Monthly Archives: November 2008
Here is an article which appeared in yesterday’s China Daily.
Only about 60% of the 4 trillion in the package is listed here, but we know that additional money is going towards propping up the price of grain.
This article also gives us an insight into exactly how big the package is. Compared to 2007 at 13 trillion, 2008 will close out at 16 trillion and 2009 at 18 trillion. This suggests to me that in fact much of the 4 trillion is expenditure which was already announced, perhaps with some programs receiving a boost or an accelerated time frame.
But this also supports our argument that China’s economy is still primarily supported by investments, not by exports. Falling export figures are of course a problem for employment and confidence, but in macro terms the economy is likely to continue to grow as the investments in the stimulus package start to create more jobs.
Here is the article. I have inserted approximate USD values.
Minister of National Development and Reform Commission (NDRC) Zhang Ping has made public the breakdown of China’s four-trillion-yuan stimulus plan, which will cover livelihood improvements, R&D, environmental protection and other sectors.
· 280 billion yuan for housing projects (US$40bn)
· 370 billion yuan to improve people’s lives and infrastructure in rural areas (US$54bn)
· 180 billion yuan to build highways, railroads, and the power grid (US$26bn)
· 40 billion yuan for medical care and education (US$6bn)
· 350 billion yuan for ecological and environmental projects (US$51bn)
· 160 billion yuan to fund R&D and innovation projects (US$23bn)
· 1 trillion yuan for places worst hit by the earthquakes (US$146bn)
The new details of the stimulus plan have been revealed together at the same time as China’s total domestic investment was forecast to reach 18 trillion yuan in 2009. (US$2.6tr)
For 2008 total investment is expected to reach 16 trillion yuan, while last year it was 13 trillion yuan. The four-trillion-yuan stimulus package is just part of all the investment China needs to drive its economy.
Among the financial stimulus plan, 350 billion yuan will be spent on improving the ecological environment and treating pollution, Zhang said. The four-trillion-yuan investment will not be spent in the energy and resource-intensive industries or high-pollution industries.
Zhou Shengxian, minister of environmental protection, said earlier that the main targets of environmental investment will go to beef up rural environmental efforts. He said China’s fledgling green industries, such as those involved in the development of renewable energies and pollution treatment, will also benefit from the investment plan.
Further aspects to the NDRC’s plans to stimulate the economy have also been released, including a review of the fuel tax reform formula, undertaken with other government departments. Once the formula is ready, it will be released to seek public opinion on amendments, said Zhang at the press conference.
“The goal for fuel reform is to highlight four concepts, which are fair taxation, a regulated charging system, energy conservation and less financial burden for people,” Zhang said.
“It is fair that the more people consume oil the more they have to pay for it,” Zhang said. By replacing the maintenance fee for roads, navigation systems and road tolls with a fuel tax, car owners will pay less than before.
“By replacing the fees with fuel taxes, we also hope to regulate road toll stations that used to charge drivers for no legal reason,” he added.
We have received several requests asking if and when we will be holding our next “Black China” Conference.
So here is the official answer - we are currently planning to hold our next conference in May 2010. Locations have not even been checked yet, but with the success of Sanya we will look to a similar spot where delegates can balance work and relaxation (hopefully with a little less rain and heat).
For those of you who missed it, AZ China held a conference in June of this year at the Marriott Resort in Sanya. With almost 80 people attending, we had speakers from both inside and outside China help us to understand the dynamics and trends at work inside the market. The conference looked at the Chinese economy, the aluminium industry in China, pet coke, pitch, anodes, cathodes and aluminium fluoride. We also had speakers look at how to manage quality with Chinese products, and a paper on the domestic logistics situation in China. The success of the conference is what led us to start the monthly Black China Report, as well as this blog.
It seems that for some foreign commentators, the recently-announced package of RMB4 trillion is difficult to understand, based on what they are writing about it. I see comments such as “It’s really existing projects with small injections of extra capital”, or “it’s going to be good for the rest of the world”, or that it’s too big or too small.
The newspaper artcile below, from the State-run Xinhua Agency, give us a good perspective on how the package is seen from within China.
The first thing to note is that each of the provinces will be putting additional money into projects, in a bid to win Central Government money. As with Governments everywhere in the world, the provincial governments in China will be bidding to win approval for their projects to receive a capital injection from Beijing. This was actually one of the fears that Beijing had - there is a propensity within China for the provincial governments to over-react and to “top-up” the stimulus package with their own fixed assets investments. The RMB4 trillion is likely to be much higher once provincial and local government money is added.
The other feature to note is that existing projects will indeed be receiving capital boosts. But this is a good thing, because it creates jobs sooner, and delivers quality of life benefits quicker.
I am giving a paper tomorrow (Tuesday November 25) at the 5th World Aluminium Conference in Kuala Lumpur, if you wish to debate any of these issues with me.
Here is the article:
Local govts competing for investment to prevent slowdown
By Cheng Yunjie, Wang Yaguang (Xinhua)
Updated: 2008-11-22 15:58
China is rich, at least when you look at its world’s largest two-trillion-dollar foreign exchange reserve and its fiscal revenue that has maintained double-digit growth for years.
But many officials in the less-developed central interior felt that Beijing had been penny-pinching in financing local projects for most of the year until only recently when the focal task of macro-economic control shifted from curbing inflation to slowdown prevention.
“The situation reversed completely in less than two weeks. It used to be projects waiting for capital, now it’s the other way around,” said Qiu Yunyang, chief of the Development and Reform Bureau of Hubei’s Zaoyang.
To seize the opportunity for a boost of local economy, Qiu and his colleagues have put in extra hours these days to screen out projects that were mostly needed locally and had a better chance of getting a portion of the 100-billion-yuan ($14.61 billion) investment newly endorsed by the State Council, or the Cabinet, for the fourth quarter.
Under a rare stimulus package, a total of four trillion yuan, equivalent to nearly 78 percent of last year’s national fiscal revenue, would be invested in the next two years to boost domestic demand and improve the livelihood of Chinese.
“That means an upcoming investment boom. but it’s not easy to secure central finance. Only those who have a good reserve of projects will have a better chance,” Qiu said.
Amid Zaoyang’s 100 projects expected to be started up over the next three years, a large proportion aims to improve people’s livelihood ranging from infrastructure, sewage and waste disposal, new energy to water supply pipeline upgrading.
“Government-funded projects can hardly bring immediate profits, but they have long-lasting social effects, including raising people’s life quality and bettering investment environment,” Qiu said.
Earlier next year, the city with a population of one million would welcome its biggest project in history as a pipeline wind through. The project intending to send gas from northwestern Ningxia Hui Autonomous Region to Hong Kong upon its completion in 2011 has secured 93 billion yuan from the central fund. Zaoyang is the starting point of the Hubei section.
“We (local governments) have no right to touch the fund. All money will directly go to contractors. But still we can benefit, as it would create jobs, stimulate consumption, generate fiscal revenue and product value,” Qiu told Xinhua.
That explains to some extent why many local authorities were so motivated to seek central funds for engineering and infrastructure construction.
Signs of trouble have been much clearer over the past two months, ranging from weakening power demand, dwindling steel sales, declining fiscal revenue, sluggish real estate, corporate cutback in some industries to reduced sales in supermarkets.
Some local officials feared that without effective stimulation, the economic slowdown may aggravate next year.
“The statistics are good so far, but the risk of a sharper-than-expected slowdown is not impossible. Global financial crisis has left us a bruise, we don’t know yet if an internal injury is there,” said Hu Jiuming, deputy director of Wuhan Commerce Bureau.
Economist Fan Gang, a member of the central bank’s monetary policy committee, thought that the Chinese economy was facing “an unprecedented slowdown”, with the economic growth of next year likely to fall below eight percent.
Given China has moved to slow itself down for a balanced growth that would rely on consumption more and fixed-assets investment less, many people fear that the deepening financial crisis might decelerate the economy more than wanted.
As consumption takes longer time to grow, China’s government has resorted to the same old tool it had used in the 1997 Asia financial crisis:enhancing investment.
But this time, restrictions on investing polluting, energy- or resource-consuming industries were not lifted while people’s livelihood gained more stress than ever, said Qu Qiwen, an official with Wuhan Commerce Bureau.
The National Development and Reform Commission, China’s top economic planner, has made it clear that central funds would favor “capital-strained projects already under construction and new projects able to give a quick forceful boost to the economy”.
Many officials agreed that the statement pointed to infrastructure and real estate which contributed 60 percent of national investment and thus have a strong leverage to the economy. The remaining 40 percent are corporate investment whose dynamic varies with industries and is affected by the overall economic situation.
According to a work report from Anhui Provincial Development and Reform Bureau, the ongoing competition involves only 80 billion yuan. The other 20 billion yuan have already been earmarked to finance specific projects such as the south-to-north water diversion program, railway construction, grain crops production in northeast region, settlement building for nomad and renovation of rural residence in Guizhou.
In line with Premier Wen Jiabao’s order of “acting fast, forcefully and effectively”, many provinces have held emergency meetings to analyze economic situations and draw up stimulus plans based upon their local reality.
Anhui Provincial Development and Reform Bureau for instance had sent a special work team to Beijing for a better understanding of the policies before soliciting projects from lower branches. It has so far submitted 466 programs involving an aggregate investment of 34.7 billion yuan.
In Shanxi, provincial development and reform bureau chief Li Baoqing urged local branches to “seize every minute” to thoroughly inspect all available projects and submit them in time.
In Hunan, potential projects concentrate on public utility, urban construction, transportation and energy as well as farming and water conservancy.
Under current regulations, before the final endorsement in Beijing, each project must go through feasibility study, complete with environment impact evaluation report as well as land and capital use plans.
Qiu Yunyang, of Zaoyang City, said that resources-consuming and polluting projects had little chance of getting by because Beijing’s scrutiny was very strict. “The Industrial Restructuring Guidelines have made it clear what to support and what to restrict,” he said,
The other way to prevent the backlash of blind investment, as Chief banking supervisor of Hubei’s Xiantao city Guo Kunming noted, are through credit control.
All banking institutions have been required to submit quarterly reports on their new loans for regulators to scrutinize. Banks could face penalty for lending money to polluters, he said.
In an effort to stabilize job markets and activate consumption, domestic banks have been inspired to lend more to smaller enterprises, rural infrastructure and technical innovations.
In response to the central government’s massive stimulus, a slew of local authorities have lately announced their investment packages.
Shanxi, for instance, aimed to mobilize 600 billion yuan through local finance, bank loans, private and foreign capital in the next two years to accelerate rail and road building as well as power grid upgrading in cities and the countryside.
Guangdong hoped to invest 10 billion yuan to materialize 1000 technical innovations by 2010 to increase local economy’s resilience amidst weakening external demand. Beijing injected an extra six billion yuan in the fourth quarter to finance subways, heating facility, renovation of risky residence and rural infrastructure.
“These are all good measures in right direction. But it’s still necessary to beware investment in a rush. The task of industrial restructuring should not be ignored, otherwise we would have to pay more for such overdraft,” said Xiao Bai, general manager of the WISDRI Engineering and Research Incorporation.
Aluminium fluoride prices inside China are on their way back down from their heady levels of 2007. Dry ALF3 can be bought for as low as RMB5,500, a far cry from RMB11,200 that we saw in June last year. In fact the prices have now managed to get back to 2006 levels.
The recently announced 15% tax on exports of the material is still being negotiated between buyers and sellers. But sellers are optimistic that the falling price will create some space for the tax to be folded into the pricing without causing too much pain to buyers.
For more information about the ALF3 market in China, please contact blackchina@az-china.com.
Alumina
Last week imported alumina CIF price stayed at 300-320US$/Ton. The local price for imported alumina dropped 200RMB/Ton to 2450-2500RMB/Ton. Domestic non-Chalco alumina went down 50RMB/Ton to 2050-2150RMB/Ton. The price from Chalco dropped 300RMB/Ton to 2600RMB/Ton.
Due to the smelter cut backs and the low alumina price operating plus the soft domestic economy, more and more alumina plant are starting to cut back. To November 5, Chalco already shut down 4 million ton/year capacity, which is 38% of its total yearly capacity.
Aluminum
Aluminum price (Chalco) stayed at 14000RMB/Ton last week, even though most aluminum smelters were already cutting back. But the domestic primary aluminum inventory still rose 60% in last six weeks. The main reason for this is that the global financial crisis has caused a huge decrease of the export of Chinese aluminum, combined with some domestic construction projects stopping. Quite simply, the demand drop is much bigger than the reduction in supply.
Green Coke
Prices of green coke remained stable last week, save for a couple of minor corrections by individual refineries. It was reported that the overall inventory level of refineries has reduced, easing the downward pressure on price. The gap between list price and trade price narrowed down to RMB20-50/ton in general.
High sulphur coke plants increased the application of coke for their CFB boilers. Zhehai refinery uses 60,000ton/month coke for its CFB boilers, Maoming is using 30,000-40,000ton/month, and Guangzhou 20,000ton/month.
Calcined coke
Last week the calcined coke Price kept stable due to the green coke price.
The price of Low sulphur calcined coke dropped 100RMB/Ton to 1400-1600RMB/Ton/ Most low sulphur coke suppliers have sold through their existing inventory, which has taken the pressure off the price.
Moderate Sulphur coke remained at 1400-1600RMB/Ton. High sulphur calcined coke price remained at 1080-1300RMB/Ton.
In winter, moderate sulphur and high sulphur coke can be used as fuel. That should keep the price stable.
Anode
Last week anode prices dropped 300RMB/Ton to 3300-4000RMB/Ton. Some middle-sized and small anode plants stopped producing completely. In order to get some cash, some plants have slashed the price, despite their inventory being made from high-priced August and September coke. Some asmelters are still dragging their heels to pay for their supply of anodes, pushing some plants in Henan and Shadong province to go bankrupt.
For 2009 anode export contracts, some anode plants have already fixed the quantity with foreign buyers, though of course the prices are yet to be fixed. The talk in the industry is for a price around 500US$/Ton next year.
Much as been made of the package that Beijing announced last week. There has been debate about whether it is all “new” money or re-hashed and re-presented programs already under way. There has been some discussion about whether the package is going to save the Chinese economy from a hard landing, and whether the package will sufficiently replace the falling export numbers. And there has been debate about just how much good the package will bring to the rest of the world.
Here at AZ China, we believe strongly in a fact-based approach. To help you in your efforts to develop your own position on these and other questions, we present for you a translation of the “Ten Measures” announcement. While it’s true that no values were placed against each item, it is interesting to see where the Government has placed its focus.
We invite you to both draw your own conclusions and to comment on the measures here.
Note, this is our own translation of the document, not the official version. Thanks to Charlene Qu.
1. Speed up the construction of housing projects. Increase support for building low-cost housing, speed up the transformation of shanty towns, implement a project to settle nomadic people, enlarge the program to repair dangerous buildings in rural areas.
2. Speed up the construction of projects for basic facilities in rural areas. Expand the construction of rural area marsh gas, drinking water safety project and rural area roads ,improve and perfect the rural electricity network, speed up projects for diverting water from the south to the north, important water conservancy project construction, speed up to reinforce weak and dangerous reservoirs, strengthen water saving for large-scale irrigated areas. Expand “help the poor” development.
3. Speed up the construction of railways, roads and airports and other important basic facilities. Key construction projects are a patch of passenger transport special line, coal transport tunnel project and western China main line railway. Improve and perfect highway and express networks, arrange the construction for central and western regions main airports and branch airports, speed up the transformation of urban electricity network.
4. Speed up the development of medical health, cultural and educational undertakings, basic medical construction, speed up the transformation of central and western regions’ rural area schoolhouses. Promote the construction of central and western regions` special education schools and villages and towns comprehensive cultural centres.
5. Strengthen ecological environment construction projects. Speed up the construction of urban waste water and refuse dispose installations ,and key area water pollution prevention. Strengthen the protection of important shelterbelt and natural forests, support key energy conservation and discharge decreasing project construction.
6. Speed up ” independent innovation” and ” structural adjustment”. Support high technology industrialization construction and industrial technology improvement, support the development of service industries. Support the “three rural”, small and medium enterprises and technological transformation, credit support of mergers and acquisitions, consolidate consumer credit growth.
7. Speed up all the after-earthquake rebuilding works in those earthquake-stricken areas.
8. Improve urban and rural residents` income. Improve next year`s lowest purchasing price for grain, Improve the comprehensive agricultural subsidies, subsidies for high quality seeds, agricultural equipment subsidies and other standards, and increase peasant’s income. Improve the treatment for low income groups and other targets of social security, increase urban and rural low social security subsidies. Continue to improve the basic old-age pensions for retirees and also subsistence allowances standards for people being given special care.
9. In all domestic areas, all industry have to fully implement value-added tax reform and restructuring to encourage technological upgrading of enterprises, reduce 120,000,000,000 Yuan burdens on enterprises.
10. Strengthen financial support to economic growth. Cancel the restrictions on the size of commercial bank`s credit, a reasonable scale of credit expansion, increase support on important programs.
The government yesterday announced a new export tax of 15% to be applied to aluminium fluoride. The new tax is effective December 1. It will be applied uniformly as of that date, so the only way to avoid it is to have your cargo exported in November.
Interestingly, the tax has a horizon date of December 31, 2009. But the likelihood is that it will stay in place. The VAT tax on mineral resources, including fluorspar exports, has also been increased from 13% to 17%. However, our information is that these actions do not apply to exports of magnesium, silicon or manganese metal.
The much-rumoured tax on exports of petcoke still hasn’t happened yet, but we still believe it’s only a matter of time. 15% seems to be the popular choice as the likely value of the tax, once it comes in.
Alumina
Last week imported alumina CIF price went down 10US$/Ton to 300-320US$/Ton. The price from Chalco remained at 2900RMB/Ton. Chalco indicated that from the end of October they are starting another round of cut backs. They will continue to cut back on some high cost alumina plants.
Aluminium
Aluminium price (Chalco) dropped 400RMB/Ton to 14000RMB/Ton last week. Aluminium smelters wanted to sell as much they can to prevent more losses, so this caused aluminium market supply increase. But most aluminum buyers were waiting on the sidelines watching. Buyers entered the market when the price hit 13500-13800RMB/Ton. We have heard reports of stockpiling at this price, in expectation that the market is due to rise again.
Green coke
Green coke prices stabilised last week. Sellers were not prepared to drop any lower than 500RMB/ton, while buyers baulked at anything above 1000RMB. Coke prices are now competing with coal, except that coke has a higher heating value, bringing fuel buyers into play. Another factor causing the market to stabilise has been the recent announcements by refineries that they are cutting back production. Overseas buyers have started to make their presence felt as well. Contracts for next year are now being written.
Calcined coke
Along with the green coke price drop, last week the calcined coke suppliers had no other choice but continuously cut the price. The price of low sulphur calcined coke dropped 100-300RMB/Ton to 1400-1700RMB/Ton. The price in Jinxi area was 1400RMB/Ton last week. Moderate Sulphur coke dropped 200RMB/Ton to1400-1600RMB/Ton, while high sulphur calcined coke dropped 120-400RMB/Ton to 1080-1300RMB/Ton.
Recently the calcined coke suppliers’ operating rate has been less than 50% due to the cut back caused by high inventory level and difficulties of capital turnover. Some calcined coke suppliers stopped their calciner completely, and are just selling their storage goods.
Anode
Last week the domestic anode market slumped further. It dropped 200-300RMB/Ton to 3600-4000RMB/Ton. However, this is the market offer price, the actual deal price in Henan and Shandong has already slipped to around 3000RMB/Ton. Aluminium smelters kept cutting back, and this caused a serious decrease of anode market demand. Inventory levels are also rising, which is not a good position for anode producers to be in.
Meanwhile anode plants are facing another problem - the payment delay from aluminum smelters. This caused serious difficulties for some anode plant’s capital turnover. Some anode plants have already stopped producing and just selling their storage goods. How successful they will be at selling finished anodes on the open market is going to be interesting to see, but it does reveal a level of desperation in terms of cash flow and capital turnover.
The November edition of the Black China report was published today. In this months’ report, we examine the state of the Chinese aluminium industry, the huge drop in prices for pet coke, and we look at exports of coke, anodes and cathodes.
If you wish to become a subscriber, please write to blackchina@az-china.com
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