| Boyanova | Date: Wednesday, 20.07.2011, 10:34 | Message # 1 |
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| A Chinese leading indicator climbed for the third straight month, adding to evidence that the world's second-biggest economy is withstanding Europe's debt crisis and faltering growth in the US.
The index rose 0.5 per cent to 155 in May, The Conference Board said on its website today, citing a preliminary reading. The gauge is designed to capture prospects over the coming six months. April's index was revised to a 0.1 per cent gain from a previous 0.2 per cent increase.
The data may maintain pressure for more tightening after China last week reported faster-than-forecast second-quarter growth as domestic investment countered slowing export gains. In Beijing, lawmaker He Keng said today that government efforts to curb housing prices have so far been insufficient and inflation will be higher than the government's target this year.
“The modestly rising trend of the China leading index since the beginning of 2011 continues to point to economic expansion for the rest of the year,” Jing Sima, The Conference Board's New York-based economist, said in a statement.
The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, was 0.4 per cent lower at 2,785.62 at the 11:30 a.m. local-time break, set for the third straight daily decline. The yuan reached a 17-year high against the US dollar as the central bank set a record reference rate before the sixth anniversary of a dollar peg being scrapped.
Faster growth
China's economy expanded a more-than-forecast 9.5 per cent in the second quarter from a year earlier after a 9.7 per cent gain in the first three months of the year. Consumer prices jumped 6.4 per cent last month, the most since June 2008.
Premier Wen Jiabao said in March the government aimed to keep consumer price gains within 4 per cent this year, a target He said today won't be met. He forecast inflation could be kept within 5 per cent.
Economic growth may reach 9.6 per cent this year, the International Monetary Fund estimated last month. That's almost three times more than the US and four times greater than the euro area.
Greece's sovereign-debt crisis risks contaminating the rest of the euro region, the Washington-based lender said in a report today, while directors at the Federal Reserve's regional banks expressed “heightened caution” about the pace of improvement in the US economy, according to minutes of Board of Governors' meetings in May and June released yesterday.
Local government debt
China's real-estate and local government debt problems may lead to an economic crisis if not properly handled, He, a vice chairman of the financial and economic affairs committee of the National People's Congress, the country's legislature, said at a forum.
The government should keep monetary policy “flexible” and adopt a tighter fiscal policy, cutting infrastructure investment and local government debt to help curb inflation, He said, adding that he was commenting as an academic. Policy makers should also introduce a property tax to curb a housing bubble and speculation, he said.
He is a professor at the Central University of Finance and Economics in Beijing and a former deputy head of China's statistics bureau.
'Hard-landing risks'
Speaking at the same forum, Wang Jun, a researcher at the government-backed China Center for International Economic Exchanges, said the economy may expand 9.5 per cent to 9.8 per cent this year. “There's no need to be overly concerned about stagflation or hard-landing risks,” Wang said.
The State Council, China's cabinet, said last week it will expand efforts to curb growth in home prices to smaller cities. The cabinet, headed by Premier Wen, also pledged in a July 6 statement to clean up and regulate the surging debt of local governments after the nation's auditor said they held responsibility for 10.7 trillion yuan ($1.6 trillion) of debt by the end of last year.
New loans and money-supply growth rebounded in June, the central bank said last week, bolstering the case for more increases in banks' reserve requirements. The People's Bank of China has raised interest rates five times since October and boosted the reserve ratio nine times since November to a record 21.5 per cent for the biggest lenders.
Pressure for tightening
The central bank may lift interest rates at least once more and increase reserve requirements one more time before the end of the year as inflation of more than 6 per cent in the third quarter maintains pressure for tightening, Mizuho Securities Asia said in a July 15 note.
The PBOC should raise interest rates until real deposit rates are positive, He said today. The benchmark one-year deposit rate is 3.5 per cent and has lagged behind inflation for more than a year.
The leading index's six components are loans by financial institutions, raw-material supplies, deliveries and new export orders information from the manufacturing purchasing managers' index, consumer expectations, and total floor space started. The central bank publishes the first two components and the statistics bureau releases the other four.
Loans and floor space started contributed most to the index's gain in May, while consumer expectations and raw materials supplies continued to fall, The Conference Board said.
The leading index, first published in May 2010, has successfully signaled turning points in China's economic cycle if plotted back to 1986, the organisation says.
Read more: smh.com.au
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