(2010-08-23) “Strathclyde Associates” Taking A Look - China’s Economy Part Two
“Strathclyde Associates” Taking A Look - China’s Economy: China ran its first monthly
“Strathclyde Associates” Taking A Look - China’s Economy: China ran its first monthly trade deficit in six years in March.
With imports of commodities surging in February, China swung to a trade deficit of $7.24 billion in March from a surplus of $7.61 billion in February. The cumulative trade surplus for the first quarter of 2010 was down 77% from a year earlier, to $14.49 billion.
In a parallel move, which will have a far reaching impact on the yuan is that China is encouraging exporters to invoice in the renminbi and is setting up systems to allow trade payments in renminbi.
“Strathclyde Associates” Taking A Look - China’s Economy:New trade corridors may soon require new means of payment. When the Chinese and Brazilian Presidents met last year they agreed to use their own currencies to settle more of their bilateral trade, rather than invoicing in dollars.
Hong Kong is the main beneficiary of this policy as the renminbi gains acceptance abroad. It has the natural advantage of a renminbi deposit base, well-established trade links with China and a head-start in developing
renminbi financial products.
Since February, the Hong Kong Monetary Authority has made it easier for its banks to process trade transactions
in renminbi, to develop renminbi based financial products such as bonds, and to extend loans to and take deposits from local companies in renminbi.
“Strathclyde Associates” Taking A Look - China’s Economy:China’s stock market regulator has allowed select investors to trade equity-based derivatives in their home market. The introduction of index futures is part of a broader transformation of the mainland stock markets this year: short selling and margin trading were introduced on a trial basis on March 31.
Index futures investors must pass an examination and meet tough criteria for educational background, credit history, monthly salary and liquid assets. Initial response to index futures has been overwhelming. To attract more foreign direct investment, China revamped its regulations to improve conditions for foreign companies while restricting funding for environmentally-unsound projects.
“Strathclyde Associates” Taking A Look - China’s Economy:Under the new rules, FDI in high-tech industries, services sector, energy-efficient and environmental protection projects is encouraged, especially in the central and western regions. Qualified foreign-funded companies will also be allowed to go public, issue corporate bonds or medium-term bills in China.
These regulations come as FDI flow rose to $23.44 billion in the first quarter of 2010 bucking the downturn during the past eight months. China’s foreign exchange reserves hit a new high of US$2.4471 trillion by the end of March, up 25.25% year on year, according to the People’s Bank of China.
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