Highlights from the Economic Observer, issue 397 Dec 8 2008
The Yuan's Dramatic Fall
Cover story
The first week in December saw Chinese banks dramatically intervening in currency markets to bring down the value of the yuan. Market observers speculated that the drop, the first in a three-year period in which it appreciated 20%, could be a signal to the incoming US presidential administration and or a macro-economic measure to boost exports. The foreign response was particularly critical, with the French Tribune claiming China was sparking a currency war, and a Brookings Institute fellow accusing it of using exchange rates to influence world trade. The depreciation comes at an opportune time, with stock, housing, and other prices having already fallen throughout China, a financial stimulus plan about to be put forth, and liquidity on the verge of recovering.
Original article: [Chinese]
Officials Worry Tax Income Slide Will Hinder Stimulus Plan
Cover
As reverberations from the financial crisis swept westward after making landfall on China's eastern coastal cities, local economies have slowed and dragged down government tax revenues. Local tax officials, long accustomed to collecting amounts well beyond their yearly goals, feared that they would fall short this year. Meanwhile, state and local branches of the Ministry of Finance, which received 96% of its income from tax revenues, are worried they will be hard pressed to drum up the funds needed for the recently-passed four-trillion-yuan economic stimulus package, of which it is a main funding sponsor of. In response, tax officials have been ordered to ramp up tax supervision and collect on overdue taxes.
Original article: [Chinese]
Steel Industry Stimulus Policies Being Drafted
News, page 3
New policies to revitalize China's iron and steel industry are being drafted, which included measures to lower export taxes, increase productivity, and deepen integration. At the end of November, Premier Wen Jiabao commented that key manufacturing sectors including automobiles, shipbuilding, oil, textiles, and light industry would receive special attention as the State Council looked to shake them up.
Original article: [Chinese]
The Yuan's Depreciation: Pushed by Policy or the Markets?
News, page 5
In a round-table interview, two prominent Chinese financial experts discussed with the EO how the recent depreciation in the yuan was most likely a policy move aimed to stimulate the Chinese economy and complement other Chinese macro-economic measures. They noted it came after overly-swift appreciation sine June, and was likely both a correction of that and a broader test of the exchange-rate regimes' flexibility. They doubted that a massive capital outflow would result, as there was still little confidence in other markets and currencies.
Original article: [Chinese]
Experiment with Breaking News
Nation, page 14
A local television network in Shantong province has been interrupting broadcast of drama series and other programs to insert breaking news, a practice common in foreign countries but rare in China due to tight media control. The Qilu Station, claimed to be the network with the highest viewer-ship in Shandong, has been experimenting with the live feeding format from the news scenes since October. Among the breaking news included chemical poisoning of workers and villagers due to leakage at a factory plant, devastating fire incidents, collapse of construction site and other accidents. Media observers believed the "live feeds" was a cautious experiment in response to the central government's recent change in attitude towards news dissemination.
Original article: [Chinese]
Fundamental Problems of Real Estate
Comments, page 16
Chinese real estate industry players and researchers have been calling for the government to do away with price control housing, which they believed to have constrained the sales of commercial housing and contributed to sluggish market. Prior to 1998, China practiced welfare housing system. Afterwards, commercial housing was introduced but skyrocketed prices pushed the government to intervene, restrictive policies for certain "price control" houses thus came into being. Commentator Lu Shangchun opined that the government should be firmed in choosing one model for housing development, either the welfare model or the market-oriented one, so as to not confusing the market with conflicting policies from time to time.
Original article: [Chinese]
Hurdles for China Development Bank's Reform
Market, page 20
The reform of China Development Bank – one of China's three policy banks – into a commercial bank has launched its first concrete step by registering as a joint-stock entity and convened its first shareholders meeting last week. The meeting outlined a three-year transitional period, after that, the financial papers it issued would no longer enjoy high credit rating usually accorded to a state policy bank. A source from the bank cautioned that losing such advantage would affect the bank's capital adequacy ratio, as investors might find its financial papers less attractive.
Original article: [Chinese]
Installment for Training Program
Market, page 23
During economic hard times, while the old hands might lose their jobs, the fresh graduates too are facing a hard time to gain employment due to a lack of experience. To provide fresh graduates with the necessary market skill and access to jobs, one IT occupational training center in Beijing has introduced classes that student may pay by installment. The idea to allow student to complete a course with a down payment, while the rest of the fees upon gaining employment was a rather new idea in town, and that had attracted the attention of venture capital.
Original article: [Chinese]
Gome Launches Staff Restructuring
Corporation, page 25
Three days after its chairman Huang Guangyu was exposed to be under investigation, China's leading electric appliance retailer Gome launched a major restructuring that streamlined the decision-making commission from seven seats to three. The new commission would be headed by the acting board chairman and president Chen Xiao, and have 11 executive commissions under it. The company claimed the restructuring was an attempt to optimize staff structure and improve efficiency.
Original article: [Chinese]
