China Rate Cut; HK Inflation 3.1%

123jump.com Staff
22 Dec, 2008
New York City

Central bank in China lowered interest rate for the fifth time in a row however, the size of rate cut surprised most economists. China is still hoping that economic stimulus, rate cuts and reduced cash reserve ratios will sustain economic growth at 8%.

[R]6:00AM New York, 6:00PM Hong- Hong Kong''s consumer prices rise 3.1% in November. After the close, China lowered its key lending and deposit rate cuts and reduced cash reserve ratios for banks.[/R]

People’s Bank of China lowered its key lending and deposit rate to avert economy falling below projected rate of growth of 8%. The deposit rate and lending rates were cut by 0.27% to 2.25% and 5.31% respectively. The central bank also lowered by 0.5% the cash reserve requirements for small banks to 13.5% and for large banks to 15.5%.

China is battling a sudden slowdown in its economy as exports fall, domestic spending declines and unemployment mounts. International trade, though amounts to less than 20% of its economy, China’s exports drive nearly 50% of the economic growth. Exports in November dropped 2.2% after rising at 19.2% in October and surging above 20% for the last seven years.

The sharp fall in economic growth has forced China to lower its growth projection from 11.5% in 2009 to 8%. Private economists have lowered the growth estimate to as low as 5%. China needs more than 8% economic expansion to absorb new employees.

Most economists were surprised with a small rate cut and are expecting 100 basis point cut in rates in the January.

Hong Kong stocks fell on profit taking ahead of holiday season and a despite a rate cut by China central bank.

In Hong Kong trading Hang Seng Index fell 3.3% or 505.12 to 14,662.39, and the China Enterprises Index of Hong Kong listed mainland shares, or H shares, declined 3.5% or 296.89 to 8,138.42. In Shanghai trading CSI 100 Index plunged 1.7% or 34.56 to 2,017.55.

Daily turnover on main-board dropped to HK$36.5 billion from HK$57.4 billion on Friday last week.

Hong Kong Consumer Prices Soar 3.1% in November

Hong Kong''s Central & Statistics Department reported today that consumer prices increased 3.1% in November from a month earlier as headline inflation gained on reduced impact of government''s one-time subsidy in public housing rents.

Core inflation dropped 5.6% on the fall in energy prices.

Food prices, excluding food purchased away from home, rose 14.9% on the year, while rice climbed 54.1%, fresh-water fish 27.3%, canned meat 25.8%, eggs 25.2%, beef 23.9%, poultry 21.1% and fresh vegetables 20.4%.

In addition, meals bought away from home jumped 5.7%, housing by 4.6%, miscellaneous goods by 4%, transport by 1.9%, and clothing and footwear by 0.5%.

However, electricity, gas and water prices declined 35.3%, while durable goods prices fell 0.8% and alcohol and tobacco declined 0.6%.

China Proposes Housing Projects for Low-Income Families

General Office of the State Council said yesterday the real estate stimulus package will concentrate on low-income urban families, encouraging home buying, supporting property developers to deal with changing market, enhancing role of local governments in stabilizing the real estate market, and improving surveillance on the property market.

The package will cater for 7.47 million low-income urban families, 2.4 million households in shantytowns in the next three years and rural homes in dangerous condition.

In 2009, government will help 2.6 million low-income urban families and 800,000 households in shantytowns.

Gainers & Losers

Hong Kong stocks fell today on profit taking following recent gains and ahead of the Christmas holiday. Trading will close on midday Wednesday and re-open on December 29.

China Mobile plummeted 5.5% after the company said net additional subscribers fell 4.5% in November.

HSBC fell 3.3% as S&P cut its outlook on the stock to “negative”.

Mainland based Taiwanese companies increased after China pledged to help Taiwan to stem the effects of widening global financial markets crisis.

Yue Yuen Industrial rose 13.6% and Fubon Bank increased 6.2%.

Realty stocks fell as lenders didn''t pass on the rate cut from the Hong Kong Monetary Authority. Sun Hung Kai Properties declined 5.7% and Cheung Kong Holdings fell 5.4%.

China Railway Construction rose 1.4% on reports China will spend Rmb5 trillion to add 41,000 kilometres to its rail network until 2020.

Sinotrans jumped 7.9% after Xinhua News Agency reported that the merger between its parent company and China Yangtze Transportation has been approved by the State Council.

CITIC Pacific fell 8.7% on profit taking.