Summery of the news: As stated in the article above, China inflation has taken a dip which is due to global economic slowdown. The world biggest exporter has been hurt by falling demands from key markets such as US and Europe plus a slowdown in investment in the country therefore, the export sector remains under pressure even though exports rose by 9. 9%. To rebalance the economy and sustain growth, China need to boost their domestic demand to spur growth and at the same time to ease its monetary policy, because China won’t grow by 10% every year.
Thus, there’s a need to cut its interest rates and lower the reserve ratio requirement, despite approving infrastructure projects to spur fresh economic development. Analysis of china macroeconomic: So far the current economic growth, employment situations, the balance of payments are relatively stable and growth of the general price level is declining precariously which will be very sensitive to any rebound in economic growth. Therefore, efforts should be made to maintain the current relatively balanced economic performance.
Due to the changing demographic structure, environmental constraints on economic growth, shifting economic growth patterns, the relationship among economic growth, employment and inflation may have changed significantly from past years. To better manage the relationship between economic growth and inflation, efforts should be made to improve supply management, increase production efficiency, reduce transaction costs and improve income distribution.
Maintaining stable economic growth while promoting economic restructuring and the shift in the growth pattern will contribute to healthy and sustainable economic growth in the medium to long term, and will be conducive to greater potential in long-term economic growth. In the first quarter of 2012, China’s economy grew steadily.
Agricultural production was bumper, industrial production remained stable, imports and exports continued to grow, and household income grew relatively fast. In March, the major economic such as the industrial added value of statistically large enterprises, and the growth of retail sales rebounded from January and February.
In general, price levels declined. In the first quarter, the Gross Domestic Product (GDP) registered 10. 8 trillion Yuan, up 8. 1 percent year on year, representing an acceleration of 1. 6 percentage points from the same period of last year and up 1. 8 percent quarter on quarter. The Consumer Price Index (CPI) was up 3. 8 percent year on year, a decrease of 1. 2 percentage points from the same period of last year. The trade surplus posted US$670 million. Consumer demand grew steadily, and investment growth moderated from an elevated level.
Domestic consumer demand increased steadily due to the rapid income gains of urban and rural residents. In the first quarter, the per capita disposable income of urban households posted 6,796 Yuan, representing year-on-year growth of 14 percent and price-adjusted real growth of 9. 8 percent. The per capita cash income of rural households registered 2,560 Yuan, up 17 percent in nominal terms or 12. 7 percent in real terms. The PBC survey of urban depositors in the first quarter shows that the residents’ income index was up by 1. 0 percentage points from the previous quarter to reach 51.
9 percent; the confidence index in income gains fell by 0. 4 percentage points from the previous quarter to 54. 9 percent. The propensity to spend on vehicles, large-value goods, and tours increased, whereas the propensity to invest in real estate continued to pull back. In the first quarter, retail sales of consumer goods totaled 4,931. 9 billion Yuan, a year-on-year increase of 14. 8 percent and a deceleration of 1. 5 percentage points, or up 10. 9 percent in real terms and a deceleration of 0. 7 percentage points. Broken down by urban and rural areas, retail sales in urban areas registered 4,268.
8 billion Yuan, up 14. 9 percent year on year, whereas retail sales in rural areas grew 14. 6 percent year on year to 663. 1 billion Yuan. Monetary policy In 2012, China government continues to implement a prudent monetary policy. According to moderate and considering the flexibility of the total requirements, and given consideration to promoting steady and relatively fast economic development, maintaining price stability and prevent financial risks. Comprehensive use of various instruments of monetary policy, regulation of good money, credit supply, demand and maintain social raised reasonable growth.
Broad money is expected to grow by 14%. Optimizing the structure of credit in support of national priorities, rehabilitation projects under construction and construction of low-cost housing project to strengthen compliance with industry policies, there's a market for enterprises, especially small micro - enterprise credit support, and effectively reduce the cost of financing the real economy. The People's Bank of China cut interest rates for the first time since December 2008. Its one-year lending rate now stands at 6. 31%, which still leaves room for further cuts to help soften the economic slowdown.
Industrial production grew by 9. 3% in the year to April, its slowest rate since 2009, but growth picked up to 9. 6% in May. China's inflation rate also leaves room for looser monetary policy. Consumer prices rose by only 3% in the year to May, down from 3. 4% in April, the slowest rate since June 2010. That is well below the 4% threshold that has traditionally worried the government. Credit growth is also picking up. China's money supply grew by 13. 2% in May on a year earlier, helped by financial institutions issuing new loans of 793 billion Yuan ($124 billion), higher than analysts expected.
China's banks have been helped by the latest cut in reserve requirements, another useful monetary policy tool the government can utilize. Interest rate of China In June, the central bank responded to economic concerns by cutting interest rates for the first time since 2008. The bank also tried to spur growth in May by cutting the amount of money banks are required to hold in reserves, freeing up those funds in order to boost investment. While China's gross domestic product, the broadest measure of economic health, continued to grow at an 8. 1% annual rate for the first quarter, the number was down sharply from the 8.9% growth at the end of last year.
The evening of July 5, the central bank from the last interest rate cut a month just to cut interest rates again, and to expand lending rates float downward space to 0. 7 times the base rate. Surface Tension of funds in the near future, after many rounds of reverse repos, the expected drop in the market to grow, and all of a sudden, the Central Bank rate cut, it's a surprise for the market. We believe that cut interest rates twice in a row are the main causes of the current economic slowdown clear that the poor economic data, the urgency of the high-rise was aware of easing.
Second - quarter GDP is likely less than 7. 5, industrial production, fixed - asset investment growth slowed sharply, new loans in June compared to may per cent less than the trillions. Import and export Profound effects of international economic crisis continue to appear, especially the impact of the European debt crisis, falling demand in the international market, slowing China's GDP growth for 7 consecutive quarters. Severe internal and external environment facing the development of foreign trade, import and export growth slipped to single digits, import and export enterprises much more difficult.
In response to the changing situation, the Chinese government introduced a series of promoting a steady growth in foreign trade, optimizing the structure of foreign trade policy measures for business confidence, stable trend of foreign trade played an important role. Import and Export of Private Enterprise a good momentum and general trade continued fast growth in the processing trade.
Under the guidance of policies and measures to encourage the development of private economy, the private import of enterprises to actively adjust product mix, efforts to expand sales channels, further development of international markets, achieve good results CPI China's consumer price index, the main gauge of inflation, may retreat further to under 3percent in June with both prices of food, particularly pork, and non-food items falling, said QuHongbin, chief economist at HSBC China and co-hea d of Asian economic research at HSBC, ina research note issued on Sunday.
Compared to April's 3. 4 percent and March's 3. 6 percent, the CPI eased further to a 17-monthlow of 3 percent in May due to falling food prices and base effect. High food prices pushed China's CPI up 5. 4 percent year on year in 2011, far above the government target of 4 percent.
High inflation limited the Chinese government's options to boost growth when the economy cooled last year. China has unveiled a spate of easing measures since 2011 to spur growth as the annualgrowth pace of gross domestic product (GDP) slowed to 8. 1 percent in the first quarter of 2012from 9. 2 percent in 2011. The central bank has cut the reserve requirement ratio three times since late last year andlowered benchmark interest rates for the first time in four years on June 7.
The economy has stabilized, but demand was still weak and May's economic data showed theGDP grew at a rate lower than the 2012 government target of 7.5 percent, the research notesaid. HSBC expected the Chinese central bank to cut the reserve requirement ratio four times andlower the interest rate once in the rest of the year to spur growth. Also with tax cuts, increased spending on public infrastructures and measures to support theprivate sector, China's GDP is likely to rebound to 8. 5 percent in the second half, according toQu.
Table - 2012 inflation China (CPI) inflation (monthly basis)| inflation| | inflation (yearly basis)| inflation | january 2012 - december 2011| 1. 50 %| | january 2012 - january 2011| 4.58 % | february 2012 - january 2012| -0. 10 %| | february 2012 - february 2011| 3. 23 % | march 2012 - february 2012| 0. 20 %| | march 2012 - march 2011| 3. 65 % | april 2012 - march 2012| -0. 10 %| | april 2012 - april 2011| 3. 45 % | may 2012 - april 2012| -0. 30 %| | may 2012 - may 2011| 3. 03 % | june 2012 - may 2012| -0. 60 %| | june 2012 - june 2011| 2. 11 % | july 2012 - june 2012| 0. 10 %| | july 2012 - july 2011| 1. 70 % | august 2012 - july 2012| 0. 60 %| | august 2012 - august 2011| 2. 00 % | september 2012 - august