TO THE POINT: The Chinese banking regulator ordered banks to write off bad debts that resulted from the massive earthquake as part of its disaster relief efforts. Domestic oil giants experienced huge losses in their refining operations, pulling down the overall profitability of major state-owned companies. Chinese airlines increased fuel surcharges for international flights as the price of international crude oil continued to soar. The property market is being reshuffled with large developers devouring small ones. And the government has cut import duties on many types of goods to maintain stable domestic supplies. By LIU YUNYUN

Banks Join Earthquake Grief

To resolve the predicament of domestic banks and debtors, the banking regulator ordered banks to write off bad loans caused by the massive Wenchuan earthquake on May 12 and the frequent aftershocks.

The destructive earthquake left some local banks and debtors helpless. The devastating earthquake destroyed about 4 million homes and severely damaged over 16 million houses in Sichuan Province, according to the Ministry of Civil Affairs. In extreme cases, some mortgage debtors were reported dead or missing after the earthquake.

On May 23, the China Banking Regulatory Commission (CBRC) published the following notice on its website: "If the borrowers' losses are not covered by insurance, or their insurance or guarantees are not enough to repay the debts, the loans should be treated as bad debt and can be written off."

The CBRC also told commercial banks to write off the bad credit card debt of those dead or missing in the quake.

Analysts believe such a policy benefits both debtors and lenders, because the write-offs would not hurt the banks' credit ratings or earnings, and lenders would be relieved of having to repay loans for their collapsed houses. The tax authorities also will exempt or reduce banks' taxes to decrease their losses from writing off bad loans.

Underpinning an Oil Giant

China Petroleum & Chemical Corp. (Sinopec), Asia's largest crude oil refiner by capacity, received a government subsidy of 7.1 billion yuan ($1.02 billion) to offset losses in its oil refining operations in April.

The subsidy was huge compared to previous ones the company has received.

The government gave Sinopec a total of 5 billion yuan ($714 million) in subsidies in 2006 and 4.9 billion yuan ($700 million) in 2007, according to the company's annual reports. It also received 7.4 billion yuan ($1.05 billion) in the first quarter this year.

The government strictly controls refined oil prices in China, even though the price of international crude oil fluctuates with market demand. It has become a tradition that the government subsidizes oil refiners for their refining sector losses, while it imposes a special oil gain levy on domestic crude oil exploiters.

At Sinopec's shareholders meeting in Beijing on May 26, the company's chairman, Su Shulin, said the government's aid just scratched the surface of the losses incurred by Sinopec's refining sector. Su vowed to maintain stable oil supplies for the domestic market and said the company would work on cutting costs and further optimizing its refining processes. Shareholders at the meeting also passed a plan to issue renminbi-denominated bonds worth up to 20 billion yuan ($2.86 billion) to cover operational costs.

Some economists have called for floating refined oil prices, while others believe it is not possible at present for fear of stirring up more inflation.

Though Sinopec faces a serious challenge, Su said that the company could have stronger profits if oil prices were free from government control.

To maintain stable domestic supplies, Sinopec said it would suspend exporting refined oil products in the third quarter. In the meantime, the company will increase gasoline and diesel imports to meet increased summer demand during the Beijing Olympics and the ongoing earthquake relief efforts.

Property Guru Takes the Helm

When international investment banks downgraded the share price of property developer SOHO China Ltd. listed on the Hong Kong stock market, the company's chairman, Pan Shiyi, hastened to acquire more lands from the many small and medium-sized developers that have collapsed due to broken money supply chains.

SOHO China, the mainland's top real estate developer, said it would acquire Kaiheng Center, an office tower located in a major commercial district in downtown Beijing, for approximately 5.5 billion yuan ($786 million). The site will join the SOHO family and be renamed Chaoyangmen SOHO. Pan inherited Kaiheng's loans of up to 3.3 billion yuan ($471 million), but said SOHO China had sufficient cash in the amount of 10 billion yuan ($1.43 billion) to cover them.

Small developers have been feeling the pinch of the cash shortage and have started to withdraw from high-risk property projects. Since last year when the government pledged to adopt a stringent monetary policy, the central bank has taken several measures such as raising the reserve requirement ratio and interest rates to curb the amount of cash in circulation and cool property developers' frenzy to build homes and office buildings.

Some analysts contend that the developers' good old days would soon fade and that the property bubble created in 2006 would blow. But industry tycoons such as Pan, who boast of "too much cash, and too little land," believe the market remains robust for large developers.

SOHO China's stocks did not perform well on the Hong Kong stock exchange. Investment banks such as Goldman Sachs, UBS and HSBC downgraded SOHO China's shares, arguing its land reserve was too limited. They also based their decision on what is happening in the current U.S. property market whose performance has kept declining in recent months.

Costly Fuels

Some of China's domestic airlines raised their passenger fuel surcharges on international flights, citing higher fuel costs.

On June 1, China Southern Airlines raised its one-way fuel surcharge from 600 yuan ($86) to 800 yuan ($115) on flights from the mainland to Europe, the United States, Oceania, Africa and Middle East. Hainan Airlines increased its one-way fuel surcharge to European and American destinations by the same amount in line with China Southern Airlines.

The other two major airlines, China Eastern Airlines and Air China, still abide by the fuel surcharge rule that took effect on January 1, under which fuel surcharges are set at 420 yuan ($60) on routes form the mainland to other Asian and Pacific destinations and at 600 yuan ($86) on routes from the mainland to Oceania, Europe, the United States and Africa.

The price of crude oil soared 100 percent in May compared to the same period in 2007, and closed at $131 on May 27 on the New York Mercantile Exchange.

Foreign airlines, such as Deutsche Lufthansa AG and British Airways Plc, have already increased their fuel surcharges, according to the China Securities Journal.

Profits Down at Key Enterprises

The profitability of major state-owned companies has slowed down.

In the first four months this year, the profit of 410 major state-owned enterprises dropped 1.3 percent to 352.6 billion yuan ($50.37 billion), mostly dragged down by poor performances in the petroleum, petrochemical and power industries, according to the State-owned Assets Supervision and Administration Commission of the State Council (SASAC).

Profit levels in these three sectors fell 66.34 billion yuan ($9.48 billion) in the first four months, because the government kept the prices of refined oil and coal prices low.

SASAC, as quoted by Securities Times, said the restoration work in the earthquake-hit areas in Sichuan would bring enormous business opportunities for state-owned enterprises, especially those in the energy, metallurgy, chemical and telecommunications sectors.

Welcoming More Imports

China is striving to cope with inflation by encouraging more imports of commodities it needs and slashing import duty rates on 26 categories of goods.

Xinhua News Agency published a Ministry of Finance announcement on May 28 that said the government would halve the import duty on frozen pork to 6 percent from June 1 to December 31. It also plans to cut import duties from the current 6-25 percent to 2-10 percent on nine categories of goods, including codfish, pistachio nuts, baby food, milk serum and yeast.

During the same period, the government will reduce the import duties on feedstuffs such as groundnut meal and soybean meal from 5 percent to 2 percent. It also will cancel the current 3-percent duty on four types of medicines, including blood albumin and human vaccines.

Import duties on coconut oil and olive oil will be cut from 10 percent and 9 percent, respectively, to 5 percent from June 1 to September 30. Sliding duties on cotton imports will be reduced from 5 percent-40 percent to 3 percent-40 percent from June 5 to October 5, but they later will be restored to their original rates.

Numbers of the Week

$441 million

The World Bank approved loans of $441 million to improve energy efficiency and reduce emissions from power plants in China. The amount, announced on May 27, is almost one third of the total of the World Bank's planned loans for China in fiscal year 2008.

$32.1 billion

From the beginning of the year until May 27, Chinese companies acquired 102 overseas companies for a total $32.1 billion in capital. This amount was $6.1 billion more than the value of total overseas acquisitions in 2007, according to research institute Dealogic Llc.