TO THE POINT: The Chinese economy is likely to see a mild slowdown as its largest trade partner—the EU—suffers from a sovereign debt crisis and as the Chinese Government cracks down on the blistering property market. Steelmaker Ansteel is set to merge with smaller rival Pangang in a government effort to consolidate the country's steel industry. China's largest oil refiner Sinopec aims to expand its oil refining capacities to feed the buoyant domestic economy. Credit cards become a "must have" for numerous Chinese consumers, but concerns linger over risks of bad debt. E-commerce in China blossoms, with B2B trade leading the tide.

By HU YUE

Moderate Prospects

Investment and consumption have been the biggest motors of the economy, both surging in the first four months this year. Exports also regained some lost ground, soaring 30.5 percent in April from a year ago.

But clouds have been gathering over the prospects of Chinese exporters, said Ha Jiming, chief economist with the Beijing-based China International Capital Corp. Ltd.

The pain of the Greek sovereign debt crisis is spreading throughout Europe, which accounts for 16 percent of China's exports. Worse still, the euro has depreciated nearly 15 percent against the yuan, the Chinese currency, making Chinese goods even less competitive in Europe, said Yao Jian, spokesman of the Ministry of Commerce.

House prices largely held onto peak levels, but sales volumes are falling in many cities as a string of tough government measures gain traction. This is expected to pour cold water on property developers' enthusiasm for new projects, draining steam out of investments growth, said Wang Tao, chief economist at UBS China.

After a powerful rebound, the Chinese economy is likely to see a mild slowdown in the second half of this year due to withering exports and a lackluster property market, said Wang.

China will carefully time its exit from stimulus policies to avert a second dip in the economy, said Zhou Xiaochuan, Governor of the People's Bank of China, at the central bank on May 25.

Steel Consolidation

The Liaoning Province-based Anshan Iron and Steel Group (Ansteel) received a green light from the government to merge with the Pangang Group in Sichuan Province.

China's desire for a stronger, cleaner steel industry is deep-rooted. Bolstering its bargaining power in the international iron ore price negotiations also required consolidating the crowded, weak sector into a few bigger players through mergers and acquisitions.

For the two companies the deal could create a win-win situation. "The merger will not only enhance Ansteel's capacities, but also help strengthen the financial position of Pangang," said Li Xinchuang, President of China Metallurgical Industry Planning and Research Institute.

Pangang enjoys a technical edge in railway steel products while Ansteel excels in products with high value-added such as flat sheets, so they would fill the gaps for each other, said Li.

A consolidation of the two firms would help expansion-minded Ansteel broaden its presence to the resource-rich western regions, he said.

The only question is whether the two could make a success out of post-merger integrations. Ansteel had acquired the Benxi Iron & Steel (Group) Co. Ltd. However, due to intractable financial disputes, both have adhered to separate operations, watering down the so-called "tie-up."

"But our integrations would be much easier since we share a lot in management and corporate culture," said Zhang Xiaogang, General Manager of Ansteel. "It was Ansteel that helped build Pangang in the 1960s."

Oil Refiner Roars

Sinopec, the country's largest refiner, said in a recent report that its annual refining capacity is expected to grow 6.4 percent this year to reach 507.5 million tons, and further increase to 750 million tons by the end of 2015.

In 2011, three to four oil refining and petrochemical manufacturing bases will be built in regions including the Yangtze River Delta, the Bohai Sea Rim region and the Pearl River Delta, said the report. Each base will have a refining capacity of 20 million tons and ethylene production capacity of 2 million tons.

The Chinese economy is bursting with vitality, jacking up demands for oil, said Ke Xiaoming, a senior researcher at the Sinopec Research Institute of Economics and Technology.

Meanwhile the refiners are now motivated to bump up productions as the country's oil pricing reform provided guarantee for their profits, said Ke. Since early 2009, China has adjusted domestic refined oil prices largely in line with international changes, a remarkable break from past rigid pricing schemes.

Credit Card Concerns

In a nation of savers like China, cash is still king, but plastic is gaining popularity.

From January to March 2010, Chinese banks extended credit card loans of 1.48 trillion yuan ($216.8 billion), an increase of 42.9 percent over one year ago, according to a recent report of the People's Bank of China, the central bank.

Chinese consumers are increasingly paying for an expanding array of goods and services with money they don't have. Card users feel comfortable spending more, and would not perceive consumption as affecting their bank balance. This is good news for policymakers who are pinning hopes on the consumer market to thrive and fill in the blanks left by an export downturn.

However, the credit card boom was not without risks as many cardholders are falling behind their monthly obligations. The credit card debt that was overdue for at least six months was 8.8 billion yuan ($1.3 billion) by the end of March 2010, said the report.

Many profit-hungry issuers recklessly put their credit cards into the wallets of low-income consumers, sowing the seeds of bad debt, said Guo Tianyong, Director of the Research Center of Chinese Banking Industry under the Central University of Finance and Economics.

The regulators have been well aware of the problem and are stepping up tight control over blind card issuance, he said.

E-commerce Booms

The Internet has become a perfect place for commerce in China.

China's e-commerce transaction volume continued its growth streak to reach 1.02 trillion yuan ($149.4 billion) in the first quarter this year, said the iResearch Consulting Group. By the end of March 2010, Chinese Internet users totaled 404 million, the largest in the world.

B2B remains the most vibrant activity, with B2B trade of small and medium-sized enterprises (SMEs) accounting for 52.6 percent of the e-commerce market. Alibaba.com remains the market leader with a majority 59.5 percent of B2B market shares.

Online shopping is also experiencing a surge as Chinese consumers search for bargains on everything from cosmetics to clothes. Online shopping made up 10.1 percent of the e-commerce trade from January to March, and will continue to pick up momentum, said iResearch.

China's online retails have deep potential to explore. The online shopping penetration rate in the country was 26.2 percent in 2009, compared with 67.8 percent in the United States and 57.3 percent in South Korea, said the consulting firm.