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Market Watch
Business> Market Watch
UPDATED: January 29, 2008 NO.5 JAN.31, 2008
MARKET WATCH NO.5 2008
On January 24, the National Bureau of Statistics (NBS) released figures concerning the overall 2007 national macroeconomic situation
 
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TO THE POINT: China's economy recorded its fastest growth in 13 years with gross domestic product (GDP) rising 11.4 percent in 2007. The 2007 consumer price index (CPI) growth rate stood at 4.8 percent, prompting the government to sweep in to control food prices in food sector, the major factor driving the surging CPI. Refined oil prices kept falling through mid-January, providing much needed relief across the economy. In the bull market, Shanghai Pudong Development Bank's zero-profit wealth management product infuriated investors.

By LIU YUNYUN 

 

The 2007 Economy in Retrospect

On January 24, the National Bureau of Statistics (NBS) released figures concerning the overall 2007 national macroeconomic situation.

In 2007, the national economy kept up its steady pace along with fast growth. The economy witnessed rapid economic growth, an optimized structure and increased efficiency, and helped improve the livelihood of the people.

-According to preliminary estimates, the GDP for 2007 was 24.6 trillion yuan ($3.4 trillion), up 11.4 percent, or 0.3 percentage points higher than the previous year, representing the fifth consecutive year of double-digit growth.

-Fast growth was registered in fixed assets investment with an obvious acceleration in real estate development. In 2007, the total investment in fixed assets reached 13.7 billion yuan ($1.89 billion), a year-on-year growth of 24.8 percent, with an increase of 0.9 percentage points over the previous year.

-Consumer prices rose rapidly and housing prices grew by a large margin. In 2007, the growth rate of the CPI was 4.8 percent, 3.3 percentage points higher than a year earlier. CPI grew 6.5 percent in December 2007. Through the year, CPI rose 4.5 percent in cities and 5.4 percent in rural areas. The increased prices of food and housing were main factors contributing to the overall price level. In 2007, retail prices rose 3.8 percent. The sales prices for housing in 70 large and medium-sized cities jumped 7.6 percent, up 2.1 percentage points.

-Foreign trade and foreign direct investment (FDI) both continued increasing. The total volume of imports and exports for the whole year reached $2.1 trillion, a growth of 23.5 percent, which was 0.3 percentage points lower. The value of exports was $1.2 trillion, rising 25.7 percent; and the value of imports was $955.8 billion, up 20.8 percent. China's trade surplus stood at $262.2 billion, growing 47.7 percent over 2006. Paid-in FDI from non-financial institutions was $74.8 billion, an increase of 13.6 percent. Year-end foreign exchange reserves reached $1.53 trillion, up 43.3 percent over the previous year.

-The money supply grew rapidly with the continued growth in credit. At the end of December, the broad money supply (M2) stood at 40.3 trillion yuan ($5.56 trillion), for an annual growth of 16.7 percent. The narrow money supply (M1) was 15.3 trillion yuan ($2.11 trillion), a rise of 21 percent. Cash in circulation (M0) amounted to 3.0334 trillion yuan ($418.4 billion), up 12.1 percent.

NBS pointed out the following as existing problems in the national economy:

-The risk of the economy shifting from rapid growth to overheating still exists;

-The pressure of price rises is increasing;

-Structural problems are prominent;

-The economy develops by extensive means and institutional and mechanical constraints are yet to be solved.

Fertilizer Joins the Club

China's top economic planner, the National Development and Reform Commission (NDRC), announced on January 22 that the temporary price intervention mechanism will be extended to include fertilizer in an effort to boost agricultural confidence and the food safety.

A week ago, the NDRC announced that it would control prices of daily food necessities such as grain, edible oil and pork to curb possible inflation.

Xinhua New Agency quoted an anonymous senior NDRC official as saying that fertilizer makers owned by the Central Government should not raise the post-production prices of urea while fertilizer manufacturers owned by local governments should strictly control their post-production prices of urea, phosphate fertilizer and compound fertilizer. Other companies are now required to submit a report for official approval when they intend to raise prices. The official said that the interim price intervention covers the spring plowing period.

Statistics show that post-production prices of urea and compound fertilizer have risen to 1,725 yuan ($238) per ton and 2,600 yuan ($360) per ton, respectively, both up more than 30 percent year on year.

The local regulatory departments now must order enterprises to return prices to normal or reduce the price increase range if the price hike is considered unreasonably high.

Chen Jianbo, rural economic researcher with the Development and Research Center of the State Council, said the supervisory arm would possibly extend its reach to other sectors and the upstream of the fertilizer industry could be impacted. Chen suggested the government subsidize farmers directly instead of intervening into the pricing mechanism of a market economy.

Oil Prices Keep Falling

Through mid-January, wholesale prices of refined oil continued to fall as market supplies stabilized.

The abundant supply of refined oil eased the tensions of the oil shortage, and wholesale prices in most parts of China fell. The wholesale price of No.90 gasoline dropped to 6,350 yuan ($876) per ton on January 18, down from 6,400 yuan ($883) at the beginning of January. The wholesale price of diesel fell to 6,170 yuan ($851) per ton on January 18, which was 230 yuan ($32) less than that in the beginning of this year.

Yao Daming, senior official with the Guangdong Oil and Gas Association, said that if international oil prices kept falling, the diesel wholesale price would likely drop to around 6,000 yuan ($828) per ton, the same as the retail price.

Meanwhile, the wholesalers expected that international oil prices would continue to fall, and their wait-and-see attitude would contribute to the falling oil prices.

From Nest Egg to Goose Egg

Shanghai Pudong Development Bank (SPDB) recently came under spotlight as one of its wealth management products turned zero profit after one year of closed operations due on December 28, 2007.

The troubled wealth management product is a one-year Plan F2 with an expected yield from zero to 16 percent. However, when the due date came on December 28, investors were surprised to find out the yield came on the lower end of that spectrum: a big fat zero.

Angry investors posted notes on various websites to question SPDB's incentives for the product. They condemned the bank's ability to manage wealth and suspected that the bank had embezzled the money. During the operation time from December 28, 2006, to the same date in 2007, the Hong Kong Hang Seng Index soared 37 percent and the mainland Shanghai Composite Index doubled.

But SPDB argued that it did not embezzle the money and explained the product's operational mode was actually bought from an international investment bank. They said that according to the planned calculation method, the yield was indeed zero, without revealing the details of how the money was managed. Some analysts contended that SPDB might have been cheated by the investment bank that designed the product.

When the news was exposed, some of the SPDB branches offered coupons to investors to ease their anger.

Wealth managers warned retail investors that all kinds of investment have potential risks and they must be careful in choosing the products they invest in.

Enterprising SOEs

The Ministry of Finance stated that China's state-owned enterprises (SOEs) reported a profit rise of 31.6 percent in 2007 year on year.

Total profits reached a record 1.62 trillion yuan ($222 billion), up from 1.23 trillion yuan ($170 billion) a year earlier. The 119,000 SOEs paid a record 1.57 trillion yuan ($217 billion) in taxes last year, up 21.8 percent. Their total sales revenues grew 20.1 percent to 18 trillion yuan ($2.48 trillion).

SOEs administered by the Central Government contributed 67.9 percent of the total profits, or 1.1 trillion yuan ($152 billion), up 29.2 percent. Their sales revenues rose 19.1 percent to 11 trillion yuan ($1.52 trillion). SOEs in the machinery industry exceeded all the other sectors in profit growth last year.

China has 152 centrally administered enterprises, all under the supervision of the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council.

Vice Premier Zeng Peiyan noted that the government would continue to promote corporate and share-holding reforms in SOEs and encourage them to expand overseas and deepen the reforms in monopoly sectors.

Numbers of the Week

32%

The output of China's machinery industry grew about 32 percent in 2007 to a record high of over 7 trillion yuan ($959 billion), according to statistics from the China Machinery Industry Federation. It was the fifth consecutive year the growth rate has surpassed 20 percent. China has transformed itself from being a net machinery importer to a net exporter since 2006.

164 billion yuan

The country's Internet business is expected to jump 40 percent to 164 billion yuan ($22.5 billion) in 2008 with online games and e-commerce as the major drivers of revenue growth. These segments grew 74.6 percent and 68.9 percent, respectively, in 2007, according to estimates from CCID Consulting.



 
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