Top news of the week
China was the envy of the world last week, as it reported an 8.9% GDP
growth rate for the third quarter, up from 6.1% in the firt quarter and
7.9% in the second. The economy expanded by 7.7% for the first nine
months of this year.
The overall number is certainly impressive, but it is worth noting that the growth is driven by consumption and fixed asset investment which grew by 15.4% and 33.1% year over year respectively in the most recent quarter. Contribution from net export, the traditional growth engine for nearly three decades, has remained negative. And it seems that neither the government nor businesses are banking on a rebound in net export anytime soon, although there have been anecdotal comments of holiday orders trickling back and occasional reports of labour shortage returning to coastal towns with a heavy concentration of export-oriented businesses.
Now that the economy is back on the growth track and humming along nicely, the government has moved to reposition itself, shifting its focus from stimulating the economy to managing inflation expectations. Last week, senior officials publicly talked about inflation concerns for the first time in almost a year. While year over year inflation in retail and wholesale prices have remained negative for much of this year, the prices did creep up month over month recently. Most analysts now forecast the year over year price comparison to turn positive in the next three months, and some form of tightening, most likely a higher bank reserve ratio, will soon follow. Since the government was blamed for acting too slowly to clamp down inflation in the last cycle, they certainly don't want to repeat the mistake this time.
Market recap
The strong third-quarter economic data lifted investor confidence in the
stock market, sending the indices up for the third consecutive week.
Over the past five trading days, the Shanghai Composite Index climbed
4.4% to 3,108, while the Shenzhen Composite Index increased 6.7% to
12,843.
Macro and industry updates
China officially launches the start-up board in Shenzhen
ChiNext, the growth enterprise board modeled after the NASDAQ, will mainly serve budding small businesses in China that are hungry for capital. About 150 companies have applied to list on ChiNext, and the first batch of 28 firms will debut on October 30. These firms are mostly from the areas of electronics, IT, alternative energy, pharmaceuticals and healthcare.
Regulators relax control over insurers' investment in corporate bonds
Insurance companies can now invest 40% of its gross assets into corporate bonds, after regulators this week raised the cap previously set at 30%. The requirement for minimum rating of debt and convertible bonds issued by large State-owned companies (including those listed in Hong Kong) is also lowered to BBB from A.
Hong Kong raised down-payment of luxury homes to 40% to curb speculation
The new requirement, announced by the Hong Kong Monetary Authority, applies to high-end properties priced at HKD 20 million (£1.6 million) or above, and goes into effect immediately. Previously, down-payment for such properties was 30%. The measure is introduced by the authority as luxury home prices this year have exceeded historical peak levels reached in 1997. Some believe the bubbles are partly fuelled by speculative investors from the Chinese mainland that have access to the huge amounts of low-cost loans extended earlier this year. Recently, a luxury condo unit in Hong Kong was sold to a mainland-Chinese buyer for a record price of HKD 71,000 (£5,600) per square foot.
Contributions from Iris Tan.
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