NUMBER OF THE WEEK

19,731yuan

The average income of urban employees in the first three quarters stood at 19,731 yuan ($2,900), an increase of 18.3 percent year on year.

6%

China's GDP in 2007 accounted for 6 percent of the world's total, while 30 years ago, it was only 1.8 percent.

TO THE POINT: China's central bank cut benchmark interest rates for the second time this year to spur economic development against the backdrop of a possible world economic recession. Despite the devastating financial crisis, most banks here posted profit increases in the first three quarters. Foreign banks operating in China doubled their profits in the first nine months year on year to more than 10 billion yuan ($1.47 billion), while domestic banks earned 237 billion yuan ($35 billion). The Industrial and Commercial Bank of China remained the world's most profitable bank. The October export tax rebate increase might not be enough to help exporters on the edge of bankruptcy, who say cost surges and reduced foreign demand are the root causes of their problems. The government is conducting a survey of the salaries of staff at large state-owned enterprises and has passed a law to safeguard the nation's state-owned assets.

By LIU YUNYUN & HU YUE

Interest Rates Lowered Again

The central bank slashed interest rates a second time in October, underlining China's commitment to joining global efforts to prevent the international economy from entering a recession.

The central bank announced it was cutting both the benchmark deposit and loan interest rates by 0.27 percentage points on October 30 to spur economic growth. The benchmark one-year deposit and loan interest rates were cut to 3.60 percent and 6.66 percent, respectively.

Guo Tianyong, a banking professor at the Central University of Finance and Economics, told Beijing Review that the rate cuts would help boost consumption and enliven the economy in the face of some headwinds caused by fears of a global economic recession.

Guo said the central bank now was more likely to leverage interest rates and issue central bank bills less frequently to widen liquidity, instead of lowering the reserve requirement ratio. Commercial banks have been more prudent in lending because of economic downside risks, not because they are short of funds, he said.

China still has more leeway to further lower key interest rates given that inflation has considerably subsided, Guo said, adding that he expects the country to enter a "rate-cut" cycle in the next two years. The country's deposit interest rate hit an all-time low of around 2 percent in 2002.

Guo downplayed worries that inflation might creep up again in a lax monetary environment.

"Once the frozen parts of the U.S. credit market thaw, international commodity prices might pose a rally, thus mounting inflationary pressures on China," he said. "But in one to two years, the country's top priority will still be dealing with the economic slowdown."

Domestic Banks Grew

In the first nine months, the Industrial and Commercial Bank of China Ltd. (ICBC) remained the most profitable bank in the world with an after-tax profit of 93 billion yuan ($14 billion).

By October 29, three of the "big four" state-owned commercial banks-ICBC, China Construction Bank Corp. and Bank of China Ltd.-all posted significant increases in profit. They reaped combined profits of 237 billion yuan ($35 billion) in the first three quarters. The fourth bank, the Agricultural Bank of China, has not yet issued its profit figure for the first nine months.

But the three banks' profit growth rate slackened according to their quarter-on-quarter figures as the global financial turmoil deepened. The banks said the profit slowdown also was partly due to diminished deposit-and-loan interest rate differences.

The global financial crisis, caused by the U.S. mortgage lending mess, has swept across the world. Some foreign financial institutions have suffered huge losses or have collapsed. But Chinese banks have been less affected, because they have been relatively conservative with their investments. The China Banking Regulatory Commission (CBRC) estimated the financial crisis would eat up a certain amount of profit of Chinese banks, but would not pose any devastating effects.

Foreign Banks Made a Fortune

Despite the global financial turmoil, foreign banks made a fortune in the lucrative Chinese market.

In the first three quarters, foreign banks in China earned 10.12 billion yuan ($1.48 billion) in profit, doubling the amount they earned in the same period last year, according to the CBRC.

Foreign banks have maintained stable and healthy operations in China so far this year, with their assets totaling 1.3866 trillion yuan ($203 billion), the CBRC said. Foreign-owned banks here have enough capital supply, sound asset quality and abundant liquidity.

But industry insiders said the rate of foreign banks' expansion in China might slow down because of weak investment demand.

"The current financial crisis will lead to shrinking investment," Cartier Lam, Executive Vice President of the Bank of Asia (China) Ltd., told CCTV. He added that the bank would slow its pace in opening new branches in China. "But the financial crisis won't have a major influence on our operations in China," he said.

Rebate Increase Less Effective

The October export tax rebate increase on toys and textiles, which took effect on November 1, might have a limited positive effect on exporters, because it could fail to offset losses from their rising costs and decreased demand from foreign markets.

The Ministry of Finance announced on October 21 that it would raise the export tax rebate in a bid to promote exporters' enthusiasm to boost their business. But toy makers and other light industrial goods exporters still complained of shrinking profits at the autumn session of the biannual China Import and Export Fair, also known as the Canton Fair, the biggest and oldest trade fair in China, held from October to November.

Exporters said sluggish foreign demand has taken its toll on them.

"The favorable policy won't make a difference if there is no demand," Xu Qing, a Guangzhou-based exporter who specializes in small goods, told Beijing Review. She said that the 2-percentage-point increase in the export tax rebate was not enough, because exporters' costs for production and human resources have risen almost 20-30 percent since last year.

Other dealers said foreign importers have started requesting lower prices for goods in light of the export tax rebate increase. Some said the increase only benefited importers and that they alone would take advantage of it.

Protecting State Assets

On October 28, the Standing Committee of the 11th National People's Congress, China's top legislature, approved a law that would safeguard the country's state assets, worth of around 30 trillion yuan ($4.4 trillion).

The newly endorsed Enterprise State Assets Law will oversee the capital of nearly 120,000 small and medium-sized enterprises, including financial companies, and prevent their assets from illegal seizure. Loss of state assets total 80 billion yuan ($11.7 billion)-100 billion yuan ($14.6 billion) annually, because of loose management and misconduct by asset managers, according to a Xinhua News Agency report.

"China has been devoted to the reform of its SOEs, and there is an urgent need for legislation to safeguard the management of state capital, Wu Bangguo, the nation's top legislator, said in a statement. "This [law] is the collective suggestion of many legislators." Now that the law has been passed, it will become a key support in supervising the state's capital, Wu added.

The new law will take effect on May 1, 2009.

Payroll Survey

China will start conducting an annual survey of staff payrolls at 146 centrally-administered state-owned enterprises (SOEs), as public suspicion grows that their employees are unreasonably overpaid.

The State-owned Assets Supervision and Administration Commission (SASAC) said it would gather the salary information for general posts such as accounting, administration and IT support at the SOEs' headquarters and secondary subsidiaries.

The 146 companies also are required to report the information to the SASAC before December 20. The commission said it would publish the survey results at a later, unspecified date. The SASAC did not say when the results would be issued to the general public.

There have been complaints about the high incomes of some SOE employees, garnered from profits made by government subsidies, unilaterally imposed fees and charges and fees for substandard services.