Pump-priming seems to have some early success as bank loans and manufacturing index rise
Reuters 7 February 2009
A rise in China’s official manufacturing index coupled with a surge in bank lending fed optimism yesterday that the world’s third-largest economy may soon be on the road to recovery.
Central bank chief Zhou Xiaochuan said that government pump priming had scored early successes but remained wary with risks of bad loans and an export collapse still clouding the horizon.
The global importance of reviving the Chinese economy was underscored when data showed that car sales in China had topped those in the United States in January for the first time.
The highlight of China’s economic news yesterday was the official purchasing managers’ index, or PMI, for January, which rose to 45.3 from 41.2 in December and was well up from a record low of 38.8 hit in November.
Although the sub-50 reading indicated manufacturing was still contracting, Zhang Liqun, a government economist, said that the index offered evidence that the economy was ‘gradually bottoming out’.
Mingchun Sun, an economist with Nomura in Hong Kong, went a step further, saying that the worst was already past.
‘The January PMI data at least provides further support to our view that GDP growth should be stronger in Q1 2009 than in Q4 2008,’ he said in a note. ‘China’s GDP growth will be V-shaped in 2009, with the bottom already being reached in Q4 2008.’
China’s economy grew at 6.8 per cent in the fourth quarter, dragging full-year growth to a seven-year low of 9 per cent.
Faced with an abrupt slump, the government has stepped up efforts to boost demand through big spending and easier credit.
Although Beijing has so far spent only a small portion of its four trillion yuan (S$882.9 billion) stimulus package announced late last year, Mr. Sun said that a jump in new orders showed that public investment was already providing vital support.
China’s benchmark stock index rose for the third straight day in heavy trade as investors took heart in the positive numbers.
But Beijing can do little to prop up China’s exporters as their main markets from the United States to Europe skid into recession.
The PMI sub-index for new export orders crept up in January to 33.7 but was so far below the breakeven line that economists said the overall picture remained bleak.
Ken Peng, a Citigroup economist in Shanghai, said: ‘The January PMI report is encouraging as the natural end of de-stocking may produce some sense of economic confidence.
‘But being ‘less bad’ is not the same as ‘recovery’.’
Another sign that Beijing’s campaign is bearing fruit came in a report that Chinese banks had answered the government’s call and extended a monthly record of 1.2 trillion yuan in new loans in January.
The report in the official China Securities Journal followed earlier comments by Premier Wen Jiabao that the first 20 days of the month had seen a record number of new loans.
‘China’s appropriately easy monetary policy began to play a positive role in the fourth quarter of last year,’ said People’s Bank of China’s Mr. Zhou. ‘But large-scale credit is not sustainable and could create risks for non-performing loans.’
State media reported on Tuesday that China was set to spend 130 billion yuan in the second tranche of its stimulus spending, after allocating 100 billion yuan in the final quarter last year.
This would leave the government with 3.77 trillion yuan to disburse over the next two years.
Confidence that the Chinese economy is getting back on its feet could sway the government to slow the pace of monetary easing after it cut interest rates five times in the last four months of 2008.
But a 3.1 per cent drop in the corporate goods price index in December, announced by the central bank yesterday, served as a reminder that deflationary pressures are building in China and driving up real interest rates.
Separately, the world’s third-largest producer of iron ore, BHP Billiton, said that a massive build-up of iron ore stockpiles in China that prompted suppliers to defer millions of tonnes in shipments last year was ending and customers were returning to the market, pushing cash prices higher.
Around 68 million tonnes of ore had piled up at Chinese ports by late November with another 125 million tonnes stored at steel mills, according to analysts’ estimates.
The build-up had led BHP, the world’s biggest diversified miner, to defer delivery on six million tonnes, or around 5 per cent of its annual production, which it sold at a discount on the spot market instead, further depressing prices.
As a result of China’s de-stocking, spot market prices for ore had rebounded to within 10 or 15 per cent of last year’s contract price, BHP chief executive Marius Kloppers said.
1 comment:
Upbeat China economic news on two fronts
Pump-priming seems to have some early success as bank loans and manufacturing index rise
Reuters
7 February 2009
A rise in China’s official manufacturing index coupled with a surge in bank lending fed optimism yesterday that the world’s third-largest economy may soon be on the road to recovery.
Central bank chief Zhou Xiaochuan said that government pump priming had scored early successes but remained wary with risks of bad loans and an export collapse still clouding the horizon.
The global importance of reviving the Chinese economy was underscored when data showed that car sales in China had topped those in the United States in January for the first time.
The highlight of China’s economic news yesterday was the official purchasing managers’ index, or PMI, for January, which rose to 45.3 from 41.2 in December and was well up from a record low of 38.8 hit in November.
Although the sub-50 reading indicated manufacturing was still contracting, Zhang Liqun, a government economist, said that the index offered evidence that the economy was ‘gradually bottoming out’.
Mingchun Sun, an economist with Nomura in Hong Kong, went a step further, saying that the worst was already past.
‘The January PMI data at least provides further support to our view that GDP growth should be stronger in Q1 2009 than in Q4 2008,’ he said in a note. ‘China’s GDP growth will be V-shaped in 2009, with the bottom already being reached in Q4 2008.’
China’s economy grew at 6.8 per cent in the fourth quarter, dragging full-year growth to a seven-year low of 9 per cent.
Faced with an abrupt slump, the government has stepped up efforts to boost demand through big spending and easier credit.
Although Beijing has so far spent only a small portion of its four trillion yuan (S$882.9 billion) stimulus package announced late last year, Mr. Sun said that a jump in new orders showed that public investment was already providing vital support.
China’s benchmark stock index rose for the third straight day in heavy trade as investors took heart in the positive numbers.
But Beijing can do little to prop up China’s exporters as their main markets from the United States to Europe skid into recession.
The PMI sub-index for new export orders crept up in January to 33.7 but was so far below the breakeven line that economists said the overall picture remained bleak.
Ken Peng, a Citigroup economist in Shanghai, said: ‘The January PMI report is encouraging as the natural end of de-stocking may produce some sense of economic confidence.
‘But being ‘less bad’ is not the same as ‘recovery’.’
Another sign that Beijing’s campaign is bearing fruit came in a report that Chinese banks had answered the government’s call and extended a monthly record of 1.2 trillion yuan in new loans in January.
The report in the official China Securities Journal followed earlier comments by Premier Wen Jiabao that the first 20 days of the month had seen a record number of new loans.
‘China’s appropriately easy monetary policy began to play a positive role in the fourth quarter of last year,’ said People’s Bank of China’s Mr. Zhou. ‘But large-scale credit is not sustainable and could create risks for non-performing loans.’
State media reported on Tuesday that China was set to spend 130 billion yuan in the second tranche of its stimulus spending, after allocating 100 billion yuan in the final quarter last year.
This would leave the government with 3.77 trillion yuan to disburse over the next two years.
Confidence that the Chinese economy is getting back on its feet could sway the government to slow the pace of monetary easing after it cut interest rates five times in the last four months of 2008.
But a 3.1 per cent drop in the corporate goods price index in December, announced by the central bank yesterday, served as a reminder that deflationary pressures are building in China and driving up real interest rates.
Separately, the world’s third-largest producer of iron ore, BHP Billiton, said that a massive build-up of iron ore stockpiles in China that prompted suppliers to defer millions of tonnes in shipments last year was ending and customers were returning to the market, pushing cash prices higher.
Around 68 million tonnes of ore had piled up at Chinese ports by late November with another 125 million tonnes stored at steel mills, according to analysts’ estimates.
The build-up had led BHP, the world’s biggest diversified miner, to defer delivery on six million tonnes, or around 5 per cent of its annual production, which it sold at a discount on the spot market instead, further depressing prices.
As a result of China’s de-stocking, spot market prices for ore had rebounded to within 10 or 15 per cent of last year’s contract price, BHP chief executive Marius Kloppers said.
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