Sunday, March 13, 2011

CHINA THE BIRTH OF NEW ECONOMY.


The year 2011 started with a bang of flow of economic data and budget cuts across many nations. We know that as the time progress the flow of capital will take new shapes and new meanings for different nations. We are already witnessing imbalances of currency valuation, much of the credit of this goes to the uneven fiscal deficit of struggling economies. The economic data’s might paint a rosy picture of the state of the economies but in real terms one itself knows the proof of the pudding.

Among all these the Forbes released the prestigious data of the Billionaires list. In the year of 2009 when the Forbes Billionaire list was released we found new billionaires being born from China and Asian countries mostly replacing the western economies. This year also in 2010 we find that 49 new billionaires have taken birth. It seems that Chinese economy is developing new growth opportunities for the People of China.

TRANSITION OF EXPORT TO DOMESTIC GROWTH:

Among all these china posted a negative fiscal position. The trade deficit of china grew to4.5 billion yuan/ $7.3 billion (dollars).Exports were of china grew 2.4% where as imports grew 20%.The sudden upward push in import is due to the new economic policies which are being adopted by china is the coming days. China in its 12th Plan starting from 2011-2015 will focus on domestic growth of the economic. It will focus on developing the Tier 2 and Tier 3 class of living standards and bringing growth within its own development. This shift of economic policy will act as a Tectonic Plates shifting below the economic lands of the world. Although this shift will be a gradual process but tremors of the quake will be felt across the world financial markets.

In the past couple of sessions china have been acting as one of the biggest buyer of coal, iron ore, copper to fuel the growth of its domestic manufacturing and construction growth. If we combine all the figures of Chinese’s trade we find the exports are having a growth 21% where as imports stands at 36%.Now a question might come up in the mind that is china going to put brakes on its growth wheel which is running on the pedal of export. I am sorry to disappoint that no china is entering into a new phase of the growth where domestic economic growth will bring the double digit of Chinese GDP growth. Another advantage of higher imports and lower exports is that it will help the yen to be free from any debates of valuation. More over the sudden price increase in the crude will exert pressure on Chinese economic much more as compared to any other economy. The prime reason behind this is that a $1dollar increase in price of crude results to cut of 41.9 billion trade surplus of china, resulting to negative fiscal position.

In between china is attracting huge investments in various sectors primarily in energy efficiency, environmental issues an social investments. Its quest for alternative energy is stupendous and moving much faster as comparison to any nation on the planet. Chinese clean energy companies are coming out with IPO in 2011 to raise capital for the meeting the demands for alternative energy. Total amount of 1.1 billion amounts IPO will hit Chinese markets in 2011 from this segment alone.

FINANCIAL OF CHINA:

Chinese policies are bringing floods of FDI investments into china mainland.FDI investments in china swelled up to 2243 foreign funded enterprises. This growth is of 20.2% (YOY) and the amount of flow is 1.3billion dollars with a growth rate of 23.4% (YOY).In 2011 china is bringing reforms in its exchange rate and interest rate policies. The new policies of interest rates of china will help to fight inflation and asset bubble creation.
The below image shows the growth of China FDI in 2009-2010.

Below is the image of FDI investments in 2010

As I said earlier the picture of the economies are not always rosy as painted by the economic data. China is also having sever problems of debts too. The debts of Chinese government stand at $1.03 trillion equal to 17% of the Chinese GDP. But the strange fact is more brutal that Chinese is sharing half of the bad debts of US treasuries which is held by China. China have already taken steps in reduction of the debt and treasuries of the US. China is now a good friend of Europe. China is doing huge investments in to the European Sovereign Debts and infrastructure investments. Their are two prime reasons behind such an act is that China does not want euro to be diminished as its acts challenger of US Dollar and last but not the least china is backed at the G summits when currency manipulator voice is raised against China. Europe is now the 2nd largest trading partner of Europe.

Chinese pension funds and other instruments are scouting for investments across the globe. Among them few funds are coming to for Indian infrastructure too. Korea's 324 trillion won ($287 billion) National Pension Fund and China's $116 billion National Social Security Fund are both planning international expansions of their investments portfolios.

In China, more than 90% of the social security fund's total assets are invested domestically, mostly exposed to fixed income, equities and private equity. Overseas investments only account for about 7%.The fund is expected to grow to 20% in the 12th plan of Chinese economy. The fund is expected to grow to $300 billion by 2015, with a potential increase of about $50 billion in overseas investments.

Chinese investments into fixed assets have also swelled up showing indication that its 12th year plan is on its way of journey. Fixed-asset investment in China rose 24.9% year-on-year to 1.74 trillion yuan during the first two months of 2011, according to the National Bureau of Statistics. The central government recorded a 6.3% year-on-year increase in fixed-asset investment to 138.5 billion yuan during the first two months while investments by local governments rose 26.95 to 1.61 trillion yuan. When we dig further we find China invested 67.4 billion yuan on the production and supply of electricity and heat during the first two months, an increase of 1.3% year-on-year.

The oil and natural gas sector saw a 7.8% year-on-year rise in fixed-asset investment to 10.8 billion yuan. The railway sector attracted total investments of 58.6 billion yuan, up 45.3% (YOY).

CHINA RUSSIA CELEBRATION-THE NEW INVESTMENT GROWTH

In the past we have discussed a lot about the Chinese investments into the Africa but now china is spreading its diversification into other economies also. Very recently China and Russia celebrated the 10th anniversary of their signing the China-Russia treaty on good neighborliness, friendship and cooperation, as well as the 15th year anniversary of the establishment of mutual partnership. Over the past five years, Sino-Russia trade has nearly tripled in value.

• Trade has been mainly composed of natural resources: in 2010, crude oil and natural resources made up 48.5% of overall bilateral trade (something which will likely remain consistent as China continues demand energy inputs to fuel its rapid growth). China has then used those inputs, and then sent low to medium-value equipment back to Russia. Machinery and electronic products accounted for 68 percent China’s exports to Russia in 2010.
• In November both the nations dropped the use of Dollar as currency for trade practices. They both opted to use local currencies. That same month, a 866 kilometer-long railway opened, connecting Russia’s largest port city on the Pacific Ocean, Vladivostok, with Northeast China. In January, an oil pipeline linking Daqing in China’s Heilongjiang Province and Skovorodino, a Russian city, officially began production, and is expected to transport 15 million tons of crude oil per year, with a 30 million ton per year benchmark set for the immediate future.

• In February, EuroSibEnergo PLC (Russia’s largest independent power company) and China Yangtze International (China’s largest listed hydropower producer) announced an official JV—YES Energo Ltd—to develop hydro and thermal power projects in Russian Siberia.

How big is Russia?

Now question might come up in the mind that How big is the Russian economy on the map of Financial Market. By nominal value, Russia’s economy is the 10th largest in the world. By geography, Russia is the world’s largest country. According to UNESCO, it also has the world’s largest supply of energy and mineral resources (e.g., natural gas, oil, coal, precious metals, arable land). Growth rates have been fairly impressive since the Soviet Union’s collapse in 1991. Under Putin, Russia’s GDP doubled, and rose from being the 22nd largest economy in the world to the 11th. The size of Russia’s middle class has grown from 8 million to 55 million people during those same years. However, Russia’s massive geography, untapped natural resources, and relatively low position on the global value chain indicates a huge potential for growth that is still yet to come. I hope this was enough to make my readers understand how big is Russia on the map of Financial Market.

In the year 2011 Russia and China will become the Best Trading partners.

• Foreign trade turnover of Russia with China increased by 43.1% and has reached US$55.44 billion, according to the both Federal State Statistic Service (Roskomstat) and Chinese customs authority data.

• Chinese exports to Russia increased by 69% and amounted to US$29.61 billion compared with 2009 (US$17.496 billion), while Russian exports to China increased by 21.7% to US$25.84 billion.

• Trade in crude oil and natural-resource products accounted for 48.5 % of the overall bilateral trade volume, compared with 50% in 2008.

• In 2008, Russian-Chinese trade turnover grew by 38.7% to US$55.9 billion compared to 2007, with Russian exports to China having grown by 33% and imports from China by 42.3% . Some 74% of Russian exports to the PRC then was natural resources, and 50% of overall bilateral trade, while 68% of Chinese imports to Russia were machinery and technical equipment.

• China’s outbound direct investment in Russia was US$2 billion in first half of 2010 and is expected to hit US$12 billion by 2020.

So the new relation of trade practices by china will make the Chinese economy less dependent on US shopping floors. China is developing internally as well as extending and developing new trading partners across the globe. China will create little bit of tension when the process of shifting resources from export to domestic growth will take place. Volatility and trail and error will be their in the shifting process. We will witness a new economy birth for China. It is the world's fastest-growing major economy, with average growth rates of 10%for the past 30 years. After 30 years its going to change and take a new birth of its economy. We will have to wait and watch the New Baby and its acts.

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