Korea to Unveil Inflation-Fighting Measures, Housing Supply Plan This Week

Summary:

Korea will unveil additional measures to tame inflation, and a package of housing supply plans, this week in an effort to help stabilize people's livelihoods, the finance minister said Monday.

Korea will unveil additional measures to tame inflation, and a package of housing supply plans, this week in an effort to help stabilize people's livelihoods, the finance minister said Monday. Korea to Unveil Inflation-Fighting Measures, Housing Supply Plan This Week_1

Korea to Unveil Inflation-Fighting Measures, Housing Supply Plan This Week_1

The government plans to roll out the soon-to-be announced inflation-fighting measures ahead of the Chuseok fall harvest holiday next month, as consumer prices ran at a near 24-year high in July due to high energy and food prices, according to Finance Minister Choo Kyung-ho.

Korea's consumer prices soared 6.3 percent on-year in July, the fastest rise in almost 24 years and an acceleration from a 6-percent spike in June.

High inflation and rising interest rates have weighed on people's spending, possibly curbing economic growth.

The Yoon Suk-yeol administration will also unveil its first package intended to stabilize the housing market Tuesday that includes the supply of more than 2.5 million houses.

President Yoon earlier vowed an overhaul of the real estate policy, saying the previous government's pursuit of tougher regulations and heavier taxes to curb speculation ended up causing a surge in housing prices.

Home prices showed downward trends in recent months as housing transactions remained sluggish amid rising interest rates and concerns about an economic slowdown.

Source: Yonhap

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Devin

Russia-Ukraine Conflict

The fragile Palestinian economy in the Gaza Strip has been drawn into a deep crisis in the wake of the Russian-Ukrainian war, which has caused price hikes, confusion in local fees and taxes imposed on goods, and lower public sector employees' salaries.

The Hamas movement, which has been in control of Gaza since 2007, has recently adopted several measures to tackle this increase in prices. Back in June, Hamas started off by reducing taxes on basic commodities such as cooking gas, but it was not long before this measure backfired and led the movement to grapple with a stifling financial crisis, while it mainly relies on local taxes to cover its expenses.

To compensate for the reduced taxes on basic commodities, Hamas imposed new taxes on other goods such as imported clothes, and is considering slashing a bigger percentage of the salaries of its approximately 40,000 government employees, which has deepened the crisis instead of solving it.

Since Egypt demolished in 2013 the border tunnels with the Gaza Strip on which Hamas relied to smuggle goods and cover its finances, government employees have been receiving only 60% of their monthly salaries.

Awni al-Basha, undersecretary of the Gaza Finance Ministry, told Al-Monitor that the government is suffering from a stifling financial crisis that will negatively affect the salaries of its employees, as the government is bearing the rise in prices of basic commodities, especially fuel, as a result of the Russian-Ukrainian war.

Basha said that the government was forced during the past months to borrow from local banks in order to be able to cover the 60%, but it is no longer able to continue fulfilling this obligation.

He pointed out that the government has developed a plan to overcome this budget deficit through a set of austerity measures at the level of expenditures, operational budgets and development budgets.

Of note, Hamas does not disclose its tax revenues, expenditures or employee payroll bills.

Mohammed Abu Jiyab, editor of Al-Eqtesadia newspaper in Gaza, wrote in a Facebook post July 27, "I have a question for the government: what is the reason behind the decline in revenues, what is the percentage of this decline, and what are the most important revenue sources that decreased? Can the government tell us the size of the [amount it collects in taxes and fees] and how it classifies its resources, or is it forbidden?"

An official at the Ministry of Economy in Gaza told Al-Monitor on condition of anonymity that the tax revenues of the Hamas government amount to no more than roughly $40 million per month. He said, "The rise in fuel prices has led the government to lose $5 million per month in taxes, which, alone, plunged the government into a financial crisis."

Salama Marouf, chairman of the Gaza government media office, told Al-Araby Al-Jadeed website July 27, "The government has reached a stage where it is impossible for it to cover 60% of the employees' salaries."

In a July 23 statement, the Public Employees Syndicate in Gaza expressed its categorical refusal of any proposals to reduce the public employees' salary rate, as it stressed its insistence on increasing the 60% rate.

In order to confront this deficit in taxes and the crisis in paying employees' salaries, the Ministry of Economy in Gaza announced in a July 19 statement the imposition of new taxes on imported items and goods.

The ministry explained that the decision aims to increase the competitiveness of local products in comparison with foreign products all the while increasing the number of industrial establishments, expanding existing factories and increasing the number of workers.

According to the decision, a tax of $3 will be imposed on each imported piece of trousers, jilbab (long and loose-fit coat) and abaya (long-sleeved, floor-length garment); $300 will be imposed as fees on each ton of nylon; $60 per ton of juice; $1,000 per ton of thyme or nuts; and $230 per ton of biscuits.

While local factory owners back the decision as it supports local products, the importing traders strongly reject it, and say it aims at reviving government revenues at their own expense.

Ziad al-Shanti, owner of Shanti Denim Factory in Gaza, welcomed the decision to impose new taxes on imported goods. He told Al-Monitor that the decision is in the interest of local products.

He noted that the local product is of high quality comparable to imported ones, "but people prefer to buy imported goods because there is a popular belief that imported products are always better than local ones, and that is wrong."

He pointed out that imposing a new tax on imported goods would increase the price of imported goods and would make local products more attractive.

On July 21, clothing merchants and importers in the Gaza Strip organized a protest in front of their union headquarters in Gaza City in order to voice their opposition to the new taxes.

Emad Abdelhadi, representative of Gaza's Union of Clothes' Merchants, refused these taxes. He told Al-Monitor that the Ministry of Economy did not discuss such measures before imposing them, and that it came as a surprise to merchants who are facing the risk of bankruptcy due to the taxes imposed on their imported products.

Abdelhadi explained that about 800,000 pairs of trousers and 20,000 robes and abayas are imported on an annual basis.

He said that in order to support local products, the quantities of imported goods should be reduced and the quantities of local products increased. Increasing the customs value would only lead to increasing the price of imported products, which is something that would affect consumers in the first place.

Palestinian activists called for demonstrations in the Gaza Strip Aug. 5, dubbed as the "Friday of Dignity," in rejection of the recent taxes introduced amid high unemployment and poverty rates in Gaza.

According to statistics published June 21 by the United Nations on the situation in the Gaza Strip, about 80% of Gazans depend on humanitarian aid, and more than half of the population of 2 million live in poverty, while roughly 80% of the youth are unemployed.

Source: Al Monitor

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Damon

The juiciest profits from betting against the yen — one of the hottest macro trades of 2022 — are a thing of the past, according to a growing cohort of strategists. Yen Shorts Fall Out of Fashion as Recessionary Fears End Year's Hottest Forex Trade_1

Yen Shorts Fall Out of Fashion as Recessionary Fears End Year's Hottest Forex Trade_1

Three key pillars of the sell-the-yen trade — a widening U.S.-Japan interest-rate gap, soaring oil prices and the loss of the currency's haven status — are crumbling, as growing recessionary fears keep a cap on yields, put pressure on crude and send investors back into the arms of traditional safe assets. Dollar-yen, which soared 38% from a March 2020 trough to mid-July this year, is in retreat.

"The big yen short as we know it this year, it's over," said Rodrigo Catril, strategist at National Australia Bank in Sydney. "Dollar-yen's peak is now likely behind us."

Catril is joined by the likes of Rabobank and Daiwa Securities Group in predicting a slowdown in losses for Japan's currency, the worst performer in the Group of 10 this year.

Strategists see the yen strengthening to ¥130 per dollar on average by the first quarter of 2023, according to data compiled by Bloomberg, a clear contrast with calls arguing that ¥140 and higher lay ahead at the peak of the bearishness in mid-July.

An end to what threatened to become the worst-ever drawdown for the currency would be welcomed from businesses to consumers and politicians in Japan, where higher import costs are weighing on a post-pandemic recovery.

It would vindicate the resolutely dovish stance of Bank of Japan Gov. Haruhiko Kuroda and put pressure on hedge funds who came late to popular short-yen macro strategies.

Treasurys boost

Perhaps the most effective handbrake on the yen's steep decline has been the pullback from ever higher Treasury yields.

The yen is closely correlated to movements in U.S. government bonds as the dynamic of a BOJ keeping rates pinned to the floor even as the Federal Reserve hikes aggressively weighs on the relative attractiveness of Japanese assets. Now Treasury yields have retreated from their highs, as traders tweak estimates for peak Fed rates and reconsider bonds on fears of a U.S. slowdown.

"U.S.-Japan monetary policy divergence will no longer be a factor as markets have pretty much priced that in," said Yukio Ishizuki, a senior currency strategist at Daiwa in Tokyo. "Yen selling appears to have peaked."

Benchmark Treasury yields have fallen more than 60 basis points from their peak in June, to 2.83% on Friday. The yen has strengthened over 3% from its trough to around ¥135.

"It follows that if U.S. yields trend lower then some of the upward pressure is removed from the currency pair," said Jane Foley, strategist at Rabobank in London. She sees dollar-yen trading as low as ¥130 in the coming months.

Energy pressure

Japan, a net importer of oil, was left reeling earlier this year as Brent crude futures skyrocketed toward $140 a barrel. With prices now under the $100 mark, the devastating impact on import costs has eased.

Bloomberg Economics' Yuki Masujima expects Japan's trade deficit to have narrowed in July and the nation's import bill to have increased at a slower pace thanks to cheaper commodity prices.

"The energy terms of trade shock is easing, particularly if you look at oil prices," said NAB's Catril. While a spike in gas prices and U.S. 10-year bond yields would be key risks to watch, dollar-yen should trade around current levels before landing at ¥130, he said.

Haven return

Japan's currency is also making a comeback as a haven.

The yen jumped 1.3% on Aug. 1 when traders learned U.S. House Speaker Nancy Pelosi would visit Taiwan, sparking worries of potential retaliation by China. It has rallied more than 4% in the past three weeks as fears of a global recession deepened.

"The yen appears to have rediscovered its safe-haven status," said David Forrester, senior FX strategist at Credit Agricole CIB in Hong Kong. Weaker-than-expected U.S. economic data curbs Fed rate-hike bets, which "reduces the dollar's safe-haven with high-yield appeal, allowing the yen to reassert its safe-haven appeal," he added.

Hedge funds appear to be voting with their feet. Leveraged investors have slashed their net-bearish yen wagers to the least since March 2021, recent data from the Commodity Futures Trading Commission showed.

Doubts remain

To be sure, not everyone is betting the big yen short is over.

Dovish market expectations for longer-term Fed rates seem at odds with the central bank's own hawkish view, and stronger-than-expected U.S. employment data Friday sent Treasury yields higher — a reminder that the pressure on bonds hasn't completely eased.

While Goldman Sachs Group sees the yen rising over the long term, "further depreciation pressures are likely" as the BOJ clings to its yield-curve control policy during Kuroda's term, strategist Isabella Rosenberg wrote in a note.

Others, including Mizuho Securities' Masafumi Yamamoto, said geopolitical risks don't necessarily point to safe-haven yen buying, not least because a hypothetical U.S.-China conflict could lead to American bases in Japan coming under attack.

"If tensions escalate seriously, it won't be a one-way risk-off yen appreciation," the Tokyo-based strategist said. "It's a yen selling factor."

But that's not dissuading strategists like Foley, who reckon the worst of the losses are in for the yen as jitters around monetary policy ease.

"Barring another sharp rise in U.S. yields, the chances of seeing a move beyond ¥140 have now likely passed," she said.

Source: japantimes

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Damon

The Senate passed the Inflation Reduction Act on Sunday, and the legislation is being hailed by the CEO of a residential solar power provider as perhaps the most important climate bill in modern times.

"We're sitting on the precipice of what could be the most impactful climate legislation of our lifetimes," SunRun CEO Mary Powell told Yahoo Finance Live . "We're really excited about it. We really see it as fundamentally accelerating this customer-led revolution to a much more sustainable, independent, resilient, and affordable energy system for Americans."

If passed, the $369 billion deal would be a major breakthrough for clean energy efforts in the U.S. And although some provisions for the oil and gas industry have received pushback, many have cheered the bill as a significant step forward in tackling climate change. The Inflation Reduction Act 'Could be The Most Impactful Climate Legislation of Our lifetimes'_1

The Inflation Reduction Act 'Could be The Most Impactful Climate Legislation of Our lifetimes'_1

According to a preliminary analysis by independent research provider Rhodium, the Inflation Reduction Act would reduce greenhouse gas emissions by 31% to 44% from 2005 levels by 2030. That pushes the U.S. closer toward the Paris Agreement goal of limiting global warming to 1.5 degrees Celsius. The earth already warmed by about 1.1 degrees in the last century.

Most of the reduction in U.S. emissions would come from tax credits for clean energy producers. The proposed legislation also aimed to invest in clean technologies such as carbon capture that have yet to scale. There are also provisions aimed at increasing domestic manufacturing for batteries, solar, and offshore wind.

"Make no mistake," Powell said, "part of what this does is provide stability for the industry in terms of the work it's already doing for customers."

Another notable feature of the legislation focuses on making green technology more affordable for consumers.

One program sets aside $4.5 billion for rebates to help households electrify their homes with more energy-efficient appliances and heat pumps. Electric vehicle owners may also be eligible for an expanded tax credit.

These upgrades may have the added benefit of lowering energy prices over the medium term in addition to shrinking the nation's carbon footprint. According to Rhodium's analysis, the Inflation Reduction Act would contribute to a $730 to $1,135 reduction in household energy costs in 2030 relative to 2021.

One criticism of the energy transition among households has been that the benefits tend to be concentrated among higher-income consumers who can afford the upfront costs required for solar panels, EVs, and heat pumps. The Inflation Reduction Act 'Could be The Most Impactful Climate Legislation of Our lifetimes'_2

The Inflation Reduction Act 'Could be The Most Impactful Climate Legislation of Our lifetimes'_2

Powell emphasized that the Inflation Reduction Act would distribute these technologies to a broader base of Americans, explaining that the legislation would "turbocharge" efforts to bring solar panels to lower-income Americans.

"Specifically, what this does is it just makes it even more affordable for those customers to go solar by delivering a proposition which can deliver even greater savings for them," Powell said. "At the same time, the backdrop here also is we're seeing energy inflation that is just really quite remarkable. We're seeing utility rates rising all across the country. And so those things, too, are conspiring to really have this be such a monumental time in this space to help customers really move quickly to a cleaner, more cost-effective solution."

Source: Yahoo

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Owen Li

The RBNZ's latest Survey of Expectations showed that expectations for inflation over the coming years remain elevated. However, the trend higher seen in recent months looks to have been arrested, with expectations easing at some of the key medium-term horizons. That will leave the RBNZ feeling more comfortable that the risks of high inflation becoming embedded in the economy are easing off.

Details

Inflation expectations

· One year ahead: 4.86% (Prev: 4.88%)

· Two years ahead: 3.07% (Prev: 3.29%)

· Five years ahead: 2.33% (Prev: 2.42%)

· Ten years ahead: 2.13% (Prev: 2.11%)

Details

The RBNZ's latest Survey of Expectations showed that expectations for inflation over the coming years remain elevated. However, the trend higher seen in recent quarters looks to have been arrested, with expectations easing at some of the key medium-term horizons

Looking at the details of today's report, expectations for inflation one year ahead held steady at 4.9%. Expectations at this short horizon tend to follow actual inflation closely. And with the latest survey coming hot on the heels of the monster 7.3% inflation outcome in the year to June, that lack of movement will be welcome news for the RBNZ.

The bigger focus for the central bank is expectations over longer horizons (two or more years ahead). Historically, those have been a better guide to how businesses will adjust prices and wages, and signal if the inflation target is viewed as credible. On this front, today's news will also have been welcomed by the central bank.

The closely watched two-year ahead measure pull back to 3.1% (from 3.3% last quarter). Similarly, the five-year ahead measure softened to 2.3% (from 2.4% previously), while expectations for inflation in 10 years' time remained steady at 2.1%.

Implications

Today's easing in inflation expectations will leave the RBNZ feeling more comfortable that the risks of high inflation becoming embedded in the economy are easing off. That is particularly important given the current multi-decade high in actual inflation and related risks of a wage-price spiral.

Even so, today's survey still points to strong inflation pressures in the New Zealand economy and reinforces the case for rate rises. We're forecasting another 50bp rise at next week's RBNZ policy meeting.

Source: Westpac Banking

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Damon

Deriving their names from the size of the massive mammals swimming around the earth's oceans, cryptocurrency whales refer to individuals or entities that hold large amounts of cryptocurrency.

In the case of Bitcoin (BTC), someone can be considered a whale if they hold over 1,000 BTC, and there are less than 2,500 of them out there. As Bitcoin addresses are pseudonymous, it is ofte difficult to ascertain who owns any wallet.

While many associates the term "whale" with some lucky early adopters of Bitcoin, not all whales are the same, indeed. There are several different categories:

Exchanges: Since the mass adoption of cryptocurrencies, crypto exchanges have become some of the biggest whale wallets as they hold large amounts of crypto on their order books.

Institutions and corporations: Under CEO Michael Saylor, software firm MicroStrategy has come to hold over 130,000 BTC. Other publically-traded companies such as Square and Tesla have also bought up large hoards of Bitcoin. Countries like El Salvador have also purchased a considerable amount of Bitcoin to add to their cash reserves. There are custodians like Greyscale who hold Bitcoins on behalf of large investors.

Individuals: Many whales bought Bitcoin early when its price was much lower than today. The founders of the crypto exchange Gemini, Cameron and Tyler Winklevoss, invested $11 million in Bitcoin in 2013 at $141 per coin, buying over 78,000 BTC. American venture capitalist Tim Draper bought 29,656 BTC at $632 apiece at a United States Marshal's Service auction. Digital Currency Group founder and CEO Barry Silbert attended the same auction and acquired 48,000 BTC.

Wrapped BTC: Currently, over 236,000 BTC is wrapped in the Wrapped Bitcoin (wBTC) ERC-20 token. These wBTCs are mostly kept with custodians who maintain the 1:1 peg with Bitcoin.

Satoshi Nakamoto: The mysterious and unknown creator of Bitcoin deserves a category of his own. It's estimated that Satoshi may have over 1 million BTC. Although there is no single wallet that has 1 million BTC, using on-chain data shows that of the first 1.8 million or so BTC first created, 63% have never been spent, making Satoshi a multi-billionaire. How Bitcoin Whales Make a Splash in Markets and Move Prices_1

How Bitcoin Whales Make a Splash in Markets and Move Prices_1

Centralization within the decentralized world

Critics of the crypto ecosystem say that whales make this space centralized, maybe even more centralized than the traditional financial markets. A Bloomberg report claimed that 2% of accounts controlled over 95% of Bitcoin. Estimates state that the top 1% of the world control 50% of the global wealth, which means that the inequality of wealth in Bitcoin is more prevalent than in traditional financial systems: an accusation that breaks the notion that Bitcoin can potentially break centralized hegemonies.

The charge of centralization in the Bitcoin ecosystem has dire consequences that can potentially make the crypto market easily manipulatable.

However, insights from Glassnode show that these numbers seem to be exaggerated and don't take the nature of addresses into account. There might be some degree of centralization, but that may be a function of free markets. Especially when there are no market regulations and some whales understand and trust Bitcoin more than the average retail investor, this centralization is bound to occur.

The "sell wall"

Sometimes, a whale puts up a massive order to sell a huge chunk of their Bitcoin. They keep the price lower than other sell orders. That causes volatility, resulting in the general reduction of the real-time prices of Bitcoin. This is followed by a chain reaction where people panic and start selling their Bitcoin at a cheaper price.

The BTC price will only stabilize when the whale pulls their large sell orders. So, now the price is where the whales want it to be so they can accumulate more coins at their desired price point. The following tactic is known as a "sell wall."

The opposite of this tactic is known as the Fear of Missing Out, or the FOMO, tactic. This is when whales put massive buy pressure on the market at higher prices than with current demand, which forces bidders to raise the price of their bids so they sell orders and fill their buy orders. However, this tactic needs substantial amounts of capital that aren't required to pull off a sell wall.

Watching the selling and buying patterns of whales can sometimes be good indicators of price movements. There are websites like Whalemap that are dedicated to tracking every metric of whales and Twitter handles like Whale Alert, which has been a guide for Twitter users around the world to stay updated on whale movements.

When a whale makes a splash

Sixty-four of the top 100 addresses have yet to withdraw or transfer any Bitcoin, showing that the biggest whales might be the biggest hodlers in the ecosystem, ostensibly because of the profitability of their investment. How Bitcoin Whales Make a Splash in Markets and Move Prices_2

How Bitcoin Whales Make a Splash in Markets and Move Prices_2

The evidence that whales mostly stay profitable is clear from the above graph. When calculated for a 30-day moving average, for the past decade, whales have remained profitable for over 70% of the time. In many ways, their trust in Bitcoin is what fortifies the price action. Being profitable (month-on-month in this case) during most of their investment period helps reinforce their faith in the hodl strategy.

Even in 2022, one of the most bearish years in the history of Bitcoin, exchange balances have gone down, showing that most HODLers are stocking up on their Bitcoin. Most seasoned crypto investors refrain from keeping their long-term Bitcoin investments in exchanges, using cold wallets for hodling.

Kabir Seth, the founder of Speedbox and a long-term Bitcoin investor, told Cointelegraph:

"Most whales have seen multiple market cycles of Bitcoin to have the patience to wait for the next one. In the Bitcoin ecosystem now, the faith of whales is reinforced by the macroeconomics of inflation and more recently, the correlation with the stock markets. On-chain data of whale wallets show that most of them are hodlers. The ones that have come during this market cycle have not made realized profits to be selling. There is no reason to believe that whales will abandon the Bitcoin ship, especially when there is an economic fear of an impending recession looming."

Kabir's point on macroeconomics and correlation with the stock market can be observed in the graph below, which shows that since the last market cycle in early 2018, Bitcoin has closely followed traditional investment assets. How Bitcoin Whales Make a Splash in Markets and Move Prices_3

How Bitcoin Whales Make a Splash in Markets and Move Prices_3

The silver lining in this trend is that Bitcoin has entered the mainstream in terms of consumer sentiment, changing its reputation of being a peripheral asset. On the other hand, a 0.6 Pearson correlation with the S&P 500 in no way means a hedge against the traditional markets. Other experts within the crypto ecosystem also seem to be frustrated with this trend.

Broader macroeconomics might be an important reason for the correlation between stocks and Bitcoin. The past couple of years saw inflows of funds to stock markets that were unparalleled in history. There are theories that in an elongated bear market or in terms of financial catastrophes, the correlation with the stock market might break.

What does it mean when a whale sells?

Although, just looking at the on-chain data for the past three months shows that the number of whale wallets decreased by almost 10%. However, there has been a corresponding increase in wallets that own from 1 BTC to 1,000 BTC. The whales seem to be derisking their positions and the bigger retail investors have been accumulating in turn, providing liquidity to the whales. The historical trend shows that whenever this occurs, there will be a short-term decrease in Bitcoin prices which will eventually lead to whales starting to aggressively accumulate more.

When asked about the very recent whale sell-off, Seth said:

"It's almost inevitable that there will be some a period of a few weeks when the Whales will start selling. This is the mechanics of market movements. Currently, the broader market sentiment of Bitcoin is that the Bottom is in. There are sentiment analysis tools to confirm this. Some whales might be playing against this trend, in turn creating a bigger panic in the market. If there is a major sell-off now, Bitcoin prices might tank as the retail support will break. Only whales will have the liquidity to accumulate then."

What the market can learn from Kabir's point and the whales is that the future of Bitcoin is where one's bet should be. Locally, the sentiments can be manipulated and the prices can be influenced. However, in the long run, when the dust settles, hodlers will prevail.

Source: cointelegraph

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Damon

China's economy showed great resilience and its performance exceeded expectations in the first half of this year. Yet with the rising risk of global stagflation, compounded by mounting external instability, increasing uncertainties, and the triple-pressure of contracting domestic demand, supply shocks and weakened expectations, the Chinese economy faces strong headwinds as it seeks to achieve its annual growth target.

However, thanks to government efforts to balance pandemic prevention and control measures with economic and social development, the policy mix for stabilizing the economy will shore up growth in the second half of the year.

Sporadic outbreaks slow growth in Q2

In the first half of 2022, China's GDP grew 2.5 percent in real terms, with the growth rate in the second quarter of the year being only 0.4 percent due to sporadic COVID-19 outbreaks and multiple external factors. But in May and June, as the effects of various policies began to set in, key economic indicators suggested a rebound.

For example, the added value of large-scale industries and manufacturing purchasing managers' index picked up, and the urban surveyed unemployment rate began declining with investment playing a pivotal role in spurring economic growth in the first six months.

In a nutshell, China's economy has distinct bright spots.

First, inflation is well under control in China. The central government implemented policies to shore up supply and stabilize prices which, to a large extent, helped offset the impact of imported inflation. For instance, the consumer price index rose by 1.7 percent year-on-year in the first half and 2.5 percent year-on-year in June, while the producer price index increased 6.1 percent year-on-year and 7.7 percent year-on-year respectively in the same periods.

Second, foreign trade has seen strong growth. In the first half of the year, China imported and exported goods worth 19.8 trillion yuan ($2.93 trillion), up 9.4 percent year-on-year, with exports accounting for 11.14 trillion yuan, up 13.2 percent, and imports for 8.66 trillion yuan, up 4.8 percent. As a result, the trade surplus topped 2.48 trillion yuan.

Not only has trade grown in volume but also its structure is being optimized. In fact, general trade grew by 13.1 percent, accounting for 64.2 percent of the aggregate trade volume, an increase of 2.1 percentage points compared with the first half of last year.

Impact of Fed rate hike on yuan modest

Third, the US Federal Reserve's rate hikes have had a relatively modest impact on the Chinese currency. While the hike in US interest rates caused a sharp decline in the Japanese yen, British pound and the euro, the yuan remained relatively stable against the US dollar, albeit with a moderate depreciation marked by two-way fluctuations. Which reflects the resilience of China's financial system and its strong economic fundamentals.

And fourth, China's industrial transformation and upgrading have accelerated, as evidenced in the first half growth of value added in the high-tech manufacturing industry, by 9.6 percent year-on-year, 6.2 percentage points higher than all large-scale industries. As for investment in high-tech manufacturing and service industries, it grew by 23.8 percent and 12.6 percent respectively, while favorable policies facilitated the flow of capital and resources, paving the way toward a low-carbon economy.

The good performance of the economy in the first six months of 2022 was primarily due to effective implementation of the policy mix which coordinated pandemic response and economic development. The policy mix has proved effective in ensuring the smooth functioning of logistics and supply chains, especially in shoring up China's nearly 160 million market players, including micro, small and medium-sized enterprises and the self-employed.

Inflation controlled relatively well

The CPI as a whole was relatively low, averaging only 1.7 percent in the first half of the year. But it picked up later, reaching 2.5 percent in June - in line with the policy target of about 3 percent for the whole year.

Meanwhile, the producer price index fell from a peak of 13.5 percent month-on-month in October last year to 6.1 percent in June this year. But the fact that the prices of basic consumer goods remained stable provided robust support to the "vegetable basket project" and "rice bag project". So food prices have remained relatively stable, market supply has grown, and supply of basic essentials is ensured.

But the price hike upstream is bound to be transmitted to consumer goods, and so the recent trend of a moderate increase in the CPI may continue, but within a controllable range. And though the PPI has dropped, it could increase in the second half.

Since China relies, to a large extent, on imports of oil, natural gas, iron ore and coal, its domestic production and supply of these goods can only partly offset imported inflationary pressure, because global inflation has remained high as reflected in the rising prices of food, oil, natural gas, iron ore and coal.

And since rising prices of raw materials lead to higher industrial costs, they will have an impact on China as a large manufacturing country, and micro, small, medium-sized and private enterprises in the middle and lower reaches may bear the brunt of rising raw material prices.

Foreign trade increases against global trend

China's foreign trade grew 9.4 percent in the first half, thanks to an increase in imports from and exports to major trading partners, such as the Association of Southeast Asian Nations, the European Union, the United States, Japan, the Republic of Korea and countries involved in the Belt and Road Initiative.

Moreover, exports of high value-added electromechanical products, trade in services and digital trade are growing at a faster rate. New industries and models are developing at a faster pace, and the proportion of general trade is increasing, with trade with Belt and Road countries growing faster than average. And private enterprises now account for a larger portion of China's exports.

Yet in the second half, China could face headwinds due to shrinking external demand. In addition, the US Fed's rate hikes and the devaluation of the yuan could also work against China's imports, a problem compounded by other uncertainties in trade and the international environment.

That said, China's economy is resilient, because it is supported by a comprehensive industrial chain. As such, the country will continue to promote reform and opening-up, optimize the business environment, and increase inputs in research and development. Despite all that, trade growth could slow down.

Recovery expected in third quarter

Looking ahead, China's economy faces multiple challenges and potential risks. In the short term, several factors will weigh on economic recovery, including imported inflationary pressure, high unemployment among the youth, subdued consumer spending, adjustments in the real estate market, and turbulence in global financial markets. In the long run, an aging population, a shift from the old to new growth drivers and heightened competition between China and the US will also pose challenges to the sustainable development of the Chinese economy.

Yet China's major economic indicators have stabilized; in fact, they are on the rebound. If the trajectory of the past two months is any guide, I expect China's economy to rebound strongly in the third quarter, with GDP growth being more than 5 percent and the momentum continuing into the fourth quarter.

In fact, the Chinese economy can be expected to return to normal next year, with GDP growth reaching 5.2 percent. And over the course of the 14th Five-Year Plan (2021-25) period, the economy is expected to grow at an average rate of about 5 percent.