The usual adjectives associated with China in the media are fairly predictable: “breakneck”, “rapid” and “ever-increasing” are becoming “dull,” “trite” and “exhausted.” Yet this week has seen the continuing domination of “slow” and “delay.” A raft of reports suggest that monetary tightening is having a significant impact on the economy, yet inflation remains stubbornly high. The CPI hit 5.5% in May, its highest rate in almost three years, triggering another hike in the People’s Bank’s favorite required reserve ratio. Is Beijing in danger of cutting off its nose to spite its face, and engineering a hard landing? Loan issuance already dipped well below expectation in May, drying up liquidity for, among others, its property development sector – China’s current punching bag of choice – which was handed a big fat “negative” rating by the sages at S&P. A number of indicators suggest that it is talk of a property bubble that needs to be popped, rather than the market itself, but the government must tread carefully regardless. Adding to the tsunami of negativity, Glencore stuck their heads above the parapet to release a rare warning of an impending slowdown, while two Hong Kong-listed energy firms delayed planned bond issues on weak investor sentiment.
Hug a panda?
Negative vibes at home were echoed beyond the middle kingdom’s borders, as Charles “Chuck” Schumer re-launched his one-man crusade to drive up the value of the renminbi. The contagion even spread as far as Poland, where the country’s road construction authority kindly invited state-owned China Overseas Engineering Group to pack their bags following numerous issues. The bill for damages is in the post. It turns out that if a bid seems too good to be true, it likely is.
But it wasn’t all bad news. Colombia passed legislation promoting Chinese investment in the country, in what represents a second snub to the US in quick succession, following China’s deals with Pakistan last month. While the US prevaricates on the long-languishing free-trade agreement with Colombia, China is making hay, and is now in talks to build a rail alternative to the Panama Canal across the country. Carpe diem. Closer to home, Hu Jintao announced a US$1 billion currency swap with natural resource-rich Kazakhstan, as China continues its relentless struggle to find ways to keep the home coal fires burning and the lights switched on.