Emerging Markets: China

Roundup

 

By Thomas Clouse

 

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China’s property boom defies the recession

China exceeded expectations across a variety of economic indicators in recent weeks, boosting hopes that the world’s third largest economy may have successfully weathered the global economic crisis. The country’s GDP grew by 7.9% in the second quarter, up from 6.1% growth in the first three months of the year. Manufacturing conditions improved for the fifth straight month in July, according to the country’s Purchasing Managers’ Index.

 

Urban and rural per-capita incomes also increased by 9.8% and 8.1% respectively in the first six months of the year, compared with the first half of 2008. Exports continued to fall on a year-over-year basis, indicating that the growth numbers stem from a strengthening domestic market. Concerns remain, however, that massive lending increases may be fueling the growth and could result in significant defaults and market bubbles. Chinese banks doled out 7.37 trillion renminbi ($1.08 trillion) in new loans in the first half of the year, tripling the amount given during the same period last year.

 

The lending surge has also cast doubt on the sustain¬ability of recent gains in the country’s stock and prop¬erty markets. The Shanghai Composite Index gained almost 85% in the first seven months of the year, making it the top performing major capital market in the world. Commercial real estate sales increased 31.7% year-on-year in the first six months of 2009 according to China’s National Bureau of Statistics and prices increased slightly from May to June. The high demand for stock and real es¬tate is stoking fears that bank loans are flowing into specu¬lative investments. Respond¬ing to such fears, the China Banking and Regulatory Commission (CBRC) in late July tightened restrictions on the uses of bank loans.

 

China State Construction Engineering Corp (CSCEC) capitalized on the country’s stock market fervor to launch the world’s largest IPO in over a year. The company raised 50.2 billion renminbi with its July listing, making it the largest IPO since Visa’s stock offering in March of last year. CSCEC’s IPO was only the fifth this year on the Shanghai exchange after the government lifted a 10-month suspension on new stock offerings in July.

 

 

 

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