessing firsthand the changing hierarchy of the global economy.

China is no longer content to put its exports in containers and ship them to foreign ports, leaving the distribution and other moneymaking activities to others. . . .

As exporters here reviewed their orders for the coming months, they described a consistent pattern: Sales to emerging markets were recovering rapidly, demand from Europe was starting to rebound as the Chinese currency fell against the euro, and buying interest from the United States remained fairly weak.

With the renminbi linked to the dollar, China’s currency advantage would not be increasing over time in the United States as it would be against currencies other than the dollar.

China’s many policies to help exporters, from tax breaks to currency market intervention, have relieved unemployment in China — but at the expense of contributing to it in other countries, and that is starting to fan trade tensions. President Obama imposed tariffs starting at 35 percent on tires from China last month, and antidumping and antisubsidy cases against China are piling up in front of trade tribunals around the world.

The dollar has fallen steeply against the euro, the yen and most other currencies over the last two weeks, with a broad index of the American currency dropping Thursday to its lowest level in 14 months. But the Chinese government has intervened heavily in currency markets to make sure that the renminbi falls with the dollar.

The result has been a steep slide in the value of the renminbi against the euro, the yen, the Australian dollar and many other currencies, making it cheaper for businesses from Helsinki to Sydney to order from China. . . .

>>Read full article here.

by Russell Hsiao

China's Demographic Imbalances Widen

China Brief Volume, Vol. 9, Issue 22, Nov. 4, 2009 --

Even as the Chinese economy under the Hu-Wen administration is set to wean through the global financial crisis with a remarkable eight percent growth rate this year, senior officials from the Ministry of Civil Affairs under the jurisdiction of the State Council, which is responsible for social and administrative affairs, revealed that China's aging population—people older than 60 years old—reached 12.79 percent (169 million) of the total population at the end of 2008 (Xinhua News Agency, October 26). Amid a slowdown in its working-age population growth and surplus labor depletion, China's rapidly aging population is placing a serious strain on the sustainability of its current economic growth mode and thus, is of great concern for the Chinese leadership, which has a low tolerance for political instability.

China became an "aging society" in 1999 after the composition of people over 60 years within its entire population broke the 10 percent benchmark. According to the latest statistics released by the Ministry of Civil Affairs, in less than 10 years, the aged population increased by 50 million and exceeded the entire population of Jiangxi Province (China Times [Taiwan], October 26; Xinhua News Agency, October 26). . . .

>>Read full article here.

World Bank – China

OVERVIEW

• Large fiscal and monetary stimulus has supported a recovery in China’s economy.

• Growth is likely to remain robust in 2010, but the composition will change.

• On policies, the costs and risks of sustaining the current expansionary policy stance will increase over time.

• In the medium term, the recovery can only be sustained by successful rebalancing of the economy.

RECENT ECONOMIC DEVELOPMENTS

• In a difficult global climate, exports have been a major drag on growth.

• Nevertheless, overall growth held up very well through the third quarter, driven by domestic demand.

• The domestic demand expansion has been fueled by very large fiscal and monetary stimulus.

• While much of the stimulus showed up in infrastructure-oriented government-influenced investment, the domestic demand surge has been more broad based.

• Resurgent housing sales have started to feed through to construction activity.

• Other market based investment in several sectors, notably manufacturing, has lagged, as excess capacity is limiting the incentive to invest.

• Consumption has held up, but lagged investment.

• The surge in domestic demand fuelled imports.

• The slowdown has had a major impact on the labor market, but the worst may be over.

• Underlying inflationary pressures remain largely absent.

• The RMB has been kept virtually pegged to the US dollar since mid 2008.

• The current account surplus has declined materially, but reserve accumulation has continued.

• The stock market has declined since July, after having risen sharply earlier in 2009.

ECONOMIC PROSPECTS

• Global economic activity seems to be recovering.

• However, there are several challenges to overcome, and the global recovery is likely to be slow and subject to risks.

• Against this light, global price pressures are expected to remain modest next year.

• In this setting, China’s exports should resume growth in 2010, but global demand is likely to remain subdued.

• China is on track to meet the government’s target of 8 percent GDP growth this year.

• We project growth to increase somewhat in 2010, with a marked shift in the (expenditure) composition.

• Consumption may feel some headwind.

• Inflation is likely to remain subdued.

• China’s external surplus is set to shrink sharply this year, and only rise somewhat in 2010.

• Medium term growth prospects are less favorable than recent experience, but rebalancing could buoy sustained growth.

ECONOMIC POLICIES

• The government has expressed its intentions to keep the overall macroeconomic policy stance broadly unchanged for now.

• In our view, macroeconomic conditions in the real economy do not yet call for a major overall tightening.

• However, the costs and risks of sustaining the current expansionary policy stance increase over time.

  • In the monetary sphere, risks of asset price bubbles and misallocation of resources amidst abundant liquidity need to be addressed.

  • Significant additional fiscal stimulus does not seem warranted, although flexibility is.

  • In the medium term, the recovery can only be sustained by successful rebalancing of the economy.

Monetary and exchange rate policy

• Serious asset price bubbles are unlikely to be imminent.

• However, risks of misallocation of credit and bad loans are real and it pays to be proactive.

• China’s exposure to asset price risks differs from that of most other countries.

• The authorities have taken several steps recently in an effort to mitigate these risks.

• Eventually, general monetary tightening will be required to dampen these risks.

• Several types of financial market policies could enhance financial stability and reduce risks on asset prices and quality.

• The government has continued with steps to increase the role of the RMB in international finance and trade (see our June Quarterly Update for earlier steps).

Fiscal policy

• Remarkably strong revenues in the third quarter limit the increase in the deficit.

• In 2010, continued large fiscal stimulus does not seem warranted, although being able to flexibly respond to further shocks is important.

Structural measures and rebalancing

• The government has recently reconfirmed its commitment to rebalancing.

• Some further steps have been taken in recently months to rebalance and boost domestic demand.

Increasing the presence of the government in health, education, and social safety

• A rural pension program was introduced more widely this year.

• An additional rural pension program for currently older farmers was piloted in August.

• Progress is being made in implementing the health care reform plan that aims to make health care more accessible and affordable (see our June 2009 Quarterly).

• These measures in health are important steps, but more is needed

Improving access to finance in rural areas and for SMEs and providing other support to SMEs

• The China Banking Regulation Commission (CBRC) is seeking to encourage the establishment of additional financial institutions in rural areas

• Steps have also been taken to improve access to finance for SMEs

• In September 2009, China also launched other measures to support SMEs

• However, some other recent policy initiatives were unfavorable to SMEs

Mitigating resource use and environmental damage

• Some progress has been made in reforming resource pricing

Source: World Bank

中国经济季报 - 2009年11月

概要

• 大规模财政和货币刺激支持了中国经济的复苏

• 2010年的经济增长很可能会继续保持稳健增长，但结构将有所变化

• 在政策方面，保持当前的扩张性政策立场的代价和风险日益增大

• 从中期看，只有成功实现经济增长的再平衡，复苏才能得以持续

近期经济形势

• 在全球经济不景气的的大环境中，出口的疲软依然严重影响经济增长

• 由于国内需求的拉动，今年前三季度的经济增长总体表现良好

• 内需的扩张是大规模财政和货币刺激政策的结果

• 尽管经济刺激方案主要反映在政府主导的基础设施投资方面，但内需的增长并不限于此，而是有更广泛的基础

• 住房销售回暖促使建筑业日趋活跃

• 在其他领域，特别是制造业，由于过剩产能遏制了投资意愿，市场投资滞后

• 消费形势良好，但消费增长落后于投资增长

• 内需扩大刺激了进口增长

• 经济下滑对劳动力市场造成了很大影响，但最坏的时间似乎已经过去

• 基本上不存在通胀压力

• 自2008年中以来人民币几乎是完全盯住美元

• 经常帐户盈余增长有所下降，但外汇储备的增长仍在持续

• 股市在经历了2009早些时候的快速上升之后，7月份以来出现了下跌

经济前景

• 全球经济活动看起来正在恢复

• 然而全球复苏可能将是一个缓慢且充满风险的过程，需要克服很多挑战

• 在这种背景下，预计全球价格上涨压力将保持低位

• 在这种环境下，中国的出口在2010年应该将恢复增长，但全球需求仍很可能保持低迷

• 今年中国将会实现政府定下的8%的GDP增长目标

• 我们预计2010年经济增长速度将会有所加快，但（支出）结构将会出现明显变化

• 消费增长可能仍面临一些困难

• 通货膨胀水平似将保持低位

• 今年中国的外部盈余预计将大幅缩减，2010年也将只有小幅回升

• 中期增长前景不会象这几年的形势那么乐观，但经济再平衡将有助于实现可持续的增长

经济政策

• 中国政府已经表示目前不会改变总体宏观政策的基本立场

• 我们认为，根据当前实体经济的状况，不需要大幅收紧宏观政策

• 不过，保持当前的扩张性政策所付出的成本和涉及的风险日益上升

  • 在货币政策方面，需要解决流动性充裕带来的资产价格泡沫和资源配置不当等问题

  • 不需要进一步大幅增加财政刺激，但需保持灵活性

  • 在中期，只有实现经济结构再平衡才能有可持续的复苏

货币和汇率政策

• 近期出现严重资产价格泡沫的可能性不大

• 不过，信贷的不当配置和不良贷款的风险确实存在，最好要未雨绸缪地防范这些风险

• 中国对资产价格风险的暴露不同于其他大多数国家

• 中国政府最近采取了一些措施来降低这方面的风险

• 最终，要依靠广泛的货币紧缩来降低这些风险

• 可以采取一些金融市场政策来增强金融稳定性，并减少资产价格和质量的风险

• 中国政府继续有步骤地提高人民币在国际金融和贸易中的地位

财政政策

• 第三季度财政收入的显著增长抑制了赤字的增长

• 2010年似乎不需要继续有大规模的财政刺激，但要保持灵活性以便应对可能发生的进一步冲击

结构性措施与经济再平衡

• 中国政府最近表示将努力实现经济的平衡增长

• 近几个月已经采取了进一步的措施来促进经济再平衡和扩大内需

进一步增强政府在医疗、教育和社会保障方面的作用

• 今年扩大了农村养老保险体系

• 8月份开始了另一个农村养老金项目的试点，这个项目是针对目前已经年老的农村居民

• 在实施医疗改革计划（见今年6月期《中国经济季报》），使医疗服务更方便、降低医疗费用等方面正在取得进展

• 这些在医疗卫生领域的措施十分重要，但还需采取进一步措施

改善农村地区和对中小企业的金融服务，对中小企业提供各方面支持

• 中国银监会正努力推动建立新的农村金融服务机构

• 正在采取措施改善对中小企业的贷款

• 9月份中国还出台了扶持中小企业的其他措施

节约资源，缓解环境危害

• 在资源产品定价改革方面取得了一些进展

Source: World Bank.

[Chinability, Oct. 2009] --

A mountain of reserves

At the start of the reform era at the end of 1978, China's foreign exchange reserves were minimal, but enough to cover the requirements of a country with a very small import bill. In the early 1980s, export growth contributed to an initial rise in reserves to a peak of US$17.4bn by 1984. High trade deficits in 1985 and 1986 eroded the reserves in those years. In 1987 the surplus on trade in services slightly exceeded the merchandise trade deficit, producing a small current-account surplus, and a comfortable net capital inflow helped push up reserves to US$16.3bn. The reserves were held above this level for another two years.

The economic slowdown of 1989-91 produced a sharp fall in imports in 1990, while exports continued to rise, producing a merchandise trade surplus for that year of US$9.2bn, which was gradually eroded in the next three years as imports rose faster than exports. By 1993 the trade and current accounts were in deficit, but the acceleration in inward FDI flows kept foreign exchange reserves rising for most of the rest of the decade. Joining the World Trade Organisation (WTO) in 2001 contributed to rapid growth in imports, but exports also expanded at a fast pace, while FDI inflows exceeded US$60 billion a year by 2004-2006.

In October 2006, China's foreign exchange reserves exceeded USD1 trillion for the first time. By the end of September 2008, the reserves topped USD 1.9 trillion, equal to nearly USD1,500 per head for the entire population of China. It remained around this level until the end of 2008 as trade growth slowed and foreign investment inflows declined. Then, as 2009 progressed, the upward march resumed, with reserves rising above USD2 trillion in April and reaching a record USD2,272.585 billion at the end of September.

Foreign reserves minus gold

(US$ billion, end-month)

1977    2.3

1978    1.6

1979    2.2

1980    2.5

1981    5.1

1982    11.3

1983    15.0

1984    17.4

1985    12.7

1986    11.5

1987    16.3

1988    18.5

1989    18.0

1990    29.6

1991    43.7

1992    *20.6

1993    22.4

1994    52.9

1995    75.4

1996    107.0

1997    142.8

1998    149.2

1999    146.2

2000    165.6

2001    212.2

2002    286.4

2003    403.3

Jan 2004   415.7

Feb 2004   426.6

Mar 2004   439.8

Apr 2004   449.0

May 2004   458.6

Jun 2004    470.6

Jul 2004     483.0

Aug 2004   496.2

Sep 2004   514.5

Oct 2004    542.4

Nov 2004   573.9

Dec 2004   609.9

Jan 2005    623.6

Feb 2005   642.6

Mar 2005   659.1

Apr 2005   670.8

May 2005   691.0

Jun 2005    711.0

Sep 2005   769.0

Dec 2005   818.9

Jan 2006    845.2

Feb 2006   853.7

Mar 2006   875.1

Apr 2006    895.0

May 2006   925.0

Jun 2006    941.1

Jul 2006     954.6

Aug 2006   972.0

Sep 2006   987.9

Oct 2006    1,009.6

Nov 2006   1,038.8

Dec 2006   1,066.3

Jan 2007    1,104.7

Feb 2007    1,157.4

Mar 2007    1,202.0

Apr 2007    1,246.6

May 2007   1,292.7

Jun 2007    1,332.6

Jul 2007     1,385.2

Aug 2007   1,408.6

Sep 2007   1,433.6

Oct 2007    1,454.9

Nov 2007   1,497.0

Dec 2007   1,528.2

Jan 2008    1,589.8

Feb 2008    1,647.1

Mar 2008    1,682.2

Apr 2008     1,756.7

May 2008    1,797.0

Jun 2008     1,808.8

Jul 2008      1,845.2

Aug 2008    1,884.2

Sep 2008    1,905.6

Oct 2008     1,879.7

Nov 2008    1,884.7

Dec 2008    1,946.0

Jan 2009    1,913.5

Feb 2009    1,912.1

Mar 2009    1,952.7

Apr 2009    2,008.9

May 2009   2,089.5

Jun 2009    2,131.6 

Jul 2009     2,174.6

Aug 2009   2,210.8

Sep 2009   2,272.6

* The 1992 figure is lower than the 1991 figure because reserves were redefined in 1992 to exclude foreign-exchange deposits of state-owned entities with the Bank of China.

Source: State Administration of Foreign Exchange, People's Republic of China.