Sunday, November 30, 2008
More on the Chinese Economy
The People's Bank of China, the country's central bank, decided to reduce the interest rates by a massive 1.08 percentage points from Thursday, in a desperate effort to jumpstart capital investments, boost housing sale and propel domestic consumption, amid an increasing chilly economic winter of the world.
| A woman walks in front of the headquarters of China's central bank, the People's Bank of China, in Beijing in this file photo dated October 8, 2008. The central bank decided to reduce the interest rate by a massive 1.08 percentage points from Thursday, in a desperate effort to jumpstart capital investments, boost housing sale and propel domestic consumption, amid an increasing chilly economic winter of the world. [Agencies] |
The 108 basis points reduction, announced by the official website of the central bank, is unseen in more than 10 years. Previously, the bank has resorted to piecemeal rate hike or reduction of only 27 basis points to finetune the economy.
In the meantime, the bank said that the deposit reserve ratio, by which a commercial bank is required to deposit a portion of its collected savings in the central bank, will be cut by 1 percent to 16 percent. The reserve requirement for the country's smaller local banks is made even lower to 14 percent.
The measure, effective on December 5, will increase cash supply on the money market. Although China now has a relatively fluent flowing of credit, the reduction will add to liquidity and benefit the middle and small-sized businesses, which used to be shunned by bank credit in previous economic slowdowns.
The latest drastic slashing of interest rates, coupled with the massive 4-trillion yuan (US$586 billion) fiscal stimulus package announced by China's State Council, the cabinet, earlier this month, is to weigh heavily on the worldwide collective efforts in blocking a rapid slowdown of the global economy, Chinese analysts said.
The rates reduction was the largest since the central bank cut the rate by 1.44 percentage points in October 1997, at the height of the Asian financial crisis.
It might buttress investors' confidence on the stock markets.
The gains in the Chinese equity markets moderated in the morning session on Thursday to less than four percent after opening sharply higher to stand above the 2,000 mark, boosted by China’s biggest interest-rate cut in 11 years. The benchmark Shanghai Composite Index surged more than six percent at the opening to 2012.69, while the smaller Shenzhen index also gained nearly six percent to open at 6923.37 points.
The monetary policy revision, which cuts the yearly borrowing rate from 6.66 percent to 5.58 percent, and the annual saving rate from 3.60 percent to 2.52 percent, is a clear signal by Beijing that China is no longer harassed by inflation. On the contrary, economists caution that with prices of all commodities dropping fast, and many labor-intensive factories closing doors, China is facing a likely deflation, which is an economist's nightmare.
Xia Bing, a senior economist with the State Council Development and Research Center, a government think tank, said that the country suffered from up to 3 years' grisly deflation in the aftermath of the 1997-98 Asian financial meltdown. It was former Premier Zhu Rongji who sat at the steering and guided the country to weather the storm then.
The National Bureau of Statistics reported earlier that China's consumer price index, a major gauge of inflation, eased to 4.0 percent in October, from 4.6 percent in September and 4.9 percent in August. The index for November, to be announced in mid December, is expected to drop to around 3.2 percent, according to most estimates.
Chinese economists believe that the central bank could trim the interest rate further at the end of this year, or early in 2009, if the economy does not show evident signs of revival.
More on the Chinese Economy
The People's Bank of China, the country's central bank, decided to reduce the interest rates by a massive 1.08 percentage points from Thursday, in a desperate effort to jumpstart capital investments, boost housing sale and propel domestic consumption, amid an increasing chilly economic winter of the world.
| A woman walks in front of the headquarters of China's central bank, the People's Bank of China, in Beijing in this file photo dated October 8, 2008. The central bank decided to reduce the interest rate by a massive 1.08 percentage points from Thursday, in a desperate effort to jumpstart capital investments, boost housing sale and propel domestic consumption, amid an increasing chilly economic winter of the world. [Agencies] |
The 108 basis points reduction, announced by the official website of the central bank, is unseen in more than 10 years. Previously, the bank has resorted to piecemeal rate hike or reduction of only 27 basis points to finetune the economy.
In the meantime, the bank said that the deposit reserve ratio, by which a commercial bank is required to deposit a portion of its collected savings in the central bank, will be cut by 1 percent to 16 percent. The reserve requirement for the country's smaller local banks is made even lower to 14 percent.
The measure, effective on December 5, will increase cash supply on the money market. Although China now has a relatively fluent flowing of credit, the reduction will add to liquidity and benefit the middle and small-sized businesses, which used to be shunned by bank credit in previous economic slowdowns.
The latest drastic slashing of interest rates, coupled with the massive 4-trillion yuan (US$586 billion) fiscal stimulus package announced by China's State Council, the cabinet, earlier this month, is to weigh heavily on the worldwide collective efforts in blocking a rapid slowdown of the global economy, Chinese analysts said.
The rates reduction was the largest since the central bank cut the rate by 1.44 percentage points in October 1997, at the height of the Asian financial crisis.
It might buttress investors' confidence on the stock markets.
The gains in the Chinese equity markets moderated in the morning session on Thursday to less than four percent after opening sharply higher to stand above the 2,000 mark, boosted by China’s biggest interest-rate cut in 11 years. The benchmark Shanghai Composite Index surged more than six percent at the opening to 2012.69, while the smaller Shenzhen index also gained nearly six percent to open at 6923.37 points.
The monetary policy revision, which cuts the yearly borrowing rate from 6.66 percent to 5.58 percent, and the annual saving rate from 3.60 percent to 2.52 percent, is a clear signal by Beijing that China is no longer harassed by inflation. On the contrary, economists caution that with prices of all commodities dropping fast, and many labor-intensive factories closing doors, China is facing a likely deflation, which is an economist's nightmare.
Xia Bing, a senior economist with the State Council Development and Research Center, a government think tank, said that the country suffered from up to 3 years' grisly deflation in the aftermath of the 1997-98 Asian financial meltdown. It was former Premier Zhu Rongji who sat at the steering and guided the country to weather the storm then.
The National Bureau of Statistics reported earlier that China's consumer price index, a major gauge of inflation, eased to 4.0 percent in October, from 4.6 percent in September and 4.9 percent in August. The index for November, to be announced in mid December, is expected to drop to around 3.2 percent, according to most estimates.
Chinese economists believe that the central bank could trim the interest rate further at the end of this year, or early in 2009, if the economy does not show evident signs of revival.
Business in China...World Economy
BEIJING - Chinese President Hu Jintao said Friday the top priority of the country's 2009 agenda on economic development is to maintain a "stable and relatively fast growth", amid the grim global economic downturn.
"We will ensure a quality and fast growth of the national economy next year," Hu said while sitting down with personages outside the ruling Communist Party of China (CPC) to seek their advice on the country's economic development.
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The world's fastest growing economy saw its growth slow sharply to nine percent year on year in the third quarter, the slowest pace in five years, as a result of slower export and investment growth.
The president said the country would continue to practice "active" fiscal and "moderately loose" monetary policies next year, and would in the meantime strengthen and improve macro controls according to changing conditions.
Such proactive policies is a transition made earlier this month against adverse global economic conditions from the earlier "prudent" fiscal and "tight" monetary policies aimed at curbing inflation and averting overheating.
He stressed the importance of boosting domestic demands, saying the country would bring consumption to play a bigger role in driving the economic growth, and the expansion of consumer spending would receive more prominent emphasis.
China would also increase its investment in rural areas, agriculture, and farmers "by a large extent" to guarantee the development of the agricultural sector and ensure the output of grain and other farm produce, according to the president.
Hu said the country would continue to promote economic restructuring. China has been working to reduce its heavy reliance on exports and investment over the past years.
"The country needs to take the challenges of the ongoing global financial crisis as opportunities to accelerate industrial restructuring to create new growth and foster other competitive edges," he said.
China would continue with its reform and opening up, Hu said. "The country will lose no chance to introduce reforms that can promote the development at the right time, and will take note of bringing the market into full play in allocating resources."
The country would actively develop the export-oriented sector and step up the diversification of exporting markets, Hu added.
Thanksgiving Shopping...Not Too Bad.
Holiday shopping season off to modest start
Sunday November 30, 6:15 pm ET
By Anne D'Innocenzio, AP Retail Writer
Holiday season off to modest start as shoppers focus on bargains, small-ticket items NEW YORK (AP) -- Deep discounts on everything from sweaters to TVs drove shoppers out of hibernation for the Thanksgiving weekend, but the buying was tempered and sales for the traditional start of the holiday season appear at best in line with stores' low expectations.
The sales receipts, however, came at the expense of profits, and merchants are facing a big challenge exciting financially strapped shoppers for the rest of the season that's expected to be the weakest in decades.
Sunday November 30, 6:15 pm ET
By Anne D'Innocenzio, AP Retail Writer
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The nation's retailers -- who since mid-September have suffered from the most dramatic falloff in spending in decades amid a ballooning financial crisis -- opened their stores as early as midnight on Thursday, holding their breath wondering if shoppers would show up for the pre-dawn specials. But while the crowds did come out, analysts say they were thinner than last year, and according to some accounts, business fell off sharply for the remainder of the weekend.
Shoppers were also focused on bargains and smaller-ticket, practical items like blenders and video games, as they worry about layoffs, tightening credit and shrinking retirement funds.
Even online spending, once a bright spot in retailing, has been hit hard by economic woes in recent months. ComScore, an Internet research company, reported Sunday that online spending was up a modest 2 percent for the combined Thanksgiving Day and Friday, compared with the year-ago period.
"I've cut my budget in half. I usually have a spending limit of $50 per person, but this year, it's $25," said Laura Bentley, of Miami, who was at the local Dolphin Mall on Saturday, her first day of holiday shopping.
Manno and Poun Sam of Houston, who had just purchased some toys, including a Crayola coloring game and a stuffed animal, at a Wal-Mart store in suburban Houston on Saturday, said they were trying to stay within a $500 budget.
"We're not buying anything fancy," said Manno Sam, an assembly-line worker. "We can't afford it."
New York-based retail consultant Walter Loeb said he expects sales for the weekend to be below year-ago levels, based on discussions this weekend with key executives from discounters and department stores.
But he added, "It wasn't as bad as some feared. ... People were buying but they bought cheap, and the results were not as good."
Marshal Cohen, chief industry analyst at NPD Group, a market research group, who had a network of analysts at 53 mall locations across the country this weekend, said that "the holiday started off with some promise but quickly moved to concern."
"It could have been a disaster, but it wasn't," he said, noting that he estimates that the weekend's sales were at best even with the same holiday weekend a year ago.
Karen MacDonald, a spokeswoman at Taubman Centers Inc., which operates 24 malls in 11 states, said that based on a sampling of malls, business on Friday was anywhere from unchanged to up mid-single digits. But on Saturday, sales were unchanged to down slightly.
"Friday was encouraging, but Saturday wasn't as good as we hoped," she said.
But Toys R Us Chief Executive Jerry Storch reported on Sunday that customer traffic was at least as strong this past weekend as the Thanksgiving weekend a year ago, and said he was "definitely pleased with sales."
Geoffrey Webb, director of advertising and sales promotions at K-B Toys Inc., said that sales for the weekend were equal or slightly better than last year.
"We are very encouraged by the response," he said.
A more complete sales picture of how the Thanksgiving shopping weekend fared won't be known until Thursday when the nation's retailers report November same-store sales, or sales at stores opened at least a year.
According to preliminary figures released Saturday by ShopperTrak RCT, a research firm that tracks total retail sales at more than 50,000 outlets, sales rose 3 percent to $10.6 billion on Friday from the Black Friday a year ago.
ShopperTrak RCT is expected to release data for the combined Friday and Saturday period on Monday. Bill Martin, ShopperTrak's co-founder, said he wasn't sure if the momentum was sustained through the rest of the weekend.
The day after Thanksgiving -- dubbed Black Friday because it historically was the day when a surge of shoppers helped stores break into profitability for the full year -- has been fading in importance.
In recent years, merchants have been pushing earlier the sales and expanded hours that were typically reserved for that day. This year, in a desperate bid to pull in shoppers, stores were even more aggressive, offering discounts of up to 70 percent in the days leading to the weekend, and widening those price cuts for a broader array of merchandise for the early morning deals.
Aside from the economy, however, Black Friday's early morning madness has also lost some of its steam because of the abundance of bargains that shoppers can find on the Web. Cohen also noted there's less frenzy this year because, with the exception of some isolated hard-to-find hits like Fisher-Price's Elmo Live and Nintendo's "Wii Fit" exercise game, there isn't a particular gift that's a "big standout."
While Black Friday isn't a predictor of the holiday season, it does act as a barometer of consumers' willingness to spend. Complicating matters is a shorter buying season -- 27 days between Black Friday and Christmas -- instead of 32 last year, putting more pressure on retailers.
Clearly economic woes played a role in how shoppers bought this weekend. K-B's Webb noted that consumers were focusing on bargains like a $30 My Happy Family dollhouse, which offered furniture and figures, as part of the retailer's supervalue program. Taubman's MacDonald said that practical items did well, like cookware and small home appliances, but clothing and electronics also were popular because they were deeply discounted.
The managers of Dillard's and Macy's departments stores at Greenspoint Mall in north Houston both said weekend crowds met expectations, though shoppers seemed to be more bargain-hungry than in recent years.
At the mall's Macy's, one of a dozen in the Houston area, clothing, jewelry and home items -- but not high-end brands -- were selling well, said manager Ron Misrack.
"People seem to be going to promotional items," Misrack said. "If you look at our books, you can see the specials, and people seem to be going for those items."
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