TO THE POINT: China's Year of the Tiger is off to a roaring start, as indicated by the first-quarter macroeconomic figures released on April 15. The consumer price index maintained steady growth in the past few months, but volatility of the index is likely to increase as more residential factors are taken into account. Global appliance retailers look to take advantage of the growing Chinese consumer market, though they are far from a serious challenge to domestic rivals. Chinese Internet conglomerate Tencent expands internationally, betting on the thriving Russian market.

By HU YUE

Economic Figures of Q1

GDP

With the global recession seemingly fading, the Chinese economy has staged a swift comeback. China's GDP jumped 11.9 percent in the first quarter this year, even faster than the 10.7 percent in the last quarter of 2009.

Though in part inflated by a low comparison base last year, the buoyant growth rates paint a clear picture of solid economic recovery, said Guo Tianyong, Director of the Research Center of China's Banking Industry of the Central University of Finance and Economics.

CPI and PPI

The consumer price index (CPI), a gauge for inflation, grew 2.2 percent year on year in the first quarter, while the producer price index (PPI), a barometer for inflation at the wholesale level, rose 5.2 percent.

Zhu Baoliang, a senior researcher at the State Information Center, said an interest rate hike in the near future is unlikely since the country needs to ensure the recovery doesn't falter.

But Xing Ziqiang, an analyst with the China International Capital Corp. Ltd., disagreed. "The first-quarter economic performance is enough to remove worries over sustainability of the recovery, and provides justification for an early exit from monetary stimulus," he said.

Fixed-asset Investment

Investment in fixed assets proved to be a significant driving force for the economy, surging 25.6 percent in the first quarter to 3.53 trillion yuan ($517 billion).

Retail Sales

Retail sales across the country totaled 3.64 trillion yuan ($533.1 billion) in the first quarter, with a year-on-year increase of 17.9 percent, 2.9 percentage points higher than the same period of last year.

Residents' Income

Per-capita disposable income of urban residents grew 7.5 percent in the first quarter while net income of farmers went up 9.2 percent year on year.

House Prices

Ignoring a series of austerity measures, the real estate market continued to roar ahead. House prices in 70 large and medium-sized cities grew a robust 11.7 percent in March, striking a record high since July 2005 when the index was first released. New home prices surged 14.2 percent year on year while used ones soared 9.5 percent.

In a few big cities, thousands of homebuyers crammed into sales offices for new housing projects, seizing hundreds of available apartments in a matter of hours.

The strict mortgage rules have yet to take hold and homebuyers are starting to panic, for fear of further price surges, said Niu Fengrui, a senior researcher with the Chinese Academy of Social Sciences.

(Data source: National Bureaus of Statistics)

Forex Reserve

China's foreign exchange reserves expanded by $47.9 billion in the first quarter to $2.447 trillion, compared with the increase of $7.7 billion in the same period of 2009, said the People's Bank of China, the central bank.

FDI

Foreign direct investment (FDI) to China went up 7.7 percent year on year to $23.44 billion in the first quarter, said the Ministry of Commerce.

A total of 5,459 foreign-funded ventures were established from January to March, up 19.9 percent from the same period of last year.

New Loans

Newly added yuan-denominated loans totaled 510.7 billion yuan ($74.8 billion) in March, a drop from February's 700.1 billion yuan ($102.5 billion), said the People's Bank of China.

Experts say policymakers have maintained careful control over the lending pace, though the overall monetary environment remains largely loose.

The March figure brought new loans in the first quarter to 2.6 trillion yuan ($380.8 billion), accounting for 35 percent of the government-set target of 7.5 trillion yuan ($1.1 trillion) for this year.

Rationalizing the CPI

The National Bureau of Statistics (NBS) recently announced plans to increase the weight of residential factors in CPI's composition, allowing it to reflect living expenses.

Residential factors, including rent, mortgage rates, property management charges and house maintenance costs, currently make up 14.7 percent of the CPI, while food prices account for 32 percent.

In addition, mortgage rates are likely to be replaced by a weighted number of house prices and mortgage rates, said the NBS.

Analysts believe this represents a stride forward in the country's economic survey, though it may intensify fluctuations of the index.

But it is impossible to directly put property prices in the CPI basket, said Wei Guixiang, Director of the Department of Urban Social and Economic Survey under the NBS.

After all, houses are more a kind of investment than consumer products, and it has been a global trend to exclude house prices from the CPI, he said.

But Yi Xianrong, a senior researcher with the Institute of Finance and Banking at the Chinese Academy of Social Sciences, disagreed. Unlike Western countries, a majority of Chinese buy houses for themselves, not to rent out or resell, so it is necessary to lend more weight to property prices as part of the CPI, said Yi.

Retail Giants Eye China

With lingering recessions at home, global appliance retail chains are rushing to cash in on the China bonanza.

Japan's top electronics retailer Yamada Denki Co. Ltd. recently announced the opening of its second China store in Tianjin, while the U.S. behemoth Best Buy Co. Inc. plans a store in Suzhou, extending its China presence beyond Shanghai. Even more ambitious is Germany's Metro Group that aims to open more than 100 appliance outlets within five years.

It is not difficult to see why they are pouring in—China's appliance sector is bursting with vitality, receiving a boost from rising consumer wealth and a burning-hot property market.

But their growth in China will not be easy. Chinese retailers like Gome and Suning have quickened network expansion in big cities, leaving few premium locations for foreign rivals. Besides this, foreign companies' relatively higher prices make their products less appealing to Chinese customers, said analysts. Best Buy, for example, has struggled with tight profits and scale limitations of its seven stores in Shanghai due to its less competitive prices.

Chen Xiao, President of Gome, said local retailers would continue to dominate the Chinese retail market thanks to close ties with suppliers and a well-established sales network.

It will also take the foreign chains years to learn how to fare well in China and effectively play catch up to local retailers, said Han Jianhua, Secretary General of Shanghai Commercial Trade Association of Electronic Appliances.

Tencent Goes Russian

Tencent Holdings Ltd., operator of China's most popular instant messaging service—QQ, will pay $300 million in cash for a 10.26-percent stake in Digital Sky Technologies Ltd., a Russian Internet investment firm and Facebook shareholder.

"The investment allows us to benefit from the fast growing Internet market in Russia, as well as to leverage our technical and operational know-how to strengthen the leadership position of Digital Sky," said Martin Lau, President of Tencent.

The Shenzhen-based company said it would develop a long-term strategic partnership with Digital Sky and the companies in which it has invested, as well as "explore further business cooperation with them."

Tencent's QQ controls around 75 percent of China's instant messaging market, compared with Microsoft's 4.5-percent market share for its MSN Instant Messenger service. It also profits from selling virtual items and other online value-added services, as well as its online gaming business.