TO THE POINT: First month economic data showed that the Chinese economy continued its strong momentum in spite of tightened government regulation. The stock market recovered slightly from the nosedive of the past several months, but shares of financial institutions dropped. The Bank of China reassured investors of its sound performance despite subprime-related concerns, while Agricultural Bank of China is still struggling for a public listing. International iron ore price rise settled at 65 percent, adding huge costs to domestic steel companies. China is preparing an appeal to the World Trade Organization after the world body issued a negative ruling against the country on auto spare parts.

By LIU YUNYUN

Economic Figures For January

- CPI-7.1 percent

The 11-year high consumer price index (CPI) growth, which was 7.1 percent in January, came as no surprise. Food prices, growing 18.2 percent, were still believed to be a major trigger to the soaring CPI growth rate. January CPI grew 6.8 percent in urban areas and 7.7 percent in rural areas, according to the National Bureau of Statistics (NBS).

NBS Chief Economist Yao Jingyuan attributed the sharp rise to three factors. The month-long snow and ice storms which hit south and central China led to considerable rises in vegetable and other food prices. Second, it is traditional for commodity prices to rise during the Spring Festival (February 6-12 this year). The base figure last year was small. “The CPI grew only 2.2 percent in January 2007. Compared with that, this year’s January CPI growth was high,” explained Yao.

However, non-food sectors rose only 1.5 percent, said the NBS.

Most economists ruled out the possibility of another interest rate hike in the near future. The Chinese central bank was caught in a catch-22: Surging CPI growth far exceeded the one-year benchmark interest rate of 4.14 percent, putting the real rate in negative. This poses rate hike pressure for the central bank. On the other hand, major powers like the United States and many European countries had cut rates in succession in a bid to boost their economies. China would become less competitive in international trade if it retained a high interest rate.

The central bank could turn to accelerating currency value and curbing bank lending to curb inflation.

- PPI-6.1 percent

The NBS announced on February 18 that the producer price index (PPI) grew 6.1 percent in the first month of 2008, the highest monthly growth in three years.

The NBS said the increase was jointly driven by higher prices of food, raw materials, fuels and power, and it feared the sharp increase would further jack up CPI growth. Only durable commodities saw a drop in their prices of 0.6 percent.

- Trade surplus-$19.49 billion

Statistics from the General Administra-tion of Customs showed that the total import and export value in January amounted to $199.83 billion, up 27.1 percent year on year. China exported $109.66 billion worth of goods and imported $90.17 billion. The total import value grew 27.6 percent in January year on year, surpassing the growth rate of exports.

The trade surplus for January was $19.49 billion, dropping for the third month since October 2007.

- Paid-in FDI-$11.2 billion

Paid-in foreign direct investment (FDI) in January doubled that of the same month in 2007, according to the Ministry of Commerce, without disclosing reasons for such an unusually high increase. The number of newly added foreign companies, however, dropped 13.41 percent to 2,918 from a year earlier.

Experts worried that some foreign companies might pull out their business in China due to the rise in corporate income tax effective from January 1 this year to 25 percent. But the result was a surprise. FDI defied experts’ worries and soared.

The country has eased restrictions on mergers and acquisitions, and created a favorable investment environment in the service sector. Those were believed to be major factors attracting foreign investment.

Escaping the Subprime Plague

Bank of China (BOC), the largest subprime-related asset holder in China, will report a “remarkable increase” in 2007 in net profits, in spite of heavy losses due to the global financial nightmare.

BOC is the third largest state-owned commercial bank by market value in the country and has the most international businesses compared with other banks. International financial giants, including Citibank and Merrill Lynch, reported huge losses in the fourth quarter of 2007 due to the U.S. subprime mortgage crisis. Rumors had circulated that BOC would also suffer considerable losses as it was less experienced in the international financial arena but was the most involved compared with other Chinese banks.

Xiao Gang, Chairman of BOC, said the bank had completely disposed of its collateralized debt obligations (CDO: a subprime-related obligation) worth $496 million. Xiao also said the bank had prepared reserves to cover losses from other subprime-related bonds.

Seeking Justice

China prepared to appeal to the World Trade Organization (WTO) regarding its disputes with American and European countries over duties on imported car parts.

China considers car parts as a whole vehicle if they account for 60 percent or more of the value of a whole vehicle, and charges a 15-percentage-point higher tariff on such spare parts. The import duty of car parts is 10 percent and that of the whole vehicle is 25 percent. The tariff is meant to prevent foreign carmakers from reassembling the parts into a whole vehicle to evade the tax.