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The Star Online: Business

China to aim for 7.5% growth in 2014 as exports recover

Posted: 24 Dec 2013 02:28 AM PST

BEIJING: China will likely stick with this year's growth target of 7.5% for 2014 as top leaders balance the need to keep the economy on an even keel while pushing through necessary structural reforms, sources at top government think tanks said.

Growth will be supported by a steady recovery in China's exports next year, thanks to stronger demand from developed economies, the commerce ministry's think tank said.

The 2014 growth target was endorsed at the annual Central Economic Work Conference earlier this month, when top leaders pledged to maintain policy stability and reasonable economic growth at the closed-door meeting.

Prior to the Dec 10-13 meeting, some top think tanks, including the State Information Centre and the Chinese Academy of Social Sciences, had proposed to lower next year's growth target to 7% to create more room for reforms and discourage local governments from pursuing high growth rates.

Top leaders believe that maintaining the 7.5% target will help keep growth humming to create more jobs, while providing wiggle room to deepen reforms, government economists involved in the discussions about the plans said.

"The two camps who proposed growth target – 7% or 7.5% – made their points. But the government favours 7.5%," said an economist at the State Information Centre, who requested anonymity due to the sensitivity of the issue.

Key economic targets for 2014 will be announced by the government during the annual parliament meeting in March.

The world's second-largest economy is widely seen growing around 7.6-7.7% in 2013, just ahead of the government's 7.5% growth target, but still near the weakest pace since the Asian 1997-98 financial crisis.

Stability remains the watchword as President Xi Jinping and Premier Li Keqiang seek to put the economy on a more sustainable footing. Li said economic growth of 7.2% was needed to keep a lid on unemployment.

Beijing had maintained a target for growth of 8% for eight years before cutting it in 2012 to 7.5%.

Some policy advisers believe the government may change the way it manages the economy by avoiding setting a specific growth target next year – in line with its pledge to allow market forces to play a decisive role in allocating resources.

At a key party plenum in November, Chinese leaders pledged to make the most sweeping changes to the economy and the country's social fabric in nearly three decades.

"The government has said it will not intervene in allocating resources, so it will be difficult for it to set a target on economic growth," said Zhao Xijun, deputy head of the Finance and Securities Institute at Renmin University in Beijing.

"They can still refer to targets in 2013. To maintain stability means that economic growth cannot be lower than 2013 and inflation cannot be higher than 2013," he said.


The government may also stick with this year's 3.5% inflation target for 2014, but economists cautioned that price pressures could rise as China frees up energy and utility prices. Annual inflation in 2013 is seen at 2.6-2.7%, below the target.

With developed economies showing signs of sustained recovery, the government has more confidence in targeting steady economic growth next year, economists said.

The commerce ministry's think thank forecast that China's exports may grow at least 10% in 2014, thanks to improved global demand, especially from developed countries.

"The external environment may show some improvements from this year. Exports could grow 10% or slightly faster," Li Jian, head of foreign trade research of the Chinese Academy of International Trade and Economic Cooperation, told Reuters.

Exports are on track to grow around 8% this year.

But the yuan's appreciation, along with rising wages, is putting pressure on local exporters, Li said. The yuan has risen around 36% since its landmark revaluation in 2005.

"It's very difficult for exporters to cope with the appreciation. Some firms have hit the wall," he said – Reuters. 

China commits US$6.5bil for Pakistani nuclear project

Posted: 24 Dec 2013 05:15 PM PST

ISLAMABAD: China has committed US$6.5 billion (£3.97 billion) to finance the construction of a major nuclear power project in Pakistan's port city of Karachi as it seeks to strengthen ties with its strategic partner, Pakistani officials said.

Pakistani Prime Minister Nawaz Sharif broke ground on the $9.59 billion project last month but officials have provided few details of how they plan to finance it.

Financing documents seen by Reuters showed China National Nuclear Cooperation (CNNC) has promised to grant a loan of at least $6.5 billion to finance the project which will have two reactors with a capacity of 1,100 megawatts each.

Two members of the government's energy team and three sources close to the deal confirmed this. CNNC was not available for comment.

"China has complete confidence in Pakistan's capacity to run a nuclear power plant with all checks in place," said Ansar Parvez, chairman of the Pakistan Atomic Energy Commission which runs the civilian nuclear programme.

"As things stand, the performance and capacity of nuclear power plants in Pakistan is far better compared to non-nuclear plants."

Parvez declined to give more details of the funding but said it would be completed by 2019 and each of the two reactors would be larger than the combined power of all nuclear reactors now operating inPakistan.

As part of the deal, China has also waived a $250,000 insurance premium on the loan, said two sources in the Energy Ministry with knowledge of the project. They declined to be identified as they are not authorised to speak to the media about the financing.

Pakistan and China, both nuclear-armed nations, consider each other close friends and their ties have been underpinned by common wariness of India and a desire to hedge against U.S. influence in South Asia.

Pakistan sees nuclear energy as key to its efforts to solve power shortages that have crippled its economy. Pakistan generates about 11,000 MW of power while total demand is about 15,000 MW.

Blackouts lasting more than half a day in some areas have infuriated many Pakistanis and sparked violent protests, undermining an economy already beset by high unemployment, widespread poverty, crime and sectarian and insurgent violence.

Under its long-term energy plan, Pakistan hopes to produce more than 40,000 MW of electricity through nuclear plants by 2050.

The United States sealed a nuclear supply deal with India in 2008, irking both China and Pakistan.

Pakistan wants a similar agreement with the United States but it is reluctant, largely because Pakistani nuclear scientist Abdul Qadeer Khan admitted in 2004 to transferring nuclear secrets to North Korea, Iran and Iraq.

"There should be no double standards in terms of civilian nuclear deals," Parvez said. "Pakistan has energy needs and the building of two new reactors should convince everyone that international embargos and restrictions and Indian lobbying won't stop us."


Pakistan carried out its first nuclear tests in 1998, soon after India conducted tests. Both refuse to join the Nuclear Non-proliferation Treaty, which would oblige them to scrap atomic weapons.

China has already helped supply two nuclear reactors at the Chashma nuclear power complex inPakistan's Punjab region, while another two are also under construction with Chinese assistance.

China's nuclear cooperation with Pakistan has caused unease in Washington, Delhi and other capitals due to fears about commitment to nuclear non-proliferation rules.

China says its nuclear ties with Pakistan are entirely peaceful and come under International Atomic Energy Agency safeguards. It has not given details of the project's financing but state media has put its total value at $9.59 billion.

"Bilateral cooperation in the energy sector is to help ameliorate Pakistan's energy shortages," Chinese Foreign Ministry spokeswoman Hua Chunying said on Monday. "This accords with the interests of the Pakistani people."

Three prominent physicists recently raised questions about the safety, design and cost of the new reactors in Karachi, sparking a national debate.

"There is no official information about preparedness for a nuclear accident in Karachi that is available publicly," said Zia Mian, a Pakistani-American physicist who directs the Project on Peace and Security inSouth Asia at Princeton University.

"The only real obstacle that may exist to the new reactors being built is if the citizens of Karachi decide they do not want to live with the risks these reactors create."

But Pakistan's new energy minister has dismissed the critics.

"Every 1,000 megawatts of electricity produced through nuclear energy saves you $1 billion in oil imports," Khawaja Asif, the minister for water and power, told Reuters.

"If critics can give me alternatives and other platforms to raise money for low-cost, clean power, I'm willing to listen."- Reuters

U.S. manufacturing, housing data buoy economic outlook

Posted: 24 Dec 2013 05:12 PM PST

WASHINGTON: Orders for long-lasting U.S. manufactured goods surged in November and a gauge of planned business spending on capital goods recorded its largest increase in nearly a year, pointing to sustained strength in the economy.

While another report on Tuesday showed new home sales slipped in November, sales in October were revised to show the highest pace in more than five years. In addition, house prices rebounded, underscoring the economy's improving fundamentals.

"We are coming out of the shadows of the Great Recession in many ways," said Robert Dye, chief economist at Comerica in Dallas.

The Commerce Department said durable goods orders jumped 3.5 percent last month as demand increased for a range of goods from aircraft to machinery and computers and electronic products.

The increase, which outpaced economists' expectations for a 2 percent rise, more than reversed a drop in October. Excluding transportation, orders recorded their largest gain in six months.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, surged 4.5 percent. The increase snapped two straight months of declines and was the largest advance since January.

The increase in these so-called core capital and overall durable goods orders suggested strength in manufacturing and was further evidence of a firming economic growth outlook.

It narrows the gap with sentiment surveys that have offered a more upbeat view of manufacturing than government data.

"Sentiments were showing things were good but not the hard numbers. Things seemed to have turned now," said Sam Bullard, a senior economist at Wells Fargo Securities in CharlotteNorth Carolina. "Businesses going into 2014 are more confident in their outlook."

From consumer spending to employment and trade, the foundations appear to be in place for sustained and strong economic growth in 2014.

In a second report, the Commerce Department said new home sales fell 2.1 percent to a seasonally adjusted annual rate of 464,000 units. However, October's sales were revised to a 474,000 unit pace, which was the highest level since July 2008.

Despite the fall, home sales retained the bulk of the previous month's 17.6 percent increase.

The reports are the latest to support the U.S. Federal Reserve's decision last week to start trimming back its monthly bond purchases from January, a process which is likely to continue for much of next year.


U.S. Treasuries prices fell with benchmark yields hovering near three-month highs as investors trimmed their bond holdings in thin trade before Christmas. U.S. stocks were little changed, while the dollar rose marginally against a basket of currencies.

The durable goods orders report showed that shipments of core capital goods, which are used to calculate equipment spending in the government's measure of gross domestic product, increased 2.8 percent last month.

That was the largest rise since March 2012, prompting economists at Goldman Sachs raised their fourth-quarter GDP estimate by a tenth of a percentage point to a 2.4 percent annual rate. Shipments had dropped in September and October.

Manufacturing is being boosted by the housing market recovery through demand for building materials and household appliances. Home resales momentum has, however, slowed somewhat since the summer because of higher mortgage rates.

Applications for home mortgages fell for a second week to hit a 13-year low last week, another report showed.

Refinancing activity is also ebbing, which means the cycle of people lowering their monthly housing costs appears to be petering out.

But home sales are expected to accelerate next year, driven in part by employment gains. Continued recovery in household formation from multi-decade lows, against a backdrop of lean housing inventory, is also expected to boost activity.

"While the backup in mortgage rates could put a temporary dent in the pace of sales, continued job gains, as well as a return to more normal rates of household formation, should help to underpin housing demand," said Omair Sharif, an economist at RBS in StamfordConnecticut.

The median price of a new home hit a seven-month high in November and was more than 10 percent higher than a year earlier.- Reuters


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