China factory-gate inflation eases slightly

CHINA’S producer price inflation slightly eased in March after widening for the past few months as commodity prices moderated, official data showed Wednesday.

China’s producer price index (PPI), which measures costs of goods at the factory gate, rose 7.6 percent year on year in March, according to the National Bureau of Statistics (NBS).

The pace slightly retreated from the 7.8 percent growth registered in February, which marked the highest since 2008.

In major industries, the upward momentum is seen as moderating. Factory-gate prices in the oil and gas extraction industry went up 68.5 percent, slowing 16.8 percentage points from the rate seen a month earlier, noted NBS senior statistician Sheng Guoqing.

Coal mining prices gained 39.6 percent, with the growth unchanged from February.

China’s PPI has stayed in positive territory since September, when it ended a four-year streak of declines, partly due to the government’s successful campaign to cut industrial overcapacity, which benefited the wider economy.

Month on month, the PPI edged up 0.3 percent, pulling back 0.3 percentage points from a month earlier, the third consecutive month of retreat.

Prices in key industries have shifted downward on a monthly basis, with those of coal mining and oil refining both down 0.6 percent.

“Looking forward, commodity prices are difficult to predict, but a continued slide would push the PPI further off its peak,” said Tom Orlik, chief Asia economist at Bloomberg.

Guotai Junan Securities expects the index to gradually cool but still remain at a relatively high level in the coming period.

The PPI figures came alongside the release of the consumer price index, which rose 0.9 percent in March.

Shanghai Daily

Man versus machine at Go summit

CHINA’S Ke Jie, the world’s No. 1 Go player, is to take on Google’s AlphaGo computer program next month in a match which will pit artificial intelligence against human ingenuity.

Just over a year ago, Google made headlines around the world when AlphaGo beat South Korean champion Lee Se-dol. Up until then, the board game had long been thought of as beyond the reach of artificial intelligence programs because of its notorious complexity.

The 19-year-old Ke has been playing professionally since the age of 10 and has beaten Lee several times in recent years.

According to a list published by Go Ratings in January, Ke is the world’s No. 1 player with 3,627 points followed by AlaphGo on 3,599 points. Lee ranks No. 7 with 3,522 points.

Ke, a native of Lishui in east China’s Zhejiang Province, is to play against the AlphaGo program in a three-game match during the Future of Go Summit, which will be held in Wuzhen in the province from May 23 to 27.

Five of China’s other top professionals will also be testing their talent against AlphaGo.

The summit, organized by Google, the China Go Association and Zhejiang’s sports bureau, will include a forum on the future development of artificial intelligence.

The success of the AlphaGo program is regarded as representative of AI’s rapid development.

Ke said he was honored to be chosen to represent the human world against the computer program. At a news conference in Beijing yesterday, he said he believed AI could be a power for good in people’s lives.

Demis Hassabis, CEO and co-founder of Deepmind, Google’s AI department, said: “Instead of diminishing the game, as some feared, artificial intelligence has actually made human players stronger and more creative.”

In addition to beating Lee last year, the Deepmind team secretly put the AlphaGo AI system onto two Chinese online board game platforms to test its skill in fast-paced games against the world’s best. By January, AlphaGo, with the username Master, had racked up 60 wins and no losses.

After AlphaGo’s victory against Lee, Ke said he was confident he could beat the program. However, when he played Master he lost three times. Ke said he had been aware that Master was AlphaGo in disguise even before its identity was confirmed by Google.

He hasn’t given up hopes of victory. He said he had “one last move’ that would defeat the program.

Illness had prevented him from doing so in the online games. “If I hadn’t been in hospital, I would have used the last move I prepared for a week. It’s a shame,” Ke wrote on his Weibo account.

Go, in which the aim is to surround more territory than your opponent, has simple rules but is incredibly complex.

Google said some of the machine learning methods behind AlphaGo have been used to solve problems such as reducing energy use and in medical research.

AI will play an important role in economic efficiency, online finance, social development and national security in China, according to Wan Gang, minister of science and technology.

Shanghai Daily

Foreigners buying 11pc of NSW homes

Foreigners buying 11pc of NSW homes

A crowd of about 50 people gathered at a sale in Sydney.
A crowd of about 50 people gathered at a sale in Sydney. Fiona Morris
by Geoff WinestockThe NSW government is under pressure to lift stamp taxes for foreign home buyers after new figures showed they account for 11 percent of all sales.

Figures released under Freedom of Information laws from the NSW Office of State Revenue show that foreign citizens accounted for 11 percent of the 28,141 residential homes purchased in NSW from July to September last year.

Chinese purchased over 32 percent of those properties, followed by British and New Zealanders at 11 percent each and Indians at 10 percent. (Some of the best houses are being sold on Chinese social medai site WeChat.)

The figures reflect the period after the June budget when the NSW government imposed a 4 percent surcharge on stamp duty for property purchases by foreigners and a 0.75 percent land tax surcharge.

How house prices fared in 2016, according to CoreLogic
How house prices fared in 2016, according to CoreLogic CoreLogic

The tax hikes were supposed to reduce the share of foreigners in the overheated Sydney property market where prices climbed 18 percent in the past 12 months but the figures suggest they had little effect.

There is anecdotal evidence that foreign purchases are concentrated in certain metropolitan Sydney areas where prices are rising fastest.

The NSW Opposition which obtained the information has called on the NSW government to raise property taxes for foreign buyers even, higher lifting the surcharge on stamp duty to 7 percent and lifting the annual land tax surcharge from the current level to1.5 percent.

This would bring NSW into line with the surcharges imposed by Victoria last year.

ALP leader Luke Foley said lifting property taxes on foreign investors would ease the pressure on first home buyers who the figures show now account for just 7.5 percent of total sales.

Preliminary auction results for week to 26 February, 2017.
Preliminary auction results for week to 26 February, 2017. CoreLogic

“Evidence suggests a surcharge on foreign investors will take some pressure off house prices and go a way to levelling the playing field for first home buyers. “Under our policy local families will get a fairer crack of getting into the housing market,” Mr Foley said.

NSW premier Gladys Berejiklian said on Tuesday that it was not clear that taxing foreign buyers cut prices for locals. “The jury is still out.” She said she imposed the surcharge as treasurer last year as a way of raising extra revenue.

It is understood the NSW government will argue that many foreign citizens who purchased homes in NSW were actually permanent residents who are not required to pay the stamp duty surcharge or obtain Foreign Investment Review Board approval. If these permanent residents are excluded, the proportion of sales to true foreign investors is as low as 1.5 percent.

Ms Berejiklian has said that improving housing affordability is one of her top priorities and named former Reserve Bank of Australia governor Glenn Stevens to advise her on solutions .

Agents like Monika Tu can sell a $10 million house on social media in days.
Agents like Monika Tu can sell a $10 million house on social media in days. Daniel Munoz

But she has rejected the Federal ALPs proposals to reduce the tax incentives for negative gearing and also rejected proposals from her own Treasurer Damien Perrottet to switch from stamp duty to land tax. She has said boosting supply is the best way to solve the problem.

The Office of State Revenue figures show that foreigners now account for about 15 percent of the state duty paid in the period, much more than their share of purchases which suggests the stamp duty surcharge is raising considerable revenue.

Premier Gladys Berejiklian says housing affordability is a priority.
Premier Gladys Berejiklian says housing affordability is a priority. Peter Rae

FinancialReview

Sydney, Melbourne property auction clearance rates hit record highs

Sydney, Melbourne property auction clearance rates hit record highs

There were tears when the hammer fell at the auction of 3/96 Victoria Street, Ashfield.
There were tears when the hammer fell at the auction of 3/96 Victoria Street, Ashfield. Supplied

Auction sales of established homes in Sydney and Melbourne remained strong on the weekend amid signs that investor lending restrictions for off-the-plan sales are starting to bite.

A shortage of owner-occupier housing close to the centres of Australia’s major cities continues to work to push prices up in those areas.

Auction clearance rates in capital cities hit record highs again on the weekend, with Sydney at 83.9 per cent and Melbourne on 75.9 per cent, according to Corelogic.

Domain Group’s clearance rates for the week reached 79 per cent and 78 per cent for Sydney and Melbourne respectively.

The future Ovation Quarter is selling calmly.
The future Ovation Quarter is selling calmly. Supplied

Securing a property in the highly competitive Sydney market is starting to take a toll on buyers, according to Raine & Horne’s Director of Auctions James Pratt.

“One buyer [at an auction] broke down crying after the auction,” he said. “She had looked at so many properties, and was glad it was over. She was very stressed.”

That buyer – a first-time purchaser – secured a one-bedroom apartment at 3/96 Victoria Street, Ashfield, in inner west Sydney, for $605,000.

Prospective buyers of established properties appeared little affected by out-of-cycle mortgage rate rises last week from Westpac and the National Bank of Australia, which targeted both owner-occupiers and investors.

Mr Pratt said buyers were more concerned with buying “right now” as prices continued to rise rather than with what the banks were doing.

This two-bedder at 12/16-18 Nicholson Street, Balmain East, sold for $1.13 million. The reserve was $900,000.
This two-bedder at 12/16-18 Nicholson Street, Balmain East, sold for $1.13 million. The reserve was $900,000. Supplied

Another auctioneer, David Scholes, said that any flow-on effect to changes in mortgage rates would not occur for a few weeks, if at all.

“Many loans on the weekend have been pre-approved,” he said. “As far as we are concerned, the market is resilient and holding up very well.”

“In a couple of auctions I did on Saturday we had the same people missing out in the morning and in the afternoon.”

Earlier in the week, Mr Scholes sold every LJ Hooker Mosman property that went under the hammer, he said.

This one-bedroom apartment at 3/96 Victoria Street, Ashfield, in inner-west Sydney, sold for $605,000.
This one-bedroom apartment at 3/96 Victoria Street, Ashfield, in inner-west Sydney, sold for $605,000. Supplied

A total of 21 properties in Sydney’s lower north shore were put to auction with half sold at auction and the others sold prior to auction, Mr Scholes said.

Buyers are not just waiting for the weekend to part with their money, with a weekday Raine & Horne Marrickville auction of 11 properties achieving a 90 per cent clearance rate.

A group of inner-west Sydney properties – at 24 Waratah Street, Leichhardt, 12/16-18 Nicholson Street, Balmain East, and 6/1-7 Macaulay Road, Stanmore – put on the market by Belle Property attracted groups of 140 to 200 during inspections. All sold above reserve on the weekend.

Ray White’s Botany properties at 6A/73A Banksia Street and 9 Queen Street also sold above reserve price – at $1.45 million and $1.555 million respectively.

Another stock shortage

Auctioneers said that stock levels were falling in the lead-up to the Easter weekend. “There’s a lack of stock again,” Mr Scholes said.

“Stock started out strong at the start of the year, but with Anzac Day and Easter looming, April doesn’t look very good and then we go into winter.”

The Melbourne market was also buoyant on the weekend, although the pace of buying was less frantic than Sydney, according to buyer’s agent David Morrell.

“Leading up to Easter you can’t do anything or you will overpay. You might see more stock after Easter.”

In contrast, Chinese developer YMCI’s “soft launch” of the first stage of its new 3000-apartment project, “Ovation Quarter”, in the Sydney Olympic Park area saw active interest but a relatively calm atmosphere compared with the “Boxing Day” style queues of buyers waiting to grab new apartments that marked launch days in 2014 and 2015 .

Interest in all units

Instead, buyers appeared to deliberate over the 170 one-, two- and three-bedroom apartments offered for sale.

According to sales and marketing director Tony Abboud, AYMCI – the local subsidiary of YMCI – has received expressions of interest for all units.

Mr Abboud said the apparently changed investor approach to off-the-plan sales was a welcome relief and would ensure only “legitimate” buyers with guaranteed funding put their names down for apartments.

The Ovation Quarter project is in the NSW state government’s Carter Street priority growth precinct in Sydney’s west and will include a new public school and town centre.

FinancialReviews

Melbourne still top spot for Chinese buyers with Hobart rising

Melbourne still top spot for Chinese buyers with Hobart rising

Sun still shining on Melbourne: The Victorian capital remains the most sought-after location for mainland Chinese ...
Sun still shining on Melbourne: The Victorian capital remains the most sought-after location for mainland Chinese property investment, REA figures show. Penny Stephens

Despite slugging overseas buyers with the biggest new tax hit, Melbourne remains the most sought-after location for mainland Chinese property investment, according to new data compiled by REA Group, operator of realestate.com.au

The Victorian capital city – also the world’s most liveable city according to The Economist magazine – attracted double the number of Chinese-based property seekers than second-placed Sydney in the year to February.

Interest in Melbourne property was marginally higher than compared with the previous 12-month period, even after the Victorian government more than doubled the foreign buyer stamp duty surcharge to 7 per cent from 3 per cent from July 1 and tripled the surcharge on “absentee landholders” to 1.5 per cent from 0.5 per cent starting in 2017.


By contrast Sydney, where the NSW government introduced a 4 per cent surcharge from June 21 last year, recorded slightly weaker Chinese interest over the year to February. The state government is now looking at increasing that surcharge to improve housing affordability.

State figures from July to September last year show that foreign buyers accounted for around one in 10 houses and apartments sold in NSW with Chinese buyers making up a third of these overseas buyers.

In Brisbane, where a 3 per cent Queensland surcharge kicked in from October, interest was up more than 10 per cent, according to REA Group.

“Last year’s taxes implemented in Queensland, NSW and Victoria had an impact on the number of Chinese viewing Australian property. However, overall it appears to have had a minimal impact with buyers back this year,” said REA Group chief economist Nerida Conisbee.

“Availability of stock appears to be a big driver of Chinese interest. Growth in the number of China-based property seekers continues in Melbourne and Brisbane, two cities that have very high levels of supply relative to the rest of Australia,” Ms Conisbee said.

Appetite for Hobart property is surging, too.
Appetite for Hobart property is surging, too.

The year-on-year figures also show a more than 60 per cent surge in appetite for property in Hobart, which has become a resurgent tourism and property market over the past 12 months.

“Like the rest of Australia, Chinese are looking more closely at Tasmania, although it is off a low base. This appears to be following Chinese tourism trends in the state,” Ms Conisbee said.

“Although there is a lot of interest from Chinese [property seekers] in Tasmania, a lack of new stock is likely to mean that this won’t necessarily translate into sales,” she said.

She said a fall in interest in Adelaide and Perth perhaps reflected a lack of tenants in this market, or a reduction in the amount of stock available.

The REA Group figures also show an expansion of Chinese interest beyond high-rise apartments.

“We continue to see Chinese-based property seekers diversify the types of properties that they are interested in. In particular, house and land is now a popular option,” Ms Conisbee said.

A new Treasury consultation paper recommended changes to FIRB rules to make it easier and cheaper for foreign buyers to purchase new property.

Recommendations include introducing a “new exemption certificate” giving foreign persons “broad pre-approval to purchase one new dwelling or vacant residential block”. Foreign buyers would then be required to notify Australian authorities when an actual purchase was made.

Financial Review

Investor makes 287pc return on property in three years: sold to Chinese

Investor makes 287pc return on property in three years: sold to Chinese

Bourke House sold for $33 million.
Bourke House sold for $33 million.

A Melbourne investor has made an astounding 287 per cent gross capital gain in three years on a boutique commercial building in the city centre after selling to a mainland Chinese investor.

The art deco-style building known as Bourke House on the corner of Bourke and Russell Streets sold for $33 million on a yield of about 4 per cent. It previously sold for $11.53 million in 2014.

Selling agents CBRE and Gross Waddell said the deal set a new Melbourne CBD land record of over $88,000 per square metre (for the 373 square metre site) and would add further fuel to the current land tax debate.

Increased land tax bills

Investors in the Melbourne CBD and in other areas of high demand have been slapped with massive increases in their 2017 land tax bills following biennial municipal valuations last year. Values have surged due to the record prices paid by mainly overseas investors in the past two years for commercial assets.

According to CBRE Research, mainland Chinese investors accounted for 81 per cent of all the non-institutional grade assets sold in the Melbourne CBD since September. This followed a slump in investment earlier in 2016 due to tighter Chinese capital controls.

“There has definitely been an increase in appetite since Chinese New Year,” said Lewis Tong who heads the CBRE Asian services desk.

“On a world scale investors still see Melbourne as being good value, especially when you can secure a prominent freehold corner on a famous street for about $30 million. In most other major cities this would only buy a strata title or secondary asset,” Mr Tong said.

Mr Tong marketed the C-grade building alongside CBRE colleagues Josh Rutman and Mark Wizel together with Gross Waddell’s Raoul Salter, Michael Gross and Jonathon McCormack

“All key value metrics confirm that we are seeing some of the strongest conditions experienced in over 10 years, with both foreign and domestic buyers creating unprecedented pricing uplift for Melbourne commercial assets offered to the open market,” Mr Rutman said.

Bourke House was sold by Melbourne investor Unicorn Hotel Nominees Pty Ltd, owned by Carole Hart.

The building, which dates back to 1923, offers 1500sq m of office space with retail space on the ground floor. It was previously owned by the Darrell Lea chocolate family.

The building is on the same block as the recently completed QT Melbourne hotel.

Financial Review

Australia–China ties need to make globalisation work

Australia–China ties need to make globalisation work

On the surface, all seems well in the Australia–China relationship but then Donald Trump came along.
On the surface, all seems well in the Australia–China relationship but then Donald Trump came along. David Rowe
On the surface, all seems well in the Australia–China relationship. China is growing rapidly and Australia continues to benefit heavily from China’s rise. China is already Australia’s largest trade partner. Australia is the second most popular location for China’s overseas direct investment. And as China’s economy continues to expand and hundreds of millions of its middle class consumers are eager to spend, more opportunities are opening for bilateral trade and investment.

The governments of both countries appear to be working hard to build an extensive and strong relationship. The Australia–China Free Trade Agreement has been in force since December 2015. More than 86 per cent of Australian goods exports to China now enter duty free. This should rise to 94 per cent by 2019 and 96 per cent by 2029. Australia will also reduce or remove its tariffs on Chinese imports. More Chinese tourists, students and workers will come to Australia and travel the other way.

But a spanner has been thrown into the works. With Donald Trump as the new US President, the United States is acting as if it wants to challenge the international political and economic order it helped to build.

Many Chinese are confused about what the United States wants and what it will do. President Trump threatened he would label China as a currency manipulator. Yes, the Chinese government has intervened in the foreign exchange market, but the purpose of this was to prevent the value of the renminbi (RMB) from falling. Does Trump really want China to stop these interventions and allow the RMB to depreciate further?

Trump also criticised the trade imbalance between China and the United States. It is a problem, but it is the result of a more fundamental macroeconomic imbalance. And what kind of feasible solution can the United States provide?

Australians are also confused. During his conversation with Australian Prime Minister Malcolm Turnbull, Trump reportedly called Australia’s refugee settlement agreement with the United States ‘the worst deal ever’. It was a wake up call and has raised concerns about the alliance relationship between the United States and Australia.

On his first day in the White House, President Trump quit the Trans-Pacific Partnership (TPP). The TPP was supposed to deliver high standard international trade rules to deepen economic ties. With the exit of the United States, where is the international trade regime going?

Keeping trade ties

The best option now for Australia is to further develop its economic relationship with China while at the same time maintaining its traditional political and economic ties with the United States. China will take a more important role in the world economy and Australia’s economic fortunes will be more connected to China in the future. The United States is the third biggest trading partner of Australia. But Australia–US trade is only 30 per cent of Australia’s trade with China, and Australia has a large trade deficit with the United States.

China has no interest in changing the US–Australia political and defence alliance, since it sees no potential threats from Australia. Neither Australia nor China want drastic change. The trees want to be still, but the wind is blowing. Australia and China need to change their domestic and international policies to be prepared for whatever contingency.

Domestically, both countries must speed up much-needed structural reform. China can no longer be an exporter of cheap products, and Australia seeks to reduce its dependency on the export of raw materials. If China can liberalise its services sector, inviting more investment – both domestic and foreign capital – to healthcare, education, logistics, finance and insurance, it can stimulate consumption and greatly improve the living standards of more than 1 billion Chinese people. China has the rare opportunity kill several birds with one stone.

And if Australia can increase its competitiveness in the services sector, many Australian companies may find profit in the expanding Chinese market. This should be the co-evolution of the Australian and Chinese economies.

Internationally, both countries need to work together to make globalisation work. Compared with their peers in the United States and Europe, policymakers and the general populace in both Australia and China tend to have more favourable opinions of globalisation.

China is very concerned about rising protectionism in the United States and the fallout from Brexit, and is willing to cooperate with other countries to maintain a liberal international economic order. But China itself may not have the diplomatic skills and capacity to assume global leadership, nor does it have the ambition. Even worse, some signals in China show that its “opening up” policy is slowing down.

The worst-case scenario is that countries like Australia and China finally turn inward and close their doors. Then there would be walls everywhere and the world would be split into belligerent trading blocs. Only when countries in this region work together can we deliver a more promising future.

As the Red Queen told Alice, “it takes all the running you can do to keep in the same place”. Welcome to the Looking-Glass World.

BY: He Fan
This article is part of a series from East Asia Forum (www.eastasiaforum.org) in the Crawford School of Public Policy at The Australian National University.

China’s biggest challenge: creating 13 million jobs a year

Li Keqiang on Wednesday. 
'It is essential that we maintain [the] steady medium high growth of our economy.'

Chinese Premier Li Keqiang laid out the biggest challenge facing his government on Wednesday and it was not a trade war, debt crisis or even air pollution.

It’s employment and how to keep the economy growing fast enough to create more than 13 million jobs.

And that’s just this year.

At his annual press conference the Premier broke down these numbers, saying a record 7.95 million students would graduate from university this year, along with a further 5 million students from vocational colleges.

 Li Keqiang  on Wednesday. 
'It is essential that we maintain [the] steady medium high growth of our economy.'
Li Keqiang on Wednesday. ‘It is essential that we maintain [the] steady medium high growth of our economy.’ Ng Han Guan

These all require jobs, while at the same time the Premier said “several hundred thousand” workers would be laid off from steel mills, coal mines and power plants as part of Beijing’s efforts to cut excess industrial capacity.

“It is essential that we maintain [the] steady medium high growth of our economy,” the Premier said.

And so when Mr Li talks about “stability” being the main priority in this year of political transition, he is really talking about jobs and ensuring near-full employment continues.

It’s the same when he acknowledges risks in the financial system and pledges to “prevent them from spreading”.

“China’s financial system is generally stable and there are no systemic risks.”

This means there won’t be any surprises during 2017, when five of the seven members of China’s top leadership body are due to step down.

The growth target of “around” 6.5 per cent will be reached or exceeded, as shown by the strong start to the year from official data released on Tuesday.

For Australian iron ore miners, this is good news for the year ahead, but the Premier’s comments also suggest long-promised reforms can’t be put off forever.

Job creation and the legitimacy of the Party depends on it.

This is because there are simply not enough well-paid white collar jobs, a problem which can only be fixed by opening up China’s services sector.

Wages data makes this point.

In 2016 the average wage of a Chinese university graduate was just 3,726 yuan ($745) a month, around the same level as an unskilled migrant worker.

And so while Beijing has done a good job keeping its 800 million-strong labour force employed, it has not done enough to provide challenging and well paid opportunities for its graduates.

Moving on the service sector and allowing more private capital into areas like banking, telecommunications, energy, transport and healthcare is one way to create more white collar jobs.

Opening up the stock, bond and currency markets to foreign investors is another way.

This will gradually happen and when these service sector reforms begin to produce sufficient jobs, Beijing should be confident enough to allow growth to slow to more realistic levels.

At that point the going will get tough for our mineral commodity exporters as China won’t need to keep growth artificially high to maintain employment in the old industrial economy.

But at the same time it should open up a whole new range of opportunities in the service sector for those companies sufficiently nimble to exploit them.

Economic policy makers in Australia appear to have acknowledged this reality by saying the government can’t rely on elevated commodity prices propping up the federal budget indefinitely. So the challenge is to not waste the short lived opportunity from higher than expected iron ore and coal prices, while continuing to push Australian companies into China’s services sector.

FinancialReview 

Residential buildings under construction in Chongqing, south-west China. Property and infrastructure development is ...

A surge in local government infrastructure projects has delivered a stronger-than-expected start to the year for China’s economy, as Beijing seeks “stability” ahead of a major political transition in November.
In a good sign for the continued strength of the iron ore price, official Chinese data released on Tuesday showed steel production, electricity generation and construction running well ahead of market expectations.
Crude steel production, the major driver of the iron ore price, jumped 5.8 per cent year-on-year over the first two months of the year.
This was the biggest jump in nearly three years and compared with growth of just 1.2 per cent during 2016.
“I think the iron ore price has solid foundations and good support at around $US80 a tonne for the rest of this year,” said Xu Xiangchun, the chief information officer at research house MySteel.

The iron ore price fell 5 per cent last week as analysts bet China’s steel production had run ahead of actual infrastructure investment.
The price has since rebounded somewhat to be trading around $US88 a tonne.
The data for January and February, which is combined to reduce the seasonal impact of the Chinese New Year holiday, suggests real activity rather than sentiment is driving demand for steel and lifting the iron ore price.
Fixed Asset Investment (FAI), a measure of infrastructure and property construction, rose by 8.9 per cent in January and February compared with a year ago.
This was considerably stronger than the 8.2 per cent expected by analysts and suggests Beijing is ramping up public works projects to meet its goal of keeping economic growth “around” 6.5 per cent this year.
Within the FAI data the strongest rise came from local government projects, focused on water treatment and environmental management.
The National Bureau of Statistics said spending in this area rose nearly 37 per cent to 467 billion yuan ($89 billion), while spending on transport projects rose 19 per cent to 389 billion yuan.
Overall local government spending within the FAI figure rose 9.5 per cent over the first two months of the year to 4 trillion yuan, while central government spending fell by 7 per cent to 140 billion yuan.
Power generation, another key indicator of economic activity, rose by 6.3 per cent during January and February, compared to a rise of just 4.5 per cent for all of 2016.
Industrial Production, an indicator of activity in the manufacturing sector, was slightly stronger than expected at 6.3 per cent over the first two months of the year.
The renewed push on government infrastructure spending came amid disappointing retail sales figures. Data for January and February showed retail sales grew by 9.5 per cent, below expectations of a 10.5 per cent rise.
This suggests Beijing is looking to support the overall economy by pumping up infrastructure spending as it seeks “stability” ahead of November’s National Party Congress where five of the country’s seven top leaders are due to be changed.
In his annual speech to China’s parliament on March 5th, Premier Li Keqiang indicated China would use infrastructure spending, private sector investment and business tax cuts to keep the economy growing around 6.5 per cent “or higher” this year.
“Stability is of overriding importance,” said Mr Li. “We should ensure stable growth, maintain employment, and prevent risks.”
“At present, overall, systemic risks are under control,” he said. “But we must be fully alert to the build-up of risks, including risks related to non-performing assets, bond defaults, shadow banking, and Internet finance.”
FinancialReview 

China reins in overseas investment after $300b in 2016

China struck $US225 billion ($298 billion) in deals to acquire companies abroad last year, a record-breaking number that signalled to the world that Chinese business leaders were hot to haggle.

Now China, with a worried eye on the money leaving its borders, is telling some of its companies to cool it down.
On Saturday, in the strongest public signal yet that Beijing was changing course, China’s commerce minister castigated what he called “blind and irrational investment”. At a news briefing during the annual meeting of China’s congress, Zhong Shan, the minister, said officials planned to intensify supervision of what he called a small number of companies.

“Some enterprises have already paid the price,” said Zhong, a protege of President Xi Jinping. “Some even have had a negative impact on our national image.”

Just a day earlier, Zhou Xiaochuan, the country’s top central banker, also questioned the wisdom of some recent Chinese overseas deals. “Some are not in line with our requirements and policies for overseas investment, such as in sports, entertainment and clubs,” he said. “This didn’t bring much benefit to China and caused some complaints overseas.”

The comments are the clearest confirmation that the government is hitting the brakes on the sometimes chaotic rush overseas by deep-pocketed Chinese companies with a reputation for having more money than deal-making aptitude.

“Are these guys in over their heads?” said Brock Silvers, a long-time investment banker in Shanghai. “The answer to me is, in some cases, they seem to be.”

A series of Chinese deals have come apart in recent months – though it is not always clear whether Beijing has stepped in, or whether buyers themselves suddenly decided they were making a big mistake.

Money movement

On Friday, the owners of Dick Clark Productions, which produces the Golden Globe Awards, said a $US1 billion ($1.3 billion) agreement to sell the company to China’s Dalian Wanda conglomerate collapsed. Dalian Wanda, a real estate giant that has branched out into filmmaking and cinemas, had no immediate comment.

Chinese families and companies have been rushing to move money out of the country for more than a year amid worries over a slowing national economy, a weakening currency and numerous other problems. The outflow has been expensive – China has spent $US1 trillion during the past two-and-a-half years to shore up the value of its currency – and threatens to damage the country’s efforts to help its rising middle class.

China in recent months has increased its efforts to stanch the flow, considerably tightening enforcement of its strict limits on how much money can move across its borders. The effort appears to be showing success: The most recent data, for February, showed a slight increase in the size of China’s huge holdings of foreign money managed by its currency administrator, one of the rough proxies for the sum of money moving out.

Among the moves, Beijing secretly told banks in late November that any movement of $US5 million or more out of the country required special approval. Since then, regulators have also told each bank to not move more money out of the country for clients than they take in. Some banks had been moving up to six times as much money out of the country.

That rule has complicated not only mergers and acquisitions but also the way many global companies move their China-made profits overseas, in the form of dividends. That could put in question whether China is complying with its commitments to the International Monetary Fund, which are part of a broader Chinese effort to increase the profile of the country’s currency.

Foreign executives describe broad difficulties moving money out of China. “On dividend payments, European Union companies experience more tedious paperwork, extended times of processing and the issue of breaking up the dividends over several months if it is a sizeable amount,” said Jorg Wuttke, president of the European Union Chamber of Commerce in China.

Zhou, China’s central banker, said Friday that dividends should not be subject to restrictions, but he did not go into details.

China’s $US225.4 billion ($298 billion) in announced deals for overseas properties last year amounted to more than double 2015’s total, according to Dealogic, a data firm that tracks deals.

Tentative deals

Dealmakers say China is likely to be still active on overseas acquisitions this year, especially as it moves to add technical know-how to its portfolio. The country’s biggest deal announced last year, for the Swiss agricultural giant Syngenta, is widely expected to close this year, although it faces regulatory hurdles.

Chinese officials appear eager to portray China’s tougher stance on deals abroad as an effort to prompt more responsible investing instead of an effort to shore up the country’s financial system. Zhong, the commerce minister, said that the country had not changed its long-term policy of encouraging Chinese companies to become more global.

But Chinese officials have a strong incentive not to acknowledge the administrative limits they have put on large movements of money out of the country. Such limits may make foreign investors more wary of putting money into China, at a time when Chinese leadership is trying to encourage more bond purchases by foreigners and other investments into the country to offset the money moving out.

Some Chinese deals have come apart this winter, though the full reasons are not always clear. In one of the biggest, Anbang Insurance, a politically connected company with a murky ownership structure, abruptly pulled out of a $US14 billion deal to buy Starwood Hotels and Resorts.

Some of the deals involved real estate firms or gritty industrial companies that have tried to buy their way into Hollywood – a trend that has also dismayed some in Washington, who worry that China may be acquiring too much influence over US entertainment.

Anhui Xinke New Materials, a copper processing company in central China, made a deal in November to buy Voltage Pictures, a US film financing and production company, for $US350 million. A month later, Anhui Xinke pulled out of the transaction before its completion.

Many Chinese companies have a lot of money overseas. More than $US500 billion sluiced out of the country in the few months after the stock market plummeted in summer 2015 and before China began gradually enforcing previously dormant rules on money transfers in February 2016. Much of that money is still being allocated to longer-term investments, along with another $US50 billion or more that is leaving the country each month, and the accumulated earnings on previous investments made overseas.

Qiang Li, a managing partner for China at DLA Piper law firm, said that only one-quarter of the many deals in which he was involved relied on transferring money out of China and might face obstacles. The rest are proceeding without difficulty because they use Chinese-owned dollars that are already overseas, he said.

“There is no question,” he said, “that investors will continue to invest overseas, by getting the proper approvals.”

The New York Times