TO THE POINT: An unexplainably high loan volume in January forced regulators to control loan issuance in the market. The Chinese Government focused on building competitive state-owned enterprises (SOEs) in the hotel industry by ordering non-hotel related SOEs to retreat from the hospitality business by selling and transferring their shares. The government also vowed to develop the domestic movie industry by giving financial support to moviemakers in the wake of a boom in box office sales in 2009. The big is getting bigger, as the 2009 GDP composition revealed that China's top three provinces contributed one third to the Chinese economy. The mainland retail market is now filled with international retailing conglomerates that will only increase their share of the Chinese market in time. Geely is set to embark on an expansion journey after acquiring Ford Motor Co.'s Volvo brand. The ship building industry fared well last year as reflected in the sector's strong sales revenue.

By LIU YUNYUN

Loan Restraints

Skyrocketing loans in the first month of 2010 triggered anxiety over financial stability among regulators. The China Banking Regulatory Committee ordered the commercial banks to rein in loans and control the speed of loan issuance.

China's leading business newspaper 21st Century Business Herald cited a bank insider who stated that by January 19, 2010, newly added renminbi loans surpassed 1.45 trillion yuan ($212 billion), almost reaching 1.62 trillion yuan ($237 billion)--the level of the total new loans in January 2009.

Although the Central Government agreed to maintain its relatively loose monetary policy this year, it certainly will not allow the banks to behave in such an out-of-control manner. Concerns are whether the loans have in effect gone to the real economy instead of stock and property market speculation.

In some banks, personal housing loans accounted for a major proportion of new loans, since house prices have surged since the middle of 2009. For instance, prices at Helifang, a loft project in north Beijing, rose 5,000 yuan ($732) per square meters and is now 21,000 yuan ($3,074) per square meter. The phenomenon of chaolouhua--selling the apartment after the purchase contract is signed but without getting the official ownership document--becomes trendy as the housing price increases day by day.

The recent tightening messages sent the stock market plunging--from January 19 to 27 the benchmark Shanghai Composite Index dropped 8 percent to 2,986.61.

Hotel Consolidation

SOEs under Central Government administration (central SOEs) will pull back from the hotel industry in succession in the next five years, according to a regulation issued by the State-Owned Assets Supervision and Administration Commission of the State Council on January 25. At present, the 129 central SOEs manage more than 2,000 hotels with a total value exceeding 100 billion yuan ($14.6 billion). 

The central SOEs that do not run hotels as their main business are not permitted to build new hotels and are required to dispose of their current hotels in the next three to five years. Their options include selling their hotel assets or transferring the assets through purchase agreements or open market operations to central SOEs whose business is focused on the hotel industry.

Analysts said the efforts were meant to make hotel-focused central SOEs stronger and more competitive in the domestic market. Currently in metropolises such as Beijing and Shanghai, the high-end hotel business is carved up by overseas hotel tycoons, such as the French Accor and the Malaysian Shangri-la Asia Ltd.

Some central SOEs have already started the asset sale and transfer process. According to the Beijing News, the core assets of 200-plus hotels under the management of China National Petroleum Corp. have been transferred to its subordinate company, Soluxe Hotel Group, which now owns over 60 hotels. 

Movie Incentives

The booming movie box office has not only enticed more investments but also attracted the Central Government's attention. 

On January 25, the General Office of the State Council released guidelines to consolidate and encourage the development of the movie industry. The guidelines said the development of the movie industry reflects the soft power of a country.

The guidelines promise financial support for domestic movie players, encourage expansion of digital cinema networks nationwide, enlarge the market share of domestic movies, increase financial support to the industry and cultivate movie industry professionals so that the industry will grow at an annual speed of 20 percent by 2015. 

Wei Pengju, a culture professor at the Central University of Finance and Economics, said support for the movie industry was also an indicator that Central Government will attach more importance to the whole cultural industry in the long run.

The Chinese movie industry secured robust growth in recent years, but the majority of the market share was devoured by foreign moviemakers. China's box office grew at an impressive speed of 42 percent year on year in 2009, reaching 6.2 billion yuan ($907 million), according to the State Administration of Radio Film and Television. However, foreign films like Tansformers II and Harry Potter took about half of the total revenue.

Hollywood movies have an overwhelming popularity in the country. Earlier this year, the U.S. blockbuster Avatar dominated Chinese cinemas with box office sales surpassing $1 billion--the first movie to break the $1 billion and the best ever performance in the history of Chinese movie industry.

GDP Bellwether

Coastal provinces continue to play a leading role in China's economic revival in the aftermath of the global financial crisis.

The top three provinces in terms of GDP in 2009 were Guangdong, Jiangsu and Shandong, the aggregate GDP of which accounted for one third of the whole country last year. Their year-on-year growth rates all outperformed the whole country.

Province 2009 GDP (trn yuan) Growth(y.o.y.) Proportion of the whole country Guangdong 3.9082 9.5% 11.64% Jiangsu 3.4061 12.4% 10.15% Shandong 3.3805 11.9% 10.10%

(Source: Provincial governments of the Guangdong, Jiangsu and Shandong)

Previously, the coastal areas were believed to have been hit the hardest by the world economic slowdown, as most are export-oriented and experienced a dramatic global demand plunge. But thanks to the massive government stimulus package, those provinces were able to successfully tide over the harsh times.

But the fastest growing provinces were in the central and western parts of China, which were less affected by the external fluctuations. In 2009, the economy of Inner Mongolia Autonomous Region surged 17 percent, and Tianjin Municipality jumped 16.5 percent year on year.

Retailing Eye on China

Major foreign retailers are nearly dominating the retail market in big cities across China and are spreading their networks to second-tier and third-tier cities.

To date, about 70 percent of the world top 50 retailers have a China presence, including the U.S. Wal-Mart, French Carrefour and Ouchan, and British TESCO.

China Industry and Economic News quoted a Mckinsey & Co. analysis report, which said in the next 35 years, 60 percent of China's retail market will be controlled by 35 multinational retailing groups, while major domestic retailers will control 30 percent. The remainder of the market share will be held in the hands of local and regional retailers.

Geely's Ambition

Geely Automobile Holdings Ltd., one of the leading private automakers in China, looks to establish its international presence by acquiring Ford Motor Co.'s Volvo brand and expand its production capacity by revamping its base in west China.

Geely agreed to buy the loss-making Volvo brand from Ford Motor last December, and was reported to complete the deal by May this year.

Yuan Xiaolin, a Geely manager in charge of the acquisition, said Geely might pay $1.5-1.8 billion to buy Volvo and plans to boost annual production to 300,000 units. The company promised to retain Volvo's brand and operations in Sweden after the transaction, including the headquarters, production facility and research center.

In early January, Geely signed an agreement with Lanzhou Municipal Government in northwest Gansu Province to revamp and expand its local base to produce 120,000 cars annually from the current capacity of 50,000.

Geely has been trying to rid itself of the low-end car image, but analysts said Geely lacks sufficient research and development abilities, which are core to an automaker's competitiveness.

Calmer Seas

China Shipbuilding Industry Corp. (CSIC), one of the country's two leading state-owned shipbuilders, said its profit in 2009 jumped 18.5 percent to 7.39 billion yuan ($1.1 billion).

The Beijing-based conglomerate, which consists of nearly 50 industrial subsidiaries and about 30 research and development institutes in north China, also said its operating income rose 17 percent in 2009 to 120.9 billion yuan ($17.7 billion).

Li Changyin, General Manager of CSIC, said the company had overcome the impact of the global financial crisis, which crippled the global sea-based trade and caused a sharp decline in ship orders.

According to Li, CSIC had also been actively engaged in non-ship businesses including wind power and nuclear power equipment manufacturing, accounting for 40 percent of CSIC's business volume.