Market Economy With Government Intervention?

The National Development and Reform Commission (NDRC), the Chinese top economic planner, decided to launch temporary price intervention in the market from January 15, as it claimed, "to curb unreasonable price hikes and reduce inflation expectation of the public."

The prices of grain products, edible oil, pork, beef, mutton, milk, eggs and liquefied petroleum gas are being monitored and companies must report to NDRC before they raise the prices.

Major commodity and service producers need to obtain government approval before raising their prices; and major wholesalers and retailers are required to report to local supervisory government agencies if they raise prices by 6 percent within 10 days or by 10 percent within a month.

China's consumer price index (CPI) growth rate hit the highest in a decade at 6.9 percent in November 2007. China Securities Journal quoted an NDRC official who said that it was a common practice for government to take administrative measures to intervene in prices when the soaring consumer prices threatened to seriously impact on people's lives and upset social stability. NDRC blamed some firms for hoarding goods, raising prices arbitrarily or spreading rumors about price rises to stir panic buying.

Surging food prices led to price hikes in other sectors and added pressure to the lives of low-income residents.

However, some economists argued government intervention twisted the essence of a market economy where prices are decided by supply and demand instead of government decree.

The capping over prices actually provides the rich with a free ride. Raising salaries of the poor is generally considered a better choice, but their voices are drowned in the vast ocean of reducing consumer prices.

Numbers of the Week 15% The Chinese central bank raised the bank reserve requirement ratio up another 0.5 percentage points to 15 percent in a bid to cool down the white-hot economy and curb liquidity, which propped up the country's asset prices. 2,630 meters China National Offshore Oil Corp. announced the company had successfully built a 2,630-meter tunnel under the Modaomen watercourse in south China's Guangdong Province, making it the longest horizontal directional drilling operation in the world.

Toy Makers' Put to the Test

In response to consumers' concerns over toy quality, the Chinese Government revoked more than 600 toy makers' export licenses in mid January.

At a press conference in Beijing, Pu Changcheng, Deputy Director of the State Administration for Quality Supervision and Inspection and Quarantine said the administration investigated all 3,000-plus export-oriented toy makers across the country beginning last August. One fifth of the companies were found unqualified to export.

The administration stated that it had set up a complete quality test system, which not only applies to domestically designed and manufactured toys, but also to toys made based on designs and standards by foreign importers.

The large-scale Chinese toy recall in the United States was largely due to design flaws by the U.S. toy manufacturer Mattel. It reminded Chinese toy makers, as well as the government, that designs even from the more developed countries sometimes have their own problems. As a responsible player, China will make regular check-ups and take measures to improve domestic toy makers' knowledge of international product standards and safety awareness.

"The overall quality of China-made toys will be further improved and safety will be fully guaranteed," said Pu.

Power Emergency

The lack of coal supply has stopped power stations from generating electricity in five of China's southern provinces. It added fuel to the already serious problem of strained power supplies in the south.

Xiao Peng, Vice General Manager of China South Power Grid, said the shortage was caused by multiple factors: the shutting down of small coal mines and coal-to-power furnaces that led to a decrease in coal-to-power capacity; the drought in the south that led to lower hydropower capacity and a labor shortage from migrant workers returning to their hometowns for the upcoming Spring Festival holidays (February 6-13).

But analysts said the most important factor was the substantial coal price rise. Xiao said this year's contract price of coal used for producing electricity rose 10 percent, and power stations with total capacity of 10.3 million kw in the south were forced to stop production.

Xiao's company had submitted an emergency report to the Central Government and appealed for an increase in electricity prices. But the State Council claimed it will not raise energy prices in the short run.

Morgan Stanley Rejects Submissive Role

The U.S. investment giant Morgan Stanley plans to sell its shares to the most profitable Chinese investment bank-China International Capital Corp (CICC).

Morgan Stanley owns 34.3 percent of shares in CICC and that stake is now worth about 4.5 billion yuan ($616 million), or 17 times the money that Morgan Stanley bought the shares for 13 years ago.

Morgan Stanley and CICC's cooperation dated back 13 years ago when the Chinese capital market began taking shape. The country decided to set up an investment bank to help companies launch initial public offerings (IPOs). Morgan Stanley and the Chinese company signed an agreement that the former provided technology support in fields like investment bank services, direct investment and foreign exchange. Morgan Stanley was the first foreign investment bank entering the Chinese market and had since profited immensely from CICC's operation. In 2007, CICC collected 130 billion yuan ($17 billion) after providing an underwriter service, topping all other investment banks.

However, insiders argued Morgan Stanley was unhappy with its role in CICC. It initially intended to gain management rights in the company, yet for years, it slowly became a passive investor with no say.

Financial circles agreed that Morgan Stanley's real reason for quitting CICC was that it hoped to set up a joint venture with China Fortune Securities, a second-tier securities company. In the new company, Morgan Stanley is expected to flex its muscles in investment bank services.

NBA China's Slam Dunk

The U.S. National Basketball Association formed its subsidiary-NBA China-on January 15 to handle its business interests in China.

Five strategic partners will invest a total of $253 million to acquire 11 percent of the company, which will handle everything from merchandising and marketing to television and other media, in preferred equity. They are ESPN, Bank of China Group Investment, Legend Holdings Ltd., Li Ka Shing Foundation and China Merchants Investments.

NBA Commissioner David Stern said in a statement that "the opportunity for basketball and the NBA in China is simply extraordinary. The expertise, resources and shared vision of these immensely successful companies will help us to achieve the potential we see in the region."

Li Yuanwei, Vice Chairman of China Basketball Administration Center, said China hoped to expand the cooperation between NBA and China Basketball Association (CBA) and boost the basketball development in the country by introducing the new strategic partners.

Tim Chen, the former CEO of Microsoft Greater China, serves as the CEO of NBA China.

West-to-East Gas Transmission

The second line of west-to-east gas transmission has been fixed with a total investment of 143.49 billion yuan ($19.66 billion) (excluding tariff and value-added tax). The total length of the line is 8,794 km with one main line and eight branch lines. The main line will start in the Xinjiang Uygur Autonomous Region and travel down south to Guangdong Province.

The second line will start to transmit gas from 2010 and is expected to transmit 30 billion cubic meters of gas in 2012.

Hou Chuangye, Vice General Manager of PetroChina's natural gas and pipeline unit, said relevant government departments and the company had done a complete investigation and research into the project to ensure the feasibility of the pipelines.

Electrical Appliance Service Festival

The First China Electronic and Electrical Appliances Service Festival will be held on March 1-15. Sponsored by the China National Household Electrical Appliances Service Association, the festival aims at improving the level of electrical appliances service industry in order to better serve the Beijing 2008 Olympic Games.

During the Olympic Games, guests will bring with them a large number of electronic devices and the stadiums and gymnasiums are equipped with a great amount of electrical appliances, hence service must be secured to maintain operation of the devices and equipment.

Besides improving the service level, the festival also tries to increase awareness of consumers to pay for services and promote formation of industrial chains in electronic and electrical appliances service.