Reuters video: Nicholas Zhu, ANZ Bank head of macro-economic data Asia, examines iron ore stockpiles at Qingdao port.
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Hat tip to Houses and Holes
FedEx CEO Frederick W. Smith talks about how exports to China remain stagnant given China’s recent protectionist policies and its focus on “indigenous innovation.” He speaks with WSJ’s Alan Murray at Viewpoints West.
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Michael Moran: While China excels at building and even incrementally improving established product lines like GM’s Buicks and countless other Western and Japanese goods manufactured there, it has struggled to innovate. Even in 2010, the year China officially overtook Japan as the world’s second largest economy, no Chinese brand could viably be called a household name in any Asian market, let alone in the wider world. The annual global branding study by the market research firm TNS found in 2010 that, while consumer brands from Denmark, Finland, South Korea, and Switzerland make the top 20, no Chinese product or brand appeared in the top 1,000.
……China can claw its way up the value-added food chain and move its companies beyond the goal of building a better, cheaper Buick and into the high-end, high-margin markets for software, aerospace, robotics, and sophisticated engineering currently dominated by the United States, Europe, and Japan. But the progress to date has been almost impossible to measure, and the country’s substandard educational system, demographic and political challenges, and corruption suggest that this will be more of a Long March than a Great Leap Forward.
via EconoMonitor : Last Days of Rome » How America Builds Its Way Back to Balance.
Australia’s ASX 200 opened with a strong blue candle on the hourly chart but is now retracing to find support. Respect of short-term support at 4290 would suggest follow-through to 4320, while failure would test medium-term support at 4240/4250.
Breakout above 4320 would indicate another test of 4400. Though we are unlikely to see a primary up-trend until China signals that it has formed a bottom.
Data in recent weeks has painted an increasingly gloomy picture of slowing manufacturing, weak exports and tepid bank lending in China. The latest indicator to spook markets came Thursday with the flash HSBC Purchasing Managers’ Index, an initial reading on manufacturing activity in March. The PMI fell to a preliminary reading of 48.1, down from 49.6 in February.
The March PMI reading marks the fifth straight month the index has indicated contraction, signaling extended difficulties for the nation’s manufacturers. A reading below 50 indicates contraction from the previous month, while anything above that indicates growth.
STEPHEN BELL: China’s demand for iron ore is ‘flattening out’, a senior executive at BHP Billiton Ltd. said Tuesday.
Demand growth for the commodity used to make steel will drop “to single digits if it is not already there,” Ian Ashby told a press conference in Perth.
Satyajit Das: New lending by Chinese banks in 2009 and 2010 was around 40% of GDP. New bank loans in 2009 and 2010 totalled around $1.1-1.4 trillion, an increase from $740 billion in 2008. Total outstanding loans in the economy have jumped by nearly 50 per cent over the past two years.
Around 90% of this lending was directed towards investment in building, plant, machinery and infrastructure by State Owned Enterprises (“SOE”). In 2010, China allocated over $2.6 trillion to investment expenditure – the highest proportion of GDP of any major economy in the world. According to the World Bank, almost all of China’s growth since 2008 has come from “government influenced expenditure”.
For the first time in eight years, the Chinese government’s annual growth target has been lowered, to 7.5 per cent GDP growth for all of 2012…..
The new number represents Beijing’s recognition that the investment-driven, export-dependent growth model that has propelled it from an impoverished backwater to the world’s second-largest economy in just three decades is running out of steam……
The goal is to shift growth away from investment in polluting, energy-intensive, unsustainable industries and towards domestic consumption, particularly of services and “green goods”, such as energy-efficient vehicles and environmentally friendly building materials.
“We will move faster to set up a permanent mechanism for boosting consumption,” Wen Jiabao, the premier, said at the opening session of China’s rubber stamp parliament on Monday. “We will vigorously adjust income distribution, increase the incomes of low- and middle-income groups and enhance people’s ability to consume.”
via China’s growth model running out of steam – FT.com.
Comment:~ The trap China faces is that raising wages in order to promote domestic consumption will reduce competitiveness in export markets and harm its current export-driven growth model. Not only are exports likely to fall but, with a high propensity to save, there is no guarantee that Chinese consumption will rise as fast as wages.
In the 12 months to June 2011, dollar purchases accounted for just 15% of additions to China’s reserves.
That confirms hints from Beijing and Europe over the past year that China has ramped up purchases of European debt
via Heard on the Street: China Shifts Out of Dollars, World Doesn’t End – WSJ.com.
China’s capital controls have served it well. It was little harmed by the Asian financial crisis of 1997-98 and has been largely insulated from the global tumult of the past four years. That resilience in the face of external trouble has emboldened conservatives in Beijing who support the status quo.
But there are also problems in maintaining such rigid capital controls. Chinese savers have few investment outlets for their money and plough it into the property market instead. Perhaps most important from a political standpoint, plans to transform the renminbi into a rival to the dollar have run into difficulty – foreign companies do not want a currency that cannot be invested in its country of origin.
“Internationalisation of the renminbi is now a clear mandate, so resistance for capital account liberalisation has been diminishing,” said Liu Li-gang, an economist with ANZ. “The wind has shifted.”
China’s top leaders have given a series of signals in recent months that they want capital account reforms to get into gear.
via China outlines plan to loosen capital controls – FT.com.
