China bulls in Australia belie $1.6 trillion stocks rout
February 11, 2014 11:57 am
Australian policy makers looks at the slight evidence of a decline in China’s economic growth, defying global pessimism that helped wipe $1.6 trillion from stocks this year.
The Reserve Bank of Australia and the nation’s Treasury projection the world’s second-biggest economy will expand 7.5 percent this year. The view is underpinned by a 21 percent expansion in Australia-China exchange to a record A$141.8 billion ($127 billion) in 2013, led by shipments of iron ore, a key ingredient of the steel used to build the skyscrapers, subways and bridges transforming China’s cities.
Chinese Premier Li Keqiang has set a “bottom line” of 7 percent growth in gross domestic product as his leadership team looks to engineer a transition to consumption from investment-led expansion. At the same time, Chinese authorities are hastening efforts to rein in monetary risks and squeeze speculative lending as concerns mount that an increase in borrowing over the last five years will tip the country into crisis.
“We’re really only seeing early signs, but consumption is a somewhat higher share of GDP than it was, and I would expect that trend to continue,” said John Edwards, an RBA board member who described himself as among the optimists. “China is effecting a bit of a transition and that’s also apparent in the shrinkage of its current account surpluses. A somewhat smaller contribution from net exports now than was true two to three years ago.”
Credit Growth
China’s leaders are trying to rein in a debt boom, which may slow growth. Aggregate financing, the government’s broadest measure of new credit, probably fell to 1.9 trillion yuan ($313.5 billion) last month from a near-record 2.54 trillion yuan a year earlier, based on the median estimate of analysts surveyed by Bloomberg News ahead of data due this week.
Trade data to be published tomorrow may show exports rose 0.6 percent in January from a year earlier, compared with 4.3 percent in December, and import gains eased from a five-month high, based on surveys of economists. The comparison with year-earlier figures is distorted because of inflated data in 2013 and the different timing of the weeklong Lunar New Year holiday.
China’s producer prices, a measure of the cost of goods as they leave the factory, probably extended the longest slide since the 1990s with a 1.6 percent drop in January from a year earlier, according to analyst projections. Consumer-price inflation may have slowed to 2.4 percent in January from December’s 2.5 percent.
Australian View
Australia’s trade links and doubts over the accuracy of some Chinese data have encouraged analysts including Citigroup Inc.’s Steven Englander and HSBC Holdings Plc’s Frederic Neumann to use reports and commentary from Australia to help form views on the health of China’s economy.
Australia’s Treasury said in mid-year economic projections released December 17 that “continued solid growth is expected for China over the forecast horizon.”
Even at a slower pace of growth, China is adding the equivalent of a Turkey to its economy each year — nominal GDP expanded by about $800 billion in 2013.
The RBA, in its quarterly monetary policy statement released February 7, said that while it sees a slight easing of growth in China’s domestic demand, in part reflecting the government’s efforts to moderate the expansion of financing, this is expected to be largely offset by a modest improvement in export demand from China’s major trading partners.
Fortescue, Rio
Fortescue Metals Group Ltd. (FMG), Australia’s third-largest iron ore exporter, is boosting capacity to 155 million tons by the end of March. Rio Tinto Group, the world’s second-largest mining company, said last month that iron ore production rose 7 percent to 55.5 million tons last quarter and is seeking to expand its iron ore output capacity to meet Chinese demand.
Yao Wei, China economist at Societe Generale SA in Hong Kong, predicts the world’s most populous nation will expand just 6.9 percent this year as bond yields rise, trust products default, and confidence takes a hit from debt-market turbulence.
Global equity losses in 2014 peaked at $3 trillion on February 4 and have since narrowed to $1.6 trillion, data compiled by Bloomberg show. The MSCI Asia Pacific Index gauge dropped 4.6 percent in January for its worst start to a year since 2009 as concern about the Federal Reserve’s stimulus cuts, China’s slowdown and volatility in developing markets spurred a global rout.
The near-default of a Chinese shadow banking product last month and two cash crunches last year highlight the challenge for policy makers pursuing twin goals of deregulating interest rates and reining in an unprecedented credit boom.
Shadow Banking
Nomura Holdings Inc. last month predicted defaults across companies, local-government financing vehicles and borrowers in the shadow-banking industry, which involves trust companies and wealth-management products. It estimates 3.5 trillion yuan of trust products will mature this year, with the majority coming due in the second half.
Australia’s links with China have tightened as exports to what’s now its largest trading partner almost tripled in five years. The central bank has one of three international offices in Beijing — solely for economic analysis, rather than for trading, which is the main function of the New York and London locations. The RBA, which has noted the increasing correlation with China, has a team of about 10 analysts to focus on China and India.
Australia’s economy has been boosted by the biggest mining investment boom in a century, fueled by Chinese demand for raw materials. In a policy statement on February 4, RBA Governor Glenn Stevens signaled the end of a two-year easing cycle and foreshadowed stronger economic growth in Australia.
Increasing Sales
Iron ore sales to China from Australia’s Port Hedland climbed 27 percent in January from a year earlier as miners increased output and the biggest buyer boosted inventories to the highest level in 16 months.
RBA Deputy Governor Philip Lowe in October underscored China’s importance to Australia, noting it accounts for almost a third of his nation’s exports.
“What’s going on there is incredibly important to us,” Lowe said in response to questions after an October 24 address. “What we’re finding out is that the pessimists about China are being proved wrong again.”
The material has been provided by InstaForex Company – www.instaforex.com
Australian policy makers looks at the slight evidence of a decline in China’s economic growth, defying global pessimism that helped wipe $1.6 trillion from stocks this year.
The Reserve Bank of Australia and the nation’s Treasury projection the world’s second-biggest economy will expand 7.5 percent this year. The view is underpinned by a 21 percent expansion in Australia-China exchange to a record A$141.8 billion ($127 billion) in 2013, led by shipments of iron ore, a key ingredient of the steel used to build the skyscrapers, subways and bridges transforming China’s cities.
Chinese Premier Li Keqiang has set a “bottom line” of 7 percent growth in gross domestic product as his leadership team looks to engineer a transition to consumption from investment-led expansion. At the same time, Chinese authorities are hastening efforts to rein in monetary risks and squeeze speculative lending as concerns mount that an increase in borrowing over the last five years will tip the country into crisis.
“We’re really only seeing early signs, but consumption is a somewhat higher share of GDP than it was, and I would expect that trend to continue,” said John Edwards, an RBA board member who described himself as among the optimists. “China is effecting a bit of a transition and that’s also apparent in the shrinkage of its current account surpluses. A somewhat smaller contribution from net exports now than was true two to three years ago.”
Credit Growth
China’s leaders are trying to rein in a debt boom, which may slow growth. Aggregate financing, the government’s broadest measure of new credit, probably fell to 1.9 trillion yuan ($313.5 billion) last month from a near-record 2.54 trillion yuan a year earlier, based on the median estimate of analysts surveyed by Bloomberg News ahead of data due this week.
Trade data to be published tomorrow may show exports rose 0.6 percent in January from a year earlier, compared with 4.3 percent in December, and import gains eased from a five-month high, based on surveys of economists. The comparison with year-earlier figures is distorted because of inflated data in 2013 and the different timing of the weeklong Lunar New Year holiday.
China’s producer prices, a measure of the cost of goods as they leave the factory, probably extended the longest slide since the 1990s with a 1.6 percent drop in January from a year earlier, according to analyst projections. Consumer-price inflation may have slowed to 2.4 percent in January from December’s 2.5 percent.
Australian View
Australia’s trade links and doubts over the accuracy of some Chinese data have encouraged analysts including Citigroup Inc.’s Steven Englander and HSBC Holdings Plc’s Frederic Neumann to use reports and commentary from Australia to help form views on the health of China’s economy.
Australia’s Treasury said in mid-year economic projections released December 17 that “continued solid growth is expected for China over the forecast horizon.”
Even at a slower pace of growth, China is adding the equivalent of a Turkey to its economy each year — nominal GDP expanded by about $800 billion in 2013.
The RBA, in its quarterly monetary policy statement released February 7, said that while it sees a slight easing of growth in China’s domestic demand, in part reflecting the government’s efforts to moderate the expansion of financing, this is expected to be largely offset by a modest improvement in export demand from China’s major trading partners.
Fortescue, Rio
Fortescue Metals Group Ltd. (FMG), Australia’s third-largest iron ore exporter, is boosting capacity to 155 million tons by the end of March. Rio Tinto Group, the world’s second-largest mining company, said last month that iron ore production rose 7 percent to 55.5 million tons last quarter and is seeking to expand its iron ore output capacity to meet Chinese demand.
Yao Wei, China economist at Societe Generale SA in Hong Kong, predicts the world’s most populous nation will expand just 6.9 percent this year as bond yields rise, trust products default, and confidence takes a hit from debt-market turbulence.
Global equity losses in 2014 peaked at $3 trillion on February 4 and have since narrowed to $1.6 trillion, data compiled by Bloomberg show. The MSCI Asia Pacific Index gauge dropped 4.6 percent in January for its worst start to a year since 2009 as concern about the Federal Reserve’s stimulus cuts, China’s slowdown and volatility in developing markets spurred a global rout.
The near-default of a Chinese shadow banking product last month and two cash crunches last year highlight the challenge for policy makers pursuing twin goals of deregulating interest rates and reining in an unprecedented credit boom.
Shadow Banking
Nomura Holdings Inc. last month predicted defaults across companies, local-government financing vehicles and borrowers in the shadow-banking industry, which involves trust companies and wealth-management products. It estimates 3.5 trillion yuan of trust products will mature this year, with the majority coming due in the second half.
Australia’s links with China have tightened as exports to what’s now its largest trading partner almost tripled in five years. The central bank has one of three international offices in Beijing — solely for economic analysis, rather than for trading, which is the main function of the New York and London locations. The RBA, which has noted the increasing correlation with China, has a team of about 10 analysts to focus on China and India.
Australia’s economy has been boosted by the biggest mining investment boom in a century, fueled by Chinese demand for raw materials. In a policy statement on February 4, RBA Governor Glenn Stevens signaled the end of a two-year easing cycle and foreshadowed stronger economic growth in Australia.
Increasing Sales
Iron ore sales to China from Australia’s Port Hedland climbed 27 percent in January from a year earlier as miners increased output and the biggest buyer boosted inventories to the highest level in 16 months.
RBA Deputy Governor Philip Lowe in October underscored China’s importance to Australia, noting it accounts for almost a third of his nation’s exports.
“What’s going on there is incredibly important to us,” Lowe said in response to questions after an October 24 address. “What we’re finding out is that the pessimists about China are being proved wrong again.”
The material has been provided by InstaForex Company – www.instaforex.com
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