China News – Economic Problems Take Back Seat To Social Issues

Growing inflation, a strengthening currency, and nervous local investors – contrary to popular belief, China doesn’t only have an overheating economy; it’s starting to look like it’s got the first stages of a fever.

Rampant nationalism and social issues grabbed so many headlines outside and inside of China that you could be forgiven for thinking that all was well with the Chinese economy.

This is not in fact the case

The Yuan has continued its strong upward climb against the USD, breaking the seven Yuan mark on April 10 according to the China Daily (english.people.com.cn/90001/90776/90884/6389951.html); the first time since it was unpegged in 2006 that it had done so. This has continued to put pressure on American companies manufacturing in China with some questioning (latimes.com/news/nationworld/world/la-fi-currency9apr09,1,993765.story?track=rss) their future on the mainland.

The Yuan also climbed against the Canadian Dollar and the Hong Kong Dollar while falling against the euro, Australian dollar and British Pound.

The stronger Yuan is growing to be a big concern for many Hong Kong residents, especially as a growing population live in neighboring Shenzhen and commute to work in Hong Kong. The price difference has become such a concern that many employees have started to ask employers to pay them in RMB instead of HKD, according a report in the Chinese Language paper, Nan Fang Daily, on Wednesday, April 9.

Activity in the property and stock markets are starting to reflect concerns.

There has been reports in the property markets of softening demand and dropping prices, although commentators are unsure of whether price drops will go on for a couple of months or for a longer period.

China’s volatile stock market has also shown signs of weakening taking an extended dip (thestandard.com.hk/news_detail.asp?pp_cat=5&art_id=64205&sid=18427381&con_type=1&d_str=20080410&sear_year=2008) yesterday, which worried small investors.

The dip appears to have corrected itself (hk.ibtimes.com/articles/20080410/china-stocks.htm), but analysts are concerned that the dip in share prices could be a harbinger of things to come.

It’s not all bad news though with China and New Zealand signing a Free Trade Agreement on the 10th. The move was mostly symbolic for China as New Zealand is known for having very few tariffs on anything, but it will mean that more Chinese workers can go to New Zealand than before. The deal should also keep primary good producers happy, although with globally strong commodity prices its unlikely they’ll be able to take advantage of new market possibilities for some time yet.

The Chinese electronic manufacturing industry continues to strengthen, despite inflation the rising Yuan, and a potentially weakening market for gadgets in the US, its main market.

Most makers have been going through expansion periods, which don’t appear to be slowing.