Most countries go out of their way to trumpet strong growth figures – but China’s leaders were notably restrained in response to news that the country’s economy grew 11.9% in the first quarter.
The result, a 5.7-percentage-point increase over the first-quarter of 2009, and up from 10.7% growth in the fourth quarter of last year, has instead prompted a familiar note of caution from Beijing: Yes, the economy is growing, but real risks remain.
More than any other number, Beijing appears worried about the 11.7% rise in property prices in March. Talk of a bubble does not seem to have dented the enthusiasm of China’s property buyers, and neither has a reduction in new lending by China’s banks. After issuing US$102 billion in loans in February, total new loan issues fell to US$75 billion in March.
Hoping to send a clear signal of its displeasure with property speculation, the government in mid-April raised the minimum down-payment on second-home purchases to 50% from 40%, and set minimum down-payments on large residential properties. A week later, it introduced new rules that allow banks to refuse additional mortgages to buyers with two or more properties.
Beijing’s concern is not simply the threat posed by a collapsing bubble: It is also considering the more immediate threat of the inflationary pressure caused by rising house prices. Consumer prices rose by 2.4% in March. While this was below the 2.7% year-on-year growth in February, that reduction may be due in part to temporary changes to food prices. Fears of falling pork prices have led farmers to slaughter pigs early, leading to an even larger glut and reinforcing what is likely to be a short-term fall. Even those that cheer lower consumer inflation, however, must be worried by producer prices, which rose 5.9% in March, from 5.4% in February.
Rising commodity prices have driven producer prices higher as global markets anticipate ever-stronger Chinese demand. In early April, copper passed US$8,000 a ton, a level not seen since 2008; import prices of iron ore were up 20.7% in March, while soybeans rose 15.1%.
Higher commodity prices contributed to a 66% year-on-year increase in China’s imports in March. Strong imports, combined with relatively weak demand in the US and Europe, and amplified by a seasonal slowing of exports, led China to post its first trade deficit in six years. The US$7.24 billion deficit is not expected to be the first of many, particularly as property tightening measures push commodity prices back down. Still, many arguments made by China’s trading partners in favor renminbi appreciation focus on the country’s huge trade surpluses. Chinese officials seized on the deficit as an opportunity to argue that surpluses are not the result of an undervalued currency.
While happy to score rhetorical points, Beijing is keen to maintain good relations with its trading partners. The deficit is unlikely, therefore, to change the schedule for resuming renminbi appreciation.