State of the Market


CPI

In February, the consumer price index (CPI) rose 3.9 percent compared with the same period last year and 1.8 percent over January, according to the National Bureau of Statistics (NBS). The index climbed up 3.6 percent in urban areas and 4.5 percent in rural areas. All the 31 provinces, autonomous regions and municipalities on the Chinese mainland saw price increases ranging from 0.9 percent to 5.7 percent year on year.

Food prices increased 8.8 percent over a year ago, while non-food prices went up 1.4 percent. Prices of consumer goods and services grew 3.9 percent and 4.2 percent, respectively, year on year (see graph 1).

Since the Spring Festival, which usually promotes consumption during the weeklong holiday, fell in February this year as against January last year, price fluctuations in January and February were not entirely comparable.

Through January and February, the CPI rose 2.9 percent compared with the same period last year.

Retail Sales

Through January and February, total retail sales nationwide expanded 13.6 percent year on year to 1.03 trillion yuan, according to the NBS. Of this, retail sales grew 11.5 percent in January and 15.8 percent in February owing to the Spring Festival (see graph 2).

Of the total, retail sales in urban areas and rural areas were 688.6 billion yuan and 342.7 billion yuan, growing 14.4 percent and 11.9 percent, respectively, year on year.

Based on a sector-wise breakdown, the volume of wholesale and retail sales stood at 861.9 billion yuan, up 13.5 percent from a year ago and that of the catering industry jumped 17.1 percent to 141.4 billion yuan. Sales in all other sectors inched up 0.3 percent to 28 billion yuan.

Prices of Industrial Goods

In February, the ex-factory prices of industrial goods climbed 5.4 percent from a year ago, 0.4 percentage points lower than in January, according to the NBS. Of the total, the purchase price of raw materials, fuels and power went up 9.8 percent, down 1 percentage point from January.

During the month, the ex-factory prices of capital goods increased 7.2 percent over a year ago, contributing 5.3 percentage points to the overall growth of ex-factory prices of industrial goods. The ex-factory prices of consumer goods inched up 0.4 percent compared with the same period last year, contributing about 0.1 percentage point to the overall growth of ex-factory prices of industrial goods (see graph 3).

In February, the ex-factory prices of crude oil jumped 22.4 percent over a year ago, pushing the overall ex-factory prices of industrial goods up about 0.7 percentage points. Among refined oil, the ex-factory prices of gasoline, kerosene and diesel went up 14.7 percent, 12 percent and 18.7 percent, respectively, year on year.

The prices of raw coal continued to climb, up 26.8 percent, 0.8 percentage points higher than in the same period last year.

Of the nine categories of raw materials, fuels and power surveyed, the prices of ferrous and non-ferrous metals and chemical materials rose 11 percent, 15 percent and 12.6 percent, respectively, year on year.

Through the first two months of the year, the ex-factory prices of industrial goods increased 5.6 percent over the same period last year. The purchasing price of raw materials, fuels and power went up 10.3 percent.

Financial Performance

In February, financial performance remained on an even keel, according to statistics from the People’s Bank of China (PBC), the country’s central bank.

Increase in broad money (M2) remained stable (see graph 4), though 0.2 percentage points lower than the rate in January and 5.5 percentage points lower than in the same period last year.

As of the end of February, the outstanding renminbi (RMB) and foreign currency loans among all financial institutions totaled 19.4 trillion yuan, growing 13.5 percent, down 1 percentage point from January and 7.8 percentage points lower than in the same period last year (see graph 5).

Of the RMB loans, the outstanding medium- and long-term loans stood at 7.23 trillion yuan, increasing 23.8 percent. The outstanding short-term loans and paper financing went up 7.5 percent to 10.01 trillion yuan.

During February, 95.9 billion yuan of new RMB loans were added to the outstanding volume. Of the total, households received 18.4 billion yuan and non-financial corporations as well as other departments got 77.5 billion yuan.

Through the first two months, new RMB loans totaled 376.8 billion yuan.

By the end of February, the balance of RMB and foreign currency savings deposits among all financial institutions hit 26.2 trillion yuan, increasing 15.6 percent. Of this, household deposits totaled 13.62 trillion yuan, growing 15.9 percent, while deposits from non-financial corporations jumped 15 percent to 11.32 billion yuan.

In February, 338.4 billion yuan of new RMB savings deposits were added to the balance. Households contributed 565.4 billion yuan but deposits from non-financial corporations decreased 267 billion yuan. From January to February, household deposits totally increased 839 billion yuan, 579.5 billion yuan of which were fixed term deposits.

In the inter-bank market, the volume of transactions decreased. In February, transactions in the inter-bank market stood at 940 billion yuan, or 55.1 billion yuan per day, a decline of 14 percent from a year ago and down 11.1 percent from January. From January to February, transactions in the inter-bank market totaled 2.18 trillion yuan, or 58.8 billion yuan per day, a 5.7-percent decline from the same period last year.

The RMB exchange rate remained stable, with $1 equaling to 8.2765 yuan at the end of February.

Hong Kong Rating

Standard & Poor’s Ratings Services said the resignation of the chief executive of Hong Kong is unlikely to have an immediate rating impact (results showing: foreign currency rating A+/Stable/A-1; local currency rating AA-/Stable/A-1+). The policy environment could be clouded but Hong Kong’s financial strength remains substantial.

The ratings are supported by Hong Kong’s strong credit fundamentals, including its net creditor position and prosperous economy. Its ratings are higher than that of China’s mainland (BBB+/Positive/A-2) due to these same strengths as well as its ability to run a separate monetary system, strong institutional framework, and its financial autonomy under the Basic Law. The ratings and outlook also reflect expectation that prudent financial management and good economic prospects will be isolated from political developments.

Tung Chee-hwa’s resignation and Chief Secretary Donald Tsang’s taking over as acting chief executive could present short-term policy uncertainties. The ratings on Hong Kong, therefore, remain focused on the government’s medium-term fiscal strategy. Fiscal outturn for the fiscal year 2004-05 ending March 31, 2005 is likely to exceed budget by a wide margin, helped by the economic and property sector recoveries, and expenditure control. However, the region’s fiscal position remains vulnerable to shocks and economic cycles. A narrow tax base and rigidities in the fiscal accounts limit Hong Kong’s room for maneuver.


$1 = 8.28 yuan