China’s Economy: by Shaw Capital Management Korea

China’s Economy: by Shaw Capital Management Korea - China will continue fiscal stimulus spending and its current monetary policies this year as the country has, in the opinion of the Chinese Communist Party, not fully recovered from the economic downturn.

The Chinese economy grew 8.7% in 2009, and will expand 8.5% in 2010. The consumer price index rose 1.5% in January from a year earlier, slowing from a 1.9% rise in December.

According to the State Administration of Foreign Exchange, the currentaccount surplus dropped to $284 billion, down by about a third from $426 billion for 2008, which was a record. It is the first decline in the currentaccount balance since 2001.

Shaw Capital Management Korea - China’s exports fell last year as global demand collapsed, but the nation’s stimulus plan helped support imports. China now accounts for more than 9% of global exports, a share that has been rising since the outbreak of the financial crisis and the ensuing collapse in global trade. China’s government says it isn’t banking on an export-driven future and has tried, though so far without much success, to shift the emphasis of the economy to domestic consumption and services.

According to International Monetary Fund projections, if current trends continue, China’s share of world exports will reach 12% by 2014, a higher portion than Japan managed at the peak of its dominance in the 1980s. China’s trade deficit with the US totalled $226.83 billion in 2009 — the U.S.’s largest imbalance with any nation. Mr. Obama has promised to the Congress to “get much tougher” with China on trade rules, including currency rates,

to ensure that U.S. goods are not at a competitive disadvantage.

Shaw Capital Management Korea - India filed more trade complaints against China than any other nation in 2009, according to figures from China’s commerce ministry. “A balance of exports and imports is important,” Indian Trade Minister Anand Sharma said in January in Beijing. China’s trade surplus with India grew 46% in 2009 to $16 billion, probably aggravated by the weakening of the yuan against the Indian rupee.

China continues to remain the world’s largest foreign holder of the US dollar bonds which stands at US$895 billion. The second biggest holder of the US debt is Japan (US$760 billion).

Premier Wen will deliver the Government Work Report in the annual session of the National People’s Congress (NPC), China’s parliament, beginning on March 5. It will spell out Beijing’s economic blueprint for 2010 and economic growth targets.

Shaw Capital Management Korea - This year’s theme is balanced economic growth. The focus of new fiscal spending is set to shift away from new infrastructure investment to education, healthcare, and other pro-consumption areas. There may be a push to accelerate urbanisation outside of the large cities and in inland regions. The party will endorse measures to increase wages and income.  The government has already raised the minimum wage in cities from Beijing to Guangzhou by 10% or more early this year.

The Wen cabinet has indicated that old-age benefits for peasants will be

tried out this year and will be made available to all by 2015. Monetary policy

will focus on bringing down credit growth to a normal rate of around 17%,

from last year’s excessive 32%.

Shaw Capital Management Korea - While the 2009 NPC harped on attaining an 8% growth rate, the priority

for this year’s session is to ensure a more equitable distribution of national

income. This year’s NPC will benefit from the lifting of the global economic

gloom that hung over last year’s session.

U.S.–China bilateral relations have grown tense over President Barack

Obama’s meeting with the Dalai Lama followed by the Secretary of State,

Hillary Clinton meeting. The cyber attack on Google Inc. is widely seen as

originating in China. Google has not officially declared that the government

had any role in it.

Shaw Capital Management Korea: Indian’s Economy

The Indian economy will grow by 7.2% in fiscal year 2010 (April to March)

as a surge in manufacturing and a rebound in services blunt the impact of

a drop in farm output. The recovery became increasingly private sectorled

during the second half of the fiscal year, which bodes well for its

sustainability. The government expects the Indian economy to grow by

8.5% in the next financial year that begins April 1, 2010 and to reach its

goal of 10% annual economic growth in the coming years.

Shaw Capital Management Korea: Indian’s Economy - Inflation in India has spurted in recent months, as the worst rains in nearly four decades exacerbated supply shortages. The wholesale price index rose

a provisional 8.56% — higher than the 8.5%, which the Reserve Bank of

India expects to be reached by the end of the year through March. As petrol

and diesel prices have been raised in the last week of February, the inflation

rate may rise to 9.8% by the end of March. The IMF expects the wholesale

inflation rate to reach 8% by March, before easing to 5.5% in March 2011.

India’s exports rose sharply in January while non-oil imports also surged.

Higher growth in non-oil imports vis-à-vis exports shows that domestic

investment and consumption demand continues to be strong, outpacing

rising global demand for Indian exports.

Shaw Capital Management Korea: Exports in January rose 11.5% from a year earlier to $14.34 billion, after

having increased 9.3% to $14.61 billion in December. Imports surged 35.5%

in January to $24.70 billion while oil imports galloped 56% to $7.05 billion.

The steady recovery in shipments, coupled with rising bank credit and

accelerating inflation, may prompt the RBI to raise policy rates at its next

review meeting in April.

The central bank had refrained from raising overnight rates at its last

meeting in January but ordered banks to set aside a greater share of deposits

as reserves, absorbing 360 billion rupees ($7.84 billion) from the banking

system.

Shaw Capital Management Korea: The Finance Minister presented his budget on February 26th. He reduced

personal taxation in middle-income households and rolled back some of

the fiscal stimuli provided to industry. He increased excise taxes and brought

more services under the tax net. In the world of rising concerns over

sovereign debt, he projected the deficit to come down to 5.5% in FY11 from

a revised 6.7% in FY10.

Markets have approved the government’s actions, as it laid out a medium

term plan for fiscal consolidation, aiming to reduce the deficit to 4.8% in

FY12, and to 4.1% in FY13. The deficit is 6.9% in the current fiscal year.

Ratings agencies have also liked the proposed fiscal consolidation road

map, but are in no hurry to change the country’s rating.

Shaw Capital Management Korea: The government borrowing — which would have crowded out credit markets

this year, making it difficult for the private sector to raise capital and

putting pressure on interest rates — has been contained to net borrowing

of about $80bn (£52.5bn).

This figure is 20% lower than many industry figures and analysts had

expected. The stock market has gained more than 3% since the budget was

presented.