China Watch Blog

China Watch Blog has been informed that the Chinese mainland and Taiwan are set to sign a historical trade pact today (Tuesday afternoon), a significant step to bring economic ties closer and usher in a new era for the development of cross-Straits relationships.

The free-trade deal will provide Taiwan companies tariff advantages in some 530 categories of goods for mainland export, and mainland companies will receive advantages in some 260 categories in the Taiwan market, earlier reports said.

China Watch Blog has picked up this news item that the Chinese yuan rose to a new high against the U.S. dollar Monday, nine days after China’s central bank pledged to de-peg its currency from the greenback.

The People’s Bank of China announced earlier this month that it will make the yuan exchange rate more flexible, signaling that it is ready to change a two-year-old peg to the dollar that has come under international criticism.

According to the China Foreign Exchange Trade System, a sub-institution of the central bank, the yuan’s central parity rate was set at 6.789 to the dollar, up 6 yuan from Friday.

The yuan hit the highest level since Friday, when China set the rate at 6.7896, the strongest level against the dollar in five years.

China made the move on the last day of the two-day summit of the Group of 20 (G20) major world economies held in Toronto, Canada.

The G20 nations led by Washington were expected at the Toronto summit to put more pressure on Beijing to totally abandon its policy of pegging the yuan to the dollar, but no official statement was made regarding the Chinese currency.

The U.S. argues China artificially lowers the value of the yuan, giving its exporters an unfair advantage in overseas markets. Since August 2008, the yuan had been pegged at around 6.83 to the dollar, Yonhap News reported.

Separately, Chinese officials heading to the G20 summit in Toronto said at a press briefing said that China will not bow to pressure from the outside world on revaluing the renminbi and any changes in the nation’s foreign exchange will be made on China’s own terms.

China Watch Blog has picked up this interesting news citing insiders that the Chinese government has deliberately slowed down cross-strait capacity increases, mainly in response to requests from the Hong Kong government, in order to alleviate the impact on Hong Kong`s airport.

Already the number of round-trip flights from Hong Kong to Shanghai has dropped to a dozen a day, compared with over 30 before the inauguration of direct cross-strait flights, according to the report by Taiwan Economic News.

The report says that ever since the launch of direct flights in 2008, airplanes from Taiwan and China have been flying across the Taiwan Strait packed with passengers, and the passengers have been complaining about insufficient capacity (despite increased frequencies) and high ticket prices.

The situation is most serious for such hot routes as those connecting Taiwan with Shanghai, Beijing, and Shenzhen. Passengers have to book at least two weeks in advance for a flight from Taipei to Shanghai, for instance, despite the launching on June 14 of 28 weekly direct flights from Taipei`s Songshan Airport to Hongqiao Airport in Shanghai. This is on top of the original 56 flights per week between Songshan Airport and Shanghai`s Pudong Airport.

The new flight service offers much greater convenience, since Hongqiao is only 13 kilometers from downtown Shanghai; passengers who arrive at Pudong, by contrast, have to travel about an hour to get into the city. Passengers complain that round-trip ticket prices are exorbitant, however, costing NT$17,000 (US$531 at NT$32:US$1), although flying time is only 90 minutes, similar to the flight time from Taipei to Hong Kong, which costs only half the price. The cost of a direct flight is also higher than the NT$15,000 (US$469) price of tickets for indirect Taipei-Shanghai trips that require two flights and transit Hong Kong or Macao.

One major reason for the high ticket prices is a gross insufficiency of flight capacity between the two sides of the Taiwan Strait despite the recent addition of 100 weekly flights, 50 from each side, which has boosted the total number to 370. (Taiwan originally asked to double the number of flights.) The number of weekly flights between China and Korea, by contrast, stands at 800.
Delegates from Taiwan and mainland China are scheduled to meet in October to discuss further increases in flight frequencies.

To meet the huge demand on the bustling Taipei-Shanghai route, Songshan Airport is undergoing major renovation work, scheduled for completion in October, which will enable it to accommodate Airbus A330 jetliners capable of carrying 250-280 passengers. Aircraft that service the route at present, such as the Boeing 737, can hold only about 150 passengers.

Taiwan’s manufacturers and traders’  export orders in May recorded US$33.73 billion, representing a sharp annual growth of 34.03% and the third monthly highest, according to statistics released by the Ministry of Economic Affairs (MOEA).

Huang Chi-shih, director of the Statistics Department of MOEA, attributes such rise in May exports to the strong market demand for electronics, IT and telecommunication products, particularly LCD panels that totaled a record order value of US$3.372 billion during the month.

In the same month, orders for telecommunication products came to US$8.2 billion for a sizable annual rise of 39.25%, the third monthly highest; and orders for semiconductor items jumped by 32.75% to US$8.26 billion, the second monthly highest.

The proportion of orders received by Taiwan`s manufacturers that are filled abroad exceeded 50% to 50.69% in March, then edging down to 50.22% in May.

Orders from the United States, Japan and the six ASEAN members totaled US$7.028 billion, US$3.901 billion and US$3.135 billion, respectively in May, all of which recovered to pre-meltdown levels. However, orders from Europe came to US$5.566 billion, still much lower than the peak of US$6.6 billion.

During the same month exports from China totaled US$9.507 billion, modestly less than that in the previous two months-US$9.81 billion in March and US$9.822 billion in April.

China’s fiscal revenue exceeded 6.85 trillion yuan (US$1.006 trillion) last year, 718.795 billion yuan or 11.7 percent more than 2008, Xinhua reported, citing Chinese Finance Minister Xie Xuren.

Xie revealed the figure in a report on last year’s fiscal situation to the 15th session of the Standing Committee of the 11th National People’s Congress (NPC), China’s top legislature.

The central government expenditures exceeded revenue last year, resulting in a fiscal deficit of 750 billion yuan, according to Xie.

China Watch Blog saw this report at the Hong Kong government website that the former British colony had recorded a visible trade deficit of HK$25.1 billion (US$3.24 billion) was recorded in May with the values of total exports and imports of goods both showing significant year-on-year increases at 24.4% and 29.7%, the Census & Statistics Department said.

Vibrant regional trade in Asia and the prevailing global recovery should continue to provide support to Hong Kong’s external trade performance, it said. However, the adverse effect on global trade flows from a possibly slower recovery in Europe due to the sovereign debt problem may begin to emerge in the latter part of the year.

In May the value of total exports of goods comprising re-exports and domestic exports rose 24.4% over a year earlier to $254.2 billion, after a year-on-year increase of 21.7% in April.

The value of re-exports increased by 24.6% to $248.3 billion, while the value of domestic exports rose 17.6% to $6 billion. A visible trade deficit of $25.1 billion, equivalent to 9% of the value of imports of goods, was recorded.

For the first five months of the year, the value of total exports of goods rose 24.7% over the same period last year, while the value of imports increased 32.1%. A visible trade deficit of $148.6 billion, equivalent to 11.6% of the value of imports of goods, was recorded.

Comparing the three-month period ending May with the preceding three months on a seasonally-adjusted basis, the value of total exports of goods rose 6.6%, while the value of imports grew 5.1%.

Australia has got its first female prime minister after the ruling party dumped Kevin Rudd and installed his deputy as leader, and the question is whether what are her views of supply chain management, as well as transport logistics.

New leader Julia Gillard will lead the government to general elections due within months, and eyes will be on her to find out what her views are towards the China market.

News agencies report say Gillard is unlikely to alter Australia’s key foreign policy positions such as its troop commitment to Afghanistan. If this is true, she will probably continue Rudd’s China policy and continue building on what her predecessor has done.

The yuan rose to its highest level against the US dollar in five years on June 22 after China’s central bank vowed to make the currency regime more flexible.

Chinese authorities said on June 19 that it would push ahead with the yuan (renminbi) exchange rate mechanism reform, a move that is expected to loosen the currency’s two-year-old peg to the US dollar and lead to its gradual appreciation.

However, China’s central bank ruled out the possibility of a one-off revaluation.

Chinese authorities said on Saturday it would push ahead with the yuan exchange rate mechanism reform, a move that is expected to loosen the currency’s two-year-old peg to the US dollar and lead to its gradual appreciation.

The yuan subsequently surged on Monday, its highest rise in a day since a landmark revaluation in 2005.

After setting the mid-point for the day’s trading range, the People’s Bank of China let the currency rise 0.42 percent to 6.7976 per US dollar – both the biggest daily gain and the highest close since China revalued its currency and introduced a managed float regime five years ago.

At one point, the yuan was up by as much as 0.47 percent from the day’s mid-point – below the currency’s 0.5 percent limit, which has rarely been tested in practice.

World stock markets also rallied on Monday.

In Asia, Japan’s benchmark Nikkei 225 stock index ended 242.99 points or 2.4 percent higher at 10,238.01 – a month-high close. South Korea’s Kospi rose 1.6 percent to 1,739.68. Hong Kong’s Hang Seng index climbed 3.1 percent to 20,905.91.

Benchmarks in Singapore and Taiwan also advanced.

The Chinese mainland’s Shanghai Composite Index added 2.8 percent to 2,583.91.

After sharp gains in Asia, Wall Street extended its winning streak – the Dow Jones industrial average rose 89 points in morning trading and Standard & Poor’s 500 index rose 7.94, or 0.71 percent, to 1,125.

Britain’s FTSE 100 rose 1.0 percent to 5,304.97 and Germany’s DAX was 1.4 percent higher at 6,302.45. France’s CAC-40 gained 1.5 percent to 3,740.77.

The announcement on the yuan also helped the euro, pushing it to $1.2457 from $1.2364.

Similarly, crude prices rose 2 percent on the same day to their highest since early May, as China’s new policy stance raised expectations of higher petroleum imports by the world’s second-largest oil consumer.

The brisk market performance showed how people were pinning much hope on the role of China’s new policy in rebalancing the global economy and solving its domestic economic problems, analysts said.

The American Chamber of Commerce in China welcomed the central bank’s move and said in a statement that “a stronger and more market-oriented yuan will … help reduce unsustainable global imbalances”.

“In Europe, investors may have anticipated growing China imports from the continent and increasing overseas consumption by the Chinese,” said Dong Yuping, senior economist with the Chinese Academy of Social Sciences.

Domestically, the policy move “should help contain inflationary pressures in the short run and rebalance the Chinese economy over the medium and long run,” said Wang Qing, Chief Greater China Economist at Morgan Stanley in Hong Kong.

But the overall effect of the policy on the global and domestic economy is uncertain, analysts said.

“The overall effect is unclear since it would not alter the fundamental conditions of the world economy and could damage the domestic economy,” Dong said.

The yuan appreciation would not benefit US trade with China and its jobs, as past experiences have shown, he said.

From 2005 to 2008, the yuan rose by 21 percent against the dollar, but the bilateral trade gap has not narrowed.

“The unilateral adjustment of the yuan policy would not solve the problem of global economic imbalance because it’s rooted in the global division of labor,” Dong said.

While it would help restructure the economy by boosting services and consumption domestically, it may also lead to job losses in the foreign trade sector.

“It remains too early … to rush to any conclusion regarding the real overall effect of the new policy,” he said.

If you are planning to go to visit the Shanghai World Expo, try going there in the evening after 4pm, so that you can avoid the long queues – not that there will be no long queues  in the evening. But at least the queues will be shorter.

If you start from the Puxi side and then take a ferry to the other side to Pudong where the China Pavilion is sited, you will get a  nice experience.

A bit of advice is to go to Pavilions which do not have long queues. There are internal buses which are operated free to transport visitors. Use them as much as possible to conserve your energies.

There are lots of see and so, if it is your first visit to the Expo site, don’t worry. You cannot finish seeing everything in one visit anyway.

Take lots of photos to record this historic event.

Don’t try to bring in water into the Expo site. They make you drink all of it before you enter the Expo site or you have to toss it away.

Don’t worry about food, drinks and ice-cream. There are plenty of stalls around.

Some pavilions are open till very late at night such as the Australian pavilion, so you can leave it till the last.

Otherwise, it is quite an enjoyable experience.