China Economic Scan Weekly Economic Review

In the past week the major economic developments in China included comments on monetary policy by the PBOC, stats showing the CLSA PMI rising above 50 in April, estimates that new lending in April was over 600 billion yuan, and revelation that China passed the US as the top ranked trading partner with Brazil.

In the past week the major economic developments in China included comments on monetary policy by the PBOC, stats showing the CLSA PMI rising above 50 in April, estimates that new lending in April was over 600 billion yuan, and revelation that China passed the US as the top ranked trading partner with Brazil.

The Central bank of China indicated that it would follow a moderately loose monetary policy, reducing speculation of a normalization of monetary policy. A People’s Bank of China (PBOC) report said. “The central bank will continue to ensure ample liquidity in the banking system and reasonably increase loans to fund the economy,”

Tao Dong, chief Asia economist at Credit Suisse, Hong Kong, said “The PBOC is likely to maintain the one-year lending rate at 5.31% this year and raise it by 99 basis points only next year.”

On a related note, the figure for China’s new bank lending in April is likely to come in above 600 billion yuan ($87.8 billion). New loans in March totaled 1.9 trillion yuan ($220 billion), and new lending in the first quarter was 4.58 trillion yuan ($670.6 billion). “Clearly, new lending in the rest of the year at the same pace … or half as fast … as in the first quarter would be unthinkable and too fast,” UBS economist Tao Wang said.

The Chinese yuan rose 0.16% in April, its best month this year, following a 0.09% advance in March. China allows the yuan to trade a limit of 0.5% against the dollar, on either side of the central parity rate. The yuan has traded to as much as 6.82 against the USD, and was 6.8221 at the time of writing.

The CLSA Purchasing Managers’ Index (PMI) rose to a nine-month high of 50.1 in April from 44.8 in March. It was the first time since July 2008 that the PMI has been above 50 (indicating expansion). “China’s government has been extremely successful in stimulating investment and, combined with a sharp improvement in export orders, this has pushed the PMI back into positive territory in April,” said Eric Fishwick, head of economic research at CLSA.

Cargo throughput at the main ports across China was estimated to reach 500 million tonnes in April, down 1.9% year on year according to the Ministry of Transport (MOT). The breakdown was 340 million tonnes as domestic trade, and 160 million tonnes as foreign trade.

China replaced the United States to become Brazil’s top-ranked trading partner according to officials. The sum of Brazil’s exports and imports with China reached $3.2 billion in April, greater than the $2.8 billion in its trade with the U.S.

According to Brazil’s official statistics, bilateral trade volume between Brazil and China reached $36.44 billion in 2008, increasing 55.9% from 2007. Brazil’s export volume to China was up 50.8% to $16.4 billion, and import volume was up 56.9% to $20 billion.

Finally, State-owned Assets Supervision and Administration Commission (SASAC) will be launching an investigation into investments made by SOEs in the financial sector as a risk management measure. The move follows derivatives losses by the likes of Air China, which lost 7.5 billion yuan on fuel-hedging contracts, and China Eastern, which lost 6.4 billion yuan.

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