Ilan Babaji's  Instablog

     I will now make bullet points reviewing the actual situation of the economy of the People’s Republic:

·      Some weeks ago some trade tensions emerged between the U.S. and China, particularly in steel tubes and tires. The department of commerce of the U.S. put some restrictions, then China began initiated an anti-dumping investigation on its own good, raising a complaint with the World Trade Organization. Ironically in the WTD more than one third of the anti-dumping measures had been against Chinese products. Either way this whole affair amounted to about 4 billion dollars of U.S imports (little compared to the 230 billion of annual imports than the U.S. makes from China).

·      China’s exports remain weak, very contracted year over year. The fall was flat and it looks starting to recover, but it’s still early to conclude this. There is a positive signal about the shipping cost; they have been increasing the last weeks, which could suggest that demand for them by Chinese exporters is increasing.

·      The industrial production, retail sales, bank loans and capital spending continues to expand. There is an interesting point about the volume of bank loans; not only has been increasing the lending by local banks, also it happened by foreign banks located in China.

·      The average corporate results were positively with surprises. The good recovery is a fact. The profits of the companies are growing. Te money returns as well as savings and bank deposits by the private sector.

·      China’s GDP growth reported for the third quarter was 8.9%.

·      One of the questions now are moving in the analysts heads is when it would start the raising of the interest rates in China (if it will come soon or not). There are no signs indicating a need to strangle the economy and the recovery is proceeding, so I don’t think China will raise rate soon.

·      And finally an additional detail; in the last correction that took the market MSCI EMM (Emerging Markets) felt 7.8%. The famous and acclaimed BRIC all except China felt more that the benchmark (except China... it decreased at 6.3%).

CHINESE SAVINGS

     I think one of the great guarantees that China provides is the saving rate. China saves. And saves a lot. Their savings rate is growing every day, faster than any other country in the world. Savings means investment, so China is growing in savings and investments. At the same time theirs investments are very well designed and allocated. It is a simple and accurate formula to ensure a prosperous future.

     There is an interesting detail about how the product is composed. The GDP is equal to the consumption, plus government’s expenditure, plus saving (equal investments), plus the result of the trade balance. And here we can find an interesting difference in the GDP composition of China and United States. The heaviest component in aggregate demand (and hence GDP) of China is the investments, while in the U.S. is consume. Each has its own risks: the Chinese risks are deflationary and the U.S. risks are inflationary. Somehow this is how economies behave, the more developed countries tend to consume more, and the less developed countries (on a healthy path of development) tend to invest more.

CHINESE CURRENCY (RMB)

     Remains the almost fix rate in 6.83RMB per dollar (it remains me the Argentinean convertibility). The pressure for appreciates the China’s currency keeps increasing. For now the government maintains the position of the exchange rate, but there is a general consensus that expected to see the RMB appreciate (very slightly) in the coming months.

     That assessment would be needed to solve some discrepancies in the growth rates between China and the U.S. The RMB appreciation would give to China a greater purchasing power and it would improve the competitiveness of the U.S. exports (and maybe reducing its fiscal deficit). The political pressures from U.S. and Europe are quite strong and repetitive, but China is a strong boy with enough power to make his own decision. At the same time we can find something interesting, since years China keeps its volume of exports to the U.S. and is reducing its volume of imports from the U.S. (improving their trade balance). Looked at from this angle China may not be very interested in appreciate its currency against the dollar.