China Economic Scan - Your daily update on the Chinese economy.
In this edition: Capital Economics says China may cut interest rates, Chinese domestic demand shows signs of picking up, Revenues of Chinese SOEs 7.3% YTD, China to issue $4bln treasury bonds, Chinese stocks close down 1.5% on Thursday.
Top 5 headlines
China May Cut Rates as Recovery Falters, Capital Economics Says
- Deflation means “real rates have risen sharply,” London based economist Mark Williams said. “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 five cuts in the final 4 months of last year.
- Williams predicts 81 basis points of cuts in both lending and deposit rates by year’s end after consumer prices fell for 3 straight months and producer prices declined by a record in April.
China sees initial results in boosting domestic demand
- China's retail sales rose 14.8% in April year on year, 0.1 percentage points higher than March.
- Rural spending, driven by a government rebate policy on home-appliance purchases and other commodities, grew by 16.7% in April, which was 2.8 percentage points higher than urban growth, according to NBS.
- China became the world's largest vehicle market again with more than 1.15 million cars sold in April, up 25% from a year earlier. Property sales rose by 17.5% in acreage from a year earlier in the first 4 months of 2009.
Operating revenues of China's state-owned enterprise down
- 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, 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.
- The combined profits of China's SOEs, excluding financial institutions, totaled 217.7 billion yuan in the first quarter, accounting for 3.31% of the country's gross domestic product.
China to issue $4b treasury bonds
- China's Ministry of Finance (MOF) said Wednesday it would issue 27.3 billion yuan ($4 billion) of three-year book-entry treasury bonds, the ninth batch of its type this year.
- The bonds have a fixed annual interest rate of 1.55% and will be sold from May 21 to 25.
- The MOF would issue a total of 28.5 billion yuan of local government bonds in the first half of May on behalf of 6 local governments, which would include Dalian city, Sichuan province and Hubei province.
China Stocks Fall for Second Day on Economy Concern; SAIC Drops
- Chinese stocks dropped off again on Thursday with the Shenzhen Component recording a fall of -3.30% to 10,109, Hang Seng -1.58% to 17,199, and Shanghai Composite down -1.54% to 2,611.
- “Stocks are expensive now and have reached a level investors deem too high to be pushed up further,” said Zhang Ling, a fund manager at ICBC Credit Suisse Asset Management Co. in Beijing, which oversees the equivalent of $7.21 billion. “Corporate earnings have yet to catch up.”
- SAIC Motor fell -3.3% to 14.20 yuan. Beiqi Foton Motor, China’s biggest commercial-vehicle maker, lost -4.1% to 12.32 yuan. Fengfan, a manufacturer of automobile batteries, declined -6.3% to 14.54 yuan, after more than tripling this year through May 18.
Financial Indicators:
| Metric | Value | Point change | % change |
| Hang Seng Index | 17,199 | -276.35 | -1.58% |
| Shanghai Composite | 2,611 | -40.79 | -1.54% |
| Shenzhen Component | 10,109 | -344.54 | -3.30% |
| TAIEX | 6,719 | 15.19 | 0.23% |
| CNY/USD | 6.8295 | -0.0004 | -0.01% |
Source: China Economic Scan
