Gulf Oil and Gas accountACCOUNT

China Economy – July 2012

Source: OPEC 8/8/2012, Location: Asia

The Chinese economy posted its weakest rate of growth in three years after 1Q real GDP growth moderated to 8.1%. China PMI for June was in line with expectations at 50.2 compared to 50.4 in May, as released by the National Bureau of Statistic (NBS). It seems that last month’s estimates of economic activity have underestimated the pace of the slowdown in industrial production. The government has stepped up efforts on monetary easing, reducing its policy interest rate by another 31 bp on 8 July on top of the 25 bp cut earlier on 7 June, thereby lowering the prime lending rate to 6%.

The central bank also reduced deposit rates to 3% to mitigate the pressures on banks’ net interest margins. The main reason behind the recent interest rate cut is believed to be the easing of inflationary pressures which have currently lowered the inflation rate to 3.3%. The recent cut in the benchmark interest rate by the central bank has been interpreted as the government’s move to boost economic activity by lowering the cost of borrowing from the banking system in the face of a falling annual inflation rate.

The reserve requirement ratio (RRR) was also reduced by 50 bp effective 18 May. This has been the third reserve ratio cut in six months, in line with the central bank’s statement that targeted action would be taken to ensure stable credit growth. Pressure for an appreciation of the yuan against the US dollar is also expected to ease in 2012, given the downward trend in the country’s recent trade surplus. Looking into the 2H12, the risks associated with China’s economic growth have heightened significantly, mainly driven by the Euro-zone’s economic crisis. Data released for the month of April reveals a broad based slowdown across the economy as industrial production, fixed investment and retail all register weaker growth. With increasing signs of a deceleration of economic growth, the government has intensified its effort to address structural imbalances. Constrained credit demand has brought renewed calls for the government to provide a fiscal stimulus to the economy.

The Chinese government has already taken steps in this direction by increasing its spending by 26% on an annual basis in January-April, above the 12.5% increase in revenue. The government has also been trying to raise its investments in major infrastructure projects. Low unemployment and steady increase in real wages have reduced the imperative to make further interventions. Having brought down inflation in recent months, it might be seen imprudent for the government to overstimulate the economy and thereby risk a return of elevated inflation. Therefore, a dramatic msoftening of fiscal policy seems unlikely unless GDP growth appears to be falling below the government’s comfort zone of around 7-7.5%. We forecast an economic growth of 8.1% for 2012 and 8% for 2013. On the demand side, the fact that finished goods inventories have been rising recently implies weak domestic and external demand. Further declines in new orders — including exports orders — suggest that the Chinese economy still faced downside risk in the near term.

Aside from weak external demand, due mainly to sluggish OECD economic growth, domestic demand has also been growing at a less than expected pace. It appears that the government’s attempts to address the imbalances of high ratios of investment and low ratios of consumption-to GDP need more time to change these ratios to more desirable patterns. Other imbalances such as housing bubbles and externalities generated by high economic growth also have yet to be corrected. The unfavourable corporate environment has been another cause of concern, with corporate profits declining by 2.4% on annual basis in the first five months of the year.

Financials and Investment News in China >>

Trinidad and Tobago >>  2/20/2020 - Touchstone Exploration Inc. announces that further to the Company's announcement on February 19, 2020 regarding the proposed placing (the "Placing"), ...
Bermuda >>  2/17/2020 - Borr Drilling Limited has entered into a new financing arrangement for the newbuild jack-up rig Tivar, scheduled to be delivered from the yard in July...

Cyprus >>  2/17/2020 - In reference to the Strategy Update released on November 7th last year, Seabird Exploration Plc announces the following: ...
Ireland >>  2/17/2020 - Lansdowne Oil & Gas plc has raised £488,000 by way of a placing of 81,333,333 new ordinary shares of 0.1 pence each (the "Placing Shares") with existi...

Bahamas >>  2/14/2020 - Bahamas Petroleum Company, the oil and gas exploration company with significant prospective resources in licences in The Commonwealth of The Bahamas, ...
United States >>  2/14/2020 - Mosman Oil and Gas Limited the oil exploration, development and production company, announces that the Company has raised £300,000 (before expenses) (...

Related Categories: Accounting, Statistics  Acquisitions and Divestitures  Asset Portfolio Management  Economics/Financial Analysis  General  Industrial Development  Insurance  Investment  Mergers and Acquisitions  Risk Management 

Related Articles: Accounting, Statistics  Acquisitions and Divestitures  Asset Portfolio Management  Economics/Financial Analysis  General  Insurance  Investment  Mergers and Acquisitions  Risk Management 

China Oil & Gas 1 >>  2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | 21 |

More News

Related Links

Gulf Oil and Gas
Copyright © 2020 Universal Solutions All rights reserved. - Terms of Service - Privacy Policy.