Opinion

George Chen

China is still waiting for inflation to peak

George Chen
Aug 31, 2011 06:44 UTC

By George Chen
The opinions expressed are the author’s own.

How time flies. It’s already the end of August and speculations naturally arise about what China’s inflation reading will be for this month.

The most optimistic view these days is that the August Consumer Price Index (CPI) could decline to below 6 percent. The most pessimistic view I’ve heard is that growth has slowed down in August, but probably only to 6.2 percent or 6.3 percent.

But, why should we care about the August CPI so much? One month cannot tell the whole story.

The reason we care so much is because if the August CPI growth slows down (we will see the official release of August economic data in the coming weeks), it’s good news for the central bank as well as for the ordinary people in China who have been fighting with fast inflation for more than three years already. But, it’s not good enough.

Yesterday, amid market talks about August CPI, I heard something interesting from Mengniu, China’s top dairy product maker: “We are confident we can at least maintain (first-half) margin levels in the second half,” Mengniu Chief Financial Officer Wu Jingshui told reporters after the company’s first-half earnings release. He added the company might raise product prices and adjust its product mix to offset an estimated 3 to 5 percent rise in raw milk costs in 2011.

Banking on a Triple-A rating

George Chen
Aug 4, 2011 04:00 UTC

By George Chen
The opinions expressed are the author’s own.

You may think I am overly cynical today but let me first ask you a simple-yet-complicated question — what is fair?

Global ratings agency Moody’s said yesterday that the United States will retain its top AAA credit rating after President Barack Obama signed a bill to raise the federal debt ceiling. However, we heard very different opinions from China on the credit rating of the world’s No.1 economy.

A Chinese ratings agency yesterday downgraded the U.S. from A-plus to A, saying the deal to lift the debt ceiling would not solve underlying U.S. debt problems or improve its debt-paying ability over the long term.

A turning point for China?

George Chen
Jul 28, 2011 02:48 UTC

By George Chen
The opinions expressed are the author’s own.

Is the train crash tragedy becoming a turning point for China’s political and economic development?

Frustrations among the Chinese public have been growing rapidly — at least on the internet if not yet in the streets. People are particularly unhappy with the way the Ministry of Railways has dealt with the train accident, which so far has cost 39 lives.

It has now turned into a full-blown crisis. Shen Minggao, chief Greater China economist for Citigroup, said in his latest research note to clients that the train tragedy could become “a turning point in the China growth model.”

Not just an accident

George Chen
Jul 25, 2011 04:11 UTC

By George Chen
The opinions expressed are the author’s own.

We’ve talked about whether China’s economy will have a soft or hard landing. In fact, what China needs is a pause. Lots of things in China may be moving way too fast. Including our trains.

On Saturday, at least 35 people died when a high-speed train smashed into a stalled train in eastern Zhejiang province, raising new questions about the safety of the fast-growing rail network. For a Reuters story, click here.

In my view, the train crash does not only raise doubts about China’s big ambitions and effort to build its high-speed train network. It also adds to people’s frustrations over the way the country is administered. Some political commentators have said the “accident” was not really an accident but an incident, which in the end may have corruption, irresponsibility and bureaucracy to blame for.

Is Beijing brewing something?

George Chen
Apr 27, 2011 04:57 UTC

By George Chen
The opinions expressed are the author’s own.

There are growing signs that something is brewing in relation to China’s foreign exchange rate regime.

When Hong Kong traders returned from the Easter break, many were surprised to be told by their mainland colleagues about growing market speculation that Beijing might be planning a one-off deal to lift the value of the yuan — some say by as much as 10 percent.

Others are more cautious. They say a one-off revaluation sounds unlikely although Beijing may relax foreign exchange controls by setting new “game rules” around the upcoming Labour Day holiday in the first week of May. The Financial Times yesterday ran a nice scoop about sovereign wealth fund China Investment Corp being set to win new funds, likely $100-200 billion, as Beijing seeks to diversify its massive foreign exchange reserves, now exceeding $3 trillion.

Chinese bankers, overconfident?

George Chen
Mar 11, 2011 04:07 UTC

By George Chen
The opinions expressed are the author’s own.

Are Chinese bankers overconfident? Or perhaps global investors are too suspicious of China?

A couple of days ago, Bank of China Chairman Xiao Gang dismissed growing market concern, in particular from the West, that a debt crisis could be brewing given the rising level of bad assets in China’s banking system.

Xiao said bad loans would be kept under control and he cited Chinese people’s “good tradition” of repaying debts to back up his argument.

My Shanghai holiday

George Chen
Mar 10, 2011 02:35 UTC

food

By George Chen
The opinions expressed are the author’s own.

While Chinese lawmakers gathered in Beijing for the annual parliamentary meeting, I returned to my hometown Shanghai for a holiday.

The  lawmakers are keen to discuss China’s macroeconomic matters these days, but I am more interested in being a microeconomic observer. For example, how much does an apple cost in Shanghai these days?

During my holiday, I brought my girlfriend, a Hong Kongner, to Shanghai No.1 Food Store on the historic Nanjing Road. The store is a favorite place from my childhood as I felt I could buy food items from all over the world under one roof.

Property under attack in China

George Chen
Jan 27, 2011 07:25 UTC
Property under attack in China While U.S. President Barack Obama hopes to see a quick property market recovery to boost investor confidence, China’s intentions for its own property market are the diametric opposite – not because it wants to damage investor confidence, but rather to cool growing social unrest prompted by fast-rising property prices. On Jan. 26, Chinese Premier Wen Jiabao hosted a cabinet meeting to discuss the latest property market situation. As a result of the top-level meeting, Wen announced his new “eight-point” guidelines, considered by many analysts as the toughest so far and probably his last major effort to curb property prices: 1. Local governments should set 2011 property price-control targets and make them public 2. Land supply for affordable public housing should be stepped up and the pace of construction increased 3. Properties sold within five years of purchase will be subject to a sales tax based on the selling price 4. The minimum down payment requirement on second homes will rise to 60 percent from 50 percent 5. Land supply for residential property this year should be no less than the average annual figure from the previous two years 6. Home-purchase limits will be adopted nationwide. Local governments should limit home purchases by non-local residents and those who have already purchased more than two homes. 7. Local government should take responsibility for stabilising property prices (in other words, those who fail to do their job could be punished) 8. Increased education to encourage more sensible property investment to create a more stable market for the long term Wen, whose nickname is “Grandpa Wen” for his usually warm public personality, has pledged to rein in property prices before the end of his final term in office in 2012. But time is short and progress has so far been limited, so he has decided to take action once again. Among the eight points, the most important is of course to raise the down payment minimum for second-home buyers. Local media have already reported a sharp rebound in property transactions, one or even two times more than usual since the beginning of the year in some big cities such as Shanghai and Beijing. With the anticipation of more policy curbs, Chinese home buyers feel compelled to sign deals more quickly and more aggressively. Early this week, official think-tank the China Academy of Sciences released its 2011 forecasts, including an estimate that property price growth may slow but will still rise about 12 percent on average. Such forecasts should serve as clear cautions to Premier Wen if he wants to keep his promise before he retires. Ironically, property prices have risen more than ever before since Wen took power. Of course, you can’t blame him. All this, I say, is a natural process and the result of strong economic growth and increasing personal wealth. But just like a coin, everything has two sides. Those who get rich (as late Chinese leader Deng Xiaoping said “let some people get rich first”) are happy to get their homes. Those who miss the chance … oops … perhaps Premier Wen can do more to get them on track. For global fund managers, who are still talking about the beautiful China story: Wake up, please, because 2011 looks like a truly strange and difficult year for China, if not for the whole world. Chinese banks are under pressure, thanks to endless reserve ratio increases. Property is now under attack. Commodities prices continue to rise in global markets and most people say it’s too complicated to understand how commodities and futures products work. So, tell me which is relatively speaking the safest area to put money? Perhaps property if you are a firm believer in yuan appreciation, which could be even faster this year for the sake of Sino-U.S. relations? I do believe President Hu Jintao doesn’t mean to disappoint President Obama after his successful state visit. Apparently, Zhang Xin, CEO and co-founder of leading Chinese developer SOHO China, is still a big fan of the business. There is little reason to expect new measures by the Chinese authorities to rein in property prices will be any more effective this year than in 2010, she said. What happened in 2010? It was considered the toughest policy year for real estate in China. And the result? Property price rose more than 20 percent on average. “So what, you say? Do what I do. The property market is already out of the government’s control. It’s too late,” a fund manager summed up the recent property policies for me when we had lunch recently. Then he ordered another glass of wine despite complaints about his lower bonus this year, given mediocre fund performance in 2010. My fund manager friend is probably what Deng was talking about — those who get rich first. He’s now looking to buy his third home in Shanghai.

Hu, Wen

By George Chen
The opinions expressed are the author’s own.

While U.S. President Barack Obama hopes to see a quick property market recovery to boost investor confidence, China’s intentions for its own property market are the diametric opposite – not because it wants to damage investor confidence, but rather to cool growing social unrest prompted by fast-rising property prices.

On Jan. 26, Chinese Premier Wen Jiabao hosted a cabinet meeting to discuss the latest property market situation. As a result of the top-level meeting, Wen announced his new “eight-point” guidelines, considered by many analysts as the toughest so far and probably his last major effort to curb property prices:

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