China News Round-Up, The Great Economic Guessing Game

The uncertainty in China’s economy could easily be seen in the RMB, which was very unsettled last week

Right now, the Chinese economy is like the mystery object in the ‘will it float’ segment of the Late Show with David Letterman.

Everyone, including CCP don’t really know what the economy is doing and whether it is going to overheat or have a hard landing (eeo.com.cn/ens/finance_investment/2008/06/26/104385.html)…two possibilities which couldn’t be on further ends of the scale from each other.

Fears of an overheated economy have so consumed the CCP (when they’re not getting overly paranoid about the Olympics (danwei.org/2008_beijing_olympic_games/record_breaking_security_at_th.php) that is, that earlier this year the country’s
State Administration of Foreign Exchange (better known as SAFE) passed a law requiring exporters to ‘park’ the foreign currency payments they get for shipments in a bank account so it can be audited before they’re allowed to change it into local currency. The measure was passed on July 2 and was put into motion on July 15.

If anything larger than a seagull passes overhead of the birds nest during the Olympics and it doesn’t have the proper accreditation you’re going to see the real javelin toss (CNN and BBC helicopter pilots will definitely be feeling nervous).

This doesn’t affect wholesale dropship suppliers but according to the very excitable ‘all roads lead to China’ it will mean that exporters (who aren’t normally allowed to access commercial bank loans, especially after the governments continual pressure on banks – more on that later) go to the informal banking sector gangs (cibmagazine.com.cn/theyuanalsorises/index.php/2008/07/02/economist-speak-or-cluelessness/) and loan sharks for working capital to cover them until they are allowed to use the money that they’ve been paid.

This is an attempt to stop the ‘hot money’ coming into the country that gets pumped into the housing market and share market, which then drives up inflation. It is the latest measure to be paired with the continual increase of reserves banks are being forced to keep.

However some economists are arguing that not only is China’s period of rapid growth over but the massive amounts of capital held in reserve (eeo.com.cn/ens/finance_investment/2008/07/23/108031.html) will eventually lead to a hard landing.

What doesn’t help matters is that the country is going through its usual summer energy crisis blues which have been compounded by the Olympics. Shanghai used 22.43 million kilowatts (shanghaiist.com/2008/07/25/lights_out.php) of electricity in an afternoon on Friday the 25th of July. It is not surprising then that coal supplies (uk.reuters.com/article/oilRpt/idUKSHA35273720080723) are at an all-time low.

The uncertainty is having a major effect on the confidence of everyday Chinese people with less now saying they are confident about their personal safety and fortune.

The take-home message of this blog must be, if you’re a bulk importer, to find out more about the current SAFE regulations (allroadsleadtochina.com/index.php/2008/07/25/sourcing-in-china-read-this-now/) and for everyone else on their way over to China to monitor the state of their business to expect difficulties until mid september when, according to current rumors, tight regulations will ease.