Share This

Showing posts with label IHS Global Insight. Show all posts
Showing posts with label IHS Global Insight. Show all posts

Wednesday, April 18, 2012

China FDI at record pace: overseas uptick, policy steady

Q1 inflow leaves country on course to surpass 2011 record of US$116bil

* FDI momentum is slowing though and trade outlook difficult
* Suggests policy will be biased towards supporting economy

BEIJING  - Reuters:  China bagged foreign direct investment (FDI) at a record-setting pace in the first three months of 2012 but an easing in its monthly momentum and a difficult trade outlook will keep monetary policy poised to compensate for any dip in capital inflows.

The first quarter inflow of US$29.8bil leaves China on course to surpass 2011's US$116bil record, even though inflows compared with a year earlier have fallen for five successive months, Commerce Ministry data showed.

A 53% leap in inflows to US$11.8bil in March from February typical after the Lunar New Year was a fresh sign that capital flow is firming enough to underpin money supply growth, following a US$124bil first-quarter jump in foreign exchange reserves, providing policy stays on its current pro-growth bias.

“I don't think this changes anything for monetary policy,” Alistair Thornton, economist at IHS Global Insight in Beijing, told Reuters.

Steady growth: Workers assemble automobile parts at Changan Ford Mazda Automobile plant in Chongqing. A 53% leap in inflows to US$ 11.8bil in March from February is a fresh sign that China’s capital flow is firming enough to underpin money supply growth— AP
 
China's government has been fine-tuning economic policy settings since the autumn of last year as the outlook for the global economy darkened, export growth sank and capital inflows a core component of money supply stalled.

The People's Bank of China (PBOC) has cut by 100 basis points (bps) the ratio of deposits banks are required to keep as reserves (RRR) to keep credit and money supply growth steady. The two moves added an estimated 800 billion yuan (US$127bil) of lending capacity to the economy.

The PBOC said last week that broad money supply rose 13.4% in March from a year earlier, stronger than market expectations for 12.9% and ahead of the previous month's 13% pace.

Economists forecast another 150 bps, or 1.2 trillion yuan in RRR cuts, for the rest of 2012 to help cushion China's worst slowdown since the global financial crisis of 2008-09.

“There are signs that the economy has reached a bottom, but there's nothing to suggest in recent data that equity investors should be positioning for a strong rebound or anything like a V-shaped recovery,” Thornton said.

EXTERNAL DEMAND

China's economic growth has slowed for five straight quarters. The annual growth rate in the first quarter eased to 8.1% from 8.9% in the previous three months, below an 8.3% consensus forecast in a Reuters poll.

Reasonably strong FDI and a return to an overall trade surplus of US$5.35bil in March heralds the prospect that a revival in global growth is lifting overseas demand just in time to compensate for a slowdown in the pace of domestic activity.

FDI is an important gauge of the health of the external economy, to which China's vast factory sector is orientated, but is a small contributor to overall capital flows compared to exports, which were worth about US$1.9 trillion in 2011.

Ministry of Commerce spokesman, Shen Danyang, told a news conference on the FDI data that the government was confident of achieving its target for trade growth in 2012 despite a difficult international economic backdrop.


China targets 10 percent growth for exports and imports in 2012, but both goals were missed in March when imports rose 5.3 percent and exports increased 8.9 percent over a year earlier.

Beijing has pledged to bring its current account into balance as it refocuses the economy more towards domestic consumption and away from volatile foreign demand for manufactured goods.

China's two biggest export markets faltered through 2011. Demand from the European Union was dogged by the sovereign debt crisis, while a U.S. recovery was slow to take hold, especially among consumers.

For the first quarter as a whole, Customs Administration data from China shows the value of total exports was $430.02 billion, while imports were $429.35 billion - bringing the trade account roughly into the balance targeted by the government.

"If we want export growth to be stable, we must ensure that policies are stable," Shen said. "If there are any policy adjustments, these adjustments will be more towards pro-exports rather than limiting exports."

CURRENCY RISKS

But he said some exporters were nervous about the outlook for their business, particularly after China loosened its tightly controlled currency regime by doubling to 1 percent the daily trading band for the yuan against the dollar.

"Some exporters are a little bit worried, so they are not so sure about taking long-term orders, but only took short-term orders, mainly because they are not confident in managing exchange rate fluctuations," Shen said.

The change, a crucial one as China further liberalises its nascent financial markets, underlines Beijing's belief that the yuan is near its equilibrium level, and that China's economy is sturdy enough to handle important, long-promised, structural reforms despite its cooling growth trajectory.

Slower growth is cautiously welcomed by China's leadership as it allows them to make reforms, particularly to prices the government sets, with a reduced risk of igniting inflation that the ruling Communist Party fears could trigger social unrest.

The widening of the yuan's trading band is the most significant adjustment made to China's currency regime since a landmark decision in 2005 to de-peg the yuan from the dollar, which set the Chinese unit on an appreciating path that has seen it gain about 30 percent against the dollar.

In tandem, China has encouraged direct settlement of international trade in yuan, amounting to 2.08 trillion yuan ($333 billion) in 2011, more than triple that in 2010, central bank data shows.

Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong, said 11.7 percent of March FDI flows were settled in yuan, up from 9.5 percent in February, 8.5 percent in January and 3.2 percent for all of 2011.

"Direct investment has become a new frontier for Chinese yuan internationalisation," he wrote in a note to clients.

Beijing targets $120 billion in FDI inflows for each of the next four years, drawing up new rules to encourage foreign investment in strategic emerging industries, particularly those that bring new technology and know-how to China.

The Q1 numbers are on course to achieve that.

"For foreign investors, China remains attractive compared to other countries," Zhao Hao, economist at ANZ Bank in Shanghai, said.

China's efforts to expand its own direct investments in foreign countries are surging. Outbound FDI rose 94.5 percent in the first quarter versus a year earlier to $16.55 billion.

"In the future, the trend is that FDI inflows will pick up while outbound FDI will rise even faster, so the net inflows will fall," Zhao said.

By Zhou Xin and Nick Edwards

Wednesday, July 27, 2011

US Home Price rise fails to lift housing gloom






A realtor and bank-owned sign is displayed near a house for sale in Phoenix, Arizona, January 4, 2011. REUTERS/Joshua Lott

WASHINGTON | Tue Jul 26, 2011 8:03pm EDT
 
(Reuters) - Prices for new single family homes rose to a five-month high in June even as sales slipped, but recovery for the broader housing market continues to be frustrated by an oversupply of properties.

The Commerce Department said on Tuesday the median sales price for a new home increased 5.8 percent last month to $235,200. Compared to June of last year, prices rose 7.2 percent.


Indications that home prices were starting to stabilize were also evident in the S&P/Case Shiller survey, whose composite index of prices in 20 metropolitan areas was flat in May after a 0.4 percent gain in April.
Analysts, however, said firming prices would likely be short-lived given the huge supply of homes on the market.


"Sales are the key and the surge turns into a torrent only if the sales firm or much more time passes," said Michael Montgomery, a U.S. economist at IHS Global Insight in Lexington, Massachusetts.


New home sales fell 1 percent to an annual rate of 312,000 units in June. A report last week showed sales of previously-owned homes fell to a seven-month low in June, but average prices rose 0.8 percent to $184,300 from a year ago.


SPRING FLUKE?


"We have been expecting an increase in home prices in the spring as distressed sales become a smaller share of activity amid a seasonal pick-up in voluntary sales," said Michelle Meyer, a senior U.S. economist at Bank of America Merrill Lynch in New York. "This will likely reverse in the winter, dragging down prices again."


A glut of homes for sale as the economy struggles with a 9.2 percent unemployment rate is weighing on the housing market. There were about 3.77 million used homes on the market in June, plus properties in foreclosure.


The housing market is just one trouble spot for an economy that has been trapped in a soft patch since the beginning of the year.


But there is also hope U.S. economic growth will regain momentum in the second half of the year, and other data on Tuesday showed consumers grew more optimistic about the future this month.


The Conference Board's index of consumer attitudes rose to 59.5 from 57.6 in June, beating economists' expectations for a reading of 56.0.


Still, confidence remains at low levels and consumers grew less optimistic about current conditions. 


Confidence could be shattered if the U.S. Congress fails to raise the country's borrowing limit, which could trigger a debt default and downgrade of the United States' coveted triple-A credit rating.

The stalemate in debt talks pushed down Wall Street stocks for a second straight day and drove the dollar downward against a basket of currencies. But prices for U.S. government debt rose as investors still regard Treasuries as one of the lowest-risk investments out there.




COMPANIES WORRIED


U.S. corporations are concerned about the recovery, which has struggled to gain momentum after the 2007-09 recession with the drag of high unemployment and slack demand.


United Parcel Service Inc, the world's largest package delivery company, gave a cautious outlook and cited the stalled debt talks as a threat to confidence.


Ford Motor Co, announcing profits that topped Wall Street expectations, said it now sees U.S. sales for the full year at the bottom end of its previous forecast of 13 million to 13.5 million vehicles.


The government is expected to report on Friday the economy grew at a 1.8 percent annual rate, according to a Reuters survey, after a tepid 1.9 percent pace in the first three months of the year.


A Reuters survey of economists put the prospect of a new recession at one in five, and 38 of the 54 economists polled said they expected the United States would lose its triple-A debt rating from at least one ratings agency.


(Additional reporting by Leah Schnurr in New York, Editing by Neil Stempleman, Gary Crosse)

Related Video