Thursday, March 13, 2008

Snowstorms Hold Up Chinese Investment Growth

by Rohan Parker

The fiercest snowstorms seen in the past 50 years have dramatically slowed growth in factory and property spending in the central provinces.

Bloomberg surveyed 21 economists and found that, using the median, fixed-asset investment in urban areas saw an increase of 24% in the first two months of this year. The increase in the same sort of investment for the entirety of 2007 was 25.8%. The definite figures will be released at 10:00am tomorrow.

This turn to weaker investment growth does not allay concerns about overheating in the worlds fastest-growing economy. Inflation is at an 11 year high and foreign investment and trade surplus have bolstered an extra $46 billion into the financial system within the first two months of the year.

China economist at Deutsche Bank AG in Hong Kong, Ma Jun, has stated that inflation is the keystone that China’s policy makers need to focus on because its importance to continued economic health in the country supersedes even that of investment and growth. Interest rates will have to be hiked to smooth the inflation expectations quickly.

The provinces of Hunan, Hubei, Guizhou, Jiangxi, and Anhui all saw the heaviest snowfalls recorded since 1954, forcing some companies, like Hunan Nonferrous Metals Corp. - the nation’s largest producers of zinc and tungsten - to halt productions.

In a bid to balance slower export growth, the Chinese government is encouraging extra spending on infrastructure and fixed-asset investment, according to Wang Qian, an economist at JPMorgan Chase & Co. in Hong Kong. There is much to be rebuilt in the central provinces due to the aftermath of the snowstorms.

Food and energy prices have seen dramatic inflation, with consumer prices raising by 8.7% in February alone, which is the largest increase since May 1996. Prices for producers have raised by a significant 6.6% which is the quickest rise in more than three years.

Bloomberg economists have stated that the People’s Bank of China is probably going to increase interest rates a minimum of once during 2008.

Lenders have been instructed to allocate 15% of deposits as revenues, which is the highest level ever, and the cost to borrow was put up by the central back six times last year.

Surveys by Bloomberg News suggest that Industrial production rose approximately 16.9% in January and February, and 17.4% in December, however the statistics bureau is set to release confirmed figures at 10:00am today.

 

 

 

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