Cautious optimism

From "China – The end of the ‘V’" by Judy Zhu, Li Wei and Stephen Green, Standard Chartered economists, August 11:

China has reduced speculative imports of some commodities, mainly copper and aluminum. In some other commodities, such as crude oil and iron ore, imports have increased alongside a recovery in demand and anticipation of further price hikes… China’s imports of copper and copper products dropped from a record high in June to 406.6 thousand [metric] tons (kt) in July. We estimate that of the July imports, around 325 kt was refined copper, down 14% m/m. This is the first time that imports have fallen m/m in seven months, although the numbers are still much higher than a year ago… China’s iron ore imports in July continued to reflect a mixture of real demand and speculation. They hit a new record high of 58.08 million tons, up 47% y/y and 5% m/m… While record-high crude steel production has encouraged these imports, trading houses continue to import because they anticipate even higher steel production and higher prices in the coming months. Meanwhile, these traders continue to have access to easy credit from local banks. But we also note that some traders have already started to take a more cautious view of imports because of higher ore prices and some weakness in domestic steel prices… An additional risk is that banks may tighten credit lines, but so far we have not heard of any instances of this.

From "China Macro Weekly" by Lu Ting, TJ Bond and Zhi Xiaojia, Merrill Lynch economists, August 17:

Factories in Dongguan… are cranking up production and hiring more workers in signs of improved sentiment after a brutal year for the export sector. In some of the Pearl River Delta’s job centers, there are even signs of a shortage of factory workers as firms resume hiring… Dongguan’s job center said job vacancies have suddenly increased since May, [rising] by 30-40% from April. Data from the Shenzhen government’s labor department showed more than 60,000 vacancies were yet to be filled in June, rising from 23,000 in April. The labor demand-supply ratio also rose to 1.14 in June from 0.74 in January.  Most of the new job vacancies are from labor-intensive sectors producing staples for exports, e.g. textile, shoes, toys and furniture. In the first seven months of 2009, exports of textile and shoes declined by 9.1% and 5.2% y/y respectively, much less than the 22% decline in China’s total exports. With export orders coming in, factories are eager to find laborers again.  Though some of the rising orders might be seasonal, we believe the major factor is the rebound of some major economies in 2Q09 or 3Q09. Thanks also to aggressive government policies, a majority of the 20 million migrant workers who lost jobs in 4Q08 might already get new jobs, as the government said last week that only about 4.5 million migrant workers are still looking for a job.