Howard Richman submits:

In a June 30 commentary, "Steering U.S.-China economic relations toward a new normal," Washington Post business columnist Steven Pearlstein argues that we need to take real action now to end mercantilism, beginning with Chinese mercantilism. The entire commentary is worth reading. Here are just his action steps:

So if the urgent need is to rebalance the global economy by rebalancing the U.S.-China economic relationship, we are probably going to have to begin this process on our own. And that means establishing some sort of tariff regime that will increase the cost of imports not just from China, but other countries that keep their currencies artificially low, restrict the flow of capital or maintain significant barriers to imports of goods and services. The proceeds of those tariffs should be used to encourage exports in some fashion….

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Econ Grapher submits:

China had its PMI numbers out today, with the official CFLP index registering at 52.1, down both against consensus estimates (Reuters) of 53.1, and the May figure of 53.9. The HSBC index (which surveys 400 businesses, and is weighted to smaller/privately owned businesses than the CFLP index) confirmed the direction, down to 50.4 versus 52.7 in May.

(Click to enlarge)

So what do the PMI numbers tell us? Well, for one thing the index is still just above 50, which indicates expansion. But the indexes have both fallen off notably, which indicates that expansion is slowing down. Note what I said in both comments: expansion. But also note the background – context is everything. There have been a number of moves this year made by the authorities in China to slow down the economy in order to avoid overheating (e.g. increasing the required reserves, clamping down on loan growth, allowing wages to rise – though that one’s a positive or a negative depending on the sector, and starting to allow the yuan to move a little).

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Charles Hugh Smith submits:

China’s strengths get relentless coverage, its headwinds less so.

We all know China’s strengths: hard-working populace, high savings rate, a so-far wildly successful marriage of Central State-managed economy and several flavors of capitalism and a lock on much of the world’s rare industrial metals, to name but a few.

But China faces structural and demographic headwinds which could slow or even reverse its prospects as a global hegemon.

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Carnegie Endowment submits:

Facing an overheating economy and a growing bubble in residential property markets, China began to tighten monetary policy in early 2010. If Beijing can effectively cool down the speculative demand for housing, the uncontrolled collapse of the bubble is unlikely. Nonetheless, Pieter Bottelier warns that China must continue to be wary of the potentially destabilizing social consequences associated with increasingly unaffordable housing.

• China’s residential property bubble (concentrated in major eastern cities) is mainly the result of excessive domestic credit expansion in 2009. Contributing factors are significant “hot money” inflows from abroad, low (government mandated) bank deposit rates, a widespread property speculation mania, corruption, and incentives for local governments to drive up land prices to augment local fiscal revenues.

• Beijing is keenly aware of the associated risks and is determined to control the property bubble. The central bank has begun to tighten monetary policy, but cautiously, so as not to kill recovery in the broader economy. Around the middle of April 2010, the State Council (China’s Cabinet) introduced tough administrative measures aimed at curbing property speculation—mainly by reducing credit availability and increasing its cost—and announced plans to significantly increase housing supply, especially at the lower end of the market.

• China does not share Alan Greenspan’s pre-subprime crisis view that financial regulators cannot recognize a bubble, are unable to effectively control one if they see one, and that it is easier to clean up the mess after it has burst than to deflate a bubble.

• Given the central government’s apparent political will to control the bubble and the considerable arsenal of policy tools at its disposal, a “soft landing” is unlikely. If Beijing can keep the bubble within bounds, it is likely that an uncontrolled meltdown will be avoided, though a market correction (of 20–30 percent on average) over the next 3–12 months is likely.

• Social issues associated with China’s property bubble are at this point as or more compelling than financial issues. Housing affordability for first-time home buyers in major eastern cities has become a major social and political issue. It is a source of potentially destabilizing public discontent, even if the property bubble can be controlled.

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Tate Dwinnell submits:

Renesola (SOL) provided preliminary Q2 guidance Thursday morning, beating previous estimates while raising guidance for the 2nd half. The company reports official results on August 9th. Here are highlights:

* They expect total shipments for Q2 to be in the range of 250 – 260MW, exceeding previous guidance of 230 – 250MW

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Marc Chandler submits:

The flexibility that the US (and others) call for means the primary source of rigidity, that prevents the yuan from appreciating, namely the hand of the government, should be removed. What Chinese officials mean by flexibility is greater two way movement in relatively narrow bands.

However, now two weeks after the new policy was announced, China’s intentions are clearer. It will accept some currency appreciation as well as greater two-way movement. Ironically, though, it looks like the market is overcorrecting its initial euphoria and now appears to be pricing China cheaply.

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SA Editor Mohit Manghnani submits:

HiSoft Technology Int’l (HSFT), a China-based provider of outsourced information technology and research and development services, priced its IPO on 29th June 2010 at $10 per ADS, below the range of $11 – $13 per ADS.

Business Overview (from prospectus)

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SA Editor Mohit Manghnani submits:

AutoNavi Holdings (AMAP), a provider of digital map content and navigation and location-based solutions in China, priced its shares at $12.50 – within the expected range (see below). Shares rose 8% to $13.50 in its first day on the Nasdaq.

Business Overview (from prospectus)

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Cam Hui submits:

There has been much angst in the aftermath of the Chinese announcement of further currency flexibility. Despite the hoopla, the RMB barely budged against the USD in the wake of the news.

The source of friction in Sino-American relations is the US-China trade gap. There are some other adjustments in evidence that could close the gap, notwithstanding any change in exchange rate. Firstly, on the China side, the Chinese minimum wage went up by 20% in early June. In addition, an article in Bloomberg/Business Week states that American companies are getting better quality local workers at a cheaper price as the discouraged unemployed take a job…any job:

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Macro Man submits:

While we may be kicking off a bounce day elsewhere in the world (Team Macro Man are dashing off to the plastic surgeons to get new Kevlar fingers fitted for renewed knife-catching), yesterday China started to resemble a car hit by a semitrailer. Equity markets are down again, following another huge selloff yesterday, and some of the non-Asia-based members of Team Macro Man are asking the all important question: how much worse can it get?

Click charts below to enlarge

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