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Last week China economy review and analysis (May 06, 2010)

Contributed by Daniel Stewart & Company

By Daniel Stewart & Co

The authorities‘campaign to prick the housing bubble has taken another twist with the third increase this year in banks’ reserve requirements: to 17% this time but another move to 18% is already in the air. There is a suspicion of panic leading to a crash and the Shanghai stock market has taken a beating over the last week. This , together with developments in Greece and Australia, is also unsettling equity markets globally. There is some confusion over the latest PMI Manufacturing survey which suggests a slowdown (albeit modest).

Wednesday update: the market sees what it wants to see. The Office of National Statistics produced a higher April PMI which was ignored in favour of a lower figure from HSBC. That has been enough to contribute to a global market correction!

It looks as if a revaluation may not take place before the Sino-American Dialogue this month but one extraordinarily helpful development is President Ma of Taiwan’s statement that he would not ask the US to go to war on its behalf. This is good news for just about everyone (including us) and should get the Dialogue off to a good start. Meanwhile, the World Expo has opened in Shanghai and is expected to attract more than 70 million visitors over the next six months. This is another big show piece for China and billions have been spent on infrastructure, including the restoration of the financial district where HSBC and Standard Chartered used to rule the roost. It could never happen here!