As Good As Gold

As the stock and real estate markets seem yet to mature beyond a boom-bust cycle, Chinese investors are jumping aboard the golden caravan.

China Gold Group Corp. said its sales of gold coins and bars have increased appreciably since April, in defiance of what should have been a bleak season. The gold futures price in Shanghai has recently breached 220 yuan ($32.20) per kg, hitting a record high since March 2008. Even gold-related stocks turned bullish. One example was the Shanghai-listed Shandong Gold Group Co. Ltd., which has staged a 40-percent rally from a bottom reached in December 2008.

The demand for gold soars as risk-wary investors seek a safe haven from the fickle stock market and economic uncertainty. It is commonly used as a hedge against inflation as exploding bank credit is fuelling a liquidity flood.

Most analysts believe the domestic market will go on with a rosy path in the next few months amid global euphoria. A prolonged rally has recently taken the international gold price to a 17-month high of $1,000 an ounce as the U.S. dollar weakens and fears deepen about the health of the global financial system.

But Wang Ruilei, a senior analyst with the Sichuan Province-based Gaosaier Gold and Silver Co. Ltd. believes a wise move now is to cap the gains rather than buying into an overheating market. "Gold has been a bright spot in the global financial landscape, but the metal, like other assets, can fall when demands dry up," he said in a recent report.

Wang Lixin, General Manager of the World Gold Council, Greater China Region, suggested that investors place 10 to 30 percent of portfolios in gold to rebalance their risk exposure and make long-term investments instead of short bets for quick returns.

Car Alarms

No one doubts that the auto market is providing an effective cushion against economic uncertainties. The buying fever even left some dealerships short of vehicles to sell. But now, analysts fret that famine may soon follow the feast. There are three underling risks hanging over the auto market, they said.

The first is the vicious overcapacity that threatens to reverse the current positive trend. In 2008, the total auto output was nearly 10 million units, but only around 9 million were sold. Worse still, many home-grown manufacturers, like Geely and Chery, are depressing prices to digest inventories built up during boom times. The National Development and Reform Commission recently warned of the bottleneck and appealed to the more streamlined sector to compete against larger foreign rivals.

The second is withdrawal of policy incentives. Last year, the government gave cash subsidies to farmers who trade in certain types of used cars for new ones. Another stimulus was to halve the 5 percent tax on purchases of cars with engines under a 1.6-liter capacity, effective between January 20 and December 31. Pessimists fear that the sales boom will fade fast if the government decides not to renew the tax waiver after its expiration.

The third is spiking fuel prices that are stemming buying interest. Under the new fuel pricing regime, any surge in the international crude prices will put downward pressure on automakers.

Going Rural

Chinese PC (personal computer) makers are leveraging their rural foothold to compete with foreign rivals.

Three months after the government, on March 16, kick-started a program that subsidizes rural purchases of PCs, around 110,000 units have been sold, according to the Ministry of Commerce. Chinese brands dominated the emerging market, with Lenovo taking the lead with a 44-percent share. The combined shares of foreign players were a minimum 1 percent.

Analysts believe the strong presence in the vast rural markets is a long-anticipated boon for Chinese PC makers to shake off downturn. And most importantly, in tapping into the remote countryside where purchasing power and logistics are weak, they have obviously been more patient and persistent than their foreign counterparts. HP, the world's second largest PC maker, for example, has focused on top-tier cities like Beijing and Shanghai, and Dell adheres to the direct sales business model, which does not work well outside big cities.

But the staggering growth potential will eventually make rural China a battlefield for global players, said Simon Ye, an analyst with the U.S. research firm Gartner Inc., in an interview with China Daily.

To build a firm rural foothold in China, you have to strengthen the distribution network and customer services, as well as appropriate promotional tactics, he added.