Not a Bad Day For China

April 15, 2010

April 15th was to have been the day that the U.S. Treasury Department declared Chinese officials currency manipulators, a step that would have paved the way for punitive commercial barriers against U.S. imports from that country.  Instead, the Obama administration suspended the deadline a couple of weeks ago, conducted some behind-the-scenes diplomatic mending, and enabled Beijing to make this a day of celebratory data releases.

  • On-year growth in real GDP even exceeded analyst expectations, accelerating to 11.9%, up from 10.7% in 4Q09, 9.1% in 3Q09 and 6.2% a year earlier.
  • CPI and PPI inflation of 2.4% and 5.9% in March were lower than February readings and below forecasts, which along with somewhat weaker credit expansion figures reported three days ago, seemingly gives monetary officials some greater latitude in deciding when to raise interest rates and decouple the yuan.  However, bear in mind that CPI inflation were at minus 0.8% and minus 7.0% just six months earlier in September, so the time for delay is arguably short.
  • Industrial production posted on-year growth last month of 18.1%, the fourth reading above 18.0% in the last five months and up from 13.9% in the year to September 2009.
  • Retail sales increased 18.0% in the year to March, down from February’s 22.1% gain, but above previous reading including 15.5% last September.
  • Fixed asset investment advanced 26.4% between 1Q09 and 1Q10.  That’s less than a 30.5% in 2009 but still very frothy if officials intend to contain inflation and promote a rotation of demand toward the household sector.

China is in the driver’s seat.  Beijing officials in public have not offered any dramatic quid pro quo for getting the reprieve on the currency manipulator designation.  They will choose their spots, deciding when to tight via interest rates, reserve ratios, and movements of the exchange rate and by how much.  The decisions will be justified as appropriate responses to domestic circumstances, even if the persuasion of Obama, the U.S. congress, and other foreign critic played some influence. 

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



One Response to “Not a Bad Day For China”

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