Replies to post #5119 on The Rising Influence of Rising Affluence

[DewDiligence]

More on the same story…

http://online.wsj.com/article/SB10001424052702303807404577433763129307328.html

›Show Me the China Stimulus Money

May 29, 2012, 6:34 a.m. ET
By TOM ORLIK

Most economies can pull two levers to bolster growth—fiscal and monetary. China has a third option: The National Development and Reform Commission can accelerate the flow of investment projects [the subject of #msg-76087397].

Staff at the powerful government planning agency has been working overtime. In the first four months of the year, the NDRC approved 868 new projects, more than double the number approved in the same period in 2011. In April, when concerns about growth came to the fore, the NDRC gave the green light to 254 projects, more than three times as many as a year earlier.

Meanwhile, the property market is showing signs of a rebound. In major East Coast cities, sales began to rise in March and accelerated again this month. Sales in Guangzhou, a manufacturing and trade hub, are back at levels unseen since the start of 2011. Higher sales reflect a relaxing of controls from the government and should feed through into more robust investment.

Work is also under way to ensure funding is in place for new projects. The seven-day interbank lending rate has fallen to 2.6%, from 3.8% at the beginning of May, the lowest level in more than a year. For smaller banks that borrow in the interbank market to fund their loans, that drop reduces financing costs and makes it easier for them to support the stimulus.

All of these shifts to pro-growth policy will have costs. Overcapacity is one. The government planners have given approval to $20 billion in new steel plants at a time when Chinese overcapacity is already hurting global markets. Reinflating the property bubble is another risk. Average house prices in Guangzhou in April were 13,800 yuan (nearly $2,200) per square meter, up from 11,500 yuan when the government declared war on house prices in 2010.

One day, all of this will have to be dealt with. But in a once-in-a-decade transition year for China's leadership, the powers that be will reason a little imbalance is preferable to a lot of slowdown.‹

[DewDiligence]

China cuts benchmark interest rates by 25 basis points to foster growth:

http://online.wsj.com/article/SB10001424052702303665904577452030622847766.html

The one-year benchmark lending rate will fall to 6.31% from 6.56%, and the one-year benchmark deposit rate to 3.25% from 3.50%.

In addition, the PBOC will allow deposit rates to rise to 110% of the benchmark rate, and the lending rate to fall to 80% of the benchmark. Currently, deposit rates are not allowed to rise above the benchmark deposit rate, while lending rates are allowed to go down to 90% of the benchmark lending rate.

The changes effectively mean that the maximum deposit rate will rise to 3.58% from 3.50% earlier, while the minimum lending rate will fall to 5.05% from 5.90%.

[DewDiligence]

China Steps Up Loans to Keep Economic Engine Humming

http://online.wsj.com/article/SB10001424052702303901504577459832384809496.html

›By WILLIAM KAZER
June 11, 2012,

BEIJING—China's central bank is stepping on the accelerator, letting banks lend more to ensure that the nation's growth engine doesn't slow too sharply amid a sluggish global economy.

May data from the central bank showed that new bank loans for the month were up sharply from April's level, outpacing economists' already-optimistic expectations. And economists say the trend of stepped-up lending is likely to continue in the months ahead.

New yuan loans issued by Chinese financial institutions totaled 793.2 billion yuan ($125.6 billion) in May, up from 682 billion yuan in April, data from the People's Bank of China showed Monday.

The median forecast of 15 economists polled earlier was for new loans of 750 billion yuan.

"The data are obviously stronger than our expectations and show that the central bank's loosening measures have taken effect," HSBC economist Ma Xiaoping said.

China has been moving to boost its economy as it stares at a raft of data underscoring less-than-robust growth—at least by Chinese standards.

Economic growth was 8.1% year-on-year in the first quarter, the lowest quarterly rate in three years, and more recent data have generally confirmed a sluggish trend, as exports struggle and Beijing keeps a tight grip on the domestic property market.

Industrial output in May was up 9.6% from a year ago, better than April's 9.3%, but that was the slowest rate in nearly three years. The May level was below expectations of 9.9%.

An easing in inflation has given the central bank the confidence to press ahead with more aggressive monetary easing. Consumer inflation rose a tame 3% in May, down from 3.4% in April.

In a surprise move last week just before the latest data were released, the PBOC brought out its big policy weapon, cutting benchmark interest rates for the first time since December 2008 [#msg-76397675]. It has also cut the proportion of deposits that banks must hold in reserve three times since November—most recently last month—making more bank funds available for lending.

In addition, Beijing has unleashed a flurry of mini-stimulative measures in recent weeks [#msg-76087397], from quicker approvals for major projects to incentives for the purchases of household appliances, and has pushed ahead with tax changes to spur business activity. Officials have also said they want more money poured into railway construction.

Figures released by the Finance Ministry on Monday showed that fiscal spending in the first five months of the year was up 22% from the year-earlier period.

Analysts say the speeding up of big infrastructure projects will ensure that medium- and longer-term lending will continue to expand in the months ahead.

"We expect further acceleration in money and credit growth in June," said Goldman Sachs economist Yu Song.

Also Monday, the National Bureau of Statistics data showed that growth in China's production of industrial metals including bellwether crude steel mildly slowed in May from the previous month as broader demand weakened.

Output of key industrial commodities in the world's second-largest economy is a good gauge of producer confidence. Crude steel output, most of which feeds China's all-important construction sector, rose 2.5% in May from a year earlier and 1.1% from April. However, on a daily-average basis—a more accurate adjustment—production in May fell 2.5% compared with April.

China's broadest measure of money supply, M2, rose 13.2% at the end of May from a year earlier, faster than the 12.8% increase at the end of April. It beat economists' expectations of a 12.7% rise as well.

The PBOC also said total social financing—a new measure designed by the central bank to better gauge the supply of credit in the economy beyond the traditional measure of new yuan loans—reached 1.14 trillion yuan in May, up 177.5 billion yuan from April and up 56.2 billion yuan from a year ago.‹

[DewDiligence]

What’s up with China’s housing market?

http://online.wsj.com/article/SB10001424052702303703004577473594162417030.html

China is giving higher priority to stimulating growth amid concerns that its domestic economy is cooling too rapidly. The People's Bank of China cut interest rates this month [#msg-76397675]—its first such move since December 2008—while the central bank had eased the cash reserve requirements for banks twice this year.

The government also has encouraged banks to offer lower mortgage rates for first-time home buyers and called on developers to increase construction of smaller and cheaper apartments. It is giving some leeway to cash-hungry local governments to loosen property restrictions.

Some banks have been offering discounts of as much as 15% on mortgage rates for first-time home buyers since March, attracting customers who are more sensitive to high prices.

[DewDiligence]

China’s Housing Prices Rise After 9 Months of Decline

http://online.wsj.com/article/SB10001424052702304299704577501822380417072.html

›July 2, 2012, 3:14 p.m. ET
By BOB DAVIS And ESTHER FUNG

BEIJING—China's battered real-estate market appears to be turning around, strengthening an important pillar of growth and reducing the chances that China's slowing economy will stall in the second half of the year.

According to a survey of property developers and real-estate firms, the average price of housing in 100 major Chinese cities rose in June from the previous month, after nine straight months of decline. The survey follows other signs that the Chinese market has bottomed out, including a pick up in real-estate investment in May and a far shallower decline in property sales during that month compared with April.

An improvement in China's property market would be important for the domestic and international economy. Real estate and property construction account for about 11% of the Chinese economy, according to GK Dragonomics, and about twice that share when accounting for other industries like appliances and furniture that are tied to real estate.

Internationally, steel, iron ore, copper and other commodities depend on the Chinese real-estate market for growth, as do construction-equipment makers in the U.S. and Europe.

"The worst-case scenarios [about Chinese growth] have been built around a collapsing property market," said Mark Williams, Asia economist for Capital Economics in London. "If the market isn't collapsing and is rebounding, the future looks a lot brighter."

The average price of housing in June rose 0.05% to 8,688 yuan ($1,368) per square meter, according to data released on Monday by China Real Estate Index System, which tracks property prices. Although housing prices declined in 55 of the cities tracked, compared to 45 where it increased, some of the largest increases came in some of China's biggest cities. In Beijing, prices rose 2.29% in June from a month ago, while in Shanghai the increase was 0.65%; in Shenzhen, prices rose 0.8% from a month earlier. The largest monthly decline tracked, 3.87%, was in Zhangjiagang, a city of 1.3 million in eastern China.

In Beijing, housing sales also rose 10.5% in June, to 25,602 units, Xinhua News agency reported on Monday. That's a 50.6% increase from a year ago.

Separately, Standard Chartered recently reported that the slide in real-estate sales moderated in the second quarter of 2012, while sales of apartments in China's largest cities have started to increase.

Two years of declining prices have made apartments more affordable to ordinary Chinese, while an interest rate cut in June has reduced mortgage costs [#msg-76397675]. China's highly publicized effort to boost growth also may have encouraged buyers to believe that prices may be headed up.

Florrie Tang, who bought an apartment in a Shanghai suburb in June, said she had been searching for a place since March and felt that prices had fallen close to the bottom of the market. She figures the apartment is a good hedge against inflation, though the 27-year-old design-company manager said she didn't believe property prices would increase at the pace they once did. In major cities, prices nearly doubled between 2006 and 2010.

Cher Cai, assistant president at Shimao Property Holdings, a property developer in Shanghai, said that "as the property market warms up, we will definitely be more aggressive in launching projects and speeding up construction."

Since 2010, the Chinese government has tried to deflate what had become a housing bubble without battering the Chinese economy. The campaign was aimed primarily at the high end of the real-estate market by making it much more difficult to speculate in real estate by buying multiple apartments. The government raised down payments for second homes to 60%—twice as high as for first homes—among other measures.

To prevent the real-estate market from crashing, China also started a massive public-housing program aimed at lower-income workers [#msg-70416781]. While that program is riddled with problems, ranging from phony reporting to substandard construction, it does appear to have put a floor under the real-estate market, analysts say.

Even so, the drooping real-estate market, combined with declining demand for Chinese exports in Europe and elsewhere, pulled back China's economy to an 8.1% pace in the first quarter 2012, the slowest growth since the spring of 2009, when the world was in recession. The economy is widely expected to slow further, to roughly 7.5% in the second quarter. That's prompted Beijing to focus more on growth, easing monetary policy and approving a slew of investment projects.

A pick-up in the real-estate market should help China to grow more rapidly in the second half of the year on a quarter-to-quarter basis, said UBS economist Wang Tao. But Standard Chartered economist Stephen Green said that most of the gains aren't likely until next year because developers have such a large supply of unsold homes.

Mr. Williams, the Capital Economics economist, said there is an outside chance that sales and prices could shoot up, as consumers become more convinced that real estate is once again a smart investment. That would be too much of a good thing, though, he said. Another big rise in real-estate prices would likely end in a crash.

To avoid such an outcome, Beijing has been wary of easing property restrictions too much. The government has allowed, on a city-by-city basis, some breaks for first-time buyers. The cities of Chongqing, Wuhan and Zhengzhou, for instance, have allowed first-home buyers to borrow more from government-sponsored savings funds. Banks are also permitted to discount mortgage rates up to 30% for first-time buyers.

But restrictions remain in place for those buying second properties. In Beijing, a scientist waiting to register a property she bought for her parents said that even though interest rates have dropped, she had to pay a premium on her mortgage.‹

[DewDiligence]

Changsha, China plans major infrastructure spending:

http://online.wsj.com/article/SB10000872396390443477104577550702565231394.html

Changsha, the capital of central China's Hunan province, unveiled an ambitious infrastructure-development package that would require investments of 829.2 billion yuan ($130.7 billion)…

…The Changsha city government, together with financial institutions, unveiled 195 investment projects at a briefing Wednesday, the Hunan provincial government said in a statement on its website Thursday.

… The city will kick off the investment package with 10 major projects, including the second phase of Changsha's Huanghua airport and the construction of new roads and parks in the city… The package also includes an investment of 374.8 billion yuan in the redevelopment of 10 older sections of the city.

[DewDiligence]

Caterpillar’s take on what’s going on in China: The current slowdown is a direct consequence of relatively tight monetary conditions in China about one year ago; pursuant to the new round of stimulus spending is getting underway now (#msg-76087397), CAT expects China’s economy to show an increase in 2013 growth relative to 2012 and is committing inventory to its dealers accordingly. (Source: CAT’s 2Q12 CC.)

Please see #msg-76087397 and the various posts in that message’s Reply chain for related info.

[DewDiligence]

Chinese Cities Plan Stimulus Spending

http://online.wsj.com/article/SB10000872396390444443504577602830726946716.html

›August 22, 2012

BEIJING—Some of China's big cities are announcing large investment plans intended to boost slowing growth rates, but just how much of a lift they will give to the economy remains uncertain.

The city of Chongqing in China's southwest called for investment of 1.5 trillion yuan ($237 billion) in seven key industries over the next three years, the state-run Xinhua news agency reported Monday.

The investment goals include 300 billion yuan in the electronic communications sector, 200 billion yuan in the auto industry, 250 billion yuan in the manufacturing of advanced equipment and 150 billion yuan in the chemical industry, Xinhua said on Monday.

…Separately, Tianjin, a city next to Beijing, said it has "preliminarily" decided to move forward with a plan calling for investment of 1.5 trillion yuan over four years in 10 industrial sectors, ranging from the petroleum and chemical industry to the aviation and aerospace industry over the next four years, according to a report by the state-run Tianjin Daily posted on the Tianjin municipal government website on Tuesday.

The announcements follow a similar plan from Changsha, the capital of central China's Hunan province, which last month unveiled plans for 829.2 billion yuan in investments.

The plans signal a growing appetite in China for government spending to help boost slowing economic growth. In the second quarter, China's economy grew 7.6% from a year ago, the slowest rate since the global financial crisis, and more recent economic data suggest the slowdown will continue.

"Local governments don't want to see slowing growth, so what they can do is to push for more investment," said Nomura economist Zhang Zhiwei.

Word of the plan spurred markets in Australia, a major supplier of raw materials for the Chinese economy. The benchmark S&P/ASX 200 index rose 0.4% on Tuesday to its highest level in more than three months, while the Australian dollar was up 0.6% against the U.S. dollar in late Asian trading.

It isn't clear where the governments will get the money. None of the announcements specified whether the funds were in place or whether they would come from local, national or private-sector sources. Local governments, which depend on land sales for much of their revenue, are facing budget constraints across the country due to the weak property market.

During the massive stimulus campaign of 2009 to 2010, local governments borrowed heavily from state-owned banks to fund investments, but this led to growing concerns over the quality of loans, and the practice has been reined in by regulators.

It also isn't clear whether the plans are new or previously announced. Chongqing's five-year plan from 2011 to 2015, unveiled by the city early last year, also called for 1.5 trillion yuan of new investment. The propaganda chief at the Chongqing agency that oversees investment and industry said she couldn't immediately comment.

Still, the growing eagerness of local governments to spend on projects is likely to give a boost to the economy, analysts say. "Even if only 50% of the plan is realized, that'll still be a substantial amount," Mr. Zhang said of the Chongqing plan.

"We continue to expect these city-level initiatives to help the economy to rebound in [the second half of the year]," he said.

The investment push by local governments raises concerns among some analysts that some of the mistakes of the 2009 to 2010 stimulus may be repeated, including exacerbating overcapacity and the Chinese economy's overreliance on investment to power growth.

Mr. Zhang said the investment may push up inflation next year, which could constrain the ability of the central bank to loosen monetary policy.‹