China Economy - News & Updates

[wangrong]

Use of forex reserves for energy fund studied


China is considering using part of its huge foreign exchange reserves to set up a fund for overseas energy exploration and acquisitions as part of a state plan to encourage offshore expansion, the nation's top oil producer said Feb.17,2009.

China will also offer subsidies and capital injection to firms which make overseas oil investments, China National Petroleum Corp said on its Website, citing a three-year state energy plan.

It has been long suggested by experts that China tap its US$1.95 trillion reserves, the world's biggest, to buy resources abroad. CNPC's remark coincided with an article in Outlook, Xinhua's weekly magazine, published yesterday.

"It's foreseeable that China's economic growth would remain fast over a very long period, which means it has to increasingly rely on external resources. (China) should take advantage of the current weak commodity prices in global markets by boosting certain strategic resource imports and converting some capital reserves into resources reserves," Outlook said in the article on how China could make better use of its forex reserves.

Crude oil price has tumbled over 70 percent from the all-time high of US$147.27 a barrel in July last year.

China aims to boost crude oil production to 192 million tons and natural gas output to 86 billion cubic meters in 2009, up 1.2 percent and 13 percent, respectively from 2008, CNPC said. The government has also set 2010 and 2011 targets of 196 million tons and 198 million tons for crude, and 105 billion and 120 billion cubic meters for gas, it said.

China also targets a total refining capacity of 440 million tons by 2011, CNPC said. It would push forward joint-venture refinery projects with companies from Venezuela, Qatar and Russia which could supply crude.

China processed 342 million tons of crude in 2008, with an estimated capacity of 396 million tons.

There are also plans to build liquefied natural gas receiving terminals in Qingdao, Ningbo, Tangshan and Zhuhai, and boost the capacity of the strategic petroleum reserves to 44.6 million cubic meters, according to CNPC.

 

[Omar1984]

Chinese trade city a magnet for Arabs, Africans

YIWU, China: A small trade city in eastern China has become a magnet for Arab and African business people looking to purchase goods at what is the world’s largest wholesale market for small products.

The effect of the influx on Yiwu is visible as soon as you step off the plane, with airport billboards in Arabic and the city boasting the biggest mosque in China, as well as a district full of Middle Eastern restaurants. Annick Ibrahim, a retailer from Nigeria, discovered the market city three years ago.

“I now come here regularly to buy various products, presents and household items,” she said. “The quality is good because they are used to selling things to Westerners, and prices are much more attractive than European markets.” In the West, China’s appetite for Africa’s oil and other natural resources has stolen the headlines. But it is markets such as those in Yiwu that illustrate a greater depth to the trade relationship, as China feeds Africa with an abundance of cheap goods.

Sunda Andre, who works for a goods shop in Angola’s capital Luanda and now lives in the southern Chinese city of Guangzhou, says she finds everything she wants in Yiwu.

“Good quality, good prices, we dispatch one container a year,” she said.

An annual trade fair in October saw a rise in orders from the Middle East and Africa, according to Li Xuhang, vice-mayor of the city, just as demand from Western and many Asian countries dropped due to the global economic crisis.

As a result, authorities here are now devoting more and more time to emerging countries such as Brazil and Russia as well as Arab and African nations — and the latter have reciprocated. Out of 10,000 foreigners living in Yiwu, around 3,000 are from Arab countries, and many others are from Africa, Li said. Although he had no specific numbers of Africans in Yiwu, Li said at least 300 were from Mauritania.

El Moctar Ould Khalifa is part of the Mauritanian community, and was one of many Africans who came to China to study thanks to scholarships from Beijing.

At the end of the 1990s, as he was studying for a PhD in the Chinese capital, the young man and two Mauritanian friends would earn extra money every year by translating for businessmen at an annual trade fair in Guangzhou.

They then started getting their own contacts, set up fax machines in their university rooms and worked as middlemen between foreign buyers and sellers in China. In 2000, they moved to Yiwu and launched their own business, an export-import company headquartered in Nouakchott, the capital of Mauritania.

Their made-in-China tea, batteries, textiles and soap are now distributed in the vast majority of west African countries near Mauritania, under their own brand El Hella. “A lot of Africans came here for counterfeit goods, but we managed to establish our brand... even though it is a little bit more expensive,” El Moctar said.

The three associates now have ‘nice little assets’ and dispatched 700 containers to Africa in 2008 from various parts of China — 160 of which came from Yiwu.

They dream of establishing factories in Africa, but the current situation is not yet secure enough, El Moctar said. “The workforce (in Africa) might be cheaper, but it poses more problems.

Technology and raw materials are also in short supply,” he said. Unlike in Yiwu, where seemingly everything is available, from beach bags meant as souvenirs from the West Indies to a Milanese key-ring or traditional African attire. Overall, trade between China and Africa grew 45 percent last year to $106.8 billion, and is up from just under $40 billion in 2005.

Daily Times - Leading News Resource of Pakistan

 

[Nihat]

VIEW: Crisis and change in China —David Dollar

More of China’s growth in the future will depend on service industries. In manufacturing China has used foreign trade and investment to create highly competitive markets with rapid productivity growth. However, services remain relatively backward and inefficient

This is not the coming out party that China envisaged. Just as China emerges as the largest exporter in the world, the global market collapses and the world turns to China to offer a reprieve. China’s export machine is in a stall. Its stimulative measures will help, but may not be enough to generate the growth that the world and Chinese people have come to expect.

Each month’s data are most disheartening; January’s export figure showed an 18 percent decline from the year before. More alarming was the 43 percent drop in imports — many of those imports are parts and material for future processing, and their disappearance signals worse export performance in the months ahead. The government estimates that already 20 million migrant workers have lost jobs in manufacturing and construction.

Painful as it is, the adjustment going on in China is necessary for the future healthy development of the economy. The trick is managing the adjustment so that it’s not too rapid or disruptive.

In recent years half of China’s output has gone to investment and net exports. Yet investment and net exports cannot be a source of growing demand forever. Trading partners, especially the US, cannot go on borrowing forever to cover consumption. The clever financial engineering disguised this for a while, but eventually the imbalances were exposed.

As demand for imports from the US and other deficit countries dropped sharply, this reduced demand for China’s exports, with quick spill-over effect on construction of both factories and residences. Growth of investment in the real estate sector dropped to zero in the last months of 2008. Steel production was down 20 percent from the year before; electricity use, down 10 percent. These are indicators that the old model of growth based on exports and investment hit a wall.

Alarmed at these declines, the government quickly put together a 4 trillion yuan stimulus package, worth US$586 billion, mostly of infrastructure projects. Some pundits immediately criticised this as an attempt to hang on to the old model, but those critiques are unfair.

First, there have been few efforts to try to maintain exports, with the recognition that they do not make sense with current global conditions. Second, the infrastructure programme contains a lot of projects aimed at strengthening consumption and quality of life: high-speed passenger rail, urban public transport, wastewater treatment and other environmental cleanup. However, all the details are not worked out yet, and there are some risks.

In the Asian crisis of 1997-98, China stimulated its economy with a lot of infrastructure projects aimed at bottlenecks in roads, seaports, airports and power. Now, there are no major bottlenecks in those areas, yet some local governments would love new projects, even if they have little future payoff. So, the challenge is keeping the stimulus programme focused on legitimate future needs, not white elephants.

Another concern about the stimulus package is that it aims at limiting the damage in the industrial sectors. Of course, the government wants to avoid allowing those sectors to decline too rapidly. But over time one would want relative decline of industry and a shift in the growth model.

The other half of China’s GDP represents consumption. The half of the population that lives in rural areas consumes 9 percent of GDP; the urban half about three times more (26 percent). Government consumption — which includes the public spending on health and education — is only 13 percent. Both the welfare of Chinese people and sustainable long-term growth depend on increasing all those shares.

The government has measures in all these areas: programmes to subsidise appliance purchases by rural households; stimulus to the real estate sector, along with all the associated purchases of household items; 850 billion yuan over three years to spread health insurance to 90 percent of the population.

These programmes all go in the right direction, and the issue is simply are they big enough to maintain a healthy rate of growth. Simple math shows that it will be hard to get growth out of consumption increases over one year. If rural real consumption grows 10 percent, which would be great in an overall contractionary environment, that adds 1 percentage point to GDP growth. An increase of 20 percent in government consumption adds 2.6 percentage points to growth.

What all this adds up to is uncertainty about China’s growth rate in 2009. The consensus view is that the fourth quarter of 2008 and first quarter 2009 will be the bottom of the trough — though don’t be surprised if the first quarter growth rate is below last quarter’s 6.8 percent year-on-year change. The consensus forecast for 2009 is still 7 percent.

Two caveats: There are a wide range of views, from 5.5 percent up to 8 percent; and, the consensus forecast for 2009 has been consistently marked down over the past year as new information, all bad, has become available.

This leaves the question of how much China can contribute to global growth and stability. The first task is to limit the decline in China’s own growth. In academic circles there are some negative predictions that China’s growth could decline to 2 or 3 percent in 2009. That would be a shock to global confidence and a further blow to the commodity-exporting developing countries that send products to China. The negative view assumes that commercial investment will drop sharply in this environment, so that even with enhanced public investment in infrastructure, the net result for investment is zero growth.

Yet China enters this crisis in excellent fiscal shape; hence it has huge potential to increase transfers through its minimum income support and other safety nets, build up health and education, and follow through on infrastructure projects. Hence, if growth continues to falter, my advice is, “think big” when it comes to government programmes and spending this year.

A second key task for China is to keep open its trade regime and look for opportunities to liberalise further. China’s merchandise trade is quite open compared to other developing countries, and through its World Trade Organisation commitments, the country has taken initial steps to open service markets. It would be a smart move to open these service markets further, including sectors like financial services, logistics, airlines, media, telecom and transport. In practice, this requires more openness to direct foreign investment.

While it’s a bold move to liberalise during a crisis, there are two good reasons for China to consider: First, global rebalancing will result in China’s trade surplus gradually declining. If service imports are rising rapidly, then the adjustment can go hand in hand with moderate expansion of manufacturing exports. If imports are not rising, however, then the adjustment may force a painful absolute decline in manufacturing. Second, more of China’s growth in the future will depend on service industries. In manufacturing China has used foreign trade and investment to create highly competitive markets with rapid productivity growth. However, services remain relatively backward and inefficient.

More openness and competition would create the same dynamism in services that China has already in manufacturing. Without that, the growing share of services in the economy could go together with a secular decline in overall growth.

The long-term health of both China’s economy and the global economic system largely depends on whether China successfully uses the crisis to make these needed adjustments. —YaleGlobal

David Dollar is World Bank country director for China and Mongolia, based in Beijing.


Daily Times - Leading News Resource of Pakistan

 

[Neo]

China to spend $26 billion on commodity reserves​

BEIJING (March 06 2009): China unveiled plans to boost farm support spending by 20 percent this year and allot $26 billion to bulk up its reserves of commodities from wheat to oil to steel in order to maintain production and smooth out prices.

In statements at the start of the National Peoples Congress, key government bodies outlined their strategies for improving rural income and keeping major industries afloat during a global recession, measures that may stoke commodity markets that are watching intently for any signs of improved Chinese demand.

The National Reform and Development Commission pledged to increase spending on agriculture, rural areas and farmers by 120.6 billion yuan to 716.1 billion yuan ($104.6 billion) and raise minimum wheat and rice prices by 0.22 and 0.26 yuan per kilogram respectively, or about 13 to 14 percent.

It also promised to continue with a host of measures to keep agricultural prices steady, including the use of price floors, actively managing state stockpiles and trade policies.

"After five years of bumper harvests, it will be very difficult to keep grain production growing steadily," the NDRC said. It pledged that grain acreage would be no less than last year and overall output would be kept at 500 million tonnes. The Finance Ministry said it will raise spending on reserves of grain, edible oils and materials by 61 percent to 178.045 billion yuan ($26.0 billion), or 4.1 percent of its budget.

That includes 78.341 billion yuan ($11.5 billion) to stimulate domestic demand by expanding reserves of important materials, such as grain, edible oils, crude oil, non-ferrous metals and speciality steel, and developing storage facilities. Direct subsidies to grain producers will also rise 25.8 percent to 19 billion yuan, the ministry said.

 

[Omar1984]

Iran Welcomes Railway Link to China

TEHRAN (FNA)- Iranian Foreign Minister Manouchehr Mottaki on Wednesday welcomed construction of a railway to link Iran to China via Kyrgyzstan, Tajikistan and Afghanistan.

Mottaki made the remarks while addressing participants in the 10th Summit of the Economic Cooperation Organization here in Tehran today.

Also during his address, Mottaki pointed to the draft final statement of the Summit and said, "Transportation, energy, agriculture, industry, tourism and expansion of cooperation among ECO members are among the issues touched in the final statement."

He noted a report presented to the Summit by the head of ECO Development and Trade Bank on the organization's performance and the current world economic crisis which also proposes ways to change threats to opportunities, and said that the members had agreed during the Summit to strengthen cooperation on transportation, build Iran-Pakistan-Turkey railway, reconstruct Pakistan railway and increase the capacity of Sarakhs station.

The Iranian minister further pointed to the construction of a rail link connecting China, Kyrgyzstan, Tajikistan, Afghanistan and Iran as among the topics raised during the summit, and said that the issue is among the items included in the final statement.

Fars News Agency :: Iran Welcomes Railway Link to China


Great news for both China and Iran

 

[Neo]

China’s exports plunge again, but car sales rise​

BEIJING: The decline in China’s exports accelerated in February, but Asia’s bleak picture was tempered by other news Wednesday of a jump in Chinese auto sales and a smaller-than-expected drop in Japanese machinery orders.

Chinese trade figures highlighted again the region’s dependence on Western consumers. Exports in February plunged 25.7 percent from a year earlier, worse than January’s 17.5 percent decline, according to customs data. That adds pressure on Beijing to move quickly to carry out a multibilliondollar stimulus package aimed at pumping up the world’s third-largest economy.

The collapse in global demand has battered export-driven Asia, forcing employers to slash output and jobs in China, Japan, South Korea and other economies.

China’s imports fell by 24.1 percent, less than January’s stunning 43 percent plunge but still a blow to its trading partners, especially other Asian nations that supply its export industries with components and raw materials. The commerce minister warned Tuesday the slump is unlikely to end soon, saying trade will be a ‘grim picture’ in coming months.

China’s trade surplus narrowed to $4.8 billion in February as exports fell to $64.8 billion and imports dropped to $60 billion. Its politically sensitive trade gaps with the United States and Europe also shrank.

The collapse in global demand for Chinese toys, shoes and other goods has thrown 20 million migrants out of work. Communist leaders worry that more layoffs could spark unrest and are promising to spend heavily to create jobs. China’s four trillion yuan ($586 billion) stimulus is meant to reduce reliance on exports by pumping money into the economy through higher spending on public works.

In a positive sign for China, sales of domestically made vehicles rose 25 percent in February from a year earlier to 827,600 units, following a tax cut on smaller cars, the China Association of Automobile Manufacturers reported.

Also Wednesday, China’s government said spending on factories and other fixed assets picked up in January and February, rising by 26.5 percent as its stimulus sparked a jump in investments by state companies. Spending by government companies rose 35.6 percent, the National Bureau of Statistics reported. Overall growth was up from December’s 21.9 percent and the full-year 2008 rate of 25.5 percent.

 

[Neo]

Chinas stimulus package ​

ARTICLE (March 14 2009): How large is Chinas economic stimulus package? This question not only occupied the delegates of the National Peoples Congress, whose annual session ended Friday in Beijing, but also representatives of foreign companies who want to know what is going to be in the picture for Chinas economy. In November, the programme designed to stimulate the economy was announced in the amount of 4 trillion yuan (586 billion dollars).

But concrete details were still lacking as congress delegates demanded "more transparency." However, they approved the package together with the state budget on Friday. But the real size of stimulus package still lies pretty much in the dark. Less than half comes from state coffers as the government has decided that the bulk is to be secured through bank loans. In this context, it remains unclear what proportion of these loans would be regular ones and how much could be best described as "secured through finance politics."

"It is not possible to tell precisely how much bank lending targets stimulus projects - which is one of the downsides of the current plan," the business magazine Caijing said recently. The amount of lending has already exploded since the beginning of the year, although not necessarily all because of stimulus measures.

On one hand, previous loan restrictions have been relaxed. On the other hand, many previously "hidden loans" circumventing the restrictions suddenly have appeared as legitimate in the books, as foreign experts point out. A genuine stimulus package to the tune of 4 trillion yuan to be injected over the next two years would account for 6 per cent of Chinas gross domestic product (GDP) in 2009 alone.

But the central government only provides for 1.18 trillion yuan of the whole package. The rest is supposed to come from other sources like loans by banks, as prime minister Wen Jiabao explained on Friday. The 1.18 trillion yuan from state coffers are broken down to 104 billion yuan in the last quarter of 2008 and 487 billion yuan this year. The rest is to be spent in 2010.

Together the fiscal stimulus this year from these two spending measures will be 590 billion yuan, or 1.8 per cent of expected GDP. Prime Minister Wen Jiabao enthusiastically pointed at tax reductions of "up to 600 billion yuan" on top of that, but without mentioning that a major part of this would be tax losses stemming from the economic downturn.

"We estimate that the [real] stimulus from new discretionary tax reductions since the fourth quarter of 2008 is about 300 billion yuan, or about 0.9 per cent of GDP, and most of it will only benefit the corporate sector," China experts at the Swiss bank UBS AG said in a recent report. They also estimated that another 0.3 per cent stimulus effect on the GDP would be derived from increased social spending - far beyond the normal increase - on health, education and social welfare.

"Therefore, from the central governments budget, the discretionary fiscal stimulus this year, including the disbursement in the last quarter, is just about 3 per cent," the UBS experts calculated - only half of the 6 per cent that a full 4 trillion yuan package would have had. While Chinas provincial governments are supposed to also contribute to the programme, their coffers have practically dried up, and they are not allowed to raise money by themselves.

The combined 200 billion yuan that they may raise though bonds this year as an exception may not even cover their losses. So the only way for more stimulus will be the banks, which, after costly recapitalization and restructuring a few years ago, are in a comfortable position to lend money. Unlike in the rest of the world, Chinas financial system has so far escaped the global financial crisis unscathed.

A financial crisis does not exist in China, only a crisis of the real economy brought on by slumping global demand for products made in China. But with massive investment policies and export promotion, China has been resorting to instruments that would have made more sense before the global economic meltdown.

More than ever the manufacturing industry is faced with the risk of overcapacity. Instead of measures to promote exports, which nose-dived by another 25 per cent since February, only a determined stimulation of domestic consumption might compensate for this decline.

But experts also warned of a lack of transparency if the government mainly relies on banks for the stimulus rather than running a larger explicit budget deficit. Bank financing makes it less transparent how much spending takes place in relation to various stimulus projects. "If this approach is pursued heavily, it could even put at risk banks balance sheets, their reputation and investor confidence," the UBS report warned.

 

[Neo]

Iran and China firms sign $3 billion LNG deal​

TEHRAN (March 15 2009): Irans state-owned gas company and a Chinese consortium Saturday signed a multi-billion dollar deal to produce liquefied natural gas in the Islamic republics South Pars field, a report said. The deal, worth 3.39 billion dollars, was signed by Iran LNG company with the Chinese consortium for an annual production of 10.5 million tonnes of LNG, the state broadcaster reported.

It did not reveal the name or give any details of the Chinese consortium. "According to this contract, building gas liquefying lines in phase 12 and another block of South Pars gas field will be handed to the Chinese consortium," the television said. The gas field is located in the Gulf.

It added that the project would be implemented in three years and that an unnamed European firm would join the Chinese consortium in three months. In January, Iran and China signed a separate 1.76 billion dollar contract for the initial development of the North Azadegan oil field in western Iran. Western oil companies have refused to invest in Iran because of the controversy over its nuclear energy programme and Tehran has increasingly turned to Asian companies.

Iran holds the worlds second-largest gas reserves and has significant economic ties with China - a veto-wielding member of the UN Security Council, which has imposed sanctions against Tehran over its refusal to halt sensitive nuclear work.

Iran said on Wednesday that French energy giant Total would have no "active role" in developing phase 11 of the offshore South Pars gas field and that a new partner had been found for the project. The development of South Pars field, which holds about eight percent of world reserves, has been delayed amid a lack of investment in a country faced with severe gas needs of its own in winter.

 

[Omar1984]

Shaanxi buys 77,000 tons of lead, zinc

China's Shaanxi province is buying a total of 77,000 tons of refined lead and zinc from four local smelters as an ad hoc reserve to support smelters that suffer from weak demand, an official at one of the smelters said on Thursday.

Shaanxi Non-ferrous Metals Company, owned by the Shaanxi government, has agreed to pay 11,200 yuan ($1,640) per ton to buy refined zinc and 12,900 yuan a ton for refined lead, higher than 10,750 yuan and 12,600 yuan, respectively, traded in Shanghai on Thursday.

The State Reserves Bureau, the national commodity buyer, bought 159,000 tons of zinc from Chinese smelters this year, as part of a plan to support smelters and the prices.



Shaanxi buys 77,000 tons of lead, zinc

 

[Omar1984]

Chinese firm wins $16m Philippine road project

A Chinese company has won a 776.89-million-Philippine Peso ($16.08 million) bid for a road project in the Philippines, it was revealed Thursday.

The Fujian-based China Wuyi Co, a domestic construction firm, said it won the project, a 41.466-kilometer rural road in Antigue Province in central Philippines, co-funded by the Japan International Cooperation Agency and the Philippines government. The Japan International Cooperation Agency is to provide 83 percent of the money.

Once the final contract was sealed, the company would have to finish the construction within 24 months.

The company's shares closed at 6.70 yuan on Thursday, up 3.08 percent.



Chinese firm wins $16m Philippine road project

 

[jetLi]

Good news.

Freedom of speech can only be implemented in a true and mutual-responsible sense when the overwhelming majority of the citizens are literate.

In China, due to its uniqueness, it will start from internet world, as I repeatedly said/predicted many times.

undeadly, Chinese internet users hate America first, France second, Japan third, German 4th

 

[linkinpark]

Croos-posting from other thread

China's U.S. Debt Quandary


Gady Epstein 03.19.09, 6:00 PM ET

U.S. investors may have cheered the Federal Reserve's decision this week to pump more than 1 trillion new dollars into the economy, but at least one faction in China was on the verge of tears.

"I want to cry, really want to cry," wrote one Beijinger on Thursday, posting on one of China's most popular portals, Sina.com. The problem was that by issuing more currency, the Fed was potentially weakening the U.S. dollar, making China's dollar-based investments worth less. "Those elites insist on buying American bonds."

One of "those elites" under fire is Premier Wen Jiabao. When he expresses public angst about the safety of China's holdings of U.S. debt, he is speaking partly to domestic critics who believe Chinese leaders have unwisely tied their country's fate to the U.S. economy. Many of the critics may be crackpots and conspiracy theorists, but they have a point.

They know that their government is now America's largest creditor, with more than half of its $2 trillion in foreign exchange reserves invested in Treasury securities and other U.S. government bonds. Some of these critics suspect that the Federal Reserve essentially prints more money not just to stimulate the economy, but also to devalue China's U.S. dollar portfolio, undermining a rival power.

It may be a paranoid theory, but it is a popular one. One of China's bestselling books in the past 18 months is Currency Wars, a conspiratorial screed that suggests that Western financial interests, including the Federal Reserve, seek to destroy the Chinese economy. The book has sold more than 1 million copies officially, and probably several million more pirated copies, and remains a bestseller now as economic conditions deteriorate.

Any leaders who choose to ignore this populist thinking risk being branded as sellouts. Last fall, as the financial crisis was unfolding, an incendiary letter circulated on the Internet claiming that a clique of Chinese elites, led by investment banker and former Premier Zhu Rongji's son Levin Zhu, formed a "foreign financial interest cartel" that has betrayed the interests of the Chinese people to enrich themselves and their cronies.

The letter named as co-conspirators the men running China's $200 billion sovereign wealth fund, whose disastrous investments in the Blackstone Group and Morgan Stanley have lost China billions. People's Bank of China Governor Zhou Xiaochuan, China's Ben Bernanke, was singled out for investing too much in Treasurys as the dollar was depreciating--more reasoning straight out of Currency Wars.

The believers are not just fire-breathing ideologues. "Many technocrats believe in this argument that the U.S. is trying to screw over China by cheapening the dollar," says Victor Shih, a political economist and China specialist at Northwestern University. Shih learned of the influential reach of "Currency Wars" when he visited last summer with bureaucrats from the People's Bank of China.

"Many PBOC officials bought into the arguments of this book and I think they've been writing a lot of reports to Wen Jiabao saying we're holding a lot of dollars and we're exposed to this risk," Shih says. "And essentially that's true."

There's the rub. Almost by accident, the conspiracy theories cut straight to what many economists consider a fundamental weakness in China's monetary policy, and the leadership knows it. China has accumulated huge U.S. dollar reserves to keep the value of its own currency down, economists say, increasing its dependency on exports and decreasing its ability to invest more domestically.

"You're making your economy more dependent on the rest of the world," says Brad W. Setser, an economist at the Council on Foreign Relations who has closely monitored China's sovereign investments. "You're relying on demand from the rest of the world to maintain domestic employment rather than, say, running a fiscal deficit."

Now China is locked into a situation where it needs the U.S. economy to rebound, but as the U.S. spends trillions of dollars to make that happen, it devalues the one currency China is most heavily invested in and pegged against. That forces China to continue buying U.S. dollars both to keep the value of its currency down and to protect its portfolio, so China ends up helping finance the U.S. economic recovery plan.

According to Setser, there is "no good historical analogy" for this situation. Never before has the U.S. been so heavily financed by one country. That relationship has already been the subject of much hand-wringing in the U.S., but it may be an even more volatile political problem for China.

It's the old debtor's aphorism, writ on a sovereign scale: If you owe China $1 billion, it's your problem. If you owe China $1 trillion, it's China's problem.

China is helpless here.

 

[wangrong]

China's central bank signs currency swap agreement with Indonesia

The People's Bank of China (PBOC), the central bank, said Monday it signed a currency swap agreement with Bank Indonesia, the central bank of that country.

The agreement allows for swaps of 100 billion yuan (14.7 billion U.S. dollars) or 175 trillion Indonesian rupiah over three years, which could be extended by mutual agreement.

The PBOC has signed currency swap agreements with the Republic of Korea, China's Hong Kong Special Administrative Region, Malaysia and Belarus since the beginning of the global financial turmoil, totaling 480 billion yuan.

 

[wangrong]

Central bank: China to continue investing in U.S. Treasury bonds

China will continue investing in U.S. government bonds while paying close attention to possible fluctuations in the value of those assets, said a deputy governor of China's central bank here Monday.

"Investing in U.S. Treasury bonds is an important component of China's foreign currency reserve investments," Hu Xiaolian, deputy governor of the People's Bank of China, told a briefing about President Hu Jintao's participation in the Group of 20 financial summit in Britain scheduled for April 1 to 2.

"We are naturally relatively concerned with the safety and profitability of U.S. government bonds," she added.

China's reserves hit a record 1.95 trillion U.S. dollars at the end of 2008, the largest in the world and far exceeding those of Japan, the second-largest foreign exchange holder, which had 1.03 trillion U.S. dollars.

China has invested its huge foreign exchange reserves in low-risk but low-yield assets, such as U.S. government bonds. Treasury bond assets fluctuate during different periods, according to Hu.

Treasury bond purchases would remain key to China's investment plans, but China would keep close watch on them, Hu said.

Given that the U.S. dollar is still the leading currency used in the settlement, valuation and payment of international trade, China will pay closer attention to the supervision of the international monetary system based on the U.S. dollar, Hu said.

 

[jetLi]

Chinese shares up 0.5 pct on rising investor confidence
Chinese shares up 0.5 pct on rising investor confidence_English_Xinhua

BEIJING, March 24 (Xinhua) -- Chinese equities rose for a seventh day, achieving a modest 0.56-percent gain Tuesday on investor confidence and bullish overseas markets, said analysts.

The Shanghai index climbed 12.94 points to 2,338.42. The Shenzhen Component Index rose 0.78 percent, or 69.09 points, to 8,954.84.

Gains outnumbered losses by 506 to 349 in Shanghai and 443 to 280 in Shenzhen.

Combined turnover edged up to 228.29 billion yuan (33.43 billion U.S. dollars) from 227.4 billion yuan on the previous trading day.

Investors took heart from Monday's move by the State Council (cabinet) to require its subordinate ministries and commissions, and the People's Bank of China (PBOC, central bank), to do more to stabilize the stock market.

Investor confidence was also boosted after the PBOC and China Banking Regulatory Commission (CBRC) Tuesday urged financial institutions to further "adjust" their credit structure and promote stable and fast economic development.

The two bodies jointly called for more loans for small and medium-sized businesses and expanded consumer credit for big-ticket items like cars, housing and education.

Strong gains elsewhere, including in the United States and Hong Kong, also contributed to the uptrend, analysts said.

Real estate stocks remained strong, climbing 1.27 percent in reaction to the PBOC-CBRC statement on consumer credit. Hainan Pearl River Holdings soared by the daily limit of 10 percent to 6.6 yuan and Shanghai Nine Dragon rose 7.58 percent to 5.39 yuan.

Poly Real Estate Group, China's second largest developer, edged up 1.06 percent to 22.98 yuan.

The medical sector rose 1.29 percent as investors bought shares in anticipation of gains after a long-awaited, detailed plan for China's medical reform.

Topfund Pharmaceutical and Fuxing Pharmacy led the rise, surging 6.71 and 6.51 percent to 4.77 and 13.74 yuan, respectively.