‘A Bubble in China’ (Would be a nice title for a book.):
– Marc Faber: China May ‘Crash’ in Next 9 to 12 Months (Bloomberg):
May 3 (Bloomberg) — Investor Marc Faber said China’s economy will slow and possibly “crash” within a year as declines in stock and commodity prices signal the nation’s property bubble is set to burst.
May 11 (Bloomberg) — China’s inflation accelerated, bank lending exceeded estimates and property prices jumped by a record, increasing pressure on the government to raise interest rates and let the currency appreciate.
Consumer prices rose 2.8 percent in April from a year earlier, the fastest pace in 18 months, and property prices jumped 12.8 percent, the statistics bureau said in statements today. New lending of 774 billion yuan ($113 billion), announced by the central bank, was more than any of 24 economists forecast.
Asian stocks fell, with the local benchmark index entering into a bear market, and oil and copper slumped on concern the government will move to cool the fastest-growing major economy. China should focus on preventing excessive increases in asset prices and liquidity after Europe’s almost $1 trillion loan package reduced the risk of another global slump, central bank adviser Li Daokui said yesterday.
“Price pressures have been building throughout the economy, strengthening the case for higher interest rates and a stronger yuan,” said Brian Jackson, a Hong Kong-based strategist at Royal Bank of Canada. “China is at risk of overheating, with spot fires breaking out in various parts of the economy.”
The MSCI Asia Pacific Index reversed a gain of as much as 0.7 percent to trade 1 percent lower at 118.91 as of 4:02 p.m. in Hong Kong. The Shanghai Composite Index fell 1.9 percent to close at 2,647.44, the lowest in almost a year. It has slid 21 percent since November, a sign analysts say is a bear market.
Copper futures on the London Metal Exchange fell to $7,003.50 a metric ton and crude oil decreased 0.9 percent to $76.15 a barrel in New York, paring an earlier 0.8 percent gain.
Non-deliverable yuan forwards rose 0.1 percent, indicating that the government will scrap a peg to the dollar and let the currency gain 2.3 percent in the next year.
The increase in consumer prices compared with 2.4 percent in March and the 2.7 percent median estimate of 30 economists surveyed by Bloomberg News. Producer prices jumped 6.8 percent, also topping estimates, today’s release from the statistics bureau showed.
The jump in property prices in 70 cities was the biggest since data began in 2005, defying a government crackdown on speculation that intensified last month.
Statistics bureau spokesman Sheng Laiyun said that while April’s inflation was “mild” and not broad-based — largely reflecting food and residential-related costs including rents – – the nation faces significant pressure for bigger price gains. Causes include liquidity, commodity costs and a low comparative base last year, he added.
Europe’s debt crisis may spread even after the rescue plan unveiled yesterday, which could lead to “positive and negative” effects by restricting demand for exports while damping commodity prices, Sheng said.
China’s government aims to contain full-year inflation at 3 percent and avert property bubbles after record credit growth drove an economic rebound. Investors are concerned stimulus withdrawal and a slowdown in construction could choke off growth after an 11.9 percent expansion in the first quarter.
Retail sales growth accelerated to 18.5 percent in April from a year earlier as prices rose. Chen Xiao, the chairman of Gome Electrical Appliances Holdings Ltd., the nation’s largest electronics retailer by stores, said yesterday that sales are “strong,” bolstered by government subsidies for purchases.
Producer Prices Soar
The gain in producer prices was the biggest in 19 months and exceeded economists’ 6.5 percent median estimate. In March the costs of goods as they leave the factory rose by 5.9 percent.
Not all of today’s indicators pointed up.
Industrial production rose 17.8 percent in April from a year earlier, below economists’ estimates and down from 18.1 percent in March. M2, the broadest measure of money supply, grew 21.5 percent, slowing from 22.5 percent.
Urban fixed-asset investment climbed 26.1 percent in the first four months from the same period in 2009, easing from 26.4 percent in the first quarter.
UBS AG economist Wang Tao said loans are typically higher at the start of each quarter and the latest figure doesn’t put the government’s target of limiting lending to 7.5 trillion yuan this year in jeopardy. Economists’ median estimate for April was 585 billion yuan and the previous month’s lending was 510.7 billion yuan.
China International Capital Corp. yesterday cut its estimate for China’s economic growth this year to 9.5 percent from 10.5 percent, citing property tightening measures and overseas “uncertainties.” Adjustments to interest rates and currency policy may be delayed, the investment bank said.
Developers Guangzhou R&F Properties Co. and China Overseas Land & Investment Ltd. are reporting slowing sales as the real- estate crackdown intensifies. Besides tightening rules for second and third-home purchases, China has increased banks’ reserve requirements three times this year, withdrawing cash from the financial system.
Still, policy makers have left benchmark interest rates and the yuan’s peg to the dollar unchanged.
“The double-dip risk in the world economy is likely to be reduced to a minimum,” Li, the policy adviser, said in an interview in Beijing, expressing his personal view of the European aid plan. “China’s growth rate is not a problem this year, and the main policy focus should be on preventing excessive gains in asset prices and liquidity.”
–Kevin Hamlin, Li Yanping, Sophie Leung, Jay Wang, Chia-Peck Wong. Editors: Paul Panckhurst, Russell Ward
To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing on email@example.com
Last Updated: May 11, 2010 04:03 EDT