TO THE POINT: The country was faced with heavy inflationary pressure as the CPI and PPI numbers both continued to run at a high growth rate. The government decided to enforce a tightened monetary policy and stock investors rushed to pull money out of the stock market and stash it in the banks. To save the stumbling stock market, QFIIs were allowed to triple their investments in China's financial markets. By LIU YUNYUN

Wal-Mart's Big Event

The number of Wal-Mart's outlets in China will soon reach 100 after more stores gained approval from the supervisory department in early December.

Wal-Mart executives paid much attention to the 100th store on the mainland, and the U.S. Secretary of Commerce Carlos Gutierrez attended the approval ceremony for the new store on December 10.

The 100th store in China is a milestone achievement for Wal-Mart's development in the country. The supermarket giant said it has invested a total of 1.7 billion yuan ($229.7 million) in the country and created around 40,000 jobs along with its expansion.

Wal-Mart opened its first super center in south China's Shenzhen City in 1996, and grew quickly amid competition from its French rival Carrefour as well as other homegrown supermarkets.

Mr. Gutierrez applauded Wal-Mart's contribution to promoting the bilateral exchange of products. "Wal-Mart increases U.S. exports to China by importing over 6,600 products from the United States," he said.

"Wal-Mart is an export gateway for American products for Chinese consumers in Beijing and Shanghai-just like in Cleveland or Sacramento," said Gutierrez, "we need to export more to China and an expanding Wal-Mart helps us do that."

Enemy at the Gates

One of the China's portal websites Netease (163.com) officially launched its independently developed search engine--yodao.com-on December 11.

Ding Lei, CEO of Netease, set an ambitious goal to "strive to be first in the search engine market in three years." Ding's research and development team had been working on the project for over two years. Ding seemed confident about the future development of the business.

Currently, the Web search market is dominated by Baidu.com, and Google.cn is also a tough competitor.

At present, only 10 percent of mainland companies have Web pages. "The development potential for Web search is huge," Ding said.

CPI Flies High

China's consumer price index (CPI), a key barometer for inflation, grew 6.9 percent in November year on year, its highest growth rate in a decade.

It was the fourth month that the CPI growth rate was over 6 percent.

"The latest figure indicates accelerating inflationary pressure," said Yao Jingyuan, Chief Economist of National Bureau of Statistics (NBS). He said price jumps because of foodstuffs, which have a 33-percent weight in China's CPI, and cooking oil price increases were the major driving forces behind the rise. NBS said food prices drove up the November CPI figure by 5.94 percentage points.

Grain prices rose 6.6 percent over the same period last year, while cooking oil prices increased 35 percent. Pork prices, the trigger of this year's CPI surge, soared 56 percent in November, and showed no signs of going down.

Nonfood prices, however, rose only 1.4 percent, though higher than 1.1 percent in October.

The producer price index (PPI), another measurement for overall inflation, was up 4.6 percent in November year on year, driven by surging crude oil prices. It was the largest one-month increase in more than two years.

Crude oil prices rose 22.6 percent in November, compared with a much more moderate 4.2 percent during the previous month.

Economists worried that China had entered a period of inflation, while NBS Spokesman Li Xiaochao claimed an overall inflation concern could be ruled out because nonfood sector prices remained stable. But Li said it was important to prevent the food price hikes from influencing other sectors.

Trade Surplus Continues Surge

The General Administration of Customs reported a surplus of $26.28 billion in foreign trade for November, up 14.7 percent year on year. The total import and export volume stood at $208.9 billion in November, up 23.9 percent year on year.

The November surplus was less than the record $27.05 billion in October. It might suggest that the government's macro-control efforts to rein in trade surplus have begun to pay off.

Numbers of the Week $3.18 billion China had attracted $3.18 billion in venture capital by the end of November this year. The figure is 78.9 percent higher than the entire year of 2006, according to research institution Zero2IPO. Foreign-funded companies held the dominant proportion with 79.5 percent of the total venture capital. 10 % Central SOEs (state-owned enterprises directly affiliated with the Central Government) in the fields of tobacco, petroleum and power, will have to pay a maximum of 10 percent of their gross profits back to the government.

The European Union remained China's biggest trade partner, whose bilateral trade grew 27.3 percent in the first 11 months.

Freezing More Money

People's Bank of China raised the reserve requirement ratio by a bold 1 percentage point to 14.5 percent, effective on December 25.

It was the 10th hike this year, and the ratio was lifted by 0.5 percentage points the previous nine times. Lenders will have to put more money into the central bank, and the effort is meant to suppress the banks' impulse to give out loans. Experts estimated the latest hike will freeze 400 billion yuan ($54 billion), bringing the amount frozen through the 10 ratio hikes this year to 2 trillion yuan ($270 billion).

According to the central bank's website, the move is aimed at "strengthening liquidity management in the banking system and checking excessive credit growth."

The decision follows the government's announcement at the Central Economic Work Conference held on December 3-5, about its shift in monetary policy from "prudent" to "tightened," its first change in 10 years.

Affected by the sudden ratio hike, stock prices in the financial and real estate sectors dropped sharply, and lasted for over one week following the announcement.

The central bank stated that it will take diversified monetary measures to cool the economy in the future.

Experts had assumed the Central Government would rein in investment in the previously mentioned two sectors, which have been soaring so far this year.

Wen Bin, senior analyst with Bank of China, said the profitability of Chinese banks will increase despite the tighter loan restriction because the reserve requirement ratio has little to maneuver further.

QFII Quota Enlarged

The QFII (qualified foreign institutional investor) quota was raised to $30 billion, effective from December 10, according to the State Administration of Foreign Exchange (SAFE). The cap was $10 billion before the announcement. QFIIs are now able to submit applications for a piece of the quota.

The QFII scheme was adopted in 2002 and enables QFIIs to invest in the mainland stock and bond markets within a prescribed range.

To date, a total of 49 foreign institutions have acquired QFII quotas of $9.95 billion, and the value of their portfolio has increased to 200 billion yuan ($26.5 billion), according to SAFE.

It is widely expected that the mainland stock market will recover from its recent recession after this money is injected into the market.

At the same time, the SAFE stated it will expand overseas securities investment by qualified domestic institutional investors (QDIIs), but did not give a specific quota at this stage. The QDII scheme will divert more money out of the domestic market and invest in overseas financial markets.

The two schemes are beneficial to both domestic and overseas markets. When the cross-boarder capital scale is expanded further, the openness of Chinese capital accounts under the international balance of payments will be increased.

Safer to Save

The sometimes dead, sometimes alive stock market in the last quarter of this year has driven investors crazy. After four months of negative bank deposit growth, a large amount of money was deposited into the banks in November, rather than being invested in the financial markets.

Central bank statistics show that in November, deposits increased 262.8 billion yuan ($35.5 billion), or 84.5 billion yuan ($11.4 billion) more than the increase in the same period last year.

Analysts believe this surge showed disappointment in the domestic stock market and the three-month-long recession in stock trading had taught investors the lesson that risks came along with opportunities.

In terms of money supply, M2, the broadest measure of money supply, rose 18.5 percent to 40 trillion yuan ($5.4 trillion) in November from a year earlier, according to the central bank. The pace was the same as in October. The central bank had to print more money to buy the foreign exchange brought in by Chinese exporters.

Alternative Use

Well-known Chinese economist Li Yining contended that excessive foreign reserves could be used to buy land and plant wheat in overseas markets.

"The government can use excessive foreign reserves to buy land in South America and Australia and build farms to plant wheat and soybeans," Li said at a forum held by the prestigious Peking University on December 8. "Then, they could be exported into the domestic market to solve the domestic shortage."

Currently, China has the largest reserves of foreign currency in the world, surpassing Japan in 2006. Statistics from the central bank show that China's foreign reserves reached $1.4336 trillion by the end of September this year, rising 45.11 percent year on year.

However, China Investment Corp., the Chinese version of the Singapore Temasek Holdings, claimed that the company will focus on financial products in overseas markets and that it is impossible to invest in infrastructure areas, because the return on profits is slow.