Highlights from the EO print edition, issue no. 433, August 24, 2009
Where are China's Stock and Real Estate Markets Headed?
News, cover
~ With the recent slump in China's markets which saw the A-share composite index tumble 20 percent in two weeks, the outlook for China's stock market has become much more difficult to predict.
~ A shadow has also been cast on the country's real estate market, as transaction volume began to contract over the past months. Statistics from real estate agents revealed that second-house transaction volume in Beijing fell 6.05 percent in the first half of August when compared July.
Original article: [Chinese]
CIC No Longer to Pay Interest to the State
News, page 4
~ China Investment Corporation, the country's ＄200 billion sovereign wealth fund, has agreed with the Ministry of Finance (MOF) to change the way it pays back the original funding it received, the EO learned.
~ The CIC, with the MOF's approval, will now treat the ＄200 billion used to establish the fund as assets rather than a debt, and thus the firm will no longer need to pay interest to the State.
~ Although it's likely that CIC, like other enterprises administrated by the central government, will now pay regular bonuses to the state, the matter is still not settled.
~ An official from the MOF said "The ministry has yet to consider letting a state-owned financial enterprise pay bonuses to the state."
~ To fund the CIC, the MOF issued special treasury bonds worth1.55 trillion yuan (＄226.9 billion) at an annual rate of 4.3 percent in late 2007 to buy foreign exchange from the central bank. This meant that CIC was required to pay about 66.65 billion yuan (＄9.76 billion) in interest each year.
Original Article: [Chinese]
Foreign Water Companies Targeted in Water Price Investigation
News, cover
~ The Ministry of Housing and Urban-Rural Development (MOHURD), will conduct an investigation in to the effect of the presence of foreign companies on China's rising water prices.
~ Recent price rises in various cities around the country have led to a public debate.
~ Some opponents of the price hikes have targeted foreign water companies, claiming that because they bought Chinese firms at an unreasonably high price, they need to recoup their costs by raising prices.
~ Another public concern is that China's water pricing system is not transparent. Local governments are authorized to decide the local water price independently.
~ However, others who see the price rises as a necessary move to broader resource price reform, point out that foreign companies control less than 10% of China's water supply market.
Original Article: [Chinese]
Looming Inflation
News, page 2
~ In view of the recent surge in money supply and the month-on-month increase in CPI over the past two months, rather than deflationary pressure, China is now confronted with the likelihood of increasing inflation.
~ Internationally, increasing liquidity world-wide, the stronger expectation on the depreciation of the dollar and the expansion of demand will strengthen the likelihood of a commodity price rally. This will further add inflationary pressure on China.
~ Domestically, the credit splurge and the cyclical rise in food prices, especially the price of pork, will lead to the likelihood of higher inflation in the future.
~ Although moderate inflation is conducive to the rapid yet stable growth of GDP, China needs to make sure that inflation is kept in check by regulating excessive hikes in assets prices and by improving the pricing mechanism of primary products.
Original Article: [Chinese]
Change in Foreign Capital Strategy: Technology not Money
News, page 3
~ At a recent Ministry of Commerce meeting addressing how best to make use of foreign capital in the post-economic crisis era, officials agreed to the slogan "We only want technology, we don't need money."
~ The associated policy shift will lead to the acceleration of moves to allow foreign enterprises to list on China's domestic exchanges and for domestic banks to release direct foreign-currency loans to foreign companies.
~ The policy shift is seen as being a result of China's surging foreign exchange reserves
Original Article: [Chinese]
Whither Monetary Policy?
News, page 7
~ New loans in July amounted to only 355.9 billion yuan, one trillion yuan less than the huge amount of credit released in June. This drop signifies the central government's determination to adjust monetary policy.
~? The government will face difficultly in reaching its growth target of 8% if it suddenly tightens credit.
~ Statistics reveal that new investment driven by the huge credit in the first half year is dominated by state-run enterprises. SOE investment grew by 48.5% this year year, while privately-owned enterprise the investment has only increased by 24.8%. This structural imbalance will also play a part in shaping credit policy in the second half of 2009.
Original Article: [Chinese]
Consumer Finance Pilot to Begin
Nation, page 14
~ On Aug 13, China Banking Regulatory Commission (CBRC) issued a document that marked the resumption of work to examine and approve consumer finance companies, which are expected to extend personal loans in a series of pilot programs around the country.
~ Those pilot companies will become a supplement to commercial banks by providing credit to lower income consumers who are not qualified to obtain small loans from banks.
~ According to the document, these consumer finance companies will not accept deposits from the public.
Original Article: [Chinese]
SASAC Investigates Chinese Companies Involved in CCI Bribery Case
Corporation, page 28
~ Various government and Communist Party departments are looking into the dealings of nine Chinese companies that have been implicated in the commercial bribery case involving American valve manufacturer Control Components Inc. (CCI).
~ State Owned Assets Supervision and Administration Commission (SASAC) is conducting a high-level investigation into the allegations of commercial bribery and the Communist Party's internal Central Commission for Discipline Inspection will investigate the behaviour of high level executives at centrally owned enterprises.
~? The Chinese companies implicated in the case are: PetroChina, China National Offshore Oil Corp (CNOOC), Jiangsu Nuclear Power Corp, Guohua Electric Power, China Petroleum Materials and Equipment Corp and Dongfang Electric Corp, Datang Power, DingzhouPower and China Resources Power.
Original Article: [Chinese]
