Li & Fung Research Centre

LI & FUNG RESEARCH CENTRE

LI & FUNG China Trade Quarterly

– Domestic and Foreign

November 2006 Issue 4

IN THIS ISSUE :

Part One : Domestic Trade I. Recent developments II. Highlights III. Outlook 2 2 3 4

Domestic Trade

Strong retail sales in the first three quarters. Retail sales grew by 13.5% yoy, 0.5 ppt faster than the same period last year. This is the second quarter in a row that China’s retails sales recorded growth of above 13%. Rising property prices create positive wealth effect. Contrary to earlier predictions by some economists that property prices would fall after the government’s earlier tightening measures—a 20% capital gain tax on property sales and increase of mortgage down payment from 20% to 30%, property prices continued to rise. Economic growth eased as a result of the government’s tightening measures. The slowing growth of M2, FAI and industrial output show that earlier tightening measures have achieved the government’s aims. With the economy showing signs of easing, the government, therefore, is unlikely to implement more tightening measures for the rest of 2006. Easing economic growth reduces the risk of a boom and bust economic cycle and another round of tightening measures by the government. A positive outlook for China’s domestic consumption is expected and total retails sales is likely to reach 7,500 billion yuan by end 2006, up from 6,700 billion yuan in 2005.

Part Two : Foreign Trade I. Recent developments II. Highlights III. Outlook

6 6 7 11

Foreign Trade

Trade surplus surpassed last year’s total. China’s trade surplus in the first nine months surpassed last year’s total of USD 102 billion, to USD 110 billion. The strengthening of the yuan over the last year seems to have little impact on trade performance. China’s trade surplus in September was USD 15.3 billion, down from the monthly record of USD 18.8 billion in August. China’s export unlikely to pose stronger growth. With China’s two largest trading partners...