China Sputters Along 9 comments
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The stock markets here are being buffeted around by rumors of futures trading on local stock indices. Wednesday Fan Fuchun, Vice President of the CSRC, gave a speech at a forum in Shanghai in which he seemed to imply that everything was ready for a launch of a futures market on the main Shanghai index. That set off rumors about an imminent approval.
Although previously there were fears that index futures would cause the market to crash, the rumors actually drove the market up 2.5% Wednesday. Thursday, it seems that the rumors were quashed. According to an email from my student Shang Ning:
The speech by Fan Fuchun has been posted today on the official website. However some words have been changed. “The preparation has been completed” has been changed to “The preparation has made big progress.”
That is, clearly, a significant change in meaning. The market traded up early in the day after opening 0.7% down. This was mainly because of lower oil prices and strong markets elsewhere. The Chinese oil “brothers” performed very well, to a high of 3481 (up 0.6% from Wednesday’s close), before dropping 2.3% from its high to close at 3401, down 1.66% from Wednesday’s close.
The Economist has an interesting story this week in which it warns that “emerging economies risk repeating the same mistakes that the developed world made in the inflationary 1970s.” The main message is that stagflation is becoming a real threat to a number of emerging economies, including China, for reasons that are worryingly reminiscent of the US in the 1970s. Among other things they say:
Many policymakers in emerging economies argue that serious monetary tightening is not warranted. Higher inflation, they say, is due solely to spikes in food and energy prices, caused by temporary supply shocks and speculation. Higher interest rates cannot call forth more pigs or grain. They expect inflation to ease later this year as higher prices prompt an increase in supply (food prices have started to edge down over the past month) and as sharp rises in commodity prices drop out of year-on-year comparisons.
Yes, food inflation is likely to slow later this year; but that does not mean rising headline inflation can be ignored. The synchronised jump in global food prices suggests that there is more to the story than disruptions to supply. Prices are also rising partly because loose monetary conditions in emerging economies have boosted domestic demand.
They go on to make an interesting point:
According to conventional wisdom, the monetary-policy mistakes that caused the Great Inflation are much less likely today because central banks are independent of politicians. But unlike the Federal Reserve and the European Central Bank (ECB), many central banks in emerging economies (notably China, India and Russia) are not fully independent. In another echo of the 1970s, they often face intense political pressure to hold rates low to boost growth and jobs.
It is easy to see a possible example of this in the debate in China between the monetary alarmists, who are worried about excessive expansion in the money supply and rising inflation, and the pro-growth camp, who dismiss the recent high inflation numbers as arising from temporary and reversible shocks. They may be right (although I side with the monetary alarmists here) but unfortunately, as the US learned in the 1970s, by the time there is incontrovertible proof that inflation is a problem it will be very difficult to drive it out of the economy without a sharp slowdown.
Meanwhile the South China Morning Post says, in an article Thursday by Adam Chen, that “Currency regulators on the mainland have increased surveillance of the flow of so-called hot money into the country, asking banks in Shenzhen to report deposits of more than 50,000 yuan (HK$56,250) by non-mainland residents.” According to the article, SAFE was behind the move to monitor and manage destabilizing money inflows. Shenzhen has become one of the biggest conduits for money inflows, which is not surprising given the amount of business-related traveling between Hong Kong and Shenzhen, but I would guess that it is going to be very hard to reduce this. There are too many ways money can enter the system.
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If I want 90% losses in China, I'll visit Macao.
China has many problems on its own; but it's very ironic the red communists do not mind Mr Petti (who is paid salary by the Chinese communist run school) being so critical of everything in China even the air he breathes every day.
What are you smokin dude ?
The un-related and stupid comments are starting to become a real nuisance and I feel are de-facing the seeking alpha website. If people wish to make personal comments either about commentators they should do so in another domain.
In terms of GDP growth, China needs to maintain very high levels in order to keep employment stable. Figures that look high to us, 6-7% equate to worsening employment market in China.
I believe real GDP growth is close to 12% from what I am seeing on the ground in China. So do not see GDP
The un-related and stupid comments are starting to become a real nuisance and I feel are de-facing the seeking alpha website. If people wish to make personal comments either about commentators they should do so in another domain.
In terms of GDP growth, China needs to maintain very high levels in order to keep employment stable. Figures that look high to us, 6-7% equate to worsening employment market in China.
I believe real GDP growth is close to 12% from what I am seeing on the ground in China. So do not see GDP growth as slowing. However the inflationary problem is hitting a lot of businesses. But on the other hand is helping a lot of businesses as the chinese are running out to spend their money that is depreciating on a daily basis.
I think the tough decisions that had to be made to improve the monetray inbalance were going to be made, but after the earthquake they will be delayed or at the very best slowly implemented. I see a huge property boom coming as the Government eases its tightening measures against its old nemesis the home property construction industry. So many homes need to be built that it will ease all measures that restrict new property being made for at least the next 2 years. I believe this will re-value property to its correct value which is still very cheap in interntional terms even after taking the undervalued Yuan into consideration in the comparison calculations.
What the chinese government needs to do the most in my opinion is reduce the wage differential gap using its huge reserves, improve infrastructure, schools and hospital systems all over China using its huge reserves. Provide the migrant workers with good standard of living and free access to safe schools/hospitals. Make the factories provide better living conditions/ working conditions for its employees, this will in my opinion also improve the safety issue of chinese made goods. You see the workers are so unhappy and uncomfortable that the quality of their work is poor. When sourcing for new factories I always analyse the comfort level of the employees. By doing this they can limit the need for wages to rise too much , care for the poorer chinese people. True Socialism mixed in with capitalism.
A truly great free economy should be with chinese characteristics.