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SYDNEY - Last month's credit crunch should be seen as part of Beijing’s effort to restrain runaway credit growth and investment, and encourage consumption spending, according to Australia’s export credit agency, the Export Finance and Insurance Corporation (EFIC). “The late-June jump in China's interbank lending rate, and the refusal of the People’s Bank of China to intervene took markets by surprise”, says EFIC’s Chief Economist, Roger Donnelly. “From targetting inflation at the end of 2011 to promoting growth in 2012, the central bank now appears to have switched again, on concerns about the build-up of bad loans in the shadow banking system. Authorities now seem more tolerant of slower economic growth, and are encouraging more discriminating lending. That worries many Australian businesses.”

TOKYO – Japanese exports rose for a fourth consecutive month in June, by 7.4% y/y, on rising demand from the US, EU and China which was boosted by competitive gains from the yen’s weakness. Imports rose by 11.8% y/y from 10.1% in May, resulting in a trade deficit of US$1.8 billion. Recent trade out-turns have been watched as an indicator of the effectiveness of Government steps to stimulate GDP growth ("Abenomics"). In this regard, BBVA Bank comments that this monthly economic assessment by the Government was upbeat, noting that "the economy is picking up steadily and shows some movements on the way to recovery".

BEIJING – At its record high of 6.1721 against the US dollar, the RMB has been effectively revalued by 34% from eight years ago, when China first embarked on reform of its currency exchange regime, with the Chinese Government reported to be wanting to move towards a more market-determined exchange rate. This could be confirmed shortly if speculation is confirmed that the daily trading band for the RMB against the USD could be lifted from 1% to 2%.

BEIJING – China’s Ministry of Commerce has imposed preliminary anti-dumping duties on imports of US and South Korean solar-grade polysilicon, but made no decision on tariffs on European Union exports of the raw material used to make solar panels. The move coincides with difficult talks between the EU and China to defuse a conflict over alleged dumping of Chinese solar panels in Europe. Both the US and the EU have imposed anti-dumping and anti-subsidy tariffs on Chinese solar panels, which could easily expand into a wider trade war involving European wine exports as well as steel.

GUANGZHOU – The Chinese Government is continuing its efforts to weed out food manufacturers producing foods that may harm consumers. In new investigations, toxic chemicals that could cause cancer have been found in a rice-based food for infants tested in Guangzhou. Two types of rice powder were found to contain aflatoxins, toxic elements that are carcinogenic. In addition seven other dairy products were found to contain aflatoxins, microorganisms or antiseptics during a city-wide investigation.

SINGAPORE – Ratings agency Standard and Poor’s is suggesting that the surge in shadow financing may be behind a move by the People’s Bank of China to hasten interest rate reforms. The PBoC on Friday announced that it was giving up its role in guiding commercial bank ending rates, leaving control of commercial banks’ deposit rates as its main price-based policy instrument. S&P says that, if the central bank frees up deposit rates as well, it is likely to have to adopt a more conventional monetary policy framework by targeting a money market interest rate.

HONG KONG – Foreign Direct Investment inflow to China in June jumped by 20.1% on-year, the fifth straight month to show gains. For the second quarter, FDI inflows increased by 8.3% y/y, from 1.4% in Q1 and a fall of 3.7% in calendar 2012. FDI to the service sector (12.4% ytd y/y) has outperformed the manufacturing sector (down2.1% ytd y/y), a further sign of increasing services output as a share of GDP. Outward FDI (non-financial sector) also remains resilient, growing by 28.7% y/y ytd (vs. 12.6% in 2012).