IMF hails China move to purchase bonds

POLITICAL ECONOMY

China says consumer prices fall for fourth straight month
China's consumer prices fell for the fourth month in a row in May, data showed Wednesday as the economy continued to be hit by the global slump despite a massive stimulus plan aimed at boosting spending. The consumer price index -- the main indicator of inflation and deflation -- fell 1.4 percent last month year on year, according to the National Bureau of Statistics, which added that the figure was down 0.3 percent from April. The data comes as Beijing tries to increase domestic consumption while its export-dependent economy is battered by the global crisis, which has slashed demand in key overseas markets such as the United States and European Union. But analysts said that despite the falling prices, China's economy was showing other signs of recovery and deflationary pressures could ease in the coming months. "The consumer price index is a little below our expectations," said Gao Yi, a Shanghai-based analyst with Oriental Securities. "But concerns over deflationary pressures have significantly eased recently because nonferrous metal and crude prices rallied strongly in international markets over the past months." Deflationary pressures would bottom out in July after the commodity price hikes trickled into China's economy, he said. A prolonged period of falling prices is a danger to the economy because it encourages people to defer purchases in the hope of getting them cheaper later on. The producer price index, which monitors wholesale prices, fell in May by 7.2 percent year on year, the bureau said. The decline compared with a 6.6 percent drop in April and a 4.6 percent fall in the first quarter from the same period last year. The government announced a package worth 590 billion dollars in November to kickstart the world's third biggest economy which is suffering its worst slowdown in nearly two decades. China's economy grew 6.1 percent in the first quarter of the year, the lowest level in at least 10 years. Before the global economic crisis struck, China had experienced double-digit growth from 2003 to 2007. And even in the first months of 2008, policy-makers' main concern was keeping inflation in check. However, Sun Mingchun, a Hong Kong-based economist with Nomura International, said: "I think deflation is coming to an end. We expect it to return to positive territory in September." Goldman Sachs economist Yu Song also said a rebound in economic activity in recent months indicated that deflationary pressures were on the wane. "As we expect the rebound to continue in the coming quarters, we believe deflationary pressures will disappear in the latter half of the year," Yu said in a research note. The May inflation figure is only slightly better than the 1.5 percent decline recorded in April, which followed a 1.2 percent fall in March and a 1.6 percent drop in February. The data shows the index was dragged down mainly by non-food items. The prices of non-food items fell 1.7 percent in May compared with a year earlier, and food prices were down 0.6 percent. While food was not the major factor in last month's price formation in China, the value of pork, the most popular meat for the Chinese, declined by a steep 32 percent in May from a year earlier, the bureau said. The index fell by 0.9 percent in the first five months of the year compared with the same period last year, according to the bureau. The PPI for January-May fell 5.5 percent over the same period last year.

by Staff Writers
Washington (AFP) June 9, 2009
China's decision to purchase the International Monetary Fund's first-ever bonds underlines its strong support for the global economic and financial system, IMF chief Dominique Strauss-Kahn said Tuesday.

Beijing had earlier said that if the IMF bonds met its requirements "in terms of safety and return on investment" it would consider buying up to 50 billion dollars of the financial instrument.

"We are grateful to the Chinese authorities for signaling their intention to invest in IMF notes and thereby, helping the IMF membership weather this global economic and financial crisis," Strauss-Kahn said in a statement.

"With this announcement, the Chinese authorities have signaled strong support for the international economic and financial system," he said in a statement welcoming the Chinese move.

Strauss-Kahn said Beijing's decision would be beneficial to all concerned parties.

"On one hand, IMF members' investment in Fund securities will boost the Fund's capacity to help member countries -- particularly developing and emerging market countries -- cope with the crisis and thus benefit all members by facilitating an early recovery of the global economy.

"At the same time, the new notes will offer members a safe investment instrument with reasonable return."

Strauss-Kahn said that IMF staff would present the necessary documentation to the Fund's executive board to allow the issuance of notes as early as possible.

The 185-nation IMF is struggling to provide financing to countries in trouble amid the global financial and economic crisis.

It has been working to issue its very first bonds, and major developing economies such as Brazil, Russia, India and China -- known collectively as the BRIC countries -- are seen as potential buyers.

China's forex reserves are the largest in the world and currently stand at about 1.9 trillion dollars.

The IMF said recently Russia intended to buy up to 10 billion dollars in the multilateral institution's bonds.

earlier related report
World Bank boss sees China spurring global recovery
China's stellar growth could help pull the world out of its current economic slump, the head of the World Bank said on Monday, while hailing the yuan's progress toward becoming a global reserve currency.

With Chinese growth in the first quarter of 2009 exceeding most expectations, World Bank president Robert Zoellick said China could act as a catalyst for a global economic resurgence.

"Any forecast in this environment is hazardous, but I think China is likely to surprise on the upside," the former US trade envoy said, speaking at a conference in Canada.

"By and large (China's growth) has not only been a stabilizing force, but a force that will pull the system (out of the downturn)."

China's meteoric rise as a global economic player has boosted world trade in manufactured goods and provided western companies with an enormous new market for their products and services.

Zoellick, who once headed US efforts to reach a new set of global trade rules at the World Trade Organization, urged countries not to hamper this now "symbiotic relationship."

"In this environment, if you had protectionism burst out on one side or the other, or have some doubt put in about financial markets, those are the type of factors that could take a fragile situation and make it worse."

Zollick also praised China's central bank for its efforts to develop the yuan as a global currency.

"Ultimately, that's a good thing. And ultimately it's good if you've got, I think, some multipolarity of reserve currencies to create, to make sure that people manage them well," he said.

Some currency-hawks, particularly in the United States, have seen the rise of the yuan as a threat to the dollar's global standing, one which could undermine US financial stability.

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POLITICAL ECONOMY

China's Hu to attend first BRIC summit: govt
Beijing (AFP) June 9, 2009
Chinese President Hu Jintao is to visit Russia next week to take part in the first-ever summit of leaders of BRIC countries, the foreign ministry said Tuesday. Hu will leave China on Sunday for a five-day trip to Yekaterinburg in western Russia, which will also incorporate a state visit and regional security meeting, foreign ministry spokesman Qin Gang said in a statement. The summit of ... read more

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