China’s Economy This Week: Currency Pressure Eases; Growth Slows; Development in West

"Softened" IMF Tone Eases Currnecy Pressure:  The International Monetary Fund's new approach toward China's exchange rate regime will ease pressure on the appreciation of the yuan, as the world's third-largest economy faces increasing risks of a slowdown, Chinese economists have said.

In a summary of comments by the IMF's 24-member Executive Board released on Tuesday, the Washington-based lender welcomed China's recent decision to return to a managed floating exchange rate system but contended that the yuan was still "undervalued".

The tone was slightly different from the IMF's long-held position, which claimed that the Chinese currency is "substantially undervalued". IMF Managing Director Dominique Strauss-Kahn had reiterated the stance in June.

On 19 June China scrapped the yuan's 23-month-old peg to the US dollar and pledged to seek greater flexibility in the value of its currency. The yuan has edged up about 0.7% since then.

Hu Xiaolian, vice-governor of the People's Bank of China, the central bank, said in an article published on the bank's website last week that the exchange rate will maintain overall stability at a reasonable and balanced level. However, the currency might show "two-way movements" against a single currency depending on market conditions, Hu said.

Central Banks Says Chances of Double-Dip slim:The People's Bank of China said on Tuesday that while it is possible for China's economic growth to slow, the chances of a "double dip" recession are seen as slim.

The country's gross domestic product increased 10.3% year-on-year in the second quarter of this year, slower than the 11.9% growth in the first quarter and the 10.7% expansion in the last quarter of 2009.

The bank said the current slowdown was a correction following arlier excessive expansion and a result of the government's macro-economic regulations that aimed at curbing steep property price increases, easing local government debt risks and avoiding possible inflation.

The PBOC said that the country's bank lending would be within the 7.5-trillion-yuan ($1.1 trillion) target in 2010 if the increase is maintained at the June level.

China to Continue Pro-active Fiscal Policy:  China will continue its fiscal policy in the second half of the year, focusing on speeding up economic restructuring, Finance Minister Xie Xuren said Tuesday.

The country would improve its macro-regulation policies according to changes in domestic and international economies, making the policies more flexible and targeted, Xie said.

China would continue efforts to boost domestic demand, especially consumption, in the second half, he said, urging better implementation of the minimum wage system and programmes such as the subsidized home appliance purchase scheme in rural areas and automobile replacement policy

Xie also demanded continuous financial support for agricultural production, technological innovation, energy-saving, emission-cutting projects and disaster relief.

China's Top Consimer Growth: China is first among 27 emerging economies due to its huge consumer market and rapid economic growth, according to the Emerging Markets Opportunity Index released by US accounting firm Grant Thornton.

"China leads the way thanks to the country's huge consumer market, an increasingly open economy and extremely rapid trade growth, which offer a myriad of business opportunities for potential investors," said Xia Zhidong, partner and vice-chairman of Grant Thornton China.

According to figures from the United Nations Conference on Trade and Development, China attracts the most foreign investment among the BRIC (Brazil, Russia, India and China) countries.

However, a lack of skilled labor, increasing labor costs and the low per capita gross domestic product (GDP) pose major challenges to foreign investment.

Strong Growth in China's Western Regions: The gross domestic product in China's western regions grew by 13.5% in 2009, much higher than the revised national GDP growth of 9.1%, according to a report by the Chinese Academy of Social Sciences.

It is the eighth year in a row that the regions have shown a double-digit growth after the Chinese Government launched a "West Development" campaign in 2000.

Noting that economic development in the western regions still heavily relied on natural resources, the report said efforts should be made to increase the regions' capacity to ensure sustainable development while establishing a low-carbon industrial system.

Hefty Government Investment in Tibet:  China's central government spent 137.8 billion yuan ($20.3 billion) to boost Tibet's development from 2006 to 2010, the regional government said Tuesday.

The money funded 188 key projects covering infrastructure building, urban development, environmental protection, and cultural conservation.

In the first half of this year, Tibet's GDP grew by 11.2%.

Tibet remains one of China's most underdeveloped regions due to its tough natural conditions and a weak economy, and it relies heavily on investment from the central government.

CIC Growth:  China Investment Corporation (CIC), the country's sovereign wealth fund, said Thursday that the rate of return on its global portfolio for 2009 was 11.7%, compared to a drop of 2.1% in 2008.

CIC has quickened its pace of overseas investments since the start of May last year. It invested $58 billion globally after a decline in 2008 of $4.8 billion.

China Currency Pact with Singapore:  The People's Bank of China, the central bank, said Friday that it has signed a 150-billion-yuan ($22.12 billion) currency swap agreement with the Monetary Authority of Singapore (MAS).

Since late 2008, China has signed currency swap agreements with the Republic of Korea (ROK), Malaysia, Belarus, Indonesia, Argentina and Iceland, as well as Hong Kong.

ICBC to Raise $6.6 billion: Industrial and Commercial Bank of China, the world's most valuable bank, plans to raise up to 45 billion yuan ($6.64 billion) through a rights offer, the latest in a series of massive fundraising plans by Chinese lenders to shore up their capital base.

ICBC said the rights offer was "to ensure the healthy development of our business and to boost our bank's competitiveness, as well as its resilience to risks and its sustainability in profits".

ICBC also said it plans to privatize its unit ICBC (Asia), but did not provide further details.

Big State-owned Chinese banks including Bank of China are seeking to replenish funds depleted by last year's record lending spree and to meet higher capital requirements demanded by regulators.