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China\’s industrial profit more than doubled Jan-Feb

Profits in China\’s major industrial enterprises more than doubled in the first two months this year compared with a year earlier, the National Bureau of Statistics said Friday.

China to further support private investment

China\’s State Council, the Cabinet, said Wednesday the country would step up efforts to encourage investment from the private sector.
The government would encourage private investment in sectors currently mainly state controlled such as infrastructure for transport, telecommunications and energy, public utility, scientistic and technological programs for national defense, and the building of affordable housing, according to a statement released after the Cabinet\’s executive meeting Wednesday chaired by Premier Wen Jiabao.
The State Council called for private firms, which played an important role in creating jobs, to strengthen independent innovation and roll out more new products, according to the statement.
The government would also help some private enterprises set up technology research centers.
Private companies were welcome to participate in the reform of state firms by purchasing a stake in them, it said.
The government said it would create a good environment for private investment by setting up a sound administrative service system and amend unfavorable laws and regulations.
In an effort to combat the global financial downturn, the government agreed at the Central Economic Work Conference last December to promote private enterprises so to create jobs, to increase market access for private investment and protect the legitimate rights and interests of private investors.

Chinese Premier vows to continue financial reform

Chinese Premier Wen Jiabao pledged in Beijing on Monday to continue reform of the country\’s financial system and develop the capital market.
\”China\’s financial system is generally sound. It was not greatly affected by the financial crisis and indeed helped the Chinese economy to cope with it,\” Wen told some 60 foreign delegates attending the two-day China Development Forum 2010 in the Great Hall of the People in downtown Beijing.
Some problems, however, still existed in the management and monitoring of the financial sector, he said, noting China was determined to establish an \”integrated, sound and sustainable\” financial system.
On the development of capital market, Wen said China would combine direct and indirect financing to expand the role of the capital market.
Direct financing means raising funds through issuing stocks and bonds in the capital market instead of companies borrowing from banks, which is indirect financing.
The forum runs from Sunday to Monday and its theme is \”China and the World Economy: Growth, Restructuring and Cooperation.\”

China to crack down on illegal foreign money

The State Administration of Foreign Exchange (SAFE) will conduct a special investigation in 13 provinces and municipalities during the first half of this year to examine whether international \”hot money\” was flowing into China under the cover of trade, foreign direct investment (FDI) and foreign debt, the Shanghai Securities Journal reported Tuesday.
China faces an increasing risk of net inflow of foreign exchange in the backdrop of a more complex and volatile international balance-of-payments situation in 2010, SAFE said at its annual meeting on foreign exchange in Beijing on Monday.
There are more uncertainties in cross-border money flows this year, SAFE noted. The investigation will focus on trade in goods and services, individuals, FDI, international payment transactions and cross-border money flows, and will cover major channels, projects and entities through which international speculative money comes into China, the regulator said.
SAFE vowed to punish violators of foreign exchange law and regulations as well as to avoid adverse effects on normal trade and investment activities during the crackdown.
Amid stronger market expectation of a yuan appreciation, the cases of illegal use of foreign exchange have been on the rise in recent months, according to the Shanghai Securities Journal.
Lu Zhengwei, chief economist with Industrial Bank, told the Beijing News that the increasing inflow of foreign exchange was mainly due to potential lucrative returns coveted by international speculative money under current conditions.

He attributed China\’s attractiveness to four factors: the country\’s quick recovery from the world financial crisis compared with Western countries; strong market expectations of a yuan appreciation; low interest rates adopted by world major economies; and a surge in assets prices in emerging economies including China.
However, Lu also warned of a possible massive exodus of international money within the year as some institutional investors were already considering withdrawing from emerging markets. Whether massive pullouts would become a reality depends on when the US Federal Reserve raises interest rates, he said.

Wen: trade and currency wars harmful

Chinese Premier Wen Jiabao on Monday urged all countries and companies not to start trade and currency wars, which would be harmful to the recovery of world economy.
\”We are happy that the world economy shows good signs of recovery, however, some factors make us feel that the recovery will not be so smooth,\” Wen told some 60 delegates at the two-day China Development Forum 2010.
He mentioned some of the factors, such as the high unemployment in some big economies, unstable prices of bulk products and inflation.
He added \”all responsible countries and business people should refrain from starting trade and currency wars. That won\’t help us cope with difficulties, but just curb cooperation.\”
Chairman of the Morgan Stanley Asia Stephen Roach expressed that most delegates were worried about the emerging trade disputes and protectionism, in his question to the premier.
Wen said those who thought trade protectionism would help their economy recover, would find those measures counter-productive.
He stressed that China was not pursuing a trade surplus and wanted to enlarge the country\’s imports.
\”To keep a balance of international payments is the goal we are working towards,\” Wen said.
He reiterated that China will change the way its external economy develops, and work hard to expand domestic demand.
The forum runs from Sunday to Monday and its theme is \”China and the World Economy: Growth, Restructuring and Cooperation\”.

China manufacturing grows for ninth month

China\’s manufacturing sector continued to grow for the ninth straight month in November, according to a survey by the China Federation of Logistics and Purchasing (CFLP) on Tuesday.
The Purchasing Managers\’ Index (PMI) of China\’s manufacturing sector stood at 55.2 percent in November, unchanged from the previous month, the CFLP said.
It was the ninth straight month that the PMI reading stayed above 50.
A reading of above 50 suggests expansion, while one below 50 indicates contraction. The PMI includes a package of indices that measure economic performance.
Zhang Liqun, a researcher with the Development Research Center of the State Council, said the unchanged PMI index from the month before might suggest a stable recovery of China\’s economy.
He expected government investment would see gradual reduction, while investment from the private sector might increase. Exports would go up, but not in a drastic rise, he said.
In November, new order index and output index both held steady from figures in the previous month at 58.4 percent and 59.4 percent, respectively, according to the CFLP.
New export order index was 53.6 percent, down by 0.9 percentage points compared to November while purchasing price index rose by 6.5 percentage points to 63.4 percent.
Only three out of the 20 surveyed sectors reported a PMI index reading below 50, which were paper making and printing, oil processing, and beverages making. 

Economy gathers more steam


Workers in an iron and steel plant in Nanjing, Jiangsu province. The latest official procurement purchasing managers index indicates new orders and output components slipped while new export orders and import components picked up. An Xin
Nation reports robust January PMI despite inflationary pressures
China\’s official procurement purchasing managers index (PMI) for January showed expansionary manufacturing momentum yesterday indicating a further pick up in economic growth even as a top central bank official warned of rising inflation.
The PMI index compiled by the National Bureau of Statistics and the China Federation of Logistics and Purchasing (CFLP) moderated to 55.8 in January from 56.6 in December. \”The reading still remains well above the boom-bust line of 50, suggesting a continued expansion in the manufacturing sector in January\”, said Sun Mingchun, an economist with Nomura Securities.
A PMI reading of above 50 indicates growth relative to the previous month, while a reading below 50 indicates contraction. The current figures are the second highest since the country\’s economic activity began slowing in May 2008, and represent the 11th consecutive month of manufacturing growth.
New orders and output components slipped while new export orders and import components picked up. New orders and output were 59.9 and 60.5 from 61 and 61.4 in December. In contrast, new export orders rose to 53.2 from 52.6 in December, ending two consecutive months of drops.
Soaring inventories
The most heartening feature of the indicator is the jump in raw material inventories to 52.2 in January from 51.4 in December. That marks the highest reading since the official PMI became available in January 2005, indicating that firms are restocking raw materials, possibly due to stronger orders and higher inflation expectations on raw material prices, analysts said.
\”This is an early indicator that the economy may be overheating, while rising raw material prices and restocking activities may reinforce each other,\” said Sun in a research note. \”Recent credit tightening moves should help reduce speculative inventory accumulation, and prevent the economy from becoming too overheated.\”
China\’s economy survived the global economic slow down, registering an impressive 8.7 percent year-on-year growth last year. Its growth reached 10.7 percent in the fourth quarter of 2009, and is set to exceed 11 percent in the first quarter of this year, indicating strong momentum that some fear could lead to overheating and other problems like high inflation.
The country\’s consumer price index (CPI), a major gauge of inflation, rose to 1.9 percent in December from 0.6 percent in November, fueling concerns that inflation could further pick up and cause serious problems if not properly dealt with.
Zhu Min, deputy governor of the central bank, said at the World Economic Forum in Davos last week that tackling inflation would be the main priority for the government this year.
Rising inflation and asset bubbles are the biggest worries for the nation\’s sustained and strong economic growth, Fan Gang, economist and member of the monetary policy committee of the central bank, said yesterday.
He said the financial market had picked up the correct signals from the recent monetary moves. The benchmark Shanghai Composite Index shed 47.9 points, or 1.6 percent, yesterday as fears continued to spread that the government would tighten policies to rein in credit and nip inflation in the bud.
Deemed a source of potential high inflation, China\’s liquidity has increased dramatically since last year, when the government pumped money into the financial system to stimulate the economy. New lending soared to 9.6 trillion yuan in 2009 almost double that of 2008.
Economists feel that China\’s economy could slow down from its high growth pace of last year in the wake of policy tightening measures. Most of them are of the view that there would be interest rate hikes in the second quarter of this year.
Shanghai-based Guotai and Jun\’an Securities expect the rate hikes to kick in this month after the economic indicators for January are released.
Zhang Liqun, an analyst with the China Federation of Logistics &Purchasing (CFLP), said there are still risks in the economy. \”China\’s economy is still in the crucial stages of stabilization,\” he said.

China still sober despite economic rise

Though China is very likely to replace Japan as the second largest economic powerhouse this year after the Unites States, the country\’s economy cannot rival Japan\’s in per capita GDP (gross domestic product), a fact that the Chinese should be soberly aware of.
And the economic status that China will likely attain is expected to influence the political landscape in East Asia and the world.
Due to its 8.7-percent economic growth last year amid the global recession, China and its move up the global economic ladder have caused some to worry in Japan, which has held the No 2 status for decades, about an about-face in the regional and global political scenes. Critics have called on the Japanese government to reshuffle relations with the US and China to prepare for China\’s rise.
Many in the Japanese public said that China\’s rapid economic growth as well as its military expansion might pose a massive threat to Japan\’s economy and security after the prediction last June by Japan\’s Ministry of Economy, Trade and Industry that China\’s GDP will likely leapfrog that of Japan.
But some critics now disagree, insisting that China\’s economic level does not rival Japan\’s in per capita GDP, overseas asset values and GNP (gross national product), despite that the fact its economic aggregate will overtake Tokyo. Currently, Japan\’s per capita GDP is $30,000 and its overseas assets are approximately $2 trillion, compared with China\’s fledging overseas investments and much thinner per capita GNP and GDP data.
Due to different stances about China\’s rapid buildup, especially economically, policy remains divided within Japan toward its neighbor. The mainstream viewpoint holds that Japan should cement its alliance with the US, step up its integration into East Asia and ensure Tokyo\’s dominant status in the changing regional political order to cope with Beijing\’s rise. The policy of \”disengagement from the US and integration into Asia\” embraced by the cabinet of incumbent Yukio Hatoyama reflects the country\’s domestic policy orientations.
China\’s economic growth is also believed to have upset the changing status of Beijing and Tokyo in the Association of Southeast Asian Nations (ASEAN). China\’s ascending status in the region has caused some in Japan to ask: Who will now lead regional integration?
Between the 1970s and \’90s, the \”geese-flying\” economic model advocated by Japan helped the East Asian economy\’s robust advancement. But the heady momentum was disrupted by Japan\’s decision to cut down its direct economic involvement into the region following the 1998 East Asian financial crisis.
No single country has dominated the agenda of East Asian integration. So far, ASEAN has had a rotating trade belt covering China, Japan, Australia, South Korea and India and no single country, either China or Japan, has gained dominance in regional trade and economic affairs. Any progress in ASEAN talks with the US and the EU on free trade would further weaken any individual nation\’s capability of dominating regional economic affairs in the future. Compared with Japan\’s cooperation with ASEAN, which is on a broad basis of personnel flow, finances, talent training and accounting, China\’s cooperation with the 10-member bloc still mainly involves goods and service trade and investments, and has a long way to go.
The ever-growing propulsive role China has played in East Asian economy is also of global significance.
As its status increases, China\’s role on the international stage has also risen, either on climate change, or reform of the international monetary system and other issues. As its interaction with the US expands, the country\’s status on the strategic chessboard of the world\’s sole superpower is also expected to rise. Since the end of World War II, Japan has always acted as Washington\’s \”Asian Britain\” in Asia-Pacific affairs. However, the creation of the concept of the Group of Two (the US and China), although negated by China, seemingly foreshadows a new change in Washington\’s Asian diplomatic posture.
The author is a researcher with the China Institutes of Contemporary International Relations.

Chinese provincial govts lower GDP targets

Chinese provinces are scaling back economic growth targets for 2010 as the nation works to make its economic development more environmentally friendly.
At its annual legislative meeting, southern China\’s Guangdong province set a growth target of 9 percent, lower than its estimated 9.5 percent expansion in 2009.
The eastern province of Jiangsu earlier set a goal of 10 percent growth, down from the estimated 12.4 percent growth of last year.
Neighboring Zhejiang Province, which relies heavily on exports, is aiming for 9 percent growth. Zhejiang governor Lu Zushan told lawmakers that 30 consecutive years of double-digit growth rate will stop.
Zhejiang\’s economy grew at the second-slowest rate of 31 mainland provinces, autonomous regions and municipalities in the first quarter of 2009. But the rate accelerated to 8.9 percent for the year after a double-digit expansion in the second half.
The lower growth targets were set at the annual sessions of local legislatures, after China recorded strong growth in 2009 on the back of a massive fiscal stimulus package and a surge in bank loans.
Twenty-six provinces, autonomous regions and municipalities reported double-digit growth last year, compared with the national average of 8.7 percent.
\”There has never been a stronger call to give up some GDP growth to transform the growth model,\” said Sun Wenyou, Huzhou City\’s party chief.
The Central Economic Conference and local legislatures have prioritized a shift to quality economic growth.
On January 28, National Bureau of Statistics head Ma Jiantang said the central government will scrutinize local GDP figures by using a unified calculation to prevent provinces from faking their economic figures.
The central government\’s move shows it is serious about transforming the form of China\’s economic growth, Zhuo Yongliang, director of Zhejiang Province\’s Development and Reform Research Institute, said.
\”Governments should use guidance to tackle structural problems like the imbalance between domestic and external demand and imbalances between the industrial and service sectors.\”
The current economic downturn prompted by the global financial crisis highlighted many structural problems, and no local government can turn a blind eye to them, Zhao said.
As local legislature meetings are held across the country, he foresaw more powerful and concrete action being taken by the local governments.
In some regions, a desire for more sustainable growth was evident even as the national economy weakened rapidly last year. Drastic action was taken in Shanxi province, for example.
Shanxi\’s major industry, coal mining, was restructured to close smaller collieries. Consequently, Shanxi\’s economy contracted 4.4 percent in the first half of 2009. For the whole year, the province\’s GDP grew 6 percent, 2.7 percentage points lower than the national average.
Hu Angang, director of the Center for China Study at Tsinghua University said the transformation is crucial.
\”A raft of uncertainties will hit China if it doesn\’t change its model of economic growth to something more rational and environmentally friendly,\” he said.
Key to the model of growth transformation, as the effect of the 4 trillion yuan (586 billion US dollars) fiscal stimulus package wanes, is private investment, some scholars have noted.
Jia Kang, director of the Institute for Fiscal Science Research at the Ministry of Finance, said private investors are still not active but are less jittery than they were at the height of the economic downturn.
\”Of course, it is too early to say private investment has revived,\” Jia said.
Continued weak global consumption could still take a toll on growth engines like the export-oriented Pearl River and Yangtze River deltas.
\”China\’s recovery is not yet firm,\” said an analyst in Zhejiang\’s Yiwu City, home to the world\’s biggest small commodity market. \”Globally, the economic recovery has not spurred a full revival of consumption.\”
Analysts said demand for Chinese exports may not see significant improvement for three years as US-style credit-based consumption may be gone forever.

Chinese economic policies draw Western attention: HSBC

China is now a big economy whose economic policies will draw Western attention instead of being just Asia\’s local operation, said Stephen King, chief economist of the Hong Kong-based HSBC bank.
China has become a source of growth in the global economy, and Western economies are quite concerned, especially after the economic crisis, about whether the Chinese central bank will tighten monetary policies, King told Xinhua on the sidelines of the World Economic Forum (WEF) annual meeting.
\”Ten years ago, this would never have happened,\” he said.
According to King, China, whose economy grows about three times as fast as the U.S. economy, contributes to global growth almost as much as the United States.
Emerging markets led by China performed \”extremely well\” for the past years, and have been leading the global recovery, King said.
In the past, everyone had to wait for the United States to recover first, but there is a danger that the United States could become more protectionist as it is struggling to recover, King said.
U.S. President Barack Obama\’s move to limit the size of banks harbored a danger of becoming a little bit \”too domesticated and too nationalistic.\”
\”Debate of big or small banks does not deal with the actual factors that have contributed to the difficulties that each bank has faced, such as funding model, dependency on securitization,\” King said.
U.S. banks need to go through their diversity, business models as well as specific assets classes, King said, adding that it was a collapse in confidence that caused banks to fail in different ways.
As positive signs of economic recovery show up, markets begin to fear that they would collapse if governments withdraw their supports, King said.
Meanwhile, the economic crisis has created some long-term problems for the West, especially for countries with a large debt, he said.
\”Governments in the West are not really sure what to do with these debts and we will be in a world of higher taxes and cutbacks in public spending,\” he said.
It is believed that the worst of the financial crisis has retreated, but, according to King, the danger has moved from financial institutions and households to governments and taxpayers.
\”Clearly financial markets are much more nervous about government debt now than what was the case a few months back,\” he said.
In the past, developed countries like the United States and Britain used to choose export over consumption and government spending, King said.
\”The quick way of doing that is through currency devaluation,\” though the danger with currency devaluation is that it makes life easy for exporters and they become lazy, he added.
According to King, the Western model has moved closer to that of China after the economic turmoil.
\”You need to have a proper sense of a relationship between actors on the market and policy makers, regulators and governments to get that balance right,\” he said.