SINGAPORE, May 13, 2011 /PRNewswire-Asia/ -- Steen Jakobsen, Visiting Chief Economist of Saxo Bank; and Andrew Robinson, Market Analyst of Saxo Capital Markets jointly published a report on China's economic outlook. The full report is as follows:
"China - Still walking the tightrope between inflation and growth?"
Steen Jakobsen, Visiting Chief Economist, Saxo Bank
Andrew Robinson, Market Analyst, Saxo Capital Markets
China's politically-sensitive trade surplus ballooned to US$11.4 billion in April as exports hit a record monthly high. Exports rose 29.9 per cent year-on-year to $155.7 billion. While exports to the rest of Asia remain strong, exports to US (+25% y/y) and Europe (+27% y/y) registered slower growth than in March. The volume peak is due to global slow-down in growth.
Lower imports were a main driver for the rebound in the trade surplus and would appear to confound the long-term aim of increasing domestic consumption. However, we feel that the rest of Asia need not worry about the slower Chinese imports this month as they seem to be reverting back to mean levels going back to 2004 (even with the 2009-10 volatility).
The sharp rebound in the trade surplus provided more ammunition to the US in the midst of the US-China Strategic Economic Dialogue as it tries to persuade China that huge global imbalances are linked to its currency policy. US Treasury Secretary Timothy Geithner's push early in the dialogue was a repeat of previous meetings where China's need for a more flexible exchange rate and more open capital markets was at the top of the economic agenda.
Even though the Yuan has strengthened five percent against the dollar since last June when Beijing pledged greater flexibility -- the gains have come about during a sustained period of US dollar weakness and these gains have not been matched against other currencies -- notably the EUR and JPY.
There are still cries from some critics who claim the Yuan is undervalued by as much as 40 per cent. The United States has been the lead singer in a chorus of international calls for a stronger unit, claiming China's currency control gives its exporters an unfair trade advantage by making their products artificially cheap. China's commerce minister Chen Deming said the forex argument over the trade issue between the world's two largest economies was "not founded" and the way to resolve the trade imbalance is to encourage US exports to China and not restrict Chinese exports to the US.
There is still some doubt whether the US pre-occupation with forcing a stronger Yuan on China will be the be-all and end-all to solve global imbalances. However, recent PBOC comments suggest they are more approachable to Yuan appreciation as "another" tool to use in its inflation fight.
Inflation is currently still the main concern for China. The April CPI report is expected to show inflation considerably above objective of 4%-ish and using GDP deflator the true inflation levels are closer to closer to 8% than 6%.
Despite China hiking rates 4 times since October, accompanied by other significant moves in reserve ratio requirements, there is clear risk that China has done too little to contain inflation. While this may be understandable as they are trying to maintain growth momentum and securing a potential soft-landing, it also has its dangers as 'hot money' continues to flow into China.
We do feel that there will movement in China's forex policies towards a stronger Yuan going forward as it will help contain inflation. There is also a need to increase access to foreign holdings for the Chinese as this will also help in the fight against inflation.
We have also seen China banks under pressure to control loan growth, and the banking system needs to be modernized in product range to cater to the increasing need for diversification by Chinese companies and individuals which would also help alleviate pressure on inflation.
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About Steen Jakobsen, Chief Economist, Saxo Bank A/S
Steen Jakobsen was appointed to the position of Saxo Bank's Chief Economist in March 2011 after two years' absence. During that period, he served as Chief Investment Officer for Limus Capital Partners. Prior to his departure in early 2009, Steen was with Saxo Bank for almost nine years as Chief Investment Officer.
Steen has more than 20 years of experience within the fields of proprietary trading and alternative investment. He started his career at Citibank N.A. Copenhagen and moved to Hafnia Merchant Bank as Director, Head of Sales and Options. In 1992, he joined Chase Manhattan in London as VP, Head of Scandinavian Sales, and then the Chase Manhattan Proprietary Trading Group. In 1995, he worked as a Proprietary Trader and Head of Flow Desk at Swiss Bank Corp, London before joining Christiania (now Nordea) as Global Head of Trading, FX and Options in 1997. Steen was the Executive Director in the Global Proprietary Trading Group of UBS New York in 1999.
Steen studied Economics at Copenhagen University.
About Andrew Robinson, Market Analyst, Saxo Capital Markets
Andrew Robinson has close to 30 years of experience in the financial markets and worked in key financial centers in London, Europe and Singapore. His expertise lies in FX , short-term interest rate products and precious metals.
Andrew joined Saxo Capital Markets in 2008 and currently writes a daily market commentary for the Asian FX trading session. He also contributes regularly to the Saxo Capital Markets' blog (http://saxocapital.blogspot.com/) and contributes articles with an Asia perspective to regional print media.
Andrew is a regular contributor on CNBC, Bloomberg and Thomson Reuters.
Media contacts:
| Saxo Capital Markets Pte Ltd |
| Celeste Fong |
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| xcfo@saxomarkets.com.sg |
