TO THE POINT: In its latest attempt to calm the property fever, the government steps up controls over affordable houses. China's service trade reported the first decline on a yearly basis since 2001. Chinese shippers report jaw-dropping losses for 2009 due to collapse of global shipping. China's private airlines struggle in a market dominated by state-owned carriers. The Chinese Academy of Social Sciences lists Hong Kong as the most competitive city in China in 2009, with Shanghai and Shenzhen being the second and third. Stock market fluctuations caused fund management companies to spill red ink in the first quarter.

By HU YUE

Cooling the Rush

China has pushed all the buttons to tame the red-hot property market where price surges are bringing worries of a bubble burst to a boiling point.

On April 26, the Ministry of Housing and Urban-Rural Development announced a series of regulations over affordable houses for low-income residents.

The ministry said those who sell or rent out affordable houses or leave them vacant will be forced to relinquish ownership of the properties and will be ineligible for purchasing another affordable house for five years. Those who fake their qualifications must also return the houses.

Chen Yunfeng, Secretary General of the National Real Estate Manager Alliance, said this move would help protect interests of low-income groups and be a stabilizer in the feverish market.

Along with tighter mortgage rules and a clampdown on financing for developers, the new regulation adds to the impression the government is determined to restore the property market's health.

Trade Slowdown

China's service trade volume went down 6 percent year on year to $286.8 billion in 2009, said the Ministry of Commerce (MOFCOM) in a statement on April 29. Of the total, exports dived 12.2 percent to $128.6 billion while imports were $158.2 billion, a minimum increase of 0.1 percent. The trade deficit came in at $29.6 billion, 1.6 times more than that of 2008.

More specifically, foreign trade in transportation and insurance services witnessed a sharp drop, but that of tourism, finance and information services defied the downturn to see a substantial run-up.

With the global business climate warming up, the country is geared for a10-percent growth in its service trade in 2010, said the ministry.

The world economy is retracing some of its lost strength, putting a solid floor under the transportation sector. Meanwhile, tourism services are also poised for success with the help of the Shanghai World Expo and Guangzhou Asian Games, said the MOFCOM.

But meeting the target will not be without difficulties. Much progress still needs to be made in China to increase the level of services and gain an international competitive edge, said the ministry.

Shipping Uncertainties

When the economy slowed last year, few industries were as hard-hit as the shipping sector, which found its vessels stuck at port as global sea-borne trade fell off a cliff.

Two shipping giants—China COSCO Holdings Co. Ltd. (COSCO) and China Shipping Container Lines Co. Ltd. (CSCL)—were among the victims, reporting losses of 6.3 billion yuan ($922.7 million) and 6.5 billion yuan ($952 million), respectively, in 2009.

Their container lines and dry bulk operations—transporting bulk commodities such as iron ore and coal—declined to a trickle, leaving many vessels idle. Even more troubling was the sector's overcapacity problem as the large order of vessels made before the financial crisis finally hit the oceans.

The Baltic Dry Index, a proxy for shippers' costs and profits, staged a prolonged rally in the latter half of 2009 as the world economy put the worst behind it. But surges in crude oil prices made it difficult for shippers to break even, said Mao Ang, a senior analyst with China Galaxy Securities Co. Ltd.

Looking ahead, COSCO and CSCL both expect to record profits this year with a substantial market turnaround.

But one cause for concern is soaring iron ore prices that may depress Chinese demands for imports and put a freeze on cargo traffic, said Yu Jianjun, an analyst with the Huatai Securities Co. Ltd.

A Gloomy Sky

While state-owned airlines turn loss into profits this year, the fate of their private counterparts remains up in the air.

Okay Airways, China's first private carrier, suspended all passenger services in December 2008, ushering in a turbulent shockwave for the sector. Four months later, East Star Airlines, a private Wuhan-based company, went bankrupt due to painful losses and piling debt.

Even Shenzhen Airlines, the country's fifth largest carrier, was lurching toward collapse until March 2010 when it was acquired by Air China, a state-owned flag carrier.

With so many airlines disappearing from the sky, the proliferation of private airlines years ago seems a distant memory. Only a few are still struggling to survive, but clouds are already gathering over their path ahead.

Two Shanghai-based carriers—Spring and Juneyao airlines—were able to stay out of the red last year but are currently feeling the pressures of competitions from deep-pocketed state-owned titans. A lack of access to premium routes and financing only complicated their situation. The state carriers have received heavy government subsidies while private carriers were largely left on their own to ride out of slump.

High-speed railways also pose a threat to private air carriers. For instance, after the Zhengzhou-Shanghai Express Railway came into operation in September 2007, the Spring Airlines saw its passengers shrank by half and eventually shut down the route in March 2009.

To make ends meet, private air carriers are squeezing costs and strengthening operational efficiency, said Zheng Xingwu, a professor with the Civil Aviation University of China.

It is also necessary for the regulators to put private carriers on equal footing with state-owned competitors, said Zheng.

City Competition

The Chinese Academy of Social Sciences (CASS) on April 26 released a blue book on Chinese urban competitiveness, providing fresh insight into the fierce competition between China's cities.

For the fifth consecutive year, Hong Kong claimed the title as China's most competitive city, followed by Shenzhen, Shanghai and Beijing. Qingdao, a coastal city in Shandong Province, made it to the top-10 list for the first time after hosting the sailing events of the Beijing Olympic Games in 2008.

On a broader scale, cities in central and north China are gaining a competitive edge while east coastal ones are losing momentum, said Ni Pengfei, chief editor of the book and a researcher at the Institute of Finance and Trade Economics under the CASS.

The report analyzed 294 cities across the country, assessing many factors including economic growth, residents' income, business environment, innovation, efficiency and living environment.

Hong Kong maintains a hefty lead over other cities, but the divide is narrowing due to slower economic growth, said Ni.

Shenzhen and Shanghai are catching up, drawing strength from manufacturing innovation and vibrant financial industries, but their weakness lies in surging house prices and living expenses, he added.

Fund's Gloom

For China's fund management companies, 2010 looks to be a challenging year.

The Beijing-based Tianxiang Investment Consulting Co. Ltd. said in a report that 621 funds operated by the country's 60 fund management companies suffered painful losses totaling 88.46 billion yuan ($13 billion) in the first quarter, reversing a two-quarter profit-making streak.

The Shanghai Composite Index fell more than 10 percent this year on jitters about a tumble in market liquidity—the biggest losers of which were the stock funds.

Looking ahead, fund managers seem less optimistic about the stock market as they more or less scaled back their stock presence.

The market may continue its stumble until an interest rate hike points to a clear direction of government policies, said a report by the Morgan Stanley Huaxin Fund Management Co. Ltd.