Economy to Continue “Doing Fine”

The government is fully confident of tiding over the difficult situation arising out of a global economic slowdown, Vice-Premier Wang Qishan said on September 8.

Addressing overseas investors at an international fair for investment and trade, Wang said: “The overall economic situation in China is fine.”

“We are confident and ready to overcome difficulties and challenges to ensure a steady economic performance and to contain the fast-rising consumer price index.”

The global slowdown seems to have little impact on the country’s economy because its GDP maintained a double-digit (10.4 percent) growth in the first six months of this year.

Its retail sector registered 21.7 percent growth in the first seven months. And though official figures for August are yet to be released, economists have said inflation could continue to fall - as in the previous three months.

Driven mainly by domestic consumption, investment and exports, China’s economic growth has become more balanced, Wang told 445 delegations from 104 countries and regions.

To continue attracting overseas investors and providing them even better services, the government will perfect the policies for the use of foreign capital, he said.

It made every possible effort to boost the economy after the disastrous snowstorms lashed the southern and eastern provinces and the Wenchuan earthquake killed almost 80,000 people and caused billions of Yuan in economic loss, he said.

Global financial market fluctuations and rising commodity prices, too, have been tackled to keep the momentum of economic growth.

“The government has taken a series of macro-control measures to cope with the complicated situation,” he said.

Minister of Commerce Chen Deming, who too was in Xiamen, said the domestic consumer demand has risen more strongly than expected after the Olympics.

Post-earthquake Investment Booms in Sichuan

Sichuan is witnessing a new wave of investment after the May 12 earthquake. Contractual foreign investment has surged 207.5 percent year on year to USD 4.2 billion in the first half of the year, according to official figures released by the province’s bureau of commerce.

The actually utilized foreign investment has amounted to USD 1.81 billion, increasing by 107.9 percent, the official source says.

Chengdu, capital of the province, is leading the boom. The city’s contractual foreign investment accounts for 80 percent of Sichuan’s total figure with a growth rate of 218.9 percent.

Real estate is one of the fastest growing industries, drawing over half of the foreign capitals; 52.1 percent of the contractual foreign investment has gone to real estate in the first half, compared to 47.9 percent a year earlier. Actually utilized investment has reached 58.1 percent.

Many overseas companies have seen business opportunities after the province started reconstruction in May.

Jung Woo & Company, a South Korea-based real estate giant, signed a 6 billion Yuan (USD 857.1 million) contract with Chenghua District in Chengdu shortly after the earthquake.

Sichuan province attracted USD 1.72 billion in foreign capital in 2007 and became investors’ favorite spot in Southwest China.

China’s PPI Rose 10.1% in August

The producer price index (PPI) for China’s industrial products rose 10.1 percent year on year in August, the National Bureau of Statistics (NBS) said on September 10.

The double-digit growth of PPI, which measures the value of finished products when they leave the factory, was the highest since 1996.

The country’s PPI surged 10 percent in July year on year and stood at 7.6 percent in the first half, according to the NBS.

The purchaser prices for raw materials, fuel and power jumped 15.3 year on year in August, compared with 15.4 percent in July.

The PPI of capital goods rose 12.0 percent year on year, 0.3 percentage points higher than July this year, the NBS said in its latest monthly report.

The PPI of crude oil went up 38.2 percent in August, with a 3 percentage points drop from the previous month.

The PPI of consumer goods gained 4 percent last month, and the price index of food rose 7.4 percent, compared with the increase rate of 2.4 percent for garments and 4.3 percent for daily commodities. The PPI of durable consumer goods dropped 0.4% in August.

China to Ease Control over Share Repurchase

China’s securities watchdog said on September 21 it would make it easier for listed companies to buy back their stocks in the latest government move to boost the equity market.

Share repurchase through bidding at stock exchanges would no longer need approval from the China Securities Regulatory Commission (CSRC), according to a draft regulation issued by the CSRC.

It stated that such acts could take place after a report to the CSRC and a public disclosure of the information.

The change was made to improve the mechanism of share repurchase, which could help maintain investor confidence and stabilize the stock market when equities were undervalued, said the CSRC.

China Cancels Stamp Tax on Stock Buying

China decided on September 18 to scrap the stamp tax on stock purchase, effective on the following day, in a move to boost the equities market after domestic stocks fell for third consecutive day since September 16.

With the authorization of the State Council, China’s Cabinet, the Ministry of Finance and the State Administration of Taxation said they decided to cancel the share trading stamp tax on stock purchase while the stamp tax on share selling remained unchanged at 0.1 percent.

The cancellation came several hours after Chinese stocks tumbled 1.72 percent on September 18, amid the current global financial turmoil.

It was the first time since 1991 authorities had levied a unilateral stamp tax on stocks trading and the second time this year they had adjusted the stock trading stamp tax.

“The decision was important for a stable operation of the capital market,” said a China Securities Regulatory Commission (CSRC) spokesman.

The CSRC spokesman said promoting a steady and healthy development of the country’s capital market had been a strategic decision of the government. The CSRC would keep a close watch over the impact of overseas market turmoil on the domestic market.

“So far, the Chinese economy has maintained good momentum. The country’s capital market was built on a solid economic foundation and enjoyed a stable institutional environment.”

Yuan Hits New High against U.S. Dollar after 2 Months of Depreciation

China’s currency, the Yuan, on September 23 hit a new high against the weakening U.S. dollar on the recovery of oil prices on global markets.

The central parity rate of the Yuan, or Renminbi (RMB), was 6.8009 Yuan to the dollar, according to the China Foreign Exchange Trading System. The reference rate was up 234 basis points from the previous trading day.

This was the first time the Chinese currency broke the 6.81-mark after it unpegged from the dollar in July 2005. The previous high was 6.8128 Yuan on July 16. The Yuan lost against the dollar most of the time over the past two months due largely to expectations of U.S economic resurgence.

The RMB has appreciated more than 7 percent against the dollar since the beginning of the year and rose more than 21 percent since July 2005.

Analysts attributed the appreciation on September 23 to a weakening dollar amid worries about the U.S. financial regime and the recovery of oil prices on global markets, despite the 700-billion-U.S.-dollar market boosting schemes proposed by the U.S. Treasury and the Federal Reserve.

On September 23, the Renminbi lost 19.84 basis points against the Euro to hit 10.0796 Yuan, and 773 basis points against 100 Japanese yen to 6.3847 Yuan.

3 Chinese Commercial Banks Hold Lehman-related Bonds

At least three large Chinese commercial banks have disclosed their exposure to the worsening U.S. financial crisis through bonds issued by investment bank Lehman Brothers, which has filed for Chapter 11 protection.

China Merchants Bank on September 17 said in a statement to the Shanghai Stock Exchange that it holds 70 million U.S. dollars of Lehman Brothers bonds, of which 60 million dollars is senior debt and the rest subordinated debt.

The bank also said it has not made special provisions for the book losses on those bonds and will evaluate their potential risks and disclose further details at a later date.

Industrial and Commercial Bank of China (ICBC), the country’s largest State-owned commercial bank by assets, holds 152 million dollars in bonds issued by, or linked to, Lehman Brothers.

At press time, ICBC had not issued a statement to the Shanghai bourse to specify its exposure to Lehman Brothers.

Bank of China (BOC) was also affected by the failure of Lehman Brothers. BOC holds 75.62 million dollars in bonds issued by the ailing U.S. investment bank. It also loaned 53.2 million dollar to Lehman Brothers and its subsidiaries. BOC was reportedly listed as an unsecured creditor in documents filed by Lehman Brothers at the United States Bankruptcy Court of the Southern District of New York.

Lehman Brothers, the fourth largest investment bank in the United States, filed for Chapter 11 protection after efforts to find a buyer collapsed on September 14.

Rising concern about the ripple effect of the deepening U.S. financial crisis plus the gloomy outlook for China’s banking sector has pushed down the prices of Chinese commercial banks’ shares in the past two trading days.

Shares in China Merchants Bank on September 17 dropped 9.96 percent to 14.47 Yuan apiece. With its 11 percent plummet on September 18, China Merchants Bank has fallen a total 18.9 percent over the past two trading days.