China expects exports to slow in 2011

Date Dec 23 2010 14:57:01

Dec.23,2010(SHMET)--China's foreign trade is expected to slow down in 2011 to a growth rate of about 10 percent, compared with this year's 30 percent, sources with the Ministry of Commerce said.

Huo Jianguo, director of the Chinese Academy of International Trade and Economic Cooperation with the ministry, made the prediction on the sidelines of the annual commerce conference in Beijing on Wednesday.

While the growth of foreign trade is expected to slow, Commerce Minister Chen Deming emphasized that the government will increase efforts to expand imports in 2011 to narrow the nation's trade surplus, which has been criticized by the United States and the European Union in recent months.

"China will pay more attention to boosting imports to help balance foreign trade, while the nation aims to stabilize exports and grow its share in the global market," Chen said at the opening of the two-day conference.

China's trade surplus has been declining during the global financial crisis. In the first 11 months through November, its foreign trade surged 36.3 percent year-on-year to $2.68 trillion, but the trade surplus was down by 3.9 percent to $170 billion, according to the General Administration of Customs.

Chen said the nation's foreign trade for the whole of 2010 is expected to reach $2.9 trillion and the trade surplus to decrease slightly from last year to $190 billion.

"It is not easy to have the trade surplus controlled almost at the same level of last year while the trade volume has grown by big margins this year," Chen said.

Plans to expand domestic consumption, optimize the structure of foreign direct investment, encourage overseas direct investment, promote free-trade agreement strategy and appropriately address trade frictions are also included in the ministry's focus for 2011.

Although foreign direct investment is the major source of China's trade surplus, the US and EU have been pressuring the nation to allow the value of its currency to rise to narrow the trade surplus, as the monthly surplus has remained at around $20 billion during the past five months.

In September, China announced it was launching the import drive.

Wang Shouwen, director of department of foreign trade with the ministry, said China is considering diversifying the categories of imports and expanding imports from countries that have large trade deficits with China and lessdeveloped nations, as well as providing more assistance to importers.

"Growth of imports can balance trade and there is indeed huge potential to improve the imports," Wang said.

Mechanical and electrical goods make up a large part of China's imports, accounting for 48 percent annually. From January to November, the imports of mechanical and electrical goods grew 37 percent year-on-year.

The ministry will launch guidelines on promoting imports of mechanical and electrical products next year, to meet the growing national demand and to help rescue the global economic recovery, said Zhang Ji, director of the department of industry with the ministry.

Imports related especially to new energy, new materials, energy saving, high-end equipment manufacturing, low-carbon technology, aerospace, shipbuilding and rail transportation will be the focus.

The US and the EU have been setting restrictions on high-tech exports to China, thought to be the source of their trade deficit with China.

Edited by SHMET

Reserve ratio may rise to record high

Date Dec 22 2010 10:57:54

Dec.22,2010(SHMET)--The central government could raise the ratio of reserves it requires banks to hold against their loans to 23 percent in 2011, as it continues to try to curb inflationary credit growth in the financial system, Lu Zhengwei, chief economist at Industrial Bank, said on Tuesday.

The figure would be the highest reserve requirement ratio ever set by a central bank, Lu said.

Zhang Xiaohui, head of Monetary Department of the People's Bank of China, the country's central bank, said in an article earlier this year that the ceiling for a central bank's reserve requirement ratio is 23.5 percent.

"The loose monetary policy in the United States, over-liquidity in the domestic market and rising wages present an unprecedented task for China to manage its excessive liquidity and inflation next year," Lu said in a speech at the Second China Fortune and Assets Management Forum on Tuesday.

He said he expects the central bank to raise the reserve requirement ratio once a month in the first quarter of 2011.

The potential 4.5 percentage point increase from the current 18.5 percent would lock up at least 1.3 trillion yuan ($195 billion) that could otherwise be injected into the economy in the form of loans, triggering inflation.

In November, China's consumer price index (CPI), a main gauge of inflation, rose 5.1 percent year-on-year, the fastest clip in 28 months and up 0.7 percentage point from October's 4.4 percent.

Analysts said excessive liquidity is the main contributor to China's price surges. In the first 11 months, the number of new loans totaled 7.45 trillion yuan, nearing the government's 7.5-trillion-yuan full-year target.

Meanwhile, the country's foreign exchange reserves rose $194 billion in the third quarter, far exceeding the $66 billion trade surplus and $23 billion foreign direct investment made during the same period. Part of the difference could be speculative capital flowing into the country, analysts said.

To check inflation and absorb excessive liquidity, the central bank raised the reserve requirement ratio six times this year, while announcing the first interest rate hike in nearly three years in October.

In addition, the 21st Century Business Herald reported on Tuesday that the China Banking Regulatory Commission has ordered some banks to halt fixed-asset loans by the end of the year.

Despite the expected tightening measures next year, Lu believes the CPI will be generally on an upward track for the whole of 2011 and will be around 5 or 6 percent.

"Apart from over-liquidity, increasing wages triggered by the government's policy to boost domestic demand and a growing labor shortage would also put pressure on inflation," Lu said.

"In fact, an upward inflationary spiral is forming in China where rising wages will push up prices, which will, in turn, push up wages."

Edited by SHMET

China to speed up tax reform

Date Dec 21 2010 13:19:52

Dec.21,2010(SHMET)--China's tax reforms could soon gather speed, as officials and experts vowed to accelerate "structural" tax reductions to ensure a fairer system during the coming five years.

The government is expected to cut individual income tax for low- to middle-income groups, in addition expanding the range of value-added taxes and decreasing sales duties in the service sector.

Meanwhile, policymakers may increase pilot programs for resource taxes and launch property taxes in selected cities soon, analysts said.

"To reform individual income tax will be difficult, but the government should propose suitable amendments in the 12th Five-Year Plan (2011-2015)," Jia Kang, director of the Institute of Fiscal Science Research under the Ministry of Finance, said at a forum over the weekend.

The purpose of individual income tax reform should be to ease the financial pressure on low- to middle-income groups, and to increase the rate for those on higher incomes, Jia said.

He suggested the tax department should collect families' income information by improving statistics databases, and should also adjust tax rates according to current economic performance, taking into account factors such as the increasing inflation level and rising gross domestic product.

Inflation hit a 28-month high of 5.1 percent year-on-year in November, according to data from the National Bureau of Statistics. It was 2.6 percentage points higher than the current benchmark one-year savings rate of 2.5 percent, resulting in a "negative interest rate" for the fastest-growing major global economy.

Figures from the Ministry of Finance showed that the middle-income band, with a monthly income of between 8,000 yuan ($1,198) and 20,000 yuan, has become a main pillar of revenue collection as taxpayers in the group contributed 22 percent of total individual income tax.

Jia said companies would benefit from a reduction in the sales tax and an expansion of the range of value-added taxes in the service sector. These moves would lower their tax expenses and facilitate the development of tertiary industries.

For example, if a value-added tax replaced the sales tax, companies would not be required to pay duty on real estate expenses, such as factory construction. That would allow them to shift capital into research and development, and enable faster growth.

During the next five years, China should give local governments the power to adjust the tax system to ensure that their fiscal revenues are adequate to allow them to perform their administrative responsibilities, said Jia.

The government has been widening local tax channels, such as those on resources and property, he said.

"Resource and property taxes may become the pillars of local tax systems. The fiscal revenues in western China will mainly come from the resource tax, while the central and eastern regions may depend on the property tax," according to Jia.

Jia also advocated the adoption of a carbon tax. "Companies can pay 10 yuan for one ton of carbon emissions, and the rate should not be too high at the beginning." However, it will be harder to instigate an inheritance tax during the coming five years, according to Jia.

Edited by SHMET

Govt to outline 2011 fiscal deficit target

Date Dec 21 2010 13:18:42

Dec.21,2010(SHMET)--China is planning to outline a fiscal deficit of 900 billion yuan ($135 billion) for next year, 150 billion yuan less than this year's target, according to a report in the Beijing-based Century Weekly Magazine on Monday.

The central government's fiscal deficit will decrease to 700 billion, while debt issued by central authorities for local governments will be maintained at 200 billion yuan, the magazine cited an anonymous source close to the Ministry of Finance as saying.

The magazine said that before the plan is passed at the annual national legislative session in March, the government might fine-tune the numbers in accordance with changes in the domestic economic situation and the level of recovery of major world economies.

Liu Yuanchun, associate dean of the Economics School at Renmin University of China, told China Daily that if GDP grows at a rate above 9 percent, the 900 billion yuan deficit will be no larger than 2 percent of GDP.

"Judging by the current situation, the probability of a GDP growth rate below 9 percent is very small, which means the deficit is likely to be less than 2 percent of GDP," he said.

In March, the nation's leaders outlined an "appropriate" deficit of 1.05 trillion yuan for this year, roughly 2.8 percent of GDP, and an increase of about 100 billion yuan from last year.

The total deficit consists of 850 billion yuan in central government deficit, and 200 billion yuan in local government bonds, which will be included in local government budgets.

China's fiscal deficit hit 950 billion yuan in 2009, a six-year high, but was still less than 3 percent of GDP, considered by many economists as a security line.

Despite a shrinking deficit in 2011, the fiscal policy is still undoubtedly a "proactive" one, said Liu.

China formally decided in early December to adopt a proactive fiscal policy and a "prudent" monetary policy for 2011.

"As long as the government keeps a deficit, and tries to counter downward factors that may cause an economic slide with larger spending, it is still a proactive policy stance," said Liu, adding that China's fiscal revenue will still grow rapidly next year by between 16 and 18 percent.

Analysts said greater-than-expected fiscal revenue this year will also contribute to a smaller deficit in 2011.

Between January and November, China's fiscal revenue increased by 21.1 percent year-on-year to more than 7.67 trillion yuan, exceeding whole-year revenue in 2008 and 2009. Over the same period, fiscal expenditure rose by 27.3 percent to nearly 7.16 trillion yuan, according to the Ministry of Finance.

Liu predicted that the actual deficit for 2010 will be more than 1 percent of GDP.

Although the proactive policy will be maintained, it will still be very different from 2009 and 2010, when the government took an unusually loose fiscal stance to stimulate economic growth after the global financial crisis affected the nation, said Lu Zhengwei, chief economist with the Industrial Bank.

He added that the government's spending focus for next year will be on promoting economic restructuring, instead of guaranteeing the growth rate.

Zhang Ping, chairman of the National Development and Reform Commission, said earlier that government spending next year will focus more on building affordable housing and supporting areas such as irrigation and agricultural facilities, education and healthcare, energy saving and emissions reduction, and environmental protection.

A proactive fiscal policy could offset the effect of shrinking monetary policy and support economic growth of more than 9 percent, said Lu Ting, economist at Bank of America-Merrill Lynch.

Edited by SHMET

China curbs excessive growth in land price

Date Dec 20 2010 13:35:25

Dec.20,2010(SHMET)--China's land regulators urged local land authorities late Sunday to take concrete measures against excessive growth in the country's land prices in some Chinese cities and crack down on illegal behavior, such as land hoarding, to ensure the implementation of the government's cooling measures on the property market.

The Ministry of Land and Resources (MOLAR) said in a statement on its website that the recently seen high prices in land sales in some Chinese cities had raised social concerns, which local land authorities should pay considerable attention to, and take actions to curb the rapid growth in land prices.

According to the MOLAR, cities and counties that had not provided more than 70 percent of the total land supply this year to shantytown renovation, the construction of affordable homes and medium-priced commercial housing, should not provide land for high-end housing for the rest of this year.

Further, for land sales with over 50 percent premium rate or record high prices, local governments should report to provincial land authorities and the MOLAR within two working days after the deal is closed.

The procedures of supplying land should also be strictly conducted, and there should never be any change in the use of land that is for the construction of affordable housing, said the statement.

Edited by SHMET