China Uncooks Its Trade Books

That China’s reported trade figures are, to put it mildly, a bit dodgy will come as no surprise. The 21st Century Business Herald has put some numbers on those suspicions.

Quoting commerce ministry sources, the paper says that $75 billion of fake invoicing covering the months of January to April have been uncovered. That is sufficient to change the export growth for that period to 7%, against the 17.4% reported and to cut the corresponding imports number to 6% from the reported 10.6%.

The fake invoicing was part of a scheme by some Chinese companies who were cooking their order books in order to get funds to speculate on the appreciation of the yuan against the dollar. In short, they were disguising hot money as trade payments. This was done by parking goods in Hong Kong and booking them as exports so they could get forex  loans from the banks, or in some cases, it is now clear, by just creating phantom export orders.

Authorities cracked down on the practice in May. The $75 billion figure has been derived by applying May’s trade growth rates to the previous four months for China’s special customs regulation zones, the bonded warehouses in places like Shenzhen on the border with Hong Kong.

More Chinese caught in Ghana crackdown on illegal gold mining

More trouble in Ghana for Chinese miners working the country’s small and usually illegal gold mines. Police are holding 124 Chinese after a series of raids on workers suspected of illegal working. The high price of gold has brought an influx of pick-and-shovel wielding Chinese to Ghana, even though foreigners are banned from small scale mining in the country, which is the continent’s second largest gold producer after South Africa.

Last October, a 16-year old Chinese boy was killed and more than 100 other Chinese arrested in a joint raid by police and immigration authorities on  suspected illegal gold mining in the Ashanti region. Now as then, the incident is awkward for Beijing which is caught between assuring a domestic audience that it can look after the interests of its citizens abroad while reassuring skeptical African countries that the increasing legions of Chinese working in Africa will be good local citizens.

No surprise, China’s economy is flat-lining

China’s economy is flat-lining by its own standards, although many a country would take its 7%-8% growth rate. The latest measure of factory activity, HSBC’s purchasing managers’ index for May, came in at 49.2, down from April’s 50.4. This is the first time in seven months that it has fallen below the 50 level that delineates expansion from contraction.

The number was slightly worse than the flash, or preliminary, reading of 49.6 a week ago. The full month number does nothing otherwise to change the implication that the modest expansion of manufacturing activity that has been seen since the slowing economy started to pick up steam again last autumn has been replaced by modest contraction, or that the weakness seen by China’s manufacturers in global demand for their goods and services has spread to their domestic customers.

Similarly, policy makers are likely not to make any significant change to fiscal or monetary policy, especially as home price increases are starting to show some slowing in response to measures to cool the property market. While there is little evidence of any recovery in growth in the second quarter, and limited prospects for a pick-up in activity in the third, neither are there signs that the economy is about to deteriorate sharply.

Chinacity London

London  dreams of being an offshore center for yuan trading as the Chinese currency edges towards convertibility. Just down the road from London’s traditional financial centre, the City, and even closer to its newer version, Canary Wharf in London’s Docklands, Chinese money and a U.K. developer are planning to build a business park to house Chinese firms. London’s mayor, Boris Johnson, is already rather grandly billing it as London’s third financial center. A new Chinatown more like.

The £1 billion ($1.5 billion) redevelopment of a derelict 14-hectare site at the old Royal Albert Dock in east London is said to be the biggest Chinese commercial real estate investment in the U.K. to date. Xu Weiping’s brownfield sites real estate company, Advanced Business Park (ABP), is putting up 30% of the development’s £1 billion ($1.5 billion) price tag, with at least as much coming from private equity and bank loans and the remainder from pre-sales.

The complex of offices, homes and shops — ABP sees it as a city within a city — will be built in three to five phases over 10 years, starting with 56,000 square metres of office space planned to be available from 2017. Chinese banks are likely first occupants. ABP is building similar and larger projects in Beijing, Shenyang and Qingdao.

U.K. firm Stanhope will be the development manager on the London project. The master-planner will be Terry Farrell, the U.K architects that designed Kowloon Station and Peak Tower in Hong Kong and the new Guangzhou Station; it is also working on the Z-15 project which will include the tallest building in Beijing.

That offers some hope of a project of some grandeur for a site that needs regeneration. The Royal Albert stopped being a working dock in the 1980s. It is now mainly used for rowing and other water-sports, though London’s City Airport sites on its southern side. Passengers might not realize it, but the Royal Albert’s old dry dock is under the runway.

Advanced Business Park will lease the site from the Greater London Authority until the development is completed, at which point it will acquire the freehold. It just might be that the yuan becomes fully convertible around the same time.

OECD Hacks At Its China Growth Forecast

If the Organization for Economic Co-operation and Development (OECD) has pared its growth forecast for the world economy, then it has a taken a hatchet to that for China. In the latest update to its economic outlook, the OECD now says it expects China’s GDP to grow at 7.8% this year, no faster than in 2012. It has pushed back its forecast for any pick-up in the pace until next year, when it forecasts the economy will expand by 8.4%. In March, it had forecast 8.5% GDP growth this year and 8.9% next.

The OECD forecast is a sharper correction than that just made by the International Monetary Fund, which cut its forecast for this year to 7.75% growth from 8%, citing the overall weakness of the world economy and the effect that was having on China’s exports. The OECD points the finger more at a slowdown in capital formation in the first quarter and swings in inventories. Given China’s own recently published monthly economic indicators the downward revisions by both multilateral institutions is scarcely a surprise, though the scale of the OECD’s cut did raise an eyebrow as it is usually the most bullish on China.

The OECD sees scope for more relaxed fiscal and monetary policy in the second half of the year to stimulate growth as long as inflation stays low, but notes that disinflationary pressures have recently abated. It also recognizes the risks lurking in the property market and in shadow banking. Those limit policymakers’ freedom of action. The organization also calls for a detailed timetable to implement structural economic reforms, notably interest rate deregulation, increased labour market flexibility and land reform.

China’s Slowing Manufacturing Activity Tests Policymakers’ Resolve

So far China’s new leadership has resisted short-term fixes to the country’s slower growth and held true to the need for deeper structural reforms to rebalance the economy. The latest measure of economic activity — HSBC’s flash purchasing managers’ index for May — may test their resolve, but not, this Bystander hazards, break it.

The May reading, at 49.6, down from April’s 50.4, was the lowest in seven months. More germanely, it fell below the 50 mark that delineates expansion from contraction. The modest expansion of manufacturing activity that has been seen since the slowing economy started to pick up steam again last autumn has been replaced by modest contraction. The second area of concern is that the weakness seen by China’s manufacturers in global demand for their goods and services seems to have spread to their domestic customers.

The difficulty for policymakers is that they have limited scope even for short-term fixes. Monetary policy is already easy and loosening it further or splashing out on another round of government funded infrastructure investment spending risks further inflating property bubbles and an already concerning local government debt overhang. At best there is likely to be spot stimulus measures applied where local employment conditions put social stability at risk.

One of the vehicles for this might be the new leadership’s urbanization plans, a centerpiece of its long-term management of moving China to a slower growth trajectory than the double digit annual growth it averaged over the past three decades. While the plan will take years to implement, it could set a tone for structural reform that would have a more immediate effect on economic confidence, and prevent GDP growth for the year falling below 2012′s 7.8%, its slowest in more than a decade.

Death Toll From Southern Rains Tops 50

The death toll from the heavy rains lashing southern China has reached 53 with several other people reported missing. At least 22 of the deaths have been in Guangdong, the worst-affected province, state media report. Some reports put the death toll there as high as 36. More than 650,000 in the province have been affected by the flooding and landslides. A further 200,000 have been affected in Guangxi. Last week, 19 people died there and in Hunan and Guizhou as a result of heavy rains and floods that caused widespread property damage.