China focuses on wage increases, social stability

Economic growth

SHARE THIS STORY

China lendFeb12.pngChina’s bank lending fell 7% in 2011, following a 17% decline in 2010. As the chart shows (red column), the government is clearly trying to stabilise the position, after the panic increase in lending in 2008/2009. (January lending, impacted by Lunar New Year, was down 29% vs 2011).

Electricity consumption growth (blue line) also seems to be stabilising. It is a lagging indicator, as it takes time to expand electricity production. But the ending of subsidies for rural home appliances helped to push their sales down 33% in January versus 2011.

The reason for the government’s caution is that food price inflation remains out of control. It was up 10.5% in January, reversing recent declines. In a country where 96% of the population earns less than $20/day, food prices matter a great deal.

Those analysts with a purely financial outlook seem to have missed this critical point. They have been forecasting further stimulus programmes for some months. But very little has yet happened. Instead, the government remains focused on maintaining social stability.

This is particularly important in the run-up to the major changes that will take place in politburo membership this year. Thus, instead of reductions in interest rates, the government has instead announced minimum wages will rise 13% a year until 2015:

• In Beijing, it is currently $200/month, and $140 in urban Chongqing
• The aim is for it to be at least 40% of average wages by 2015
• At present, it varies between 20%-30%, depending on region

This will boost domestic spending power. But, as we argue in our Boom, Gloom and the New Normal eBook, affordability will be the key factor. Those companies who focus on meeting the population’s basic needs for food, water, shelter, health and mobility should do very well indeed.

PREVIOUS POST

IEA forecasts show high oil prices destroy demand

13/02/2012

Over the past 18 months, the main investment analysts have argued that high oil ...

Learn more
NEXT POST

US exports to China fall, as cost advantage grows

15/02/2012

US petchem producers are planning a major boost to ethylene capacity. They now h...

Learn more
More posts
UK, EU27 and EEA businesses need to start planning for a No Deal Brexit on 31 October
28/07/2019

New UK premier, Boris Johnson, said last week that the UK must leave the EU by 31 October, “do or ...

Read
London house prices edge closer to a tumble
21/07/2019

After the excitement of Wimbledon tennis and a cricket World Cup final, Londoners were back to their...

Read
G7 births hit new record low, below Depression level in 1933
14/07/2019

If a country doesn’t have any babies, then in time it won’t have an economy. But that...

Read
From subprime to stimulus…and now social division
06/07/2019

The blog has now been running for 12 years since the first post was written from Thailand at the end...

Read
Resilience amidst headwinds is key for H2
30/06/2019

Resilience is set to become the key issue as we look forward to H2, as I note in a new analysis for ...

Read
Perennials set to defeat Fed’s attempt to maintain the stock market rally as deflation looms
23/06/2019

Never let reality get in the way of a good theory. That’s been the policy of western central b...

Read
Europe’s auto sector suffers as Dieselgate and China’s downturn hit sales
16/06/2019

Trade wars, Dieselgate and recession risk are having a major impact on the European auto industry, a...

Read
2019 Global Outlook – a mid-year update: ACS webinar on Thursday
04/06/2019

There will be no shortage of important topics to discuss on Thursday, at my regular Chemistry and t...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more