China and India 'heading for economic slowdown'

AFP/ 11:39AM BST 11 Jun 2012

http://www.telegraph.co.uk/finance/china-business/9323957/China-and-India-heading-for-economic-slowdown.html

The composite index of leading indicators, a strong guide to coming economic performance, continues "to point to divergence between economies" worldwide, the Organisation for Economic Cooperation and Development said.

"The assessment for China and India has changed significantly since last month," the OECD added, with the indicators pointing towards activity below long-term trend.

Meanwhile, indicators for Japan, Russia and the US still show an improvement, although with "tentative signs that growth may moderate in the near term", the OECD said.

In the eurozone, while indicators for France and Italy continue to point to sluggish activity, Germany and the currency bloc as a whole were only slightly below long-term trend.

The OECD, which groups the world's most developed countries, said Brazilian data pointed towards a turning point, with economic activity improving to nearer long-term trend but with a weaker intensity.

The reports came as China's commerce minister said that the country faces a "severe" trade situation this year, as the Asian powerhouse continues to feel the pinch of global economic woes.

"Foreign trade still faces quite a severe situation going forward," Chen Deming said.

But he said that "with luck", China would still achieve 10pc growth in foreign trade - which combines imports and exports - in line with predictions made earlier this year.

The forecast growth for the year ahead is far slower than the 22.5pc growth achieved in 2011, as the debt crisis in Europe - China's biggest export market - continues.

Official data released on Sunday showed exports rose 15.3pc year-on-year in May to $181.1bn and imports grew 12.7pc to $162.4bn, slightly widening the trade surplus for the third consecutive month to $18.7bn.

However, the better-than-expected trade figures failed to downplay concerns that the world's second largest economy is slowing, after China put in a poor economic performance in May.

Chinese Premier Wen Jiabao last month said greater priority should be given to growth, which slowed to 8.1pc in the first quarter of 2012 year-on-year - its slowest pace in nearly three years.

Authorities have been easing monetary policy for some time in an effort to stimulate growth, cutting the amount of money banks are required to keep in reserve three times since December last year.

On Friday, the central bank also cut interest rates for the first time in more than three years and allowed banks more flexibility to set rates, introducing greater competition in the market.

China and Japan begin direct currency trading

By Agence France-Presse on Friday, June 1st, 2012
http://www.defencetalk.com/china-and-japan-begin-direct-currency-trading-42916/#ixzz1wYkM6Oq7

China and Japan started direct currency trading on Friday as Beijing marked another stage on its journey to foster the yuan’s use internationally in line with its growing economic clout.

Market participants can now swap Japanese yen for Chinese yuan without having to use the US dollar as an intermediary currency, making foreign trade settlement more convenient and cutting transaction costs.

The move comes as China, the world’s second-largest economy just ahead of Japan, gradually moves to make the yuan freely convertible with an eye towards rivalling the mighty dollar, analysts said.

China maintains a tight grip on its currency, which is not convertible on the capital account, over fears that speculative flows could hurt its economy. That grip has long fostered trade tensions with the United States.

“Yuan-yen direct trading is just a small step toward making the yuan a reserve currency, but what’s foremost is whether China can carry out future reforms,” Zhang Zhiwei, chief China economist of Nomura Securities, told AFP.

“The move may be another step toward free convertibility of the currency, but from a long-term perspective, China has a long way to go,” he said.

China set the daily mid-point at 8.0686 yuan to 100 yen on Friday, weakening from 8.0293 on Thursday, according to the China Foreign Exchange Trade System, operator of China’s national forex market.

Dealers confirmed the start of dealings on China’s market with the yuan opening at 8.1074 to 100 yen.

The Chinese currency will be allowed to fluctuate within a 3.0 percent band above or below that central parity rate, according to media reports. China has not publicly announced the trading band.

For the first time, China set the rate based on an average directly from market makers, instead of using the US dollar as a base, the market operator said in a statement before trading began.

British banking giant HSBC, one of the newly appointed market makers in China, said the launch of direct trading will help build a benchmark for non-dollar transactions.

“It is also a significant step forward in the internationalisation of China’s currency, supporting the growing demand for yuan payment and settlement globally,” David Liao, managing director of global markets for HSBC China, said in a statement.

Just last month, China made another move towards liberalisation, allowing the yuan to trade against the dollar in a wider 1.0 percent band on both sides of the mid-point, double the previous 0.5 percent.

China’s tightly controlled forex regime is a long-running source of friction with the United States, which accuses Beijing of artificially undervaluing the yuan to boost exports, and which wants more flexibility.

The yuan trades freely offshore, so China’s trading-band restriction will not apply in dealings on Tokyo’s foreign exchange market.

In early Tokyo trade, one yuan stood at 12.335 yen.

Rates in the Chinese and Japanese markets could be different at the outset but are likely to converge very quickly, traders in Tokyo said.

“It is impossible to make money through price gaps between the two markets,” said Akira Hoshino, head of forex trading at the Bank of Tokyo-Mitsubishi UFJ.

China overtook Japan to become the world’s second-largest economy in 2010, and the neighbours are forging closer business ties despite frequent diplomatic spats over territorial claims and lingering historical animosities.

China is Japan’s largest trading partner, but about 60 percent of their mutual trade is denominated in US dollars.

The forex launch will save about $3.0 billion in annual costs tied to using the dollar in trade transactions, Chinese state media have reported.

Read more: http://www.defencetalk.com/china-and-japan-begin-direct-currency-trading-42916/#ixzz1wYjWjfvE

China's May PMI drops to 50.4%

English.news.cn 2012-06-01 09:23:59

http://news.xinhuanet.com/english/china/2012-06/01/c_131624620.htm

BEIJING, June 1 (Xinhua) -- China's Purchasing Managers Index (PMI), a readout of the country's manufacturing activity, ended five consecutive months of growth in May and retreated to 50.4 percent, indicating a slowing economy.

The PMI in May was down 2.9 percentage points from that in April, the China Federation of Logistics and Purchasing (CFLP) said Friday.

The figure in May showed China's economy decelerated but the growth trend remained unchanged, as the reading still stood above 50 percent, the CFLP said in a statement.

A PMI reading of 50 percent demarcates expansion from contraction.

"The short-term moderation of economic growth at present does not mean the Chinese economy is entering a new recession stage," the statement said.

From November to April, the PMI saw steady increases from 49 percent to 50.3 percent, 50.5 percent, 51 percent, 53.1 percent and 53.3 percent.

The world's second-largest economy is likely to further lose steam as the sub-index for new orders slumped, pointing to even weaker future factory activity, Zhang Liqun, a researcher with the Development Research Center of the State Council, forecast.

The sub-index for new orders dipped below 50 percent in May, down 4.7 percentage points to 49.8 percent, indicating shrinking demand in the manufacturing sector, the CFLP data show.

However, Zhang noted that the economic downshift will be mitigated by government efforts to maintain growth, especially policies aimed at stabilizing investment.

China's economy expanded 8.1 percent year on year in the first quarter of 2012, nearly reaching a three-year low over diminishing export orders and a flagging property market.

The central government pledged last month that it would give more attention to stabilizing economic growth, warning that the economy faces "increasing downward pressure."

In the latest moves to shore up investment and growth, a series of policies were announced last month to open the channels for private investment to flow into state-dominated sectors, and a plan was adopted on Wednesday by the State Council to boost the development of seven strategic emerging industries.

China, US strike 67 agreements during high-level talks

Agencies : Beijing, Sat May 05 2012, 14:09 hrs

http://www.indianexpress.com/news/china-us-strike-67-agreements-during-highlevel-talks/945790/0

Notwithstanding the row over a blind Chinese dissident, China and the US have struck 67 agreements during their crucial economic dialogue covering a wide range of issues relating to trade and investment.

The two sides gained "significant" results out of the dialogue attended by US Secretary of State Hillary Clinton and Treasury Secretary Timothey Geithner, the state-run media here reported today.

While China has vowed to open up its financial market more to foreign investors, the US will quicken its examination and approval for Chinese financial institutions that apply to invest in America, China Daily said.

During the course of the two dialogue which ended yesterday, both sides sorted out the row over blind Chinese dissident Chen Guangcheng, who had sought refuge in America, with Beijing agreeing to let him leave the country and Washington assuring him all assistance to get asylum.

The US has also agreed to provide him a fellowship to study in American University.

Both delegations said they were deeply encouraged by the results of their dialogue, while President Hu Jintao said there have been "significant agreements" in this round of talks.

The two countries reached 67 agreements in the economic dialogue, covering a wide range of issues in the macro economy, bilateral trade and investment as well as financial cooperation, the China Daily said.

"There is significant progress in financial cooperation between the US and China," according to Chinese Vice Minister of Finance Zhu Guangyao.

Zhu said the US is now quickening its examination and approval process on the Bank of China and Agricultural Bank of China's applications for opening more branches in the US and the Industrial and Commercial Bank of China's initiative to take over Bank of East Asia (US).

In 2010, the Industrial and Commercial Bank of China, the world's largest lender by market value, completed the acquisition of a 70-per cent stake of Bank of East Asia Canada to expand its business in North America.

China will revise regulations to allow foreign investors to raise their stakes in joint venture securities companies and joint venture futures companies to as much as 49 per cent.

Foreign investors' ownership in securities firms is capped at 33 per cent.

"This is a signal from China's policymakers to further open financial markets," said Sun Zhe, a professor at Tsinghua University's department of international relations.

"But the two countries should further quicken the process of promoting bilateral trade and investment," he told the Daily.

China has made significant and promising reforms to its currency regime that will lead to further appreciation of the yuan against the dollar and other major currencies over time, US Treasury Secretary Timothy Geithner said yesterday.

"China has acted to move toward a more flexible exchange rate system in which the market plays a greater role. It is intervening less in exchange markets.

"China is also moving to liberalise controls on the international use of its currency and on capital movements into and out of the country," the daily quoted Geithner as saying during the talks.

Moreover, the US said it is committed to loosening restrictions on high-tech exports to China soon.

According to Yukon Huang, a senior associate at the Carnegie Endowment for International Peace and the former World Bank country director for China, the US restrictions on high-tech exports to China are extremely rigid.

"It doesn't make much sense from a national security point of view as China can easily get them from somewhere else," Huang said.

Besides trade, the two sides discussed key international issues.

US Secretary of State Clinton said that they discussed hot spot issues ranging from the Democratic People's Republic of Korea and Iran to Sudan and Syria.

Every problem has provided an opportunity for cooperation, she said.

Clinton said she expected the mechanism started in 2009 only to be consolidated in the future.

State Councillor Dai Bingguo, who led the Chinese delegation, called the talks a "tremendous" success.

He said the small-scale strategic talks, which usually touch upon sensitive issues, were the most time-consuming of all dialogue in this round.

"It took a whole day yesterday" he said, adding both sides have been more candid than before and have become accustomed to in-depth talks with each other.

Dai also noted that human rights should not be used to "interfere in other countries' internal affairs" and that no country could claim to be perfect in that regard.

According to the Foreign Ministry, among dozens of achievements on the strategic channel, the two sides decided to hold another round of consultation on Asia-Pacific affairs later this year, and a human rights dialogue in Washington in the summer.

A meeting on Middle East affairs was also put on the agenda.

In addition, both sides are considering sending a Chinese maritime security ship to Hawaii in September for a joint drill with a US Coast Guard ship.

China, Asia at center of Auckland Airport expansion targets

http://eng.chinamil.com.cn/news-channels/2012-05/04/content_4852305.htm

WELLINGTON, May 4 (Xinhua) -- Auckland Airport, the main international gateway to New Zealand, is aiming to triple the number of services flying to China by 2020 as part of an ambitious plan to expand New Zealand's tourism industry.

　　The airport management Friday released the Ambition 2020 growth plan, saying there was potential to grow the number of international visitor arrivals from 2.6 million last year to more than 3.5 million in 2020.

　　"Asia, especially China, will provide the largest growth potential both in visitor arrivals and in the amount they will spend when they're here," said Glenn Wedlock, Auckland Airport general manager aeronautical commercial.

　　"China is a vital growth market for New Zealand and we see the market developing from 160,000 today to over 430,000 arrivals by 2020. More importantly, we need to target more direct flights, longer stay visitors and FIT (free independent travelers)/semi FIT visitors," said Wedlock in a statement.

　　Airport management believed the number of direct flight visitors could grow from 50,000 a year to 170,000 by 2020, he said.

　　"To achieve these results, and to achieve other ambitious trade targets outlined by the government, we will need to see air services between New Zealand and China reach around three times the number of direct flights today."

　　The airport would also be targeting Southeast Asian markets, such as Indonesia, Malaysia, Thailand and Singapore, which could " easily each develop into 100 million NZ dollars plus (80.02 million U.S. dollars) visitor spend markets."

　　Ambition 2020 set a target of 8.5 billion NZ dollars in overseas visitor spending in 2020, up from 5.76 billion NZ dollars last year.

　　The main contributing markets to the increase would be Asia, which was potentially worth 2.9 billion NZ dollars, with China providing 1.5 billion NZ dollars, Australia, potentially worth 2. 35 billion NZ dollars, North America (800 million NZ dollars), the United Kingdom (690 million NZ dollars) and Germany (290 million NZ dollars).

　　Asia would likely provide the largest growth in traveler arrivals, increasing by about 460,000 visitors a year to a potential 900,000 arrivals into New Zealand by 2020.

　　"If we take China as an example, their outbound traveler numbers are forecast to increase from 70 million in 2011 to 80 million by next year. If we want to gain our share of that, and other fast-growing markets, we must be more competitive and differentiate ourselves from other similar markets with the same or shorter flying times. We are prepared to invest and to develop proper plans to give ourselves the edge," said Wedlock.

　　Growing and sustaining more direct air services was crucial, he said.

　　"More than 85 percent of holiday visitors to New Zealand from China in 2011 still visited as part of a longer stay in Australia partly due to the lack of direct air capacity. For many of our visitors who arrive on dual destination holidays, or via another country, it usually means shorter stays and a significant dilution of their potential value to New Zealand."

　　Auckland Airport believed many more opportunities to deepen existing country markets existed through connections to relatively untapped regions, such as the Sunshine Coast, Perth and Adelaide in Australia, and Shenzhen, Qingdao, Shenyang and Chengdu in China.

　　Initiatives would include developing increased services, such as the Garuda Airlines memorandum of understanding signed by Auckland Airport as part of last month's Prime Ministerial delegation to Indonesia, the securing of China Southern Airline's daily service between Guangzhou and Auckland, the expansion of Air New Zealand in Japan and their opening of new services to Bali and the Sunshine Coast, and the expansion of China Airlines on the Taipei service.

Editor:Ouyang

Economic growth remains robust

English.news.cn 2012-04-30 15:21:47

http://news.xinhuanet.com/english/china/2012-04/30/c_131560827.htm

By Zheng Yangpeng

BEIJING, Apr. 30 (Xinhuanet) -- Despite enduring a tough trade situation with developed economies such as Japan and Europe, China's trade with Russia has enjoyed robust growth, data shows.

In the first quarter of this year, trade between the two countries grew by 33 percent, hitting $21.49 billion, according to Chinese customs statistics.

By comparison, trade with the European Union grew by just 2.6 percent year-on-year, while trade with Japan fell by 1.6 percent.

Last year, trade volume between China and Russia reached a total of $79.2 billion, a 42.7 percent increase year-on-year.

China is already Russia's main source for imports, while Russia is China's eighth-largest trading partner.

Analysts say Vice-Premier Li Keqiang's visit to the country will add fresh momentum to the fast-growing economic link.

During the visit, enterprises and government departments from both sides were expected to sign cooperation agreements covering trade, energy, science and technology, finance, communications and other fields.

Those involving energy and science and technology deserve special attention, said Liu Junmei, an expert in Sino-Russian relations at Fudan University, because energy already accounts for a large proportion of Russia's exports to China, while China wants more high-tech exports from Russia.

In addition to trade ties, the two countries will strengthen mutually beneficial cooperation in investment, deep processing, joint production, high technology and large strategic projects, Deputy Foreign Minister Cheng Guoping said at a news conference last Monday.

However, underlying the rapid growth is a structural imbalance, which has long been a complaint for both nations, especially Russia.

China exports mainly mechanical and electrical products, high-tech products, and textiles to Russia, while energy and raw materials go the other way. Russia has long sought to reduce the export share made up by energy and boost the export of manufactured goods.

With this in mind, Cheng said both sides should take "prudent and pragmatic" steps to address the imbalance.

"Our attitude is clear, which is, our market is open," said Liu at Fudan University. "We're willing to buy as long as your products are competitive.

"We hope Russia understands that trade based on comparative advantages serve both countries' interests."

Russia has gradually reduced its reliance on Chinese imports, while China's appetite for energy and raw materials have led to an increase in imports from Russia.

This is clearly reflected in the latest Chinese customs statistics, which showed that in the first quarter of this year, Russia's imports from China fell 2.9 percent, while its exports to China increased 49.2 percent.

"To achieve rapid economic growth, China needs Russia's energy and raw materials, so this trend will undoubtedly continue," Liu added.

By 2020, trade volume between the two countries should reach at least $200 billion, according to the goal set by Chinese and Russian leaders last year.

Contact the writer at zhengyangpeng@chinadaily.com.cn

(Source: China Daily)

China's foreign investment return on the rise

English.news.cn 2012-04-29 23:17:57

http://news.xinhuanet.com/english/china/2012-04/29/c_131560039.htm

BEIJING, April 29 (Xinhua) -- China's foreign exchange regulator said Sunday the country's return on foreign investment has surged by an annual rate of 32 percent since 2004 to hit 128 billion U.S. dollars last year.

Guan Tao, head of the balance of payment (BOP) department under the State Administration of Foreign Exchange (SAFE), said the SAFE is promoting the yuan's convertibility under the capital account in a prudent and orderly manner and supports domestic institutions and individuals to conduct foreign investment.

Foreign trade situation "far from optimistic": MOC

http://english.chinamil.com.cn/

BEIJING, April 27 (Xinhua) -- China's foreign trade this year faces situations "far from optimistic" due to thwarted global demand, rising costs at home and a harsh trading environment, according to an official report released Friday.

　　

After trade growth slowed for a second consecutive quarter in the January-March period, China's trade will continue to grow at a slow pace in the second quarter and the annual rate will drop from that of 2011, the Ministry of Commerce (MOC) said in an online statement.

　　In the first quarter, China's imports and exports expanded 7.3 percent from a year ago to reach 859.37 billion U.S. dollars, according to the General Administration of Customs.

　　The growth rate was 22.3 percentage points lower than that of a year ago and marked the slowest pace since the fourth quarter of 2009.

　　THE ROSY SIDE

　　"Considering both the international and domestic environments, there are certain advantages and positive factors for maintaining steady trade growth, but 2012 is going to be an extremely challenging year for China's foreign trade," the statement said.

　　Since the beginning of this year, the global economy has shown some positive signs, said the ministry, citing examples such as better-than-expected economic growth in the United States and Japan, the European debt crisis being contained to some extent and strong measures taken by emerging economies to spur economic growth.

　　Domestically, China's economic situation is basically sound, as its economy expanded steadily in the first quarter and market confidence remained stable, the MOC said.

　　China's economy expanded 8.1 percent year on year in the first quarter, marking the fifth consecutive quarterly decline and the slowest growth pace since the third quarter of 2009, data from the National Bureau of Statistics (NBS) shows.

　　"The growth of the economy still has great potential and there is a relatively large amount of leeway for macroeconomic regulatory policies," according to the statement.

　　NO SMOOTH SAILING

　　However, China should clearly understand that trade development is facing mounting challenges and complicated constraints, and "the situations are far from optimistic," the ministry said.

　　A major problem is seriously withering global demand due to weak world economic growth, especially in the European economy that is on the verge of a recession, it said.

　　The International Monetary Fund forecast that the world economy will grow by 3.5 percent this year and total trade will expand by 4 percent, 0.4 and 1.8 percentage points lower than the previous year, respectively.

　　China's export companies have felt the strain, as they are receiving far fewer orders than in the same period last year, according to the MOC.

　　Adding to the woes, domestic companies are also experiencing higher costs of labor and raw materials, which is cutting into their profitability and increasing operating pressures.

　　Urban workers' incomes have risen by an average annual rate of 33 percent during the past three years, and minimum wage standards in most regions rose by more than 20 percent in the past two years.

　　"China's small and mid-sized enterprises still face prominent difficulties in getting loans, and those that can get loans said the costs are quite high," said the ministry.

　　The ministry also pointed out that the country is facing a relatively harsh trade environment, as "China has encountered the most trade frictions in the world for 17 consecutive years."

　　"In the first quarter, other countries launched 16 trade-remedy investigations for Chinese products involving a total value of 3 billion U.S. dollars," the MOC said.

　　The number of such cases surged 80 percent over the same period last year, while the total value involved jumped 140 percent, it said.

　　SLOW BUT MORE BALANCED

　　The ministry predicted that China's foreign trade growth will remain at a low level in the second quarter and be slower than the growth registered last year. "The trade balance situations will further improve," it said.

　　China will strive to promote steady trade growth, adjust the structure and seek balanced trade this year, according to the ministry.

　　China should keep its trade policies stable to help companies overcome current difficulties and ensure steady export growth in the short term.

　　Over the long haul, it will intensify efforts in trade restructuring and upgrading, step up the transformation of the trade development pattern and reinforce the capability for sustained trade growth, the ministry said.

　　Meanwhile, China will further improve its import policies and set up more platforms for shoring up the country's imports in a bid to make positive contributions in promoting world trade growth and economic recovery.

　　The MOC on Thursday released a program for foreign trade development during the 12th Five-year Plan (2011-2015) period, saying that China will pursue balanced, progressive and mutually beneficial trade development during the five-year period.

　　This is the first time for the Chinese government to release a five-year program on foreign trade development.

　　The plan made seeking mutual benefit and a win-win situation one of its basic principles for trade growth, signaling the country's determination to make trade more balanced during the new era and bring more benefits to its trade partners.

Editor:Li Meng

China's great leap forward – into the supermarket

• Patrick Collinson
• guardian.co.uk, Friday 27 April 2012 23.02 BST

http://www.guardian.co.uk/money/2012/apr/27/china-biggest-market-world

Made in China says everything, economically, about the last decade. Sold in China tells you everything about the next.

Recent output figures from China were greeted with concern after the country reported its lowest GDP growth for three years, although, at 8.1%, it's magnificent compared to the UK's double-dip recession. Still, there is much talk among economists about a "hard landing", a "property bubble" and "bankrupt banks".

But there is one key fact to remember about the economy in China. It's that the minimum wage is going up 15% a year, every year, for the next five years. Take a billion workers and give them a 100% pay rise. It changes everything.

Within a generation, China is likely to displace the US as the biggest consumer market in the world. At Tianjin Port, the world's fifth biggest, container ships used to export Chinese goods to the rest of the world but come back empty. Now they return with the finished and semi-finished goods from the rest of the world to satisfy a ravenous consumer appetite.

In Tianjin's vast factory zone, (across the road from a Foxconn plant making the next wave of Apple iPhones), the Master Kong factory makes more pot noodles than anywhere else in the world. The huge automated production lines, with machine tools imported from Japan and Germany, churn out five billion noodle packets a year – enough to reach to the moon and back. All the raw materials come from China, all of the finished product is consumed in China. It's just one of 23 Master Kong plants on the mainland.

Further south in the "groundscraper" (and weirdly Hogwarts-esque) Shanghai offices of Ping An, China's second biggest insurer, 12,000 commission-led telesales agents make one million sales calls every day. It is the largest telemarketing operation on the planet, feeding on the explosive growth of domestic car sales.

Last year 14.5m cars were sold in China – or 2m more than in the US, previously the world's biggest auto market. Nine in 10 were to people who had never bought a car before. Ping An now insures 32m private cars, raking in premiums of £2.2bn (22.3bn renminbi) a year. Four years ago, that revenue was below £100m.

As the Beijing auto show opened (it has replaced Detroit as the barometer of the industry), Ford said it was pressing ahead with its fifth giant factory in the country, and Volkswagen its seventh. Industry experts say sales will rise to 40m a year by 2020 – or 20 times the size of the UK market.

In a country where air quality is staggeringly bad, the environmental consequences are terrifying. So is the outlook for the price of petrol, which sells in China for about half the price in Britain. If the country reaches US levels of car ownership, China alone will need to import more oil than is currently produced from every well in the world.

It doesn't appear to concern the 4S showroom in Beijing, the biggest BMW dealership in Asia. Sales of luxury cars were up 30% in the first quarter of this year, and after signing a deal to distribute Range Rovers, they are selling every (Merseyside-made) Evoque they can get their hands on. The waiting list stretches for months.

China's industrial revolution has created hundreds of thousands of dollar millionaires, and more than 400 billionaires, second only to the US. That translates into extraordinary sales of luxury goods, although much of that is in Hong Kong as wealthy consumers skirt import tariffs that make prices in Shanghai 40% higher than abroad.

The vulgar display of new wealth is beginning to worry the communist (in name) leaders. Income inequality is among the world's worst. Median wages for rural workers were, according to the National Bureau of Statistics, just £608 last year, and £1,877 for workers in the cities. Yet Gucci, Louis Vuitton, Burberry and Bottega Veneta stores dominate shopping malls. Last year authorities banned the use of the word "luxury" in advertisements, but to little effect. Sales surged, with revenue at Burberry shops up 30% in 2011.

The millions of migrant workers flooding into the cities, their only possessions stuffed into a battered suitcase, are greeted by the sight of a £3,000 monogrammed Louis Vuitton bag in a shop window. Discontent is rising: in Guangdong, a coastal industrial province where, on paper, earnings are among the highest in China, riots in June last year continued for three days. Clashes erupted over unpaid wages, but behind the violence lies the fact that a huge underclass has gained little from the new China they built, mostly with their own hands.

At the Master Kong factory in Tianjin production line workers, we are told, earn £300 a month. But they have to work six days a week, receive just one week's holiday a year, and sleep in a factory-controlled dorm. And this is one of the plants where management is happy to receive foreign visitors (but we were banned from taking photographs). In Shanghai, the glitziest and richest city in China, with 23 million residents, factory workers rarely take home more than £200 a month.

Worried Chinese leaders have put spreading the country's wealth at the heart of the latest "five-year plan". It's this that mandates the coming 15% a year increase in the minimum wage, although how much of that will be eaten by price inflation is a moot point.

Westerners who mock the concept of the five-year plans lamentably misunderstand China, says William Fung of Li & Fung. It is a company virtually unknown in the west, but is the biggest supplier of clothes to Europe and America, with Walmart and Marks & Spencer among its customers.

"You report the five-year plan in the west as a one-day wonder ... then people are surprised that growth is falling to 7.5%. But it's in the plan. All the time we are told that China is old and complex to understand. But it is the easiest country in the world to understand.

"They tell you what they are going to do. Every official knows the five-year plan. The plan calls for slower growth, but a 15% per annum increase in domestic consumption. All the evidence is there that we are going to grow consumption," says Fung.

His company, whose clothing and toy exports are so vast it is regarded as the bellwether of the global economy, will continue selling huge quantities overseas, but sees the home consumer as perhaps its greatest opportunity.

Just off outer ring road five in Beijing, a mundane average-income district, the Wu Mart hypermarket is perhaps an early indicator of how domestic consumption will grow.

The store bears more resemblance to a Lidl than a Tesco but, unlike the oddly deserted luxury shops in the city centre, it is teeming. It's instantly apparent that mid-range western brands are phenomenally popular with middle-income Chinese consumers. Shelf after shelf stocks the likes of Colgate toothpaste, Nivea, Quaker Oats and Snickers bars.

Whole aisles are devoted to disposable nappies. China's one-child policy, rigorously enforced, means that spending on a sole child is proportionately huge. Hong Kong babies use 50% more diapers than those in the west, and mainland China is heading the same way. Want to invest in China? Maybe buy Procter & Gamble (Pampers) or Kimberly-Clark (Huggies) instead.

Back in Shanghai we meet Ji Qi, another entrepreneurial billionaire. He opened an Ibis-style budget hotel in 2002, called Home Inns, for the country's emerging business and leisure market, and built it to a chain of more than 1,000. After a bust-up with his co-founder he's set up Hanting Inns, has 639 hotels, and is opening a 140-bed inn every two days. Room rates range from £10 to £40 a night. He confidently expects Hanting to overtake Accor (Ibis, Mercure, Novotel and Sofitel) this year, and become, perhaps, the world's biggest hotel chain by 2020.

He is the epitome of the ambition, drive and vision in China that is in such stark contrast to the miserable business outlook in Britain.

But do investors who buy the China story ever actually make any money? One of the remarkable facts is that its stock markets (the big exchanges are in Shanghai and Shenzhen) are a great way of turning a large fortune into a small one. Over the past five years the benchmark Shanghai Composite index has fallen by 41.4%. The Shenzhen market has been falling since mid-2010.

For British investors, the average China unit trust has lost 17% over the past year. Critics warn that many Chinese companies regard equity investment by westerners as an interest-free loan never to be repaid. Tellingly, few of the rich put their own cash into the stock market – expanding their businesses, and investing in property (no matter how super-charged prices appear) is what they see as the future.

Patrick Collinson was a guest on a trip organised by Fidelity Investments. Fidelity's China Special Situations investment trust is a holder of shares in Ping An, Master Kong and Wu Mart.

Moody's confirms China Aa3 rating, outlook positive

BEIJING | Thu Apr 26, 2012 12:22am EDT

http://www.reuters.com/article/2012/04/26/us-china-economy-rating-idUSBRE83P06K20120426

(Reuters) - China's sovereign rating outlook remains positive, supported by favorable medium-term growth prospects and strong government debt dynamics, Moody's Investors Service said in a report on Thursday.

The ratings agency made no change to its Aa3 foreign and local currency bond ratings in the report, but said Beijing must retain tight control over local government finances and make reforms in the financial system to ensure rapid and stable economic growth for the rest of the decade.

"Rapid economic growth, coupled with low deficits and debt of the central government, have provided ample fiscal headroom to manage contingent risks in local government finances, or in the banking system," Moody's said in a statement accompanying the report.

Moody's said it expects China's real economic growth rate to ease to a range of between 7.5-8.5 percent in 2012 and 2013 from the more heady 10.3 percent pace of the last decade.

Economists polled by Reuters earlier this month expected the economy to grow 8.4 percent this year. After a sluggish patch in the first quarter, growth is expected to rebound and steadily tick up to reach 8.7 percent by April-June 2013.

Moody's also said China's trade and financial exposures to the continuing problems in the euro zone were moderate to low.

The report said China's large scale provided stability against shocks and offsets institutional weaknesses associated with the relatively low per capita income level in the world's second-biggest economy.

But it cautioned that institutional strength was moderate in comparison with most other highly-rated sovereigns and that more needed to be done to develop transparency.

"Political, economic, and financial event risks, which could prompt an abrupt, multi-notch downgrade, are considered as low and manageable, but not unimaginable," the Moody's statement said.

China took a milestone step in turning the yuan into a global currency this month by doubling the size of its trading band against the dollar to 1 percent, pushing through a crucial reform to further liberalize its financial markets.

China's cabinet has also approved a pilot project in the coastal city of Wenzhou that could form the cornerstone of national financial sector reforms, with a plan to create a clutch of new institutions to bring private sector funds into China's state controlled banking system.

Sources in close, direct contact with the People's Bank of China (PBOC) and the China Securities Regulatory Commission (CSRC) told Reuters last week that reforms are ready to be rushed out over the next 12 months to boost two-way capital flows, drive diversification of business finance and accelerate corporate currency hedging.

Premier Wen Jiabao last month staked his political legacy on reform to rebalance the economy at China's annual meeting of parliament.

(Reporting by Nick Edwards; Editing by Kim Coghill)

Oil rises as concerns over economic slowdown in China ease

http://www.thehindubusinessline.com/markets/commodities/article3348422.ece

Singapore, April 24:  Oil prices edged higher in Asian trade today on easing concerns about a sharp economic slowdown in China, the world’s biggest energy user, analysts said.

However, economic and political uncertainty in Europe capped prices and a weaker euro also dampened the demand for dollar-priced crude.

New York’s main contract, West Texas Intermediate crude for delivery in June, was up six cents at $103.17 per barrel while Brent North Sea crude for June gained 14 cents to $118.85.

Oil prices had slipped yesterday following an HSBC Purchasing Managers’ Index data which showed China’s manufacturing activity contracted for a sixth straight month in April.

Analysts, however, said there was a silver lining in the data that indicated recovering demand in the world’s second largest economy.

The PMI reading was 49.1 in April, up from 48.3 in March, denoting an improvement but no return to expansion just yet. A reading below 50 indicates contraction while anything above 50 shows growth.

“The Chinese PMI data is a case of whether you look at the glass as half-full or half empty,” said Mr Victor Shum, senior principal at Purvin and Gertz international energy consultants in Singapore.

“Some traders and investors are seeing this as a buy opportunity. There is optimism about the Chinese economy because the HSBC PMI actually showed improvement in output, and that has pushed oil prices up.”

Political and economic uncertainty in Europe remained a bearish factor, analysts said.

Spain — one of the Euro Zone’s beleaguered economies — had yesterday said that it had plunged back into recession in the first quarter of 2012.

BRICS: No rights - no cash

Published: 20 April, 2012, 15:40

http://rt.com/business/news/imf-brics-finance-money-fund-us-lagarde-551/

The BRICS countries seem to be unwilling to make a donation to boost the IMF’s financial strength. They want to cement their positions first, getting a greater say, before pumping cash into the fund’s strategic stockpile.

Brazilian Finance Minister Guido Mantega laid out the terms for a deal after a meeting with other BRICS nations – Russia, India, China and South Africa.

"We are not ready to set a figure, because there are preconditions that have not been fulfilled by the countries – whether they will comply with the agenda of reforms," he said.

Leaders of the world’s major emerging economies have recently been saying there would be no additional IMF financing to fight the European sovereign debt crisis unless they gain greater voting power at the Fund.

In a joint statement released after the countries’ leaders meeting in India in March the BRICS nations said there was an urgent need to “better reflect economic weights” and “enhance the voice and representation of emerging market and developing countries” at the IMF.

Support from China, Russia and Brazil is critical to strengthening the firepower of the IMF as it continues its quest for money to boost its strength with Managing Director Christine Lagarde scrupulously adjusting the sum she needs in accordance with every new IMF report estimating the risks to the euro zone economy as “high” or “very high”.

Over the last 3 weeks the required sum was subject to three changes.

The IMF wanted to boost its funding by $600bln as there’s increased concern about the euro zone debt crisis, highlighted by soaring Spanish borrowing costs.  Last week Lagarde scaled down her request to $400bln plus additional resources as threats to the global economy diminished. Now the euro zone is the "epicentre of potential risk" for world economic recovery according to Lagarde, the IMF again decided that it was utterly unwise to give up a request for a larger amount. With the US saying a hundredth time it would not contribute, the IMF had already rolled back its target of $500 billion.

Some economists worry the IMF and European crisis funds might not be enough if markets turn sour on Spain and Italy.

 “This is absolutely a cataclysm for the euro zone. No matter how large the safeguards are, no matter how big the bazooka the IMF is currently assembling, nobody can afford to pay for Italian or Spanish government debt. It’s simply impossible. We are pushing the nations on the Mediterranean fringe of Europe into anarchy,” says Patrick Young, Executive Director with DV Advisors.

So far the euro nations and Japan, which became the first non-European nation to offer a helping hand, have committed to pitch in $320 billion.

The IMF describes itself as “an organization of 188 countries, working to foster global monetary cooperation, secure financial stability and facilitate international trade.”

Voting power in the IMF is based on a quota system. This system follows the logic of a shareholder-controlled organization: rich countries have more say in the making and revising of rules. Since decision making at the IMF reflects each member’s relative economic standing in the world, wealthier countries that provide more money to the fund have more influence in the IMF than poorer members that contribute less. Emerging economies represent a large portion of the global economic system but this is not reflected in the IMF's decision making process through the nature of the quota system.

Christoph R. Hoerstel, a German government consultant, told RT “without a bigger say in the IMF there’s clearly no incentive for the BRICS nations to give their good money and just kick it out of the window, as Europe has done in the past”.

“I can’t see how other nations far away from the euro zone should pay money for a system that is not well-made,” he maintains.

Now that the IMF is desperate for money, it is relying heavily on the BRICS. Finance ministers and central bankers from the G20 advanced and emerging economies were holding a dinner on Thursday, ahead of a longer session on Friday. IMF funding was at the top of the agenda and the BRICS are likely to be inclined to contribute, though under certain terms.

Russian Deputy Finance Minister Sergei Storchak said “Russia will contribute $10 billion in the IMF, in line with earlier commitments, though the BRIC group have insisted the G-20 not reveal the breakdown of how much in additional funding each provides.”

Christine Lagarde acknowledged during her news conference that giving emerging economies a greater say is a priority and said it was an issue she will raise in one-on-one meetings with IMF member countries.

"We are going to ask the membership to finish the job in terms of quota resources and in terms of governance," she said.

“The IMF has no choice but to agree to the demands put forward by the BRICS. Especially after the US said it’s not ready to pay any money. It’s a very bad situation right now for the IMF, which now finds itself in a not very good negotiating position. Simultaneously, that’s a number 1 chance for BRICS,” concludes Christoph R. Hoerstel.