A Helping Hand

After the massive Wenchuan earthquake hit southwest China's Sichuan Province, the Central Government and relevant ministries immediately issued relief plans and guidelines for the quake-hit areas.

On May 19, a week after the earthquake, the People's Bank of China and the China Banking Regulatory Commission jointly issued an emergency notice to assist the restoration work for financial services in the quake-hit areas in Sichuan, Gansu, Shaanxi and Yunnan provinces and Chongqing Municipality.

The notice relaxed credit pressures on local financial institutions and individuals. The central bank said financial institutions should take the quake-hit areas' difficulties into full consideration and not press the debtors for mortgage payments, not fine those who default on their payments, nor register records of bad conduct. The central bank encouraged the financial institutions to continue providing loans for rehabilitation work in quake-hit areas.

After the earthquake shook the vast rural areas of Sichuan Province, banks were caught in a catch-22: Debtors and their mortgages were both destroyed by the earthquake. In other cases, some houses remained standing, but their owners were dead or missing, while some owners survived, but their houses were destroyed.

Such predicaments are pinching the Agricultural Bank of China (ABC) in particular. It is the country's second largest lender and focuses heavily on serving rural area development. Zhang Yun, Vice President of ABC, said at a press conference on May 19 that the earthquake would probably leave the bank with more than 6 billion yuan ($857 million) in non-performing loans, resulting from casualties and building damages.

In a report of the BOC International (China) Ltd., analyst Yuan Lin noted that despite financial institutions' current losses, the reconstruction work would bring profits for banks. She estimated this year's bank loan growth rate could reach 14.7 percent year on year.

In addition to the above-mentioned favorable policies, the central bank allowed the hardest-hit areas a 0.5-percent exemption on their reserve requirement ratios. The six areas are Chengdu, the provincial capital, the cities of Mianyang, Deyang, Guangyuan and Yaan, and Aba Tibetan and Qiang autonomous prefectures. The exemption was the first of its kind in China's banking history.

The ratio is the amount of money that banks must set aside for reserves for the central bank. The central bank ordered commercial banks to put aside 16.5 percent of their money on May 20, which was supposed to freeze 211.1 billion yuan ($30.16 billion). This action was done to cope with surging inflationary pressure.

Because the reconstruction work in quake-hit areas would require huge amounts of credit, more loans would be inevitable, finance experts said.

The central bank also offered loans worth 5.5 billion yuan ($756 million) to local financial institutions, with 3.3 billion yuan ($471 million) to Sichuan and 2.2 billion yuan ($314 million) to Gansu, Sichuan's neighboring province.

Markets Join National Grief

The Chinese markets mourned the Wenchuan earthquake victims by halting trading for three minutes from 2:28 p.m. to 2:31 p.m. on May 19.

The Hong Kong stock market and the mainland stock markets, together with the futures market, joined the three-minute national silence to express their grief for the victims of the massive earthquake.

The mainland stock market rally, which started two weeks before the earthquake, almost came to a close after more listed companies' losses were posted. Dongfang Electric Co. Ltd., for instance, reported a huge loss of $600 million yuan ($85.7 million). The benchmark Shanghai Composite Index plunged 5 percent to 3,443 points on May 20 from 3,626 points on May 12.

But stock traders showed their confidence in the national economy by shoring up the stock prices of most of the Sichuan-based listed companies. For instance, Southwest Pharmaceutical Co. Ltd. had seen its share price surge almost 30 percent a week after the quake occurred.

Stocks of companies which were considered as playing a part in the reconstruction efforts following the earthquake, such as those in the medical, food and cement industries, had strong performances during the national mourning period.

Boycotting Rio Tinto

The weak enforcement of a long-term contract of Australian mining giant Rio Tinto Group prompted wide discontent from its Chinese iron ore importers.

The China Iron and Steel Association (CISA) issued a public notice, calling for a boycott of the company's offers on the spot market if it continued to fail to fulfill its long-term trade contract. "For individual iron ore importers, if Rio Tinto failed to perform the long-term trade contract, they should not support or participate in iron ore spot trade activities promoted by Rio Tinto," the association said in a printed statement.

CISA accused the Australian firm of failing to honor its delivery commitments and taking advantage of high spot market prices. In most cases, a long-term contract (usually one year) is set beforehand at relatively lower prices compared to spot market prices. In 2007, Rio Tinto executed only 86 percent of its long-term contract with China. So far this year, the company has not reached an agreement with Chinese importers because of its unreasonable requirement of adding freight premiums.

Lenovo Falters on Consumer PCs

China's Lenovo Group Ltd., the world's third largest personal computer (PC) maker, recently reported a 12-percent drop in sales in the first quarter of 2008, compared to the last quarter of 2007, according to IDC, an information technology research firm. This is Lenovo's second worst performance in the past eight quarters.

Lenovo was mainly dragged down by poor consumer PC sales that plummeted 30 percent compared to the same period in 2007, according to IDC.

Liu Jie, Manager of Lenovo's Greater China and Russia Division, said Lenovo was not sidetracked by its sponsorship of the upcoming Olympic Games in Beijing and reassured consumers about the company's marketing competency. He also said the first quarter was always a bleak period for PC sales.

Analysts pointed out that Lenovo's sales were dampened by the sluggish distribution of its consumer-oriented computers under IdeaPad sub-brands.

But what ails Lenovo is actually more than that. Domestic customers are grumbling that its ThinkPad products are priced much higher domestically than that in the United States. Prices of ThinkPad PCs range from 24,999 yuan ($3,571) to 34,999 yuan ($5,000), far exceeding those in the United States, which are $2,476-$3,000. Some raised suspicions that Lenovo discriminates against domestic customers, although the company attributes the price disparities to different market orientations and labor costs.

Fears are bubbling that this may pose a setback to Lenovo's attempt to harness global consumer PC markets. It had previously embarked on the business market outside China after acquiring IBM's PC business three years ago.

International Tibetan Carpet Exhibition

The International Tibetan Carpet Exhibition was held on May 16-21 in Xining, capital of Qinghai Province in northwest China. More than 200 carpet manufacturers from 10 countries and regions took part in the exhibition and showcased their best and latest carpets.

It was the city's fifth consecutive exhibition of its kind since 2004 to boost the development of the Tibetan carpet industry.

As a pillar industry of Qinghai Province, Tibetan carpet manufacturing has witnessed fast growth in recent years, with its export value reaching $25 million in 2007 for a yearly growth rate of more than 30 percent.

"We will further tighten our efforts to promote the carpet industry and build Xining into a hub for Tibetan carpets," said Wang Yinghu, General Secretary of China Tibetan Carpet Association.

Numbers of the Week

353%

Chinese companies' foreign direct investment in the first quarter of this year surged 353 percent to $19.34 billion compared to the same period in 2007, according to Chen Jian, Vice Minister of Commerce.

30 billion yuan

State-owned enterprises directly affiliated with the State-owned Assets Supervision and Administration Commission (SASAC) were estimated to suffer total losses of 30 billion yuan ($4.29 billion) from the magnitude-8.0 Wenchuan earthquake, according to Li Rongrong, Minister of the SASAC.