China's Economy Grows 11.9%, Adding Pressure on Yuan
People walk along a shopping street in Beijing, on Feb. 13, 2009. Photographer: Nelson Ching/Bloomberg
April 15 (Bloomberg) -- Richard Yetsenga, a global currency strategist at HSBC Holdings Plc in Hong Kong, talks with Bloomberg's Haslinda Amin about China's currency policy and the outlook for the nation's economy. Yetsenga, who spoke before China said economic growth accelerated to the fastest pace in almost three years in the first quarter, also discusses Hong Kong dollar's peg to the U.S. dollar and his forecast for the Singapore dollar. (Source: Bloomberg)
April 15 (Bloomberg) -- Adrian Foster, head of financial-markets research for Asia at Rabobank Groep NV in Hong Kong, talks with Bloomberg's Mark Barton about the outlook for Chinese growth in 2010. China's economy expanded 11.9 percent in the first quarter, the fastest pace in almost three years, highlighting overheating risks that may prompt the government to scrap the yuan’s peg to the dollar. (Source: Bloomberg)
April 15 (Bloomberg) -- Wang Qing, chief Asia economist for Morgan Stanley, talks about China's economic growth and the outlook for a revaluation of the yuan. He speaks with Bloomberg's Maryam Nemazee from Hong Kong. (Source: Bloomberg)
April 15 (Bloomberg) -- Ben McLannahan of the Financial Times' Lex commentary team talks with Bloomberg's Deirdre Bolton about China's 11.9 percent growth in the first quarter, which beat economists' estimates. China's growth accelerated to the fastest pace in almost three years in the first quarter, highlighting overheating risks that may prompt the government to scrap the yuan's peg to the dollar. (Source: Bloomberg)
April 15 (Bloomberg) -- Jonathan Fenby, director of China research at Trusted Sources, talks with Bloomberg's Andrea Catherwood about China's first-quarter economic growth, which accelerated at the fastest pace in almost three years. Gross domestic product rose 11.9 percent from a year earlier, the statistics bureau said at a briefing in Beijing today, beating economists' forecasts. (Source: Bloomberg)
April 16 (Bloomberg) -- David Hale, founding chairman of David Hale Global Economics, talks with Bloomberg's Susan Li about Asian currencies. Speaking by telephone from Chicago, Hale also discusses China's yuan policy and the Hong Kong dollar's peg to the U.S. currency. (Source: Bloomberg)
The Chinese flag flies outside the headquarters of the People's Bank of China in Beijing, on March 16, 2010. Photographer: Bernardo De Niz/Bloomberg
China's 100 Yuan, or Renminbi, banknotes are arranged for a photograph in Beijing, on March 17, 2010 . Photographer: Frederic J. Brown/AFP/Getty Images
Wang Qishan, China's vice premier, pauses at the Istana in Singapore, on Aug. 24, 2009. Photographer: Charles Pertwee/Bloomberg
Timothy Geithner, U.S. Treasury secretary, speaks during a meeting with Wang Qishan, vice premier of China, unseen, at the Great Hall of the People in Beijing, on June 1, 2009. Photographer: Nelson Ching/Bloomberg
China’s growth spurt in the first quarter came with a slowdown in inflation, complicating decisions on when and how to further tighten monetary policy.
The economy grew 11.9 percent from a year earlier, the biggest gain since the second quarter of 2007, the statistics bureau said in Beijing yesterday. Consumer prices rose less than economists expected, climbing 2.4 percent in March.
Within hours of the data, the government announced measures to cool the real-estate market, underscoring concern that asset bubbles may be forming after a record increase in values in March. Economists are split on the likely timing of the nation’s first rate increase since 2007, with Royal Bank of Canada predicting one in the next fortnight, while Bank of America- Merrill Lynch sees no move until the fourth quarter.
“There is still no consensus among policy makers on interest-rate hikes and it is a close call whether the central bank can win over the dovish voices,” said Wang Qian, chief China economist at JPMorgan Chase & Co. Tightening measures may continue to include loan curbs, reserve requirements for banks and industry-specific measures to cool asset prices, Wang said.
A Bloomberg News survey of 19 economists after the data yesterday showed that three expect an interest-rate increase in the next fortnight. Four say May, four predict June and eight bet on the second half of the year.
Eleven of 15 economists said that the yuan would strengthen against the dollar this quarter, meaning that China will scrap a peg in place since July 2008 to aid exporters.
Betting on Yuan
Non-deliverable yuan forwards were little changed at 6.621 per dollar as of 10 a.m. in Hong Kong today, suggesting the currency will gain about 3 percent in the next 12 months. The Shanghai Composite Index fell for a second day, sliding 1 percent as of 10:07 a.m. local time, on concern the government may announce more measures to slow the economy.
Speculation on Chinese currency policy intensified after U.S. Treasury Secretary Timothy F. Geithner had an unscheduled meeting with Chinese Vice Premier Wang Qishan in Beijing on April 8 and delayed a report which could brand the nation a currency manipulator. In Singapore, the central bank this week announced a one-time revaluation.
China’s economic growth beat the 11.7 percent median estimate in a Bloomberg News survey of economists while inflation was below a 2.6 percent forecast and February’s 2.7 percent.
‘Extremely Complicated’
In a report, UBS AG yesterday endorsed an assessment by China’s cabinet on April 14 of the economic situation as “extremely complicated” and added that policy makers and investors need to pay attention to “the rising risk of asset bubbles and resource misallocation.”
Industrial production climbed 18.1 percent in March and retail sales increased 18 percent, yesterday’s data showed. Car sales leapt 76 percent in the first quarter from a year earlier, with Mercedes-Benz (China) Ltd. reporting a doubling.
Urban fixed-asset investment increased 26.4 percent in the first quarter from a year earlier. Producer prices rose 5.9 percent in March. A separate report this week showed that property prices jumped a record 11.7 percent in March.
China’s data added to signs that Asia’s recovery is strengthening. Singapore’s economy expanded in the first quarter at the fastest pace since at least 1975, with 32.1 percent annualized growth from the previous three months, a report showed this week. The Bank of Japan raised yesterday its economic assessment for seven of the country’s nine areas.
Controlling Lending
While China doesn’t release quarter-on-quarter figures, Royal Bank of Scotland estimated 14.5 percent economic growth on that basis. The median of seven economists’ estimates yesterday was 11.2 percent.
Instead of raising rates like Australia and India, China has targeted a 22 percent reduction in new loans from a record of $1.4 trillion last year and twice asked lenders to set aside more cash as reserves. The last time China’s growth accelerated to more than 11 percent, in the first quarter of 2006, the central bank raised rates within a month.
China’s cabinet on April 14 signaled caution in ending crisis policies, saying first-quarter economic growth was largely driven by stimulus policies and a comparison with low levels in 2009. After the GDP announcement, the government announced requirements for bigger home down payments and said it will study extra taxes, including on individuals’ profits from property sales.
“The case for policy tightening remains intact given the risks of China’s economy overheating,” said Brian Jackson, a Hong Kong-based strategist at Royal Bank of Canada. Yesterday’s property measures “suggest policy makers remain reluctant to use the blunt instrument of higher interest rates, but it is unlikely that extra fine-tuning will be enough to slow down the property market.”
To contact the Bloomberg News staff on this story: Yanping Li in Beijing at yli16@bloomberg.net
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