News around the World

15/03/2011
China - China swung to a surprise monthly trade deficit in February of USD7.3bn, its largest in seven years, as the Lunar New Year holiday dealt an unexpectedly sharp blow to exports.

It was China's first trade deficit since March last year and its biggest since February 2004. Economists, who had forecast a small surplus of USD4.95bn, said the sudden drop was likely to prove temporary.

"We did expect exports to slow last month, but I think nobody had expected such a weak outcome," said Nie Wen, an analyst at Hwabao Trust in Shanghai. "There is little chance that China will have a trade deficit again, and the monthly trade surplus may pick up in the second half of this year," he added.

Japan - Japan's economy contracted more than the government initially estimated in the fourth quarter because of a downward revision to capital investment and consumer spending.

Gross domestic product shrank at an annualised 1.3percent rate in the three months ended Dec. 31, more than the 1.1percent contraction reported last month, the Cabinet Office said in Tokyo on Thursday.

Middle East - The economy of oil and gas exporter Qatar, the world's wealthiest country per capita, will grow 20percent in 2011, the IMF said on Wednesday.

"Qatar has weathered the global financial crisis exceptionally well, reflecting the swift and strong policy response by the authorities," the International Monetary Fund said about the country of 1.7 million people.

"Growth has rebounded to 16percent in 2010 and is projected to accelerate to 20percent in 2011."

Spain - Spain's credit rating was cut to Aa2 by Moody's Investors Service on Wednesday, which said the cost of shoring up the banking industry will eclipse government estimates. The euro fell and Spanish bond yields rose.

Spain will spend as much as EUR50bn (USD69bn) shoring up savings banks, Moody's forecast, more than double the EUR20bn price set by the government. The risks to government finances remain "skewed to the downside," the company said in a statement on Wednesday. The outlook is "negative," suggesting more rating cuts are under consideration.

U.K. - U.K. manufacturing production jumped in January by the most in 10 months, a sign the economy is resuming growth after a winter freeze dented the recovery.

Factory output rose 1percent from December, when it shrank 0.1percent, the Office for National Statistics said in London on Thursday.

Bank of England officials said in forecasts last month that goods export growth has been "buoyant" and that manufacturing was less affected than other parts of the economy by the coldest December in a century.

Meanwhile, The Bank of England kept its benchmark interest rate at a record low on Thursday, as policy makers chose to set aside concerns on rising inflation pressures to support the U.K. economic recovery.

Currencies - The dollar rose against all its major counterparts on Thursday, on prospects jobs data will signal a continued recovery in the world's largest economy amid signs that growth in Asia is slowing.

The euro fell to the lowest in one week against the dollar following Moody's Investors Service downgraded Spain. Australia's dollar dropped by the most in two weeks as employers unexpectedly reduced jobs and China reported a trade deficit.

Commodities - Gold tracked oil higher on Thursday as investors waited to see if the international community would agree to a "no-fly" zone for Libya, while holdings in the world's largest silver exchange-traded fund struck a record high, reflecting greater interest in the cheaper precious metal.

Bullion traders remain focused on mounting unrest across the Arab world and renewed concern about euro zone debt, factors that sent prices to an all-time high above USD1,440 per ounce this week.

Spotlight on: the rise of the Chinese consumer

Recent concerns over the Chinese economy are attributed to a number of factors. One that continues to receive considerable attention is that of its reliance on an export lead economy. Many commentators stress the importance of the domestic economy and its' populous to start spending money locally, boosting domestic consumption and thus reducing the reliance on its exports to support the country's growth.

Of course, an increase in local spending would not only spell good news for the Chinese economy, it is hoped that the goods purchased could be imported from other economies, lending a much needed boost to the global picture.

It is good news then, that the Five Year Plan (2011-2015) from the Chinese government, released last week, highlights steps that it will take in order to encourage its populous to save less and spend more, thus turning the world's second largest economy into a major consumer market.

The document said that China will "increase the imports of consumer goods in a proper manner" as part of its efforts to optimize imports to achieve a more balanced trade and economic structure, something the West has been willing for some time.

"The government does not elaborate how it plans to increase consumer product imports, possible measures should include simplifying regulations and lowering import taxes," said Zhang Xiaoji, a senior researcher with the Development Research Center of the State Council.

According to Zhang Ping, head of the National Development and Reform Commission, China's top economic planner, the Chinese government will "focus on establishing a long-term mechanism to boost domestic demand, especially consumer demand."

The current economic growth in China, which relies on high input, high energy consumption and high capital accumulation, has had negative effects on the sustainable and stable growth of the national economy.

To this end, China vows to promote the urbanization process, boost employment, reassess income disparities, improve the social security system and optimize the consumption environment.

"An export-oriented growth pattern is not sustainable for China because of its huge economic size. However, this will promise a good future by unlocking domestic consumer spending," said Jin Baisong, a researcher with the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce (MOC).

China's shift from the "world factory" of low-end products to a major "international consumer market" will not only benefit the country, but also its trade partners and even the global economy, Jin said.

MOC minister Chen Deming said China is expected to become the world's largest consumer market over the next decade and will surpass Japan as the world's largest consumer of high-end goods by 2015.

However, analysts say the transition will not be easy. "The government must increase the income of mid- and low-income groups and expand the coverage of its social security network," Jin said.
"China's leaders will have to wage a sustained policy struggle on many fronts, combining relatively straightforward measures to encourage private spending, with fundamental reform of the nation's health and pension systems and sweeping changes in the economy's basic structure," according to a report from the McKinsey Global Institute.