China: Consumers Fade — Another Bond Sale Failure

A couple more bricks to the wall of trouble that China has been building. It will end in tears, and those who still believe that China will take over the US in the next few years are fooling themselves.
June 17 (Bloomberg) -- China’s finance ministry failed to draw enough bids for a bond sale for a second time this year as the central bank steps up efforts to rein in inflation.

The ministry sold 13.35 billion yuan ($2.1 billion) of one- year bonds, falling short of its 20 billion yuan target, according to traders at finance companies required to underwrite the debt. The seven-day repurchase rate, a gauge of interbank funding availability, jumped to a four-month high of 6.88 percent yesterday, after the People’s Bank of China ordered banks to set aside more cash as reserves for a sixth time this year on June 14.

“The auction was affected by tighter liquidity brought by the reserve-ratio hike,” said Frances Cheung, a senior strategist at Credit Agricole CIB in Hong Kong. “The high auction yield represents investor expectations for a near-term policy rate hike.”
 Is the Chinese consumer take the baton from the US consumer? It doesn't look it's happening, contrary to what the market is pricing in.
June 17 (Bloomberg) -- At the Haiyang Zhuangshi Co. hardware store in Beijing, sales of paint and aluminum window frames are slowing, one sign of a diminished role for consumer spending in China that’s foiling government objectives.

“It seems the peak days are gone,” said owner Hu Mengbin, 42, whose daily revenue has dropped to about 3,000 yuan ($463) from as much as 4,000 yuan last year after China stepped up efforts to rein in home prices. “Between 2006 and 2008 when the property market was red hot, we could make quick money.”
Government data this week showed retail sales growth slowed to 16.9 percent in May, less than the average of the past five years and a figure that’s inflated by soaring prices for food. By contrast, spending on fixed assets such as factories and property climbed 26 percent, excluding rural households, in the first five months, the fastest pace in almost a year.

Consumption hasn’t taken off,” said Patrick Chovanec, an associate professor at Tsinghua University’s School of Economics and Management in Beijing. “What has happened is a shift from exports to investment as a driver of growth.”
Just at a time when the government in China and a lot of people elsewhere are hoping to see Chinese consumers step up to the plate, actually they’ve been staying away from shops,” said Mark Williams, an economist in London with Capital Economics and a former adviser on China to the U.K. Treasury. “The trend over the past couple of years has been relentlessly downward.

Food costs jumped 12 percent in May from a year before, eroding the purchasing power of Chinese households even as policy makers embrace wage gains to bolster domestic demand. Savings are also being hurt, with the one-year deposit rate of 3.25 percent more than 2 percentage points less than the 5.5 percent annual pace of inflation. Limited exchange-rate appreciation also means imported products are more costly.

Property prices are also a burden, with 74 percent of people seeing them as too high, according to a People’s Bank of China survey released yesterday

Growth in furniture sales eased to 26 percent in May from 37 percent a year earlier, while household electronics sales rose 15 percent after gaining 27 percent, official data show.

Passenger-car sales fell for the first time in more than two years in May after subsidies for purchases ended this year, supply chains were disrupted by the Japan earthquake, and the property clampdown helped to depress demand.

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