1. Bloomberg – China’s new yuan loans were the most in a year and money-supply growth unexpectedly accelerated after Premier Wen Jiabao moved to bolster the economy by cutting banks’ required reserves and helping small companies get funding.
Local-currency-denominated loans were 1.01 trillion yuan ($160.1 billion) in March, the People’s Bank of China said yesterday, the biggest surprise above forecasts in more than a year. M2, the broadest measure of money supply, grew 13.4 percent from a year earlier. China’s foreign-exchange reserves, the world’s largest, rose to a record $3.31 trillion as of March 31 after dropping for the first time in more than a decade in the fourth quarter.
Yes, the 8.1 per cent growth for Q1 was lower than consensus forecasts of 8.3 or 8.4 per cent. But no, it’s not causing the bears to rejoice.
However, our read of the higher frequency monthly data is that economic growth may have started to pick up late in the quarter (i.e., March). Industrial output growth rose to 11.6% y-o-y in March from an average of 11.4% in Jan-Feb; nominal fixed-asset investment growth eased only slightly to 20.9% y-o-y in Q1 from 21.0% in Jan-Feb; nominal retail sales growth picked up to 15.2% y-o-y from an average of 14.7% in Jan-Feb.
Zhiwei believes this (the March surge) indicates the worst may be over:
Our assessment is that China’s GDP growth has bottomed and that growth will start to pick up from this quarter. GDP is a rear-view-mirror statistic. Forward looking indicators, such as the OECD’s composite leading economic index for China and new loans (which surged to RMB 1.01trn in March) support our view. Policy easing, both fiscal and monetary, is underway, and we expect more to come, especially with CPI inflation likely to ease in the coming months.
So Zhiwei (one of the authors of the China 1-in-3 hard landing report) says the Nomura outlook may need to be revised upwards:
On the back of these data, we judge that our 2012 GDP growth forecast of 8.2% may be too low. We are currently reviewing this forecast.
2. Bloomberg – “Cities in central China and even some in the west are becoming a new driving force for China’s economy,” said Zeng Xiwen, vice president for North Asia at Unilever in Shanghai. “Hefei’s got all the attributes investors need: land, energy and labor resources, rich education, ports nearby, talented workers and a huge consumer market on its doorstep.”
Unilever (UNA), headquartered in London and Rotterdam, has shifted seven factories to Hefei from Shanghai and plans to make the city its largest global manufacturing center.
While Premier Wen Jiabao has set a national growth target of 7.5 percent this year, Hefei is aiming for 15 percent. Chongqing, China’s wartime capital on the Yangtze River, expects 13.5 percent, while Henan provincial capital Zhengzhou, Changsha in Hunan and Chengdu in Sichuan all predict growth of 12 percent or higher.
“Forget about national GDP,” said Ben Simpfendorfer, founder of Hong Kong-based consulting company Silk Road Associates. “It’s time to focus on the inland city clusters that will drive China’s future growth.”
Successfully shifting manufacturing inland could more than double China’s share of global exports to 23 percent in a decade, said Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong. That would give more time to reduce the economy’s dependence on investment, which investors in a Bloomberg poll forecast could cut growth to less than 5 percent by 2016.
China’s map is in the shape of a rooster and Hefei is in the front, the breast area, the place with the most good meat,” said bureau director Sun Lianghong. Hefei’s economy, about the size of Ecuador’s at $57 billion last year, is expected to double by 2015.
Unilever’s Zeng says Hefei’s labor market isn’t tight and that in any case a rise in wages would boost local consumption, which would also increase sales of products his company makes in Hefei that include Lipton tea, Omo washing powder and Pond’s skin care lotions.
“There are 200 to 300 million consumers within 500 kilometers,” he says. “We plan to double our production capacity in Hefei by 2020.”
Hefei is not the only inland city trying to draw companies and investors from the coast.
Taiwan’s Foxconn Technology Group (2354), China’s biggest exporter, is the highest-profile manufacturer to shift some production inland. The maker of Apple Inc.’s iPhones and iPads opened a factory in Zhengzhou in August 2010, and said it will invest more than $330 million in new facilities, including one in Chengdu.
The government of Zhengzhou will help Foxconn recruit more than 100,000 workers this year for its local factory, matching the number it helped hire last year, Deputy Mayor Xue Yunwei said in an interview in December.