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China reports a Q1 2011 trade deficit of $1.02B - its first quarterly deficit since 2004 - as surging commodity prices drive imports to a record of over $400B. Analysts expect a Chinese surplus for the full year of $160-200B but say it should narrow if oil and commodities stay high. This could help ease tensions with Washington.
You're not fooling anyone, China: Tightening monetary policy can't dent what are actually negative real interest rates, Andy Xie writes - and combined with inefficiency in its public sector, the result could be stagflation (and then, as it is in emerging economies, currency devaluation and a new crisis).
China considers naming Singapore the next yuan-trading hub outside the mainland, another step in the "Asianization" of the renminbi says an economist. The first such hub, Hong Kong, has seen yuan trading explode from zero to $400M/day in just a few months.
Unwilling to slow inflation by letting real interest rates rise into positive territory, China resorts to price controls and other diktats. The latest: bringing in representatives from the 4 largest breweries to grill them about recent price hikes, the NDRC chillingly concluding recent liquor price gains are inappropriate.
China says it will allow the yuan to be traded against more currencies, though it doesn't specify which ones. The yuan is now tradeable against seven currencies, with the U.S. dollar believed to account for 70% of the Chinese nominal effective exchange rate.
The China Securities Journal expects monetary policy to remain tight in the face of inflation likely to rise above 6% later this year. Current deposit rates are 3.25%, making it more sensible to spend, speculate in shares or houses, or stockpile cotton and copper rather than save. Of course, China has its ways of holding down reported inflation.
With Chinese shares up nearly every day for the last 2 months (a 12% run), Macquarie declares it safe to go in the water, raising China to market-weight from underweight, as it expects monetary tightening to end soon. China +1.2%. China ETFs here.
Last night's hike in Chinese interest rates came as a surprise to analysts who had interpreted recent PBoC statements as being on the dovish side. It's hard to see how policymakers could pause, given expectations for official inflation figures to soon rise above 5%, even if forecasts for the 2nd half of the year are more benign.
The PBoC raises interest rates 25 basis points, lifting the benchmark deposit rate to 3.25% and benchmark lending rate to 6.31%. It's the 4th hike this cycle, but still leaves bank deposit rates well below the level of inflation, officially at 4.9%. Chinese stocks were closed last night.
China might be slowing more than people realize, Michael Pettis says. In Q4 the PBoC said it believed the global economic recovery would continue and that stabilizing prices was its top priority. But at a conference this week, the PBoC questioned the stability of the global recovery, and shifted its focus to "managing liquidity efficiently."
China's PMI rises slightly in March, but comes in a bit below expectations, the official gauge at 53.4 vs. 52.2 in February. Perhaps more importantly, the input price index falls a bit to 68.3 from 70.1. HSBC's private survey shows slightly different numbers, but tells the same story.
At a G-20 exercise in China, Tim Geithner says "asymmetry in exchange rate policies creates a lot of tension." Though not mentioned by name, China fires back, saying U.S. stimulus policies are causing a global surge in commodity prices.
An FT survey shows labor shortages and wage pressures in China to be far more widespread than perceived. Rural areas, known for supplying excess workers by the hundreds of thousands to the coastal areas, are facing massive shortages as manufacturers, seeking lower costs, move production inland.
The yuan rises to a record, the greenback buying just 6.5552 renminbi. The currency has now jumped 4.1% against the dollar since June, quite a bit ahead of the 3% annual rate hoped for by authorities. Some have urged faster appreciation to help combat speedy Chinese inflation.
For the 3rd consecutive month, China is a net seller of U.S. Treasuries, unloading $5.4B worth in January following $15B in the 2 previous months. Not a huge number compared to China's near $1.2T stash, but still more than 1% of its holdings.
Dashing the hopes of Nicolas Sarkozy, China says discussion of its yuan policy will not be on the agenda at a currency conference in Nanjing later this month. A government spokeswoman says an earlier WSJ article saying China would discuss its exchange rate was "erroneous."