China Economic News

CHINA BECOMES THE WORLD’S TOP FDI RECIPIENT

HIGHLIGHTS

• In 2014, global foreign direct investment (FDI) inflows declined by 8% to an estimated US$1.26 trillion due to fragility of the global economy, policy uncertainty and geopolitical risks. A large divestment in the United States also lowered the global level of FDI flows.
  
• FDI flows to developed countries dropped by 14% to an estimated US$511 billion, significantly affected by a large divestment in the United States. FDI flows to the European Union (EU) reached an estimated US$267 billion; this represents a 13% increase on 2013, but is still only one-third of the 2007 peak.
  
• Flows to transition economies more than halved reaching US$45 billion as regional conflict, sanctions on the Russian Federation, and negative growth prospects deterred foreign investors (especially from developed countries) from investing in the region.
  
• Developing economies saw their FDI reaching a new high of more than US$700 billion, 4% higher than 2013, with a global share of 56%. At the regional level, flows to developing Asia were up, those to Africa remained flat, while FDI to Latin America declined.
  
• In 2014, China, with a modest increase of 3%, became the world's largest recipient of FDI. The United States fell to the 3rd largest host country with almost a third of their 2013 level. Among the top five FDI recipients in the world, four are developing economies.

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(31-01-2015, 10:19 PM)FA+TA Wrote: CHINA BECOMES THE WORLD’S TOP FDI RECIPIENT

HIGHLIGHTS

• In 2014, global foreign direct investment (FDI) inflows declined by 8% to an estimated US$1.26 trillion due to fragility of the global economy, policy uncertainty and geopolitical risks. A large divestment in the United States also lowered the global level of FDI flows.
  
• FDI flows to developed countries dropped by 14% to an estimated US$511 billion, significantly affected by a large divestment in the United States. FDI flows to the European Union (EU) reached an estimated US$267 billion; this represents a 13% increase on 2013, but is still only one-third of the 2007 peak.
  
• Flows to transition economies more than halved reaching US$45 billion as regional conflict, sanctions on the Russian Federation, and negative growth prospects deterred foreign investors (especially from developed countries) from investing in the region.
  
• Developing economies saw their FDI reaching a new high of more than US$700 billion, 4% higher than 2013, with a global share of 56%. At the regional level, flows to developing Asia were up, those to Africa remained flat, while FDI to Latin America declined.
  
• In 2014, China, with a modest increase of 3%, became the world's largest recipient of FDI. The United States fell to the 3rd largest host country with almost a third of their 2013 level. Among the top five FDI recipients in the world, four are developing economies.

download report here

OMG small singapore taking in more FDI than big Brazil!

Hedge Fund Guide to China Bull Markets Shows Rally Just Starting

'By'Kyoungwha Kim

February 3, 2015

http://www.bloomberg.com/news/articles/2...t-starting

China Joins Global Easing Wave in Cut to Bank Reserve Ratios
http://www.bloomberg.com/news/articles/2...pur-growth
http://cn.reuters.com/article/2015/02/04...9J20150204

Devaluation by China is the next great risk for a deflationary world
http://www.telegraph.co.uk/finance/comme...world.html

China bids to offset capital outflows
THE AUSTRALIAN FEBRUARY 06, 2015 12:00AM

Scott Murdoch

China Correspondent
Beijing

THE Chinese central bank has effectively freed up to 600 billion yuan ($123bn) worth of liquidity in the economy after ordering the first banking sector-wide Reserve Requirement Ratio in almost three years in a bid to reverse growing capital outflows and kick-start the flatlining national property market.

The decision was ordered late Wednesday night and propelled some regional Asian equities markets higher as investors bet the People’s Bank of China could be forced to move again in the next few months.

Macquarie economists forecast it could cut the RRR, which is not the official cash rate but the level of deposits banks must hold, four more times in 2015 and up to 20 times over the next few years.

The decision to reduce the rate by 50 basis points takes the RRR for major banks to 19.5 per cent and 17.5 per cent for smaller banks.

The PBoC also revealed that the Agricultural Development Bank’s rate would be cut by 400 basis points, in a clear indication that authorities are concerned about the agricultural sector.

Dairy farmers in China have been hard hit by the global dairy price slump over the past year and have reportedly killed cows and been forced to dump milk.

The PBoC’s decision was the first move for the whole banking sector since May 2012, but it did cut the RRR for small and provincial banks a number of times last year to help spur lending. Economists believe the ongoing property market weakness, especially in second and third tier cities, and the risk of deflation were the reasons for the PBoC to act now.

There had been speculation the central bank would cut the rate before Chinese New Year, which falls in the middle of this month, because there is a traditional drain on the financial system during the 10-day festival.

However, it was revealed this week China suffered the biggest outflow of capital during the fourth quarter since 1998.

Macquarie analyst Larry Hu said the PBoC was likely to cut the RRR again rapidly to help offset the capital outflows.

The RRR was raised 19 times between 2006 and 2008 and 12 times between 2010 and 2012.

“During the go-go years of global imbalances a huge amount of money flew into China,” Mr Hu said.

“Given the muted capital inflows in recent years the course is reversing now.

“ In the next five years we believe there would be at least 20 RRR cuts and the rate will be lowered to around 10 per cent.

“From a structural point of view, it’s a shame that the RRR cuts are seen by some as politically incorrect, an indicator of turning on the monetary taps,” Mr Hu said.

“In our view, it is just a normal monetary policy tool which should be lowered on falling capital rates.”

People’s Bank of China stares at another rate cut
THE AUSTRALIAN FEBRUARY 11, 2015 12:00AM

Scott Murdoch

China Correspondent
Beijing
THE People’s Bank of China could be forced to cut interest rates again in the next few months to stave off the risk of ­deflation setting in, after consumer prices in January rose by the slowest rate in five years.

The National Bureau of Statistics revealed yesterday that inflation grew by 0.8 per cent during the month, compared to the same time last year, and was below the financial market’s consensus of 1 per cent growth.

The result was down from a 1.5 per cent rise in December and was the weakest monthly outcome since December 2009 when 0.6 per cent gain was ­recorded.

Producer prices, a measure of wholesale inflation, fell by 4.3 per cent during the month, which was the 20th consecutive month that showed signs of deflation in the index.

The slower-than-expected growth in consumer prices was attributed to the timing of Chinese New Year and a marked ­reduction in food prices, which make up the majority of the index. Chinese New Year, which usually results in increased spending, especially on food, ­occurs next week — more than two weeks later than in 2014.

The statistics showed that fresh fruit prices in China rose by 3.3 per cent, year-on-year in the month, compared to 10.4 per cent in December, while vegetable prices fell 0.6 per cent, well down from 7.2 per cent growth one month earlier.

Pork prices, which are a major component of consumers’ food spending and make up about 15 per cent of the CPI index, fell by 5.3 per cent in January, following on from a 4.9 per cent decline in December.

Economists believe the weaker CPI results and ongoing weak wholesale inflation raise the risk of deflation emerging as a major problem for the Chinese economy at a time when the government is managing volatile growth and a subdued national property market.

Haitong Securities economist Lu Xunlei said the government needed to carefully manage its fiscal policy in the year ahead to reduce the prospect of deflation setting in.

“Deflation is becoming a global issue now. In China we are at risk of deflation but also there is a risk that a high rate of leverage could create a serious bubble,” Mr Lu told Tencent Finance.

“A positive fiscal policy should be enhanced further.”

A growing number of economists believe the central bank will have to cut interest rates again in the next few months to help revive China’s flagging economic growth.

The 2015 official growth target will be revealed in early March at the National People’s Congress and most forecasters believe it will be set at 7 per cent. The Chinese government is also expected to lower its inflation target from 3.5 per cent to 3 per cent at the same time.

Nomura China economist Yang Zhao said clear deflationary pressures were now evident in the economy, which should prompt the PBOC to alter ­monetary policy. The central bank surprisingly cut rates in late November, the first official move in two years, and last week ordered a major reduction in the capital requirements on the nation’s banks. “The deflationary pressures reflecting weakening demand in the economy and worsening capacity in upstream industries,” Mr Yang said. “The January inflation data ... points to slower growth momentum in economic activity. On the policy front further is justified and needed against a backdrop of weak growth momentum and subdued inflation.”

Additional reporting: Wang Yuanyuan

China inflation falls, threat of currency war
Angus Grigg AFR correspondent
640 words
11 Feb 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.
Fiscal policy PPI was weaker than expected

Shanghai | The slowest pace of Chinese inflation in five years could put Beijing back at the centre of the global currency wars, as expectations rise that Beijing will move to depreciate the yuan.

The chance of China moving on its currency increased on Tuesday after consumer prices rose at an annual rate of just 0.8 per cent in January, due to weak commodity and food prices.

The Producer Price Index, a gauge of prices at the wholesale level, also came in weaker than expected.

The PPI fell by 4.3 per cent, marking its 35th month in the negative, as Chinese manufactures struggle with overcapacity and a tepid export market.

The recent run of weak data out of China and rumours of an imminent devaluation have led the United States to warn its major trading partners on Tuesday not to manipulate their currencies.

The US used the G20 finance ministers' meeting in Istanbul to issue the warning, and said there were signs of currency manipulation going on, according to Reuters.

A draft copy of the communique from the meeting shows the world's top 20 economies have pledged to "act decisively" on monetary and fiscal policy.

The Chinese currency has strengthened over recent years, even as growth has slowed, eroding the competitiveness of the export sector which is one of the country's biggest employers.

HSBC estimates the yuan is 35 per cent above its long-term average and 10 per cent above this level if adjusted for gains in productivity.

Statistics like this have led to rumours that the central bank will expand the currency's trading band in the coming weeks.

The state-run Securities Times newspaper said on Tuesday the move could be made around the time of the Spring Festival holiday, which begins on February 18.

At present, the Chinese currency trades in 2 per cent daily band to the US dollar. The Securities Times said this band could be widened to 3 per cent.

Lawmakers in the US are already moving to head off a major devaluation from China, preparing legislation that will place sanctions on any trading partner using an artificially low currency to gain a competitive advantage.

In the early 2000s, the US and China regularly argued over the value of the yuan, and the issue flared again during the last presidential election when Republican challenger Mitt Romney vowed to brand Beijing a "currency manipulator".

Tuesday's weak inflation readings followed data earlier in the month which showed China's manufacturing sector declined for the first time since September 2012.

Ahead of the release of the official Purchasing Managers' Index, China's central bank cut the amount of capital that banks were required to keep aside in a bid to spur activity. It was the first time the People's Bank of China had lowered the Reserve Ratio Requirement in more than two years.

The RRR was cut by 50 basis points to 19.5 per cent for major banks.

This followed a cut in official interest rates in November last year.

"The weak inflation profile suggests deflation has become a real risk for China, thus paving the way for further monetary policy easing," said the chief China economist at ANZ, Liu Li-Gang.

He expects the central bank to lower official interest rates by 25 basis points to 5.35 per cent in the first quarter of this year.

Mr Liu has also forecast a further 50 basis point cut to the RRR in the second quarter.

The more aggressive fiscal policy stance comes as the government attempts to keep growth above 7 per cent this year.

China grew at 7.4 per cent in 2014, its slowest pace in 24 years.


Fairfax Media Management Pty Limited

Document AFNR000020150210eb2b0007g

A different view from Yale, which is opposing with view from China think-tank, which has been posted previously...

Why China should not depreciate the yuan

Currency wars are raging worldwide and China is bearing the brunt of them. The yuan has appreciated sharply over the past several years, exports are sagging and the risk of deflation is growing. Under these circumstances, many suggest that a reversal in Chinese currency policy to weaken the yuan is the most logical course.

That would be a serious mistake.

In fact, as China pursues structural reforms aimed at ensuring its continued development, forced depreciation is about the last thing it needs. It would also be highly problematic for the global economy.

On the surface, the situation certainly appears worrisome — especially when viewed through the currency lens, which captures shifts in Chinese prices relative to those in the rest of the world. The Bank for International Settlements (BIS) says China’s real effective exchange rate — an inflation-adjusted trade-weighted average of the yuan’s value relative to the currencies of a cross-section of China’s trading partners — has increased by 26 per cent over the past four years.

China’s currency has appreciated more than those of any of the other 60 countries that the BIS covers (apart from dysfunctional Venezuela, where the figures are distorted by multiple foreign-exchange regimes). By comparison, the allegedly strong United States dollar is up only 12 per cent in real terms over the same period. Meanwhile, China’s emerging-market counterparts have experienced sharp currency depreciations, with the Brazilian real falling by 16 per cent, the Russian rouble by 32 per cent and the Indian rupee by 12 per cent.

This currency shift is, of course, the functional equivalent of a large hike in the price of Chinese exports. Add to that continued sluggishness in global demand and the once-powerful Chinese export machine is suffering, with total exports down by 3 per cent year-on-year in January. For an economy in which exports account for about 25 per cent of gross domestic product, this is not a trivial development.

STRATEGY IS CHINA’S GREATEST STRENGTH

At the same time, a stronger yuan has made imports less expensive, putting downward pressure on China’s price structure. Unsurprisingly, this has exacerbated the fear of deflation, with the consumer price index (CPI) rising by only 0.8 per cent year-on-year in January and the annual decline in producer prices steepening to 4.3 per cent.

While these trends are undoubtedly being amplified by plummeting world oil prices, China’s core CPI inflation rate (which excludes volatile food and energy prices) was near 1 per cent in January.

Against this background, it is easy to see why many anticipate a tactical adjustment in China’s currency policy, from appreciation to depreciation. Such a move would certainly seem appealing as a way to provide temporary relief from downward pressure on growth and prices. But there are three reasons that such a move could backfire.

First and foremost, a shift in currency policy would undermine — indeed, undo — the progress that China has made on the road to reform and rebalancing. In fact, a stronger yuan is consistent with China’s key objective of shifting from export-intensive growth to consumer-led development. The generally steady appreciation of the yuan — which has risen by 32.6 per cent against the US dollar since mid-2005 — is consistent with this objective and should not be reversed. It strengthens Chinese consumers’ purchasing power and reduces any currency-related subsidy to exports.

During the recent financial crisis, the authorities temporarily suspended China’s yuan-appreciation policy, and the exchange rate was held steady from mid-2008 through early 2010. Given that current circumstances are far less threatening than those in the depths of the Great Crisis, the need for another tactical adjustment in currency policy is far less acute.

Second, a shift to currency depreciation could inflame anti-China sentiment among the country’s major trading partners — especially the US, where Congress has flirted for years with the prospect of imposing trade sanctions on Chinese exporters. A bipartisan coalition in the House of Representatives recently introduced the so-called Currency Reform for Fair Trade Act, which would treat currency undervaluation as a subsidy, allowing US companies to seek higher countervailing duties on imports.

Similarly, American President Barack Obama’s administration has just brought yet another action against China in the World Trade Organization — this time focusing on illegal subsidies that Beijing provided to exporters through so-called “common service platforms” and “demonstration bases”. If China intervenes to push its currency lower, US political support for anti-China trade actions will undoubtedly intensify, pushing the world’s two largest economies closer to the slippery slope of protectionism.

Finally, a yuan-depreciation policy would lead to a sharp escalation in the global currency war. In an era of unprecedented quantitative easing, competitive currency devaluation has become the norm for the world’s major exporters — first the US, then Japan and now Europe. If China joined this race to the bottom, others would be tempted to escalate their actions. World financial markets would be subject to yet another source of serious instability.

Just as Beijing resisted the temptation of yuan depreciation during the Asian financial crisis of 1997-98 — a decision that may have played a pivotal role in arresting regional contagion — it must stay the course today. That is all the more important in a disorderly climate of quantitative easing, where China’s role as a currency anchor may take on even greater importance than it did in the late 1990s.

Strategy is China’s greatest strength. Time and again, Chinese officials have successfully coped with unexpected developments, without losing sight of their long-term strategic objectives. They should work to uphold that record, using the strong yuan as an incentive to redouble efforts at reform and rebalancing, rather than as an excuse to backtrack. This is no time for China to flinch.

PROJECT SYDNICATE

ABOUT THE AUTHOR:

Stephen Roach, a faculty member at Yale University and former chairman of Morgan Stanley Asia, is the author of Unbalanced: The Codependency Of America And China.
http://www.todayonline.com/chinaindia/ch...epage=true

To give another perspective: SGD which is referenced to a basket, depreciated against CNY despite the weakening CNY.