Enough with the rumors and the leaks. This morning we have official numbers on economic growth and inflation from China.
For the fourth quarter of 2010 GDP growth in China accelerated to 9.8%. That was higher than the 9.6% annual growth recorded in the third quarter and above the 9.4% consensus estimate from economists surveyed by Bloomberg. The fourth quarter’s results took growth for all of 2010 to 10.3%. That was up from 9.2% growth in 2009 and the fastest growth in three years.
Inflation in December dipped to an annual rate of 4.6% from 5.1% in November. That figure had been reported in China yesterday as a “leak” from “official sources. Very few economists expect that downward trend to last with Citigroup and Credit Suisse both pegging 6% as an inflation peak in the first half of 2011.
If you’re a glass is half full type, I suppose you can see this as positive news. At 9.8% economic growth is lower than the 10.2% that was being bandied about earlier this week. And 4.6% inflation is lower than 5.1%. But stocks in China got their bump from the 4.6% inflation news yesterday on the leak and today Asian markets are suffering a shortage of optimists. Most investors believe that the news today raises the odds that Beijing will increase interest rates in order to slow the economy in 2011. A growing consensus is looking for another one percentage point increase in benchmark interest rates in 2011. (I think that’s extremely likely—but I don’t think that’s enough to get inflation under control.)
The Shanghai Composite dropped 2.9% today to close at a four-month low. Hong Kong’s Hang Seng Index was down 1.7%. The MSCI Asia Pacific Index lost 1.3%.
In Europe shares of companies with big exposure to China took big hits. For example, Volkswagen, the largest European carmaker in China, was down 5% as of 11 a.m. in Frankfurt.
Digging beneath the top line numbers shows a Chinese economy that just won’t slow down. Urban fixed-asset investment—real estate development—rose by 24.5% in 2010. Industrial production climbed 13.5%. Producer prices, an indicator of future inflation in consumer prices, climbed at a 5.9% annual rate.
@ Robert1234:
I couldn’t disagree w/ you more re: China. But, I do think your view characterizes the consensus, and is providing opportunity for those with my view to position accordingly.
“A China economy that wont slow down signals demand !” Not so much – it just signals a centrally-planned system where the banks are too afraid to unwind their lending positions because of the domino effect that would ensue.
“I’d suspect that when we see a slowdown in the rate of copper used in China, then we have a problem.” Copper appears to be forming a double-top in the $445 area as we speak.
These GDP and inflation numbers from China are causing most names in the fertilizer/agriculture sector to tank today. I think it’s a good opportunity to add to those positions, since I believe the longer-term trend (i.e. 1 to 3 years) of global food shortage and rising crop prices will stay intact despite occasional short-term hiccups due to inflation news from China.
A China economy that wont slow down signals demand ! If they drive up interest rates, and the economy still will not slow down, that signals even greater demand.
The way I see it, I will worry about China, when interest rates go up in the face of rising unemployment, and an inflation rate that starts to exceed growth rate.
The employment rate, the growth rate, and income levels of China are going up, not down.
I’d suspect that when we see a slowdown in the rate of copper used in China, then we have a problem.
Jim…
What are your thoughts on investors holding NIV, CSKI, and CBEH???
Anybody else care to post their thoughts on Chinese stocks??
Thanks a bunch!
STL