China Economic Scan Weekly Economic Review - 22 May 2009

China Economic Scan Weekly Economic Review - 22 May 2009

22/05/2009. Source: China Economic Scan. Callum Thomas, Managing Director, China Economic Scan

During the past week a number of commentators highlighted issues in the Chinese economy, including interest rate movements and foreign trade. There were also some data releases such as SOE revenue, foreign financial asset holdings, and Hong Kong GDP figures.

Former Chinese ambassador to Brazil, Chen Duqing, said that the two countries have huge potential to expand trade. Bilateral trade rose 63.2% year on year to $48.98 billion in 2008, according to data released by the General Administration of Customs.

Brazil imported $268 million worth of farm produce from China, up 125.2% year on year. China imported vegetable oil, cotton and fruit worth $8.79 billion from Brazil last year, an increase of 82.4% from a year ago.

China's foreign financial assets rose 23% in 2008 to reach a total of $2.92 trillion, the State Administration of Foreign Exchange (SAFE) said. Of that amount, nearly $2 trillion, or 67%, were foreign exchange and gold reserves. Outbound direct investment, however, was just $169.4 billion, accounting for 6% of the total foreign financial assets.

London based economist Mark Williams said the deflation in China means that “real rates have risen sharply,” and that “If the recovery disappoints, further interest-rate cuts could resume from the middle of the year.” The key one-year lending rate is 5.31% after 5 cuts in the final 4 months of last year. Williams predicts 81 basis points of cuts in lending and deposit rates by the end of 2009 on the back of falling CPI.

Operating revenues of China's state-owned enterprises (SOEs) fell 7.3% year on year to 5.97 trillion yuan (854 billion U.S. dollars) in the first 4 months of 2009, the Ministry of Finance said. Profits of the 115,000 SOEs totaled 323.64 billion yuan in the first 4 months, down 32.3% from a year earlier. The fall was 4.5 percentage points lower than that of the 1st quarter.

China's Ministry of Land and Resources announced a 30% cut in the minimum purchase price of industrial land to boost investment. The national average industrial land price was 721 yuan per square meter in Q1 2009, down 1.08% from Q4 2008, and down 1.1% year on year. Land prices in China ranged from 60 yuan ($8.77) per square meter in northwestern Xinjiang Uygur, to 840 yuan per square meter in Shanghai.

Hong Kong's GDP for Q1 2009 fell 7.8% after a 2.6% drop Q4 2008. GDP for 2009 as a whole is now forecast to contract by 5.5 to 6.5% in real terms, down from the forecast decline of 2 to 3% earlier put out in the government budget. However there are positive signs e.g. a pick-up in the mainland economy and global stock markets. While on the downside is a sharp plunge in global demand and a fall-off in intra-regional exports.

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