Sunday, July 4, 2010

China hikes 2009 growth estimate to 9.1%

China Watch Blog has reported that China's economy grew even faster in 2009 than previously reported, adding to concern that the flood of stimulus spending and loans that drove its rebound has left a dangerous glut of unneeded factories and other assets.

The government raised its estimate of 2009 growth yesterday from 8.7 per cent - already the fastest among major economies - to 9.1 per cent, boosting China's economic output to the equivalent of US$4.98 trillion.

That suggested Japan clung to its title as the second-largest economy with just under US$5.1 trillion in output.

Beijing propelled its recovery from the global slump with a four trillion yuan stimulus and record 2009 bank lending of 9.6 trillion yuan. But the country's Communist leaders now worry that that drove overspending on factories and other facilities, which could lead to economic problems if producers are forced to slash prices in glutted markets or cannot repay bank loans.

'There definitely are risks of overcapacity from all this investment,' said Citigroup economist Ken Peng.

He said Beijing is likely to have to step in and repay at least some of the debts of overextended state companies or local governments.

Makers of steel and textiles are likely to be hit hardest because they have the biggest oversupply and foreign demand for their goods is weak, said Lu Zhengwei, senior economist for Industrial Bank in Shanghai.

Steel producers, which expanded output as demand from stimulus-financed construction projects surged, have 16 million tonnes of unsold stock, state television said yesterday. It said mills are selling steel at prices below cost.

Yuan hoarding causes shortage in HK...

Sorry, no yuan! That's the message from several Hong Kong money changers as speculators scramble to stock up in anticipation of the currency rising further.
A local bank manager is not surprised that yuan stocks have ran out as supply is tight.

"People are banking on reports that the United States is pressing for a 10 percent yuan appreciation, despite Beijing saying any appreciation will be gradual," he told The Standard on condition of anonymity. "People want to make a fast buck since interest in the Hong Kong dollar is low. So the yuan is a sure bet for anybody."

A source at the Hong Kong Monetary Authority said the shortage at money changing counters could be due to another factor - hoarding.

"Money changers are expecting the yuan to appreciate faster and sooner, and so they are holding on to their stocks," the source said. "The fact that there is no cap on conversions to yuan has put them a difficult position in both quoting and selling of the currency.

"They obviously do not want to sell large amounts of yuan."

Local banks have confirmed they have an unlimited supply of yuan, which they get directly from the mainland central bank, the People's Bank of China.

Saturday, May 22, 2010

US crackdown on illegal Cosmetics labels...

US consultant, FDAImports.com, LLC has warned that the U.S. Food & Drug Administration (US FDA) is to take up major enforcement action against Cosmetics Manufacturers with illegal “Anti-Aging” Labelling Claims.

The U.S. Food & Drug Administration's Center for Drug Evaluation and Research (CDER) will soon crackdown on cosmetics product labels bearing illegal drug claims, including “SPF,” “anti-aging,” or “anti-wrinkle,” according to Benjamin L. England, former 17-year FDA veteran and FDAImports.com, LLC Founder.

A cosmetics manufacturer or importer in the USA will be potentially subject to IA 66-38, and may face product labelling compliance challenges that could lead to financial losses if no action is taken.

FDA issued Import Alert #66-38, “Skin Care Products Labeled As Anti-Aging Creams” (IA 66-38) in 1988, subjecting cosmetic manufacturers - including several large, non-U.S. cosmetics importers Estee Lauder, L’Oreal, Avon, Almay and Fleur de Sante - to “intensive surveillance” for importing cosmetics with drug claims on cosmetic product labeling.

FDA appears to be cracking down on importers whose cosmetic product labels bear illegal drug claims. As recently as April 2010, FDA added 93 cosmetics products and four firms to the IA 66-38 “Yellow List,” which subjects those companies’ imported cosmetics to “intensive FDA surveillance” including increased import field examinations.

These additions to the alert show that FDA is getting serious,” said England.

We are not sure if this crackdown will impact Chinese exporters of cosmetic products to the USA, but it is better to be forewarned.

Thursday, May 13, 2010

Warning over potential crisis looming

About 40% of new loans in the first quarter went to local government bodies, with analysts warning that a potential crisis is looming, according to a China Daily report.

Wei Jianing, deputy head of macroeconomic research department at the DRC, said the scale and debts of these local government-owned bodies - mainly financing companies using land and fiscal revenue as collateral - has been swelling rapidly, and may pose great risks to the economy.

"In the past, a government usually had two to four financing arms under its jurisdiction, but the number grew to 10 in 2009 under the country's proactive fiscal policy and loose monetary policy needs," he said, adding that the various levels of government investment and financing companies totaled more than 3,800, 70 percent of which are at district or county level.

The debts of these arms have surged to 6 trillion yuan (US$879.12 billion) in 2009 from 1 trillion yuan in early 2008, said Wei. In 2009, new loans to those financial arms reached about 3.8 trillion yuan, 40 percent of the 9.59 trillion in new credit from China's banks, he said.

Jia Kang, director of the Institute of Research at the Ministry of Finance, also said this month that he is not sure about the exact amount of local government debts, but said some researchers estimate they could amount to more than 8 trillion or even 11 trillion yuan.

Analysts said the central government's recent tightening of the housing market would greatly affect local fiscal revenue and make it very difficult for the governments to pay their debts.

According to the Ministry of Finance, in 2009 the nation pocketed 1.42 trillion yuan in land transfer revenue, about 3 percent of gross domestic product during that period.

Even when interest payments are not taken into account, it would take local governments four to five years to repay the 6 trillion yuan in loans.

"Revenue generated by selling land accounted for 45 percent of total local fiscal revenue last year. If the real estate market slumps and developers become hesitant about buying land, a crisis would erupt in local finances," said Tao Dong, chief analyst with UBS Securities in Asia.

Experts concerned over huge loans to local govts 12 listed banks' property loans total 5t yuan
As the firms were set up mainly to attract capital used in infrastructure and the construction of other public facilities, a major driving force of China's economic growth, the whole economy may be dragged down as crisis fans out, said Wang Zhihao, China research director of Standard Chartered Bank.

But some are more optimistic about the impact of the debts. "I don't believe the debts could pose much threat," said Jia, adding the biggest problem in local financing lies in the severe irregularities of borrowing.

He said the irregularities were reflected in the huge mismatch between the borrowed amount and the ability to repay in some regions. "But if we fight the fire only when the problems are already very evident, the social impact would be much greater."

In addition, the financing firms' executives, mainly government officials, often lack the necessary experience in management and risk prevention, added Wei.

Shanghai multiple house owners to pay tax...

Shanghai is mulling tough measures, including imposing a property tax on owners of multiple houses, as early as this month in order to cool the overheated real estate market, according to an official Shanghai Securities News report.

The draft rules, which are still under discussion and subject to change, include applying existing commercial-use property taxes to owners of multiple residential properties, the newspaper quoted an unnamed source close to the Shanghai municipal government as saying.

Extending existing commercial-use property taxes to owners of multiple residential properties would simplify the legislative process, and property owners would be evaluated by their families' per capita living space, China Watch Blog reported, citing a source.

If property owners meet the tax-paying threshold, they would pay 0.8 percentage point of their property's assessed market value annually, the source said.

Detailed rules would be issued as early as this month, the source said.

The Shanghai Municipal Housing Support and Building Administration Bureau didn't comment on the rules when contacted by the Global Times Wednesday.

Experts said imposing a property tax would be the toughest measure yet to combat property speculators.

"The tax measure is aimed at increasing the efficiency of residential property usage, lessening the gap between the rich and the poor, and increasing local governments' fiscal revenues," said Yin Zhongli, a researcher with the Institute of Finance and Banking at the China Academy of Social Sciences. "It is definitely a trend for the whole country in the future."

Media reported in April that China would impose trial property taxes in Beijing, Shanghai, Shenzhen and Chongqing. However, Beijing and Shenzhen did not adopt a property tax in their recently-released local housing market measures. Chongqing mayor Huang Qifan told local media on April 20 that the city had proposed to the central government a plan for a property tax for high-end properties.

"Shanghai may be the first city in China to impose a property tax," said Yang Hongxu, an analyst with Shanghai-based E-House China Research Development Institute. "The property bubble is similar in Shanghai, Beijing and Shenzhen, but the Shanghai government faces more pressure due to limited land supply for commercial residential property this year."

Shanghai plans to supply 330 hectares of land for commercial residential property this year, while Beijing plans to supply about 1,250 hectares of land for the same purpose.

Tuesday, May 11, 2010

China reports April CPI up 2.8pc...

China's consumer price index (CPI), a main gauge of inflation, picked up faster in April by rising 2.8% year on year, and was up 0.4 percentage point from 2.4% in March, Xinhua reported, citing the National Bureau of Statistics (NBS). The CPI dropped 1.5% in the same month last year.

For the first four months, China's CPI rose 2.4% year on year. The producer price index (PPI), a major measure of inflation at the wholesale level, grew 6.8% year on year in April and was up 0.9 percentage point from March.

In April, consumer prices in China's urban areas increased 2.7% and in rural regions by 3%. Food prices, which accounted for about a third of the weighting in calculating the CPI, gained 5.9% during the month.

China is targeting a rise in consumer prices of around 3% this year, according to a government work report delivered by Premier Wen Jiabao in March at the annual legislative session.

China's CPI ended nine months of decline in November of 2009, when it rose 0.6 percentage point, as the nation's economy rebounded strongly ever since.

Property price woes in China...

According to China Watch Blog, industry experts said at a forum on Monday that China's property prices will stabilize in the second quarter of this year due to the government's tightening of real estate policies and attempt to improve imbalances between supply and demand. That's good news, but others are worried about what this means to property prices.

"In cities that have experienced excessive property price growth, there will be bigger fluctuations in the following three months, but the decrease will differ from city to city," says Nie Meisheng, president of China Real Estate Chamber of Commerce.

However, experts are worried that tightening policies may deter property developers from starting new projects and purchasing land, thereby cutting the supply and pushing up prices next year.

Both central and local governments have launched a string of measures to curb soaring property prices and investment-oriented home purchases, such as raising down-payments and mortgage rates for second and third homes, and even restricting the number of apartments a family can purchase, People's Daily reported.

Those measures instantly chilled the property market in key cities, with transactions and prices falling. Statistics from the China Index Academy show that among the 35 major cities it monitors, 26 cities saw transactions dip last week, with an average fall of more than 20 percent.

The average price of home deals in the southern city of Shenzhen was 19,271 yuan ($2,823) per square metre, down 25.44% from the previous week, leading to the biggest drop among 35 cities.

Beijing was down 18% to 15,707 yuan per sq m, and Shanghai was down 12.2% to 13,246 yuan per sq m. Hangzhou, capital of East China's Zhejiang province, however, reported a 49.2% increase in transactions and 25% growth in price, with the average price reaching 25,409 yuan last week.

Let's wait and see what happens in the next few months.