Slowdown Indicated For China's Economy
Slowdown Indicated For China's Economy
By Peter S. GoodmanWashington Post Foreign ServiceTuesday, February 22, 2005; Page E01
BEIJING, Feb. 21 -- China's producer prices last month climbed by the smallest margin in almost a year, the government announced Monday, adding to the widespread view that the nation's campaign to rein in economic growth by limiting investment is gradually working and will avert a crash.
January's 5.8 percent increase in producer prices compared with a year earlier comes on the heels of a 7.1 percent increase in December. Economists said the slowing trend adds to the likelihood that China will successfully nudge down the pace of growth in its booming economy through credit-tightening without suffering a "hard landing" -- an abrupt halt that could shutter businesses, destroy jobs and leave banks burdened with fresh billions in bad loans.
The slowing also suggests that China's central bank is less likely to raise interest rates anew after lifting them in October for the first time in nearly a decade. That move sowed fear in markets around the globe. Traders read it as the beginning of a round of belt-tightening that would significantly diminish China's voracious appetite for goods, particularly commodities -- such as iron ore pouring into Chinese ports from Brazil and Australia and soybeans shipped from the United States and Argentina.
"Price pressures are coming off," said Jonathan Anderson, chief economist at UBS Investment Research in Hong Kong, who has long argued that China is in the midst of successfully engineering a soft landing, a gradual slowdown free of crisis. "What it really means is they are not going to be tempted to do anything wacky in terms of raising interest rates."
Monday's producer price figures landed two weeks after China's central bank governor, Zhou Xiaochuan, said borrowing costs were at a "comfortable" level.
Only a few months ago, some economists fretted that China might not be able to bring its sizzling economy under heel. In that view, a glut of unneeded office space and unwanted production could have given way to rapidly falling prices, leading to bankruptcies and a potential banking crisis whose consequences might have rippled out around the globe.
These days, most fears focus on the consequences of the opposite outcome -- the impact a slowdown in China would have on exporters that have become dependent on Chinese demand for their goods. The slowdown in China's growth and the weakening demand for raw materials such as steel, for example, is blamed in part for Japan's recent return to recession.
But even that story now seems under control. "The bad news is already priced into the market," Anderson said.
By themselves, the January numbers are a mere increment in the still unfolding story of China's efforts to crimp the flow of new capital to hot-growing areas of the economy, particularly steel, automaking and real estate.
Analysts emphasized that January data tend to be skewed by the run-up to the Lunar New Year, when many people begin to travel to spend the holiday with their families.
They will be scouring the data in coming months for confirmation of the growing consensus that the economy is indeed cooling to a sustainable pace. Of particular interest is the growth of investment in government-led public-works projects, which have long been the engine of the world's largest country.
The January producer price data fit into a recent pattern that has convinced most economists that a gradual slowdown is already underway.
In April, Premier Wen Jiabao began sounding the alarm that an overly exuberant flood of capital into car plants and skyscrapers was in danger of creating a bubble that could leave China's already troubled banks with a greater toll of bad loans. Investment into large projects in Chinese cities was then growing by 35 percent compared with a year earlier. In December, growth of such projects had slowed to 21 percent, the government said.
Last week, the government reported that China's industrial production rose by 8.9 percent in January compared with a year earlier -- the smallest increase in three years.
On Tuesday, the government released figures showing that consumer prices rose by 1.9 percent in January -- a narrower increase than economists had been expecting and the smallest rise in nearly a year.
"It's a good sign," said Larry H.P. Lang, chairman of the finance department at Chinese University of Hong Kong and host of a popular business talk show in Shanghai. "The government was worried before, but things are getting better and better."
http://www.washingtonpost.com/wp-dyn/articles/A42688-2005Feb21.html?referrer=email
By Peter S. GoodmanWashington Post Foreign ServiceTuesday, February 22, 2005; Page E01
BEIJING, Feb. 21 -- China's producer prices last month climbed by the smallest margin in almost a year, the government announced Monday, adding to the widespread view that the nation's campaign to rein in economic growth by limiting investment is gradually working and will avert a crash.
January's 5.8 percent increase in producer prices compared with a year earlier comes on the heels of a 7.1 percent increase in December. Economists said the slowing trend adds to the likelihood that China will successfully nudge down the pace of growth in its booming economy through credit-tightening without suffering a "hard landing" -- an abrupt halt that could shutter businesses, destroy jobs and leave banks burdened with fresh billions in bad loans.
The slowing also suggests that China's central bank is less likely to raise interest rates anew after lifting them in October for the first time in nearly a decade. That move sowed fear in markets around the globe. Traders read it as the beginning of a round of belt-tightening that would significantly diminish China's voracious appetite for goods, particularly commodities -- such as iron ore pouring into Chinese ports from Brazil and Australia and soybeans shipped from the United States and Argentina.
"Price pressures are coming off," said Jonathan Anderson, chief economist at UBS Investment Research in Hong Kong, who has long argued that China is in the midst of successfully engineering a soft landing, a gradual slowdown free of crisis. "What it really means is they are not going to be tempted to do anything wacky in terms of raising interest rates."
Monday's producer price figures landed two weeks after China's central bank governor, Zhou Xiaochuan, said borrowing costs were at a "comfortable" level.
Only a few months ago, some economists fretted that China might not be able to bring its sizzling economy under heel. In that view, a glut of unneeded office space and unwanted production could have given way to rapidly falling prices, leading to bankruptcies and a potential banking crisis whose consequences might have rippled out around the globe.
These days, most fears focus on the consequences of the opposite outcome -- the impact a slowdown in China would have on exporters that have become dependent on Chinese demand for their goods. The slowdown in China's growth and the weakening demand for raw materials such as steel, for example, is blamed in part for Japan's recent return to recession.
But even that story now seems under control. "The bad news is already priced into the market," Anderson said.
By themselves, the January numbers are a mere increment in the still unfolding story of China's efforts to crimp the flow of new capital to hot-growing areas of the economy, particularly steel, automaking and real estate.
Analysts emphasized that January data tend to be skewed by the run-up to the Lunar New Year, when many people begin to travel to spend the holiday with their families.
They will be scouring the data in coming months for confirmation of the growing consensus that the economy is indeed cooling to a sustainable pace. Of particular interest is the growth of investment in government-led public-works projects, which have long been the engine of the world's largest country.
The January producer price data fit into a recent pattern that has convinced most economists that a gradual slowdown is already underway.
In April, Premier Wen Jiabao began sounding the alarm that an overly exuberant flood of capital into car plants and skyscrapers was in danger of creating a bubble that could leave China's already troubled banks with a greater toll of bad loans. Investment into large projects in Chinese cities was then growing by 35 percent compared with a year earlier. In December, growth of such projects had slowed to 21 percent, the government said.
Last week, the government reported that China's industrial production rose by 8.9 percent in January compared with a year earlier -- the smallest increase in three years.
On Tuesday, the government released figures showing that consumer prices rose by 1.9 percent in January -- a narrower increase than economists had been expecting and the smallest rise in nearly a year.
"It's a good sign," said Larry H.P. Lang, chairman of the finance department at Chinese University of Hong Kong and host of a popular business talk show in Shanghai. "The government was worried before, but things are getting better and better."
http://www.washingtonpost.com/wp-dyn/articles/A42688-2005Feb21.html?referrer=email
posted by stebaldos at 12:58 PM
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