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Market Watch
Business> Market Watch
UPDATED: January 8, 2010 NO. 2 JAN. 14, 2010
MARKET WATCH NO. 2, 2010
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Numbers of the Week

14.7billion yuan

The top 1,000 major retailers in China reported aggregated revenues of 14.7 billion yuan ($2.15 billion) during the January 1-3 New Year holiday, according to the Ministry of Commerce.

20 billion yuan

The Central Government appropriated 20 billion yuan ($2.9 billion) to help construction and renovation efforts of grassroots hospitals, clinics and rural medical service centers in 2010.

TO THE POINT: Expectations are high for China's online advertising market after a successful ad year in 2009. Thermal power generators are feeling the chill of snowstorms that are causing coal prices to increase. Small steelmakers have come under financial pressures as the demands for their steel bars diminish. The overall manufacturing sector has maintained an upward momentum, as evidenced by surges of purchasing managers' index. The National Energy Administration issued a report detailing the energy composition of the country at the end of 2009. China's top consumer-to-consumer auction site, Taobao.com, entered an agreement with Hunan Satellite Television Station in an effort to diversify its online shopping business. A report from China Export & Credit Insurance Corp. cautions of a second economic downturn in Europe and sub-Saharan Africa.

By HU YUE

Online Ad Boom

According to a report delivered by iResearch Consulting Group, a market researcher that specializes in Web-related studies, the Chinese online advertisement value in 2009 soared 21.2 percent year on year to reach 20.61 billion yuan ($3 billion).

iResearch expects online ad revenues to surpass 30 billion yuan ($4.4 billion) in 2010, spurred by the World Expo 2010 Shanghai and the World Cup in South Africa this year.

But market shares of traditional Web portals are loosing ground to emerging media, like video, online social networks and search engine websites.

The biggest drivers of the online ad revenue boom have been search engines, whose ad revenues secured a 38.2-percent growth in 2009 year on year, reaching 6.95 billion yuan ($1.02 billion). Baidu.com ranked first with 21.3 percent of all website-generated revenues, while Google.com had secured 11.1 percent by the end of 2009. Google is expected to rank second in terms of market share.

iResearch predicted new media will be a major propellant of 2010 online ad revenue growth.

Coal Conundrum

After the recent snowstorm hampered railway transportation, China's thermal power generators started to come under heavy coal shortage pressures.

Coal reserves at many coal-fueled plants in Anhui and Henan provinces will only be able to produce power for a minimum of eight days. Some generators are operating hand-to-mouth with no stockpiles available.

In tandem were drastic surges in coal prices across the country, coal shipping prices in Qinhuangdao Port, Hebei Province, soared 30 percent in December 2009.

Since thermal power accounts for four fifths of the country's electricity, the wave of coal shortages is giving rise to a nationwide power strain. Adding to the pressures were the winter chill and strong economic recovery that bumped up electricity demands. Shanghai and Jiangsu Province began rationing electricity while Hubei Province experienced power blackouts.

Xue Jing, Director of the Department of Statistics under the China Electricity Council, said the coal-fuelled plants may slump into the red due to the skyrocketing coal prices. Worse still, the plants cannot pass the cost pressures to consumers as policymakers have kept a tight grip on electricity prices, she said.

The government will need to take efforts to consolidate the fragmented coal industry to have more influence on coal pricing, she added.

Steel Divide

A rift is opening from within the Chinese steel industry as it maneuvers out of the economic downturn.

Manufacturers like Baosteel and Wusteel have kept their machines humming around the clock to fulfill soaring demands while smaller steelmakers struggle to make ends meet, according to a report by the 21st Century Business Herald.

With automobile and appliance markets gaining momentum, demand for high-end steel sheets is also on the rise. The surge has caused steel giants to raise their prices to increase profits.

Smaller manufacturers, however, are less likely to raise prices, fearing they may lose orders. Worse still, demands for their low-end steel bars, mostly used in infrastructure and housing construction, are shriveling as construction stagnates due to the chilly winter.

The fate of smaller manufacturers also hangs in the balance, as the government places stringent technology and output requirements for steel manufacturing in order to streamline the fragmented industry. The end result will be a number of small players being forced out of the market.

Zhao Xiang'e, a senior analyst with Shenyin & Wanguo Securities Co. Ltd., believes the industrial shakeout will prove fatal for smaller plants and a needed boon for larger ones to underpin their market foothold.

Luo Bingsheng, Deputy Chairman of the China Iron and Steel Association, said larger plants will solidify their advantages over competitors as government stimulus measures for the appliance and automobile industry continue into 2010.

Production Confidence

As a mood of optimism returns to the manufacturing sector, hopes are building that the Chinese economy has gained a solid footing.

The purchasing managers' index (PMI), a major indicator of manufacturing activities, rose to 56.6 percent in December 2009, hitting a record high since May 2008, the China Federation of Logistics and Purchasing said.

The PMI, which includes a package of forward-looking elements such as orders for future sales and inventories, has remained above 50 for 10 consecutive months.

Lu Zhengwei, a senior economist with the Industrial Bank Co. Ltd., believed the latest figure pointed to a substantial run-up in industrial output and business confidence, as well as for prices of raw materials.

"Firms are restocking raw materials, possibly due to stronger orders and higher inflationary expectations," said Sun Mingchun, an economist at the Nomura International (HK) Ltd. "It is an early sign that the economy may be entering an overheating stage."

Energy Wrap-up

The National Energy Administration issued a report on January 6 on the national energy situation at the end of 2009.

Twenty nuclear power generators with a total capacity of 2,192 megawatts were under construction as of the end of 2009. The government approved the construction of two generators in Sanmen of Zhejiang Province, two in Haiyang of Shandong Province, and another two sets of generators in Taishan of Guangdong Province, in 2009 alone.

Environmentally friendly thermal power plants developed quickly, allowing power generated by those large thermal plants to account for 64.46 percent of energy from all thermal plants.

Last year, the government also closed down small thermal power plants with a total capacity of 26,170 megawatts. During the 11th Five-Year Plan (2006-10), the closures of small and inefficient power plants helped save 69 million tons of coal, reducing sulfur dioxide emissions equal to 1.2 million tons and carbon dioxide emissions of 139 million tons.

The newly added national hydropower installation capacity of up to 3,550 megawatts reached a new level with the operation of new hydropower stations in Qinghai, Yunnan and Sichuan provinces.

The use of new energies also increased in 2009, with construction starting on the nation's first 1,000-megawatt wind power farm in Jiuquan of Gansu Province and the first megawatt photovoltaic solar power base in Dunhuang, Gansu Province.

Joining Hands

China's biggest online retailer, Taobao.com, announced plans to set up a joint venture with Hunan Satellite Television Station in a move to expand its portfolio beyond online shopping.

The new company, with a total investment of 100 million yuan ($4.64 million), will produce TV programs related to online shopping and jointly promote online sales of fashion products.

"The joint venture is our attempt to combine the Internet and television, and find a new way to spur development of both companies," said Jack Ma, founder and CEO of Alibaba Group, the parent company of Taobao.com.

"Taobao is obviously sparing no effort to reach more customers by covering different media platforms," said Cao Fei, an analyst with the Beijing-based research firm Analysys International. "While this will help diversify its source of income, it remains to be seen whether it can reap success out of the alliance."

Taobao.com has 180 million registered users, accounting for almost half of the 380 million Internet users in China.

Reporting Risks

China Export & Credit Insurance Corp. issued its National Risk Management report on December 29, giving an in-depth analysis on the overall risk situation around the globe and providing caution to domestic exporters.

The report downgraded sub-Saharan countries in Africa and most European countries. The traditionally strong European countries' extensive economic suffering from the global financial turmoil was due to their governments' failure to react quickly to the crisis, the report said.

The report pointed out the increasing likelihood that Ukraine, Greece, Sweden, Iceland, and Spain will fall into a second recession in the next year.

Countries that were upgraded were found largely on the Asian continent, especially among emerging economies. 



 
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