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Daily Archives: March 17, 2023

Chuckles of the Day








China Reports Economic Rebound But Warns of Risks To Recovery

China reported a rebound in consumer spending, industrial output and investment this year after coronavirus restrictions were dropped, while warning of risks to the economy’s recovery as unemployment rose and real estate investment continued to slump.

Retail sales rose 3.5% in January and February compared to the same period last year, the National Bureau of Statistics said Wednesday. Industrial output rose 2.4% and fixed-asset investment grew strongly, as local governments increased infrastructure spending to spur the recovery. However, the unemployment rate increased, pointing to weakness in domestic demand.

The numbers were broadly in line with economists estimates and came after Beijing signaled that it would provide a similar fiscal stimulus to the economy as last year, betting on consumers to drive the recovery. Economists said the data was consistent with China meeting it’s target of around 5% GDP growth this year, a significant boost to global demand as the US and European economies face recession fears.

The data is “pointing to a steady rather than accelerating momentum, which also indicates strong policy support is needed to unleash the growth potential,” said Zhou Hao, chief economist at Guotai Junan International Holdings. “The relatively high jobless rate seems to suggest that the further recovery of consumption will hinge on policy dynamics,” he said.

The two-month data may not fully reflect recent strength in consumer spending, as it includes January when China was hit by a wave of coronavirus infections that followed the government’s sudden ending of Covid restrictions the previous month. Cases apparently peaked ahead of the Lunar New Year holiday in late January, prompting people to travel and spend again. Factories also benefited as workforce shortages due to Covid eased.

The value of new apartment sales over the period rose 3.5% on-year, compared with a 22% slump in the first two months of 2022. That recovery from a low base is a sign that Beijing’s financial support for the property sector is taking effect following a deep real estate slump which has lasted for more than a year. However, residential property investment fell 4.6%, meaning better sales are not yet leading to growth in housing investment which economists estimate drives up to 20% of demand in China’s economy.

Beijing has refrained from providing cash stimulus to households, betting that a pick up in hiring by companies will boost wages and spending. However, China’s official urban unemployment rate rose to 5.6% from 5.5% in December, and the jobless rate for young people jumped to a six-month high of 18.1%.

“The problem of insufficient demand is still prominent. The economy’s foundation for rebounding is not yet secured,” the statistics bureau said in a statement.

The bureau combines the data releases for the two months of January and February to avoid distortions from the Lunar New Year holiday, which can fall in either month in different years.

Chinese stocks held on to their strong opening gains after the data as equity markets in the region recovered from recent losses triggered by concerns about the health of the US banking system. China’s CSI 300 Index of stocks rose 0.4% as of the midday break while futures contract on 10-year bonds fell 0.1%. The yuan was little changed.

The pickup in retail sales was driven by spending on medicine, petroleum products and catering, while automobile purchases slumped, according to the official data. Industrial output was driven by steel, coal and renewable energy equipment.

“This probably reinforces the view that even if we have a sequential upswing on China rebound on the back of the reopening, it’s not going to be like a big boom,” Johanna Chua, chief Asia Pacific economist at Citigroup Global Markets, said in an interview on Bloomberg TV.

The spillover benefits of China’s rebound on other emerging markets will “be much more limited,” than in previous economic cycles, Chua said. “It’s really going to be more on the travel, tourist-depending economies around Southeast Asia,” she added.

Stronger Investment

The investment acceleration was driven by state-owned companies. Local governments boosted sales of special bonds to more than 800 billion yuan ($116 billion) in the first two months of the year to front-load spending in infrastructure. The issuance accounts for over a fifth of this year’s total allowance of 3.8 trillion yuan for such debt.

What Bloomberg Economics Says…

China’s first comprehensive set of “hard” data for the first two months of the year show the recovery is well underway — but isn’t as eye-popping as early survey data suggested. Retail sales swung back to growth, and industrial output accelerated. But the biggest driver was infrastructure investment — raising the risk that the growth spurt is overly dependent on government support.

Beijing set a relatively modest target for gross domestic product growth of around 5% for this year, signaling it will avoid any big stimulus through infrastructure investment or the property market. However, a fairly ambitious job creation goal of “around 12 million” suggests policy will remain supportive.

China’s new Premier Li Qiang said Monday the growth target “is not an easy task“ and “requires redoubled efforts.” The nation will prioritize stability in growth, prices and jobs, he said.

Earlier on Wednesday, the central bank boosted net cash injections into the financial system by the most since December 2020, providing banks with additional liquidity as demand for loans picks up.

The economy is expected to grow 5.3% this year, according to economists surveyed by Bloomberg, mainly driven by consumer spending. However, a number of risks cloud the outlook, including waning global demand, a struggling property market and rising geopolitical tensions.

“We expect China’s growth momentum to improve further in coming months, driven mainly by the ongoing consumption recovery and still-accommodative macro policy,” Goldman Sachs economists said in a note on the data.


Source : Yahoo!


Read also at Reuters

Chinese consumers out of COVID gates with caution, rather than zest . . . . .

Mapped: The Largest 15 U.S. Cities by GDP

See large image . . . . . .

Source : Visual Capitalist

Foreign Holdings of U.S. Treasuries Rise for 3rd Month in January as Yields Decline

Gertrude Chavez-Dreyfuss wrote . . . . . . . . .

Foreign holdings of U.S. Treasuries rose for a third straight month in January, data from the U.S. Treasury Department showed on Wednesday, with yields continuing their decline as investors reckoned that the Federal Reserve was nearing the end of its tightening cycle.

U.S. economic data during the month showed signs of slowing down as the Fed’s past rate increases started to take their toll on the economy.

Offshore holdings rose to $7.402 trillion in January from $7.318 trillion the previous month. But compared with a year earlier, Treasuries held by foreigners fell 3.3% in January.

The benchmark 10-year Treasury yield started January at 3.792%, falling to 3.529% by the end of the month. U.S. 10-year yields hit a 15-month high of 4.338% in October last year.

The decline in U.S. Treasury yields, which move inversely with prices, is a sign investors have started to dip their toes back into to the debt market. The inflow into bonds also came after Treasuries notched the worst year in their history in 2022 following the Fed’s most aggressive monetary policy tightening since the 1980s.

Japan remains the largest non-U.S. holder of Treasuries with $1.104 trillion in January. That was up from $1.076 trillion in December. Japan though had been selling Treasuries for most of last year to help defend a struggling yen.

Data also showed holdings of China, the second biggest non-U.S. holder of Treasuries, fell once again to $859.4 billion, down from $867.1 billion in December. China’s holdings fell for a sixth straight month and were the lowest since May 2010 when it had $843.7 billion.

Much like Japan last year, the world’s second largest economy has been unloading Treasuries to help boost its slumping currency, the yuan, against a robust dollar, which had benefited from a string of big interest rate hikes by the Fed.

On a transaction basis, Treasuries posted foreign inflows of $50.9 billion in January, from $19.98 billion in December. Treasuries have seen inflows from foreign investors for nine straight months.

Data also showed outflows of $27.52 billion in U.S. stocks in January, compared with inflows of $54.98 billion the previous months.

Foreigners also bought $2.42 billion in U.S. corporate bonds, compared with $14.38 billion in December. The sector has seen foreign inflows for 13 straight months. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Mark Porter and Marguerita Choy)


Source : Reuters

China Is Attempting a Precarious Balancing Act in Its Tie with Russia

Dr Yu Jie wrote . . . . . . . . .

In its efforts to maintain ties with both Russia and Europe, China is having to wade through conflicting interests and rapidly changing sentiments.

Precisely how far China will go in supporting Russia has been one of the most important questions of the war in Ukraine.

On 20 February, US secretary of state Antony Blinken warned China may soon provide arms (‘lethal support’) to Moscow. But then, on 24 February – the anniversary of Russia’s invasion – China released a position paper calling for a political settlement to end the conflict, tellingly omitting any mention of its ‘no-limits partnership’ with Russia.

China’s goal was to present itself as a neutral mediator. In fact, Beijing’s ties with Russia remain unchanged, even if this relationship has grown more exasperating for Chinese diplomats over the past year.

Their job is to continue striking a delicate balance, a task that is becoming increasingly difficult as Russian president Vladimir Putin doubles down on nuclear brinkmanship and reckless rhetoric.

Staying out of the Ukraine war

With Putin extolling the law of the jungle in its most brutal form, China must be careful not to involve itself too much in the conflict. After all, Russia is clearly losing, and China has high hopes of repairing ties with major European economies.

With China focused on moves by the US and its allies in East Asia and the Indo-Pacific, it simply cannot afford sabre-rattling or unrest on its other borders

But Putin is of course keen to signal that China has his back. That is why he recently rolled out the red carpet for China’s top diplomat Wang Yi and then alluded to an (unconfirmed) upcoming visit by Chinese president Xi Jinping.

Such diplomatic developments allow him to present China’s ambivalent position as, in fact, an endorsement of the invasion. While the costs of aligning with Russia could easily outweigh the benefits for China, one must remember that China’s reasons for maintaining good relations with the Kremlin go beyond the war in Ukraine.

For starters, the two countries share a 2,672-mile (4,300-kilometer) border – roughly equivalent to the width of Europe – and the frontier’s exact location was not even finally settled until the beginning of this century, after generations of negotiations that included some 2,000 meetings.

Yet to this day, the spectre of the Sino-Soviet split in the 1950s and 1960s looms large on both sides and it is not likely to be exorcised anytime soon. With China focused on moves by the US and its allies in East Asia and the Indo-Pacific, it simply cannot afford sabre-rattling or unrest on its other borders.

Moreover, unlike the collective West, China’s foreign policy has always been shaped by interests rather than by values. Even with respect to Russia, the two countries’ bond is based mainly on shared resentment of US hegemony. By deepening their bilateral cooperation in recent years, they have been able to achieve a level of great-power status with which to counterbalance America.

Being isolated from the ‘collective West’ is not an attractive option for China, given its hopes of achieving a robust economic rebound after years of the zero-COVID policy

But Putin’s misadventure in Ukraine has forced Xi and China’s newly minted Politburo to manage a new set of economic, financial, and political risks.

Russia’s war has left the West more firmly united than it has been in years. As China’s relations with the US have reached new lows, Chinese leaders want to avoid also alienating the European Union (EU), which is one of the country’s biggest trading partners.

This is why Xi and Chinese diplomats have been so careful not to accept the Kremlin’s talking points in full. Being isolated from the ‘collective West’ is not an attractive option for China, given its hopes of achieving a robust economic rebound after years of the zero-COVID policy.

Balancing Europe with the Global South

In seeking to keep diplomatic and trade channels open, China’s main tactic has been to reassure European countries that it will use its own ties with Russia to restrain Putin from deploying nuclear weapons.

At the same time, China is making a renewed push to strengthen its ties with the Global South where many countries do not see the war in Ukraine in the same stark moral terms as the West does.

The emphasis on energy and food security in China’s recent position paper may have struck a chord with developing countries that have been reeling from the war’s negative knock-on effects on their economies.

Most non-Western countries are looking to drive their post-COVID recoveries through revived trade and investment, since they cannot fall back on a newly booming defence industry. If China senses that it is increasingly at odds with the entire West, not just with the Americans, it ought to avoid moving any closer to Russia.

But wisdom may not prevail. The war in Ukraine continues to test China’s ability to navigate a briar patch of conflicting interests and rapidly changing sentiments.

This may be one of its last good chances to gain global recognition and praise for helping to resolve a major international crisis. But Xi will need to be explicit about limits with his ‘no-limits’ friend in the Kremlin.


Source : Chatham House