It’s a big week for China and those who believe in its current policy direction, and equally, for those who think it is flawed and heading for a crunch.
The all-important quarterly and 2009 year figures for economic growth, inflation, industrial production retail sales and fixed asset investment are due out on Thursday at about 12.30pm (Sydney time). That will complete the picture we already have with figures already showing a solid month for exports (and imports) in December, although December 2008 was very weak, (so the comparison looks better than it is).
But car sales hit a record of more than 13 million with domestic production at record levels; power consumption rose, especially from May onwards, steel and coal production were strong, according to informal figures, iron ore, copper and aluminium imports jumped sharply in December, bank loans soared for the month (and the year) and central government taxes revenues rose more than 9% to more than $US900 billion ($A975 billion).
Housing prices jumped sharply in December, up nearly 8% in 2009 and 1.5% from November. That continued the accelerating trend in the closing months of 2009. The government has moved to tighten monetary policy by forcing banks to increase their reserve asset ratios by 0.50% from today (to 16% and the first increase for 18 months), lifted market rates 10 days ago to try and cool bank borrowings and the country’s foreign exchange reserves hit almost $US2.4 trillion by the end of 2009, up 23.3% year on year.
China said Friday that new yuan-denominated lending last year hit a record 9.59 trillion yuan (or $US1.4 trillion), almost double that of the previous year and the 5 trillion yuan annual target the government set at the beginning of last year.
So the optimists are forecasting growth for the December quarter in a range of 10.5% (pessimists) for 11.0% or more (optimists are about 11.5%).
Annual GDP growth of about 11% would confirm that China saw very strong growth in 2009, especially in the last half, thanks to the spending from the government and the rush to lend money by banks, but also to rising demand for exports and from consumers.
China grew by 6.1% in the first quarter of 2009, 7.9% in the second quarter and 8.9% in the third. That means that if GDP grew at about 11% in the December quarter, annual GDP growth for the year will be about 8.5% or more.
Growth above 9% will see the bears bellow “crash, bubble, doom” even louder. But the reality is that China won’t crash, even as the government moves to try and control the economy. It may slow, it may develop a few wobbles, but the government will absorb all bad debts from the current lending surge (as it has done so in the past) because the banks are state controlled.
Exports rose more than 17% in December from a year earlier, and imports were up more than 55%. But for the year exports were off 16% and imports were down more than 11%.
But that performance has intensified a central puzzle about China: its foreign reserves grew much, much faster last year that expected, even after the 34% fall in the trade surplus.
For the entire year, China’s reserves rose $US453 billion, $US35 billion more than the increase in 2008. While the reserves grew by just $US10 billion, in December, that followed rises of $US56 billion and $US60 billion.
That exposes the major underlying problem for China; there’s been a flood of hot money into China, hard as that seems with the government tightly controlling capital inflows and outflows and refusing to allow the yuan to rise against the US dollar and other currencies.
The country’s trade surplus fell in 2009 to $US196.1 billion, falling for the first time since 2003 and short of 2008’s record $US295.5 billion. Now the full year figure for last year is more than $US260 billion under the rise of the country’s foreign reserves (Chinese foreign debt rose to about $US360 billion at the end of last year).
That’s an awfully large “accounting error”, or more realistically a sign of the lack of control the central government has on “hot” capital inflows, which are often disguised as overcharges on export receipts.
This could be another example of China’s “rubbery” statistics, but when taken with the intransigence about the value of the yuan and the high levels of banking lending, it raises the question of whether the central bank really has control of money supply (and monetary policy), or whether the central government has turned a blind eye to the inflow of hot cash and is allowing it to help finance its stimulus spending.
Reversing it (and taking profits) might be a little troublesome if the money is coming from foreigners. In all reality it is some of China’s biggest companies playing “ducks and drakes” with funds held offshore during the economic crisis and now being returned to take advantage of the solid rebound. That’s a form of speculation. The Communist Party doesn’t like individuals and foreigners engaging in it, but state-owned corporations?
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