China blasts off for big 2011 John Garnaut, Beijing January 21, 2011
The Chinese economy has entered 2011 at blistering speed, virtually ensuring yet another sharp boost in Australia's income.
China's economy grew at a faster than expected 9.8 per cent in the December quarter from a year earlier and inflation remains uncomfortably high.
GDP growth for the full year was 10.3 per cent, up 1.1 percentage points from 2009.
Advertisement: Story continues below Banks continue to push money out the door, and some analysts say authorities will delay serious policy tightening for as long as possible despite rises in capital reserve ratios, two recent interest rate rises and expectations of more.
''People worry about a hard landing and my expectation is that it will hardly land,'' said Wang Tao, China economist at UBS.
Strong construction has pushed the spot price of iron ore, by far Australia's biggest export to China, to $US185 a tonne.
This implies a sharp export price rise and terms of trade boost after the March-quarter contracts expire (many of which are set at about $US138).
The Queensland floods will slash coal production but also induce a sharp rise in international coal prices, which well-placed industry sources say will more than cancel out any loss of national export income.
China's consumer price inflation dipped to 4.6 per cent in the year to December but economists expect it will jump this month.
''If history repeats itself, inflation will peak at Spring Festival, driven by food prices, but it will remain high because of global oil and commodity prices,'' said Zhang Ming, an economist at the Chinese Academy of Social Sciences. (The Spring Festival, or lunar new year, falls in early February this year.) ''I expect inflation will peak above 6 per cent in March or April.''
The key macro policy lever in China is quantitative bank lending controls, with lending last year surpassing the targeted 7.5 trillion yuan ($A1.14 trillion) to hit 7.95 trillion.
An additional 2.1 trillion yuan in credit is estimated to have been issued via local trust companies.
Media reports suggest authorities will cut this year's lending quota to about 7 trillion yuan, but analysts differ on what impact this will have on the overall availability of money.
''I don't really think liquidity will be substantially down,'' said Ms Tao. ''You have to also look at corporate retained earnings, which were up 49 per cent in the industrial sector in the first eleven months of last year.''
Ms Tao expects price pressure will flow mainly into assets including real estate, despite the government's multi-layered administrative controls.
Dr Zhang expects China's excess liquidity to induce a new bull run on the sharemarket. But he said recent comments by Premier Wen Jiabao were ''a very positive signal that the government will try to control overall liquidity''.
Ma Jiantang, commissioner for the National Bureau of Statistics, obliquely blamed US quantitative easing for China's inflationary pressures, but said seven consecutive good harvests meant food prices would be kept under control.
''We have full confidence that we will control the price level in 2011,'' he said.
China's industrial production grew above expectations, at 13.5 per cent in the year to December, while fixed-asset investment dropped sharply to 20.4 per cent over the same period after a big surge in November.
Citibank economist Ken Peng said the fixed-asset investment slowdown was led by property investment.
''This is likely a temporary situation, as the government still plans to build 10 million units of economic housing this year,'' he said.
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