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News from China
Dow plunges 3.1% in US stocks rout; Trump blames Fed for economic woes
15th August 2019

 

 
It was an ugly day for Wall Street, as stocks plummeted Wednesday amid worsening economic fears after US Treasury yields briefly inverted, flashing a warning sign for a coming recession.
 
But President Donald Trump once again blamed the Fed for the economic woes and the yield curve inversion, saying the US central bank is "clueless."
 
The Dow Jones Industrial Average fell 3.1 percent to finish at 25,479.42, a loss of about 800 points — its worst day of 2019.
 
The broad-based S&P 500 slumped 2.9 percent to 2,840.60, while the tech-rich Nasdaq Composite Index dropped 3.0 percent to 7,773.94.
 
The sell-off came shortly after the yield on the 10-year US Treasury note briefly dipped below the yield on the two-year, a dynamic that has been a reliable harbinger of past recessions.
 
The rout followed the latest stream of poor economic data from overseas.
 
Shortly after the Dow hit bottom, Trump renewed his attacks on the Federal Reserve and its Chairman Jay Powell, whom Trump appointed.
 
"China is not our problem... Our problem is with the Fed," Trump tweeted, blaming "clueless Jay Powell and the Federal Reserve."
 
The Fed "Raised too much & too fast. Now too slow to cut... Germany, and many others, are playing the game! CRAZY INVERTED YIELD CURVE! We should easily be reaping big Rewards & Gains, but the Fed is holding us back," he said.
 
A note from Oxford Economics said the research firm's recession models as on "high alert."
 
"Financial conditions have tightened sharply in August," Oxford added in the note. "Following a huge bull-flattening trade, the Treasury market is pricing in expectations of slower growth, softer inflation, and increased Fed easing."
 
The gloomy economic reports have fueled expectations that the leading central banks will undertake new stimulus measures.
 
The Federal Reserve cut the benchmark interest rates last month for the first time in more than a decade and is expected to make additional cuts in the months ahead.
 
Trump has said he wants the Fed to cut borrowing rates by a full point.
 
Banking shares suffered especially significant losses, with JPMorgan Chase, Citigroup and Bank of America all losing more than 4 percent. Bank profits typically suffer when interest rates decline.
 
Source: Shanghai Daily, August 15, 2019
China's industrial output up 4.8% in July
14th August 2019

 China's value-added industrial output, an important economic indicator, expanded 4.8 percent year on year in July, the National Bureau of Statistics said Wednesday.

 
The growth rate was 1.5 percentage points lower than that recorded in June, according to the NBS.
 
On a monthly basis, the industrial output edged up 0.19 percent from June.
 
In the first seven months, industrial output climbed 5.8 percent from one year earlier, with the pace of growth decelerating from 6 percent registered during the first half of the year, the NBS data showed.
 
Industrial output, officially called industrial value added, is used to measure the activity of designated large enterprises with annual turnover of at least 20 million yuan (US2.8 million).
 
A breakdown of the data showed the production and supply of electricity, thermal power, gas and water reported a year-on-year growth of 6.9 percent in July, the fastest among the three major sectors and accelerating 0.3 percentage points from June.
 
Manufacturing output rose 4.5 percent year on year, down from 6.2 percent in June, and output growth of the mining sector eased to 6.6 percent from 7.3 percent in June.
 
High-tech manufacturing maintained fast expansion, with its output increasing 6.6 percent last month.
 
Source: Shanghai Daily, August 14, 2019
China's FDI inflow rises 7.3% in January-July
13th August 2019

 Foreign direct investment into the Chinese mainland expanded 7.3 percent year on year to 533.14 billion yuan  (US$75 billion) in the January-July period, the Ministry of Commerce announced Tuesday.

 
In US dollar terms, FDI inflow grew 3.6 percent year on year to 78.8 billion dollars during the period, the ministry said.
 
FDI in July alone reached 54.82 billion yuan, up 8.7 percent year on year.
 
During the past seven months, a total of 24,050 new foreign-funded enterprises were founded.
 
Investment in high-tech industries climbed 43.1 percent year on year to account for 29.3 percent of the total FDI, among which the high-tech service sector received 97.39 billion yuan, up 63.2 percent.
 
China's pilot free trade zones saw FDI inflow up 14.6 percent year on year during the seven-month period, accounting for 14.2 percent of the total FDI.
 
Western China registered the fastest growth of FDI compared with other regions, with the figure up 25.2 percent year on year to reach 39.94 billion yuan.
 
Foreign investment from Germany and the Republic of Korea climbed quickly in the first seven months, posting growth of 72.4 percent and 69.7 percent year on year, respectively.
 
MOC data showed that FDI from the European Union rose 18.3 percent compared with the same period last year.
 
FDI from countries participating in the Belt and Road Initiative grew 5 percent in the first seven months of 2019.
Source: Shanghai Daily, August 13, 2019
RMB rate 'in line with fundamentals'
12th August 2019

 The International Monetary Fund has affirmed its view that China’s exchange rate is broadly in line with economic fundamentals.

 
Experts said IMF’s new report provides further evidence that US designation of China as a “currency manipulator” is groundless and irresponsible.
 
China’s real effective exchange rate in 2018 is estimated to be at the same level as warranted by fundamentals and desirable policies, the IMF reiterated on Friday in a staff report after concluding the annual Article IV consultation to review the Chinese economy. It noted that the average REER in 2018 appreciated by about 1.4 percent relative to 2017, driven by the appreciation in the nominal effective exchange rate (1.5 percent).
 
“The external position in 2018 was assessed to be broadly in line with the level consistent with medium-term fundamentals and desirable policies,” the IMF said, consistent with its earlier conclusion in its annual External Sector Report released in July.
 
“The IMF report makes clear that there has been absolutely no currency manipulation and that China’s external balance has been appropriate,” Jeffrey Sachs, a senior United Nations advisor and renowned economics professor at Columbia University, told Xinhua in an e-mail.
 
In response to the IMF estimates through May 2019 which show the REER has depreciated by about 0.2 percent relative to the 2018 average, Sachs said the unilateral tariff action by the United States “surely has caused some depreciation” of the equilibrium REER.
 
“The US Treasury action declaring China a currency manipulator was blatantly arbitrary, capricious and political, based on Trump’s tweets rather than on objective analysis,” Sachs said, while noting that US trade and financial behavior towards China is “utterly irresponsible.”
 
The IMF report showed that China’s current account surplus fell by around 1 percentage point to 0.4 percent of gross domestic product in 2018 and it is projected to remain contained at 0.5 percent of GDP this year.
 
Noting that China’s current account surplus is “small,” Mark Sobel, non-resident senior adviser at the Center for Strategic and International Studies, and US chairman of the Official Monetary and Financial Institutions Forum, told Xinhua “that estimates suggest China has not been intervening in the foreign exchange market.”
 
“As such, the Article IV clearly rebuffs the recent US assertion that China is ‘manipulating’ its currency to gain unfair competitive trade advantage or prevent effective balance of payments adjustment,” said Sobel.
 
The IMF report came only a few days after the United States unilaterally labeled China as a “currency manipulator,” which prompted criticism from experts worldwide.
 
Former US Treasury Secretary Lawrence Summers criticized the US administration for naming China a “currency manipulator,” saying such a move has damaged the US credibility.
 
“Without some mercantile advantage, and with ongoing efforts to prop up the exchange rate and so raise export prices and reduce import prices, there is no credible manipulation claim here,” Summers argued in an opinion piece published on The Washington Post.
 
“It will be harder now in the next difficult financial moment for Treasury Department pronouncements to be credited by market participants,” said Summers, emphasizing that “the move down in the yuan on Monday was not artificial — it was an entirely natural market response to newly imposed US tariffs.”
 
Scott Kennedy, senior adviser of the Freeman Chair in China Studies and director of Project on Chinese Business and Political Economy at CSIS, said on Twitter that seven is not a “magic number,” noting that yuan’s fall below seven should not cause competitive devaluations and “isn’t proof of manipulation deserving of US retaliation.”
 
Source: Shanghai Daily, August 12, 2019

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