Rationalizing the CPI

The National Bureau of Statistics (NBS) recently announced plans to increase the weight of residential factors in CPI's composition, allowing it to reflect living expenses.

Residential factors, including rent, mortgage rates, property management charges and house maintenance costs, currently make up 14.7 percent of the CPI, while food prices account for 32 percent.

In addition, mortgage rates are likely to be replaced by a weighted number of house prices and mortgage rates, said the NBS.

Analysts believe this represents a stride forward in the country's economic survey, though it may intensify fluctuations of the index.

But it is impossible to directly put property prices in the CPI basket, said Wei Guixiang, Director of the Department of Urban Social and Economic Survey under the NBS.

After all, houses are more a kind of investment than consumer products, and it has been a global trend to exclude house prices from the CPI, he said.

But Yi Xianrong, a senior researcher with the Institute of Finance and Banking at the Chinese Academy of Social Sciences, disagreed. Unlike Western countries, a majority of Chinese buy houses for themselves, not to rent out or resell, so it is necessary to lend more weight to property prices as part of the CPI, said Yi.

Retail Giants Eye China

With lingering recessions at home, global appliance retail chains are rushing to cash in on the China bonanza.

Japan's top electronics retailer Yamada Denki Co. Ltd. recently announced the opening of its second China store in Tianjin, while the U.S. behemoth Best Buy Co. Inc. plans a store in Suzhou, extending its China presence beyond Shanghai. Even more ambitious is Germany's Metro Group that aims to open more than 100 appliance outlets within five years.

It is not difficult to see why they are pouring in—China's appliance sector is bursting with vitality, receiving a boost from rising consumer wealth and a burning-hot property market.

But their growth in China will not be easy. Chinese retailers like Gome and Suning have quickened network expansion in big cities, leaving few premium locations for foreign rivals. Besides this, foreign companies' relatively higher prices make their products less appealing to Chinese customers, said analysts. Best Buy, for example, has struggled with tight profits and scale limitations of its seven stores in Shanghai due to its less competitive prices.

Chen Xiao, President of Gome, said local retailers would continue to dominate the Chinese retail market thanks to close ties with suppliers and a well-established sales network.

It will also take the foreign chains years to learn how to fare well in China and effectively play catch up to local retailers, said Han Jianhua, Secretary General of Shanghai Commercial Trade Association of Electronic Appliances.

Tencent Goes Russian

Tencent Holdings Ltd., operator of China's most popular instant messaging service—QQ, will pay $300 million in cash for a 10.26-percent stake in Digital Sky Technologies Ltd., a Russian Internet investment firm and Facebook shareholder.

"The investment allows us to benefit from the fast growing Internet market in Russia, as well as to leverage our technical and operational know-how to strengthen the leadership position of Digital Sky," said Martin Lau, President of Tencent.

The Shenzhen-based company said it would develop a long-term strategic partnership with Digital Sky and the companies in which it has invested, as well as "explore further business cooperation with them."

Tencent's QQ controls around 75 percent of China's instant messaging market, compared with Microsoft's 4.5-percent market share for its MSN Instant Messenger service. It also profits from selling virtual items and other online value-added services, as well as its online gaming business.