Sophie Leung, “China Sees Faster Production Gains in Fourth Quarter”

China Sees Faster Production Gains in Fourth Quarter, Bloomberg

By Sophie Leung

Oct. 27 (Bloomberg) — China predicted an acceleration in industrial production and reported a 190 percent jump in overseas investment for the third quarter, underscoring the nation’s role in driving a global economic recovery.

Investment by Chinese firms abroad rose to $20.5 billion in July through September, almost triple a year earlier, the Ministry of Commerce said in a statement. Industrial output may rise 16 percent in the fourth quarter, Ministry of Industry and Information Technology official Zhu Hongren said in a briefing, compared with a 13.9 percent pace of gains in September.

Policy makers may be encouraging Chinese companies to invest abroad in part to help counter pressure for the nation’s currency to appreciate, analysts said. Investors are betting on the yuan to gain in the coming year as China’s growth accelerates from its weakest pace in a year.

“China’s growth is certain and stable,” said Zhu Jianfang, an economist at Citic Securities Co. in Beijing. “Chinese policy makers see pressure for yuan to appreciate, so they encourage companies to invest abroad to strike the balance.”

Today’s figures came after the government last week reported that China, the world’s third-biggest economy, expanded 8.9 percent in the third quarter, the fastest pace in a year.

The economy is showing more signs of stabilizing, the National Development and Reform Commission said in a statement on its Web site today, adding that the government’s stimulus measures have been effective.

Yuan Bets

Yuan forwards, which rose to a 14-month high last week, suggest the currency will gain 2.3 percent against the dollar in the coming year. The 12-month offshore contracts were down 0.2 percent today to 6.6730. The yuan climbed 21 percent over three years after the government scrapped a fixed exchange rate in July 2005.

China’s policy on yuan will remain stable until the nation’s exports recover and improve, Jiang Jianjun, an official in the foreign trade department of the Ministry of Commerce told an online forum today.

The projection for China’s production gains encouraged some investors to sell the dollar on confidence that the global recovery will diminish demand for the U.S. currency as a haven. The dollar rose as much as 0.2 percent and traded at $1.4894 per euro at 7:55 a.m. in London.

Stephen Roach, chairman of Morgan Stanley Asia, today said investors are wrong to bet that China will restrain its unprecedented stimulus after the economy accelerated in the third quarter.

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The First U.S.-China Strategic and Economic Dialogue Economic Track Joint Fact Sheet

The First U.S.-China Strategic and Economic Dialogue Economic Track Joint Fact Sheet

As special representatives of President Barack H. Obama and President Hu Jintao, U.S. Treasury Secretary Timothy Geithner and Chinese Vice Premier Wang Qishan concluded the first meeting of the Economic Track under the U.S.-China Strategic and Economic Dialogue in Washington today.

On the U.S. side, they were joined by the following Cabinet members and other senior officials:

• Secretary of Agriculture Thomas Vilsack
• Secretary of Labor Hilda Solis
• Secretary of Transportation Raymond LaHood
• Chair of the Council of Economic Advisors Christina Romer
• Director of Office of Management and Budget Peter Orszag
• U.S. Trade Representative Ronald Kirk
• Director of the National Economic Council and Assistant to the President for Economic Policy Lawrence Summers
• Chairman of the Federal Reserve Ben Bernanke
• Chair of the Federal Deposit Insurance Corporation Sheila Bair
• Chairman of the Securities and Exchange Commission Mary Schapiro
• Chairman of Commodity Futures Trading Commission Gary Gensler
• Chairman and President of the Export-Import Bank Fred Hochberg

On the Chinese side, they were joined by the following Ministers and other senior officials:

• Minister of Finance Xie Xuren
• Governor of the People’s Bank of China Zhou Xiaochuan
• Chairman of the China Banking Regulatory Commission Liu Mingkang
• Chairman of the China Securities Regulatory Commission Chairman Shang Fulin
• Chinese Ambassador to the United States Zhou Wenzhong
• Deputy Secretary-General of the State Council Bi Jingquan
• Vice Minister of Foreign Affairs He Yafei
• Vice Minister of the National Development and Reform Commission Zhang Xiaoqiang
• Vice Minister of Human Resources and Social Security Wang Xiaochu
• Vice Minister of Transport Weng Mengyong
• Vice Minister of Agriculture Niu Dun
• Vice Minister of Commerce Ma Xiuhong
• Vice Minister of Health Yin Li
• Vice Chairman of the China Insurance Regulatory Commission Li Kemu
• President of the Export-Import Bank of China Li Ruogu

I. Sustainable and Balanced Economic Growth

The United States and China have responded to the global economic crisis with comprehensive stimulus measures that have played a critical role in boosting confidence and supporting global demand, and will respectively take measures to promote balanced and sustainable economic growth in our domestic economies both to ensure a strong recovery from the international financial crisis and to bring about more balanced and sustainable global economic growth after a global recovery is firmly established. To this end, both countries will enhance communication and the exchange of information regarding macro-economic policy, and will work together to pursue policies of adjusting domestic demand and relative prices to lead to more sustainable and balanced trade and growth. Both sides will also pursue forward-looking monetary policies with due regard for the ramifications of those policies for the international economy. In addition, they will encourage new approaches to infrastructure financing to assist with economic recovery.

The United States will take measures to increase national saving as a share of GDP. The U.S. household saving rate has already risen sharply as a result of the crisis, contributing to a significant decline in the U.S. current account deficit, and the United States will adopt policies that will continue to encourage household saving. The United States will also reform its health care system with the aim of controlling rising health care costs for businesses and government while assuring high-quality, affordable health care for all Americans, and is committed to reducing the federal budget deficit relative to GDP to a sustainable level by 2013.

China will continue to implement structural and macroeconomic policies to stimulate domestic demand and increase the contribution of consumption to GDP growth. China will further enhance access in its service market and expand areas and channels for non-government investment, with a view to expedite the development of its services industry and increase the share of services in GDP. China will also deepen social safety net reform, including strengthening its basic old-age insurance system and enterprise annuities.

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“China’s $2,000bn Foreign Reserves,” Financial Times

“China’s $2,000bn Foreign Reserves,” Financial Times

Published: July 15 2009 08:46 | Last updated: July 15 2009 18:15

It appears the great unwinding of global imbalances and the dollar’s ensuing demise are notions that belong up there with the tooth fairy. China added $178bn to its foreign reserves in the second quarter, taking its total booty past $2,000bn, the equivalent of twice the annual economic output of New York state.

Although there are no official statistics on how China has apportioned these new reserves, US data supports the thesis that China is not yet jettisoning the dollar, however antsy Beijing gets about the greenback’s global dominance.

Even so, the pattern of China’s reserve accumulation is changing. While China is still buying more US debt, it is not necessarily doing so with cash recycled from American consumers.

The sum of China’s trade surplus and foreign direct investment, the usual driver of reserve accumulation, was the lowest in three years. At about $60bn, it was also about half last year’s quarterly average of $100bn, according to Royal Bank of Scotland. Rather, China’s hoarding is being driven by speculative funds.

After all, China, the world’s favourite green shoot, is back in bubble land; its reserve growth is just one indication of this. Poor data mean estimates vary widely, but some $30bn to $70bn of hot money flowed into China in the second quarter. Much of that is flowing into real assets such as property or the stock market, where trading volumes are three times last year’s levels. Hong Kong residents, after grinding down renminbi deposits last year, added more funds in May. Such inflows are also adding pressure on the renminbi to revalue.

To mop up this liquidity, Beijing has started selling one-year sterilisation bills again (so far this year, the central bank has injected net cash into the system). Roaring reserves, a bubbly stock market and the tentative start of monetary tightening: all these recall the glory days of 2007-08.

Still, do not expect everything to return full cycle. Exports, for one, are weak. While that remains the case, renminbi appreciation is off the cards.

http://www.ft.com/cms/s/2/845cb5fa-7113-11de-877c-00144feabdc0,dwp_uuid=9c33700c-4c86-11da-89df-0000779e2340.html

Michael Wines, “Australia Feels Chill as China’s Shadow Grows”

SYDNEY, Australia — If outlanders tend to associate Australia with kangaroos, broad-brim leather hats and an opera house, many Australians are different. They think of iron ore and bauxite, copper and coal, nickel, gold and uranium, a trove of mineral riches that is their nation’s birthright and the bedrock of its prosperity.

Which explains much of the breast-beating that has ensued since the Chinese announced plans this year to buy a big chunk of it.

Since three state owned Chinese companies said they would buy stakes in Australia’s storied mining industry totaling $22 billion — as much as China’s entire investment here in the last three years — some of this nation’s 21.3 million people have reacted with aggrieved nationalism.

The government of Prime Minister Kevin Rudd, which generally favors the sales, has been savaged as naïvely cozy with China, a view some in his own military appear to share. Opposition politicians have flogged the specter of an Australian future more or less as a giant open-pit mine in which the locals toil, but Beijing takes the profits.

“It’s the Communist People’s Republic of China, 100 percent Communist-owned, buying up sections of the country and minerals in the ground which they will then sell to the Communist People’s Republic of China,” said Barnaby Joyce, who is a leader of the National Party in Parliament. “And we’re going to live off the commission on the way through. They’ll try to make sure we get as little as possible.”

But a few months after the first of the deals was announced, a sharp initial backlash has given way to a more subtle queasiness over whether Australia’s place in the region, anomalous but secure for so long, is about to be altered by the new Chinese giant looming over its horizon.

Nor is Australia alone. From the Philippines to Vietnam, China’s neighbors are recalculating the benefits — and potential deficits — of life in the shadow of a newly dominant nation.

Australia has always been the West’s outpost in the East, the British penal colony with American spunk and European joie de vivre. But seemingly overnight, China has become Australia’s biggest trading partner, one of its biggest tourism customers, the largest single buyer of its government debt, a major buyer of farmland and real estate.

China’s hunger for steel gobbles up half of Australia’s iron ore exports, and its textile factories buy more than half of Australia’s wool. Over 120,000 Chinese students throng to Australian schools and universities.

Although China’s purchases remain dwarfed by cumulative investments of the Americans and the British, they are growing much faster.

And suddenly, Australians are stepping back, realizing that their new best friend is someone they really do not know very well, much less trust.

“The momentum has shifted from being broadly receptive to these deals to having a hard think at this,” said Alan DuPont, who heads the Center for International Security Studies at the University of Sydney. “This is not just about China and Australia. It’s about how the world sees China playing its role in the future as a great power.”

Surviving Corporate Invasions

This is not a new question. More than a century ago, Australians fretted about becoming vassals of the resource-hungry British Empire; then, in the mid-1900s, they feared becoming an American subsidiary. When Japan Inc. began snapping up companies in the 1970s, suspicion of Tokyo ran rampant.

The British and Americans proved good corporate citizens, however, and Japan’s expansion faded amid economic problems. Now, Australians are asking whether China will be different.

In one way, it assuredly is. Western companies, if at one time equally ravenous for Australia’s resources, are not direct appendages of their national governments. The dominant shareholder in major Chinese resources companies is the Chinese government.

China has 115,000 state owned companies; the cream are more than 150 giants controlled by the central government. Those corporations — in mining, steel, finance, communications and other crucial areas — seek to make profits much as Western companies do. Government boards audit them, appoint their top executives and evaluate their performance, but in general, the companies insist, Communist Party leaders do not meddle in business strategy.

Even if that is true, China has long insisted on maintaining state control over companies in crucial industries, blurring the line between national and corporate interests.

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