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Market Watch
Business> Market Watch
UPDATED: September 3, 2007 NO.36 SEP.6, 2007
MARKET WATCH NO.36, 2007
Instant noodle prices came back to normal and the major noodle industry association was fined for fixing prices by the consumer watchdog
 
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TO THE POINT: The Chinese economy has continued its robust pace due to large-scale profits from listed companies. Yet previous leading domestic cell phone producer Ningbo Bird took a large nosedive due to counterfeited cell phones, the costs of product development, and consumers' fickle phone buying habits. China Eastern Airlines strove to make a profit in the first half of this year after stumbling all of last year, and Singapore Airlines planned to take a 15.8-percent stake in the Chinese airline. Currently, institutional investors comprise the major proportion in the Chinese stock market, which kept rising amid sharp turbulence. Instant noodle prices came back to normal and the major noodle industry association was fined for fixing prices by the consumer watchdog.

By LIU YUNYUN

 

Flying High Together

Singapore Airlines' wish to enjoy the benefits created by the surging Chinese aviation industry is going to come true. Singapore Airlines Ltd.'s plan to buy a 15.8-percent stake in China Eastern Airlines Corp. was approved by Chinese authorities.

According to the new agreement, China Eastern Airlines Group will hold 51 percent of the Hong Kong-listed Chinese state-owned airline and Singapore Airlines will hold 15.8 percent. The Singapore state-owned investment company Temasek Holdings also has a share of 8.2 percent. The remaining shares are split between private and institutional investors.

Under the deal, Singapore Airlines will secure a foothold in one of the world's fastest-growing markets for air travel. It also wants to tap into China Eastern Airlines' domestic route network and channel outgoing Chinese passengers onto its own planes for international flights.

For China Eastern, the agreement will give it much-needed financial support and operational expertise from an industry-leading airline. China Eastern is the weakest of China's three main state-owned carriers and is the only one to lose money last year-to a tune of 3.31 billion yuan.

But according to its latest public report, China Eastern has made profits of up to 58.2 million yuan in the first half, benefiting from the increase in passengers and through yuan appreciation.

Ma Yin, an aviation specialist with Haitong Securities, argues that given the rich operational experience of Singapore Airlines, it will take a relatively long time for the significance of this cooperation to take effect. Ma pointed out that Singapore Airlines had bought stakes in other airlines such as Air New Zealand and Virgin Atlantic, without obvious achievements.

However, Ma believed it signaled that there could be other cooperation opportunities between Chinese and foreign carriers, for instance, between China Southern Airlines and Air France, which is in the exploratory phase.

Noodle Price Crisis Calms

Prices of instant noodles were finally brought back to normal following sharp complaints by consumers and lawyers.

The National Development and Reform Commission (NDRC) stated on August 28 that domestic instant noodle producers followed the NDRC guidelines and vowed to better discipline themselves. NDRC started to investigate the instant noodle prices after recent panic buying when prices rose as much as 40 percent in late July.

In Beijing supermarkets large-scale promotions of instant noodles have been launched and some prices of noodles were found to be lower than before the price hikes.

On August 17, the "China branch" of International Ramen Manufactures Association published a letter to consumers, apologizing for the abrupt price surge and raised remedy measures.

Inflationary pressure and public concern over high prices have led the government to impose tougher punishments on price manipulators.

"We plan to increase the fine to punish such wrongdoings," said Zhang Manying, Deputy Director of Pricing Supervision Department of the NDRC. The current upper limit of the fine is 300,000 yuan, but Zhang didn't reveal the ceiling for the new punishments.

Movers and Shakers

Institutional investors have become the top movers and shakers in China's securities market, with investment funds, stock brokerages, insurance companies and government sanctioned QFIIs (qualified foreign institutional investors) holding 44 percent of the total capitalization of the yuan-denominated A-share market by the end of July.

The latest statistics from the China Securities Regulatory Commission (CSRC) said that the proportion of institutional investment in A-share market has risen 25 percentage points since 2004.

"Institutional investors have established their status in the market," said Qi Bin, head of the CSRC's research center. "With the maturing of China's capital market, institutional investors will surely play an even bigger role."

Mutual funds are the biggest institutional investors in China's capital market. In the first half of this year, the net asset of 347 funds under 59 fund management companies hit 1.67 trillion yuan, accounting for 31 percent of the tradable value of A shares.

Figures from the China Securities Depository and Clearing Corporation Ltd. said that 306,000 fund investment accounts were opened daily on average in the first half of this year, sharply higher than the opening of A-share accounts.

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