Thread: The world in 2010: China continues its unstoppable economic

The world in 2010: China continues its unstoppable economic charge

By Alistair Dawber
Saturday, 2 January 2010

China and six other South-east Asian countries yesterday toasted the inauguration of the biggest free trade area in the world, when the Association of South East Asian Nations, or Asean-6, was formally launched.

Covering nearly 2 billion people in Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand, along with China, Asean-6's stated aim is to eliminate tariffs on almost all traded goods between its members.

China, by far the biggest member, holds the whip hand in the bloc, with some voicing concerns that the country's manufacturers, who have become the engine behind the world's economy for a number of years, will force overseas competitors out of business. Indeed, four members of Asean have opted not to join the founding six countries in the free trade area. Vietnam and Cambodia, for example, are only due to join in five years' time.

The launching of Asean-6 further demonstrates China's growing and seemingly unstoppable rise as a global economic superpower, however, and even if 2009 was benign by Beijing's recent history, by Western standards growth in the world's most populous nation was breathtaking. The World Bank predicted in June that the planet's third biggest economy (behind the US and Japan) would grow by 7.2 per cent in 2009 (the Chinese themselves predicted a slightly more impressive 8 per cent), a marked improvement on the "disappointing" 6.1 per cent of GDP growth recorded in the first quarter of last year, which was China's worst three-month performance since 1990.

Last week, Premier Wen Jiabao gave a cautious outlook for China's performance in 2010, adding that it was too early to bring a halt to the huge 4 trillion yuan stimulus package, which was introduced to offset the impact of falling global demand for its products.

"In 2010, the external environment will remain rather grim but it will not deteriorate further," said Zhang Liqun, an economist at the Chinese State Council's Development Research Centre, which yesterday predicted growth of 9.5 per cent for this year. The think tank's 2010 forecast is well above Beijing's stated target of 8 per cent, which it sees as vital for job creation and ensuring social stability.

The Asian Development Bank has put its 2010 economic growth forecast at 8.9 per cent, while the International Monetary Fund predicts 9 per cent.

Whatever the eventual figure, the worst is seemingly over for the Chinese economy, which several analysts have forecast will eventually surpass that of the US as the world's biggest. Goldman Sachs, for example, reckons China's GDP will surpass that of the US by 2027. Despite the improving outlook for 2010, Chinese authorities are also aware of the threat of inflation. In his address, Premier Wen warned that officials needed to be watchful for a better than expected recovery leading to a hike in prices, especially in the real-estate sector: some Chinese cities saw residential property prices rise by about a third last year, and real-estate investment in China accelerated in November, up 17.8 per cent for the first 11 months of 2009 compared with the same period in 2008. "Parts of the economy are not balanced, not co-ordinated, and not sustainable," Mr Wen said, adding that "it would be better if lending by Chinese banks was not on such a large scale".

Manufacturing will continue to be China's breadwinner. The sector recovered well in the last few months of last year, with rises in new orders and output driving the purchasing managers' index to a 20-month high of 56.6 in December, from 55.2 in the previous month.

That will cheer companies supplying the Chinese economy. Both BHP Billiton and Rio Tinto, the London-listed mining giants, have said recently that it is too early to predict real Chinese demand for raw materials. Meanwhile, Rio still has concerns over the incarceration of 4 of its employees who were arrested last summer on charges of bribery and "illegally obtaining commercial secrets". Rio has moved most of its China-based staff to Singapore.

And China shows no sign of easing the controversy over its exchange rate in 2010. A host of top-level international policymakers and politicians have urged Beijing to allow the yuan to appreciate, which would make Chinese exports more expensive. However, in his speech last week, Premier Wen dashed hopes that the new year would lead to a change of policy. The currency has been virtually pegged to the dollar since the start of the financial crisis in the middle of 2008.

"We will not yield to any pressure of any form forcing us to appreciate. As I have told my foreign friends, on one hand, you are asking for the yuan to appreciate, and on the other hand, you are taking all kinds of protectionist measures," he said. "The true purpose [of the calls] is to contain China's development."

http://www.independent.co.uk/news/busin ... 55425.html

China becomes world's biggest gold buyer in 2009

(People's Daily Online)
Updated: 2009-12-30 09:49

World Gold Council (WGC) data reveals that for the first time in 21 years the world's central banks have been net buyers of gold and China has been the biggest buyer this year, adding 454 tones to bring its central bank reserves to 1,054 tones.

Amid growing concern over the weakness of the dollar, about 28 billion U.S. dollars worth of bullion was bought by central banks this year, based on an average price of 978 U.S. dollars an ounce, according to the WGC.

The biggest buyers have been the emerging economies of China, Russia and India, but smaller countries such as the Philippines, Kazakhstan, Sri Lanka and Mexico have also been shifting their reserves into gold.

The value of the dollar, the default reserve currency for most countries, has fallen as investors have grown cautious about America's huge debt burden and possible inflationary trends.

Meanwhile, a handful of developed countries have taken advantage of record gold prices to reduce the size of their vaults. The metal hit a peak of more than 1,200 U.S. dollars an ounce this year, according to Goldman Sachs.

However, Dylan Grice, an analyst at Societe Generale, believes that the continued weakness of the dollar, concern about inflation and fiscal policy will continue to drive the gold price.

A spate of gold-buying in the 1960s, led by France, resulted in the collapse of the Bretton-Woods system in 1971 when the link between the value of the dollar and gold was abolished.

http://www.chinamining.org/News/2009-12 ... 32872.html

Chinese New Year

By PAUL KRUGMAN
Published: December 31, 2009

It’s the season when pundits traditionally make predictions about the year ahead. Mine concerns international economics: I predict that 2010 will be the year of China. And not in a good way.

Actually, the biggest problems with China involve climate change. But today I want to focus on currency policy.

China has become a major financial and trade power. But it doesn’t act like other big economies. Instead, it follows a mercantilist policy, keeping its trade surplus artificially high. And in today’s depressed world, that policy is, to put it bluntly, predatory.

Here’s how it works: Unlike the dollar, the euro or the yen, whose values fluctuate freely, China’s currency is pegged by official policy at about 6.8 yuan to the dollar. At this exchange rate, Chinese manufacturing has a large cost advantage over its rivals, leading to huge trade surpluses.

Under normal circumstances, the inflow of dollars from those surpluses would push up the value of China’s currency, unless it was offset by private investors heading the other way. And private investors are trying to get into China, not out of it. But China’s government restricts capital inflows, even as it buys up dollars and parks them abroad, adding to a $2 trillion-plus hoard of foreign exchange reserves.

This policy is good for China’s export-oriented state-industrial complex, not so good for Chinese consumers. But what about the rest of us?

In the past, China’s accumulation of foreign reserves, many of which were invested in American bonds, was arguably doing us a favor by keeping interest rates low — although what we did with those low interest rates was mainly to inflate a housing bubble. But right now the world is awash in cheap money, looking for someplace to go. Short-term interest rates are close to zero; long-term interest rates are higher, but only because investors expect the zero-rate policy to end some day. China’s bond purchases make little or no difference.

Meanwhile, that trade surplus drains much-needed demand away from a depressed world economy. My back-of-the-envelope calculations suggest that for the next couple of years Chinese mercantilism may end up reducing U.S. employment by around 1.4 million jobs.

The Chinese refuse to acknowledge the problem. Recently Wen Jiabao, the prime minister, dismissed foreign complaints: “On one hand, you are asking for the yuan to appreciate, and on the other hand, you are taking all kinds of protectionist measures.â€