China considers another stimulus plan

China Likely to Introduce New Stimulus Measures

On June 30, a source who attended the seminar revealed its tone to the EO: "Everyone is worried about the next half of the year's economy."

In an interview with the EO, Yin Zhongqing, vice director of the Finance and Economic Committee of the National People's Congress said, "It is possible for China's macro-economy to rise drastically in 2010, but it also has the risk of decreasing drastically."

Due to concerns over the recent decline in economic indicators such as the purchasing manager index, urban fixed-asset investment, and real estate and automobile sales numbers, China is likely to launch a new round of economic stimulus measures.

People are no Longer Optimistic About the Second Quarter

After entering the second quarter, economic indicators have experienced a slight drop from the first quarter's development trend. With that in mind, officials at the National People's Congress Finance and Economic Committee and ministries and commissions expressed their concerns about the economy of the next half year.

The decline was first reflected in the purchasing manager index (PMI), an indicator for economic activity. According to the China Federation of Logistics and Purchasing (CFLP), compared with April's PMI, the PMI in May dropped 1.8 percentage points. Of the eleven PMI sub-indicators, ten presented a drop.

In addition, according to June's PMI released by the CFPL, the purchase price index decreased drastically from last month, especially the price index of raw materials stockpile which dropped to below 50 percent.

Furthermore, the indicator of added-value for large-scale industrial enterprises also slowed. The indicator's growth rate in May was 1.3 percentage points lower than April's; April's indicator was 0.3 percentage points below March's.

In addition, the urban fixed-assets investment in the first four months had a year-on-year decrease of 4.4 percentage points; the urban fixed-assets investment of the first five months were 0.2 percentage points below the first four month of this year.

What is more worrying is that the recent sales volumes of real estate and automobiles began to decrease. According to statistics released by the China Index Academy, of the 35 big cities monitored, housing sales in 14 cities decreased in May, and the sales of automobiles in May dropped 7.5 percent compared with April's sales.

Meanwhile, the degree of support from overseas demand to China's economic growth weakened. The trade surplus in the first four months of this year fell 78.6 percent from a year earlier, and the trade surplus in the first five months experienced a year-on-year drop of 69.9 percent.

However, the trade surplus did rebound in June.

CHINA'S trade surplus widened to the highest this year and exports climbed more than estimated to a record in June, adding pressure on the government to let the currency gain after the US said the yuan ''remains undervalued''.

The gap increased 140 per cent to $US20.02 billion ($A22.8 billion) from a year earlier, China's customs bureau said on its website. That compares with the $US15.6 billion median estimate of 24 economists surveyed by Bloomberg. Exports surged 43.9 per cent and import growth moderated for the third month, rising 34.1 per cent.

Sounds like a recipe for conflict, as the Americans press China on the currency and the Chinese try to raise economic growth, with currency appreciation near the bottom of the list of priorities.