BEAUTY INDUSTRY: A professional dresser is doing makeup for a woman on the 31st China (Jinan) International Beauty, Hairdressing and Cosmetics Expo opened on April 27 in Jinan, capital of Shandong Province. The three-day event attracted more than 400 exhibitors (LIANG ZHIJIE)

Numbers of the Week

345.4 billion yuan

Revenues of China's software industry surged 27 percent year on year to 345.4 billion yuan ($53 billion) in the first quarter of 2011, said the Ministry of Industry and Information Technology.

166 million yuan

China Unicom, the country's second largest telecom operator, reported net profits of 166 million yuan ($25.5 million) in the first quarter of 2011, down 86.3 percent from a year ago.

TO THE POINT: China continues to shed its holdings of U.S. Treasury securities as the country aims to diversify its foreign exchange reserves. More U.S. companies are looking to solidify their footprint in China. Chinese exporters stage a comeback, as the ongoing Canton Fair witnesses increased deals. The e-commerce sector slows down due to seasonal factors. The Internet portal Sohu.com cashes in on stronger online gaming, advertising and search businesses.

By HU YUE

Safety First

The U.S. Treasury Department said China trimmed its holdings of U.S. Treasury securities in February 2011 for the fourth consecutive month by $600 million. China retained its position as the largest foreign holder of U.S. Treasury securities with $1.1541 trillion.

Japan, the second largest foreign holder of U.S. Treasury securities, boosted its holdings by $4.4 billion to $890.3 billion in February.

Standard & Poor's, a major global credit rating agency, has recently downgraded its credit outlook from "stable" to "negative" for the U.S. sovereign debt, citing large budget deficits and rising government indebtedness. This move reignited concerns over the safety of China's foreign exchange reserves.

Xia Bin, a member of the Monetary Policy Committee of the People's Bank of China, said it is necessary for China to further diversify its investments of foreign exchange reserves, such as acquiring resources and technology needed for the real economy.

"But a permanent solution is to control the size of the foreign exchange reserves and shrink trade surplus." said Liu Yuhui, a researcher with the Institute of Finance and Banking at the Chinese Academy of Social Sciences.

Expanding in China

More U.S. businesses are looking to solidify their footprint in China where a buoyant economy provides lucrative opportunities, said the American Chamber of Commerce in China (AmCham-China) in its 2011 White Paper on the State of American Business in China released on April 26.

About 85 percent of the chamber's member companies reported revenue growth in 2010, 78 percent of polled companies earned profits from their China operations and 83 percent planned to increase investments in China this year.

Contrary to the common notion that foreign companies come to China because of a cheap labor market and to export back to their home markets, U.S. companies expressed a stronger interest in breaking into the Chinese consumer market, said the report.

While the member companies continue to rank economic slowdown as the greatest risk to their Chinese operations, macroeconomic worries are not as dominant as in previous years.

Ted Dean, Chairman of AmCham-China, said Chinese authorities need to expand market access and improve regulatory transparency and consistency nationwide.

"As China seeks to transform its growth model and develop a knowledge-based economy, U.S. business can serve as a valuable resource by sharing expertise in technology and management," he said.

AmCham-China President Christian Murck noted some encouraging signs from the Chinese Government. Murck pointed out Chinese leaders have welcomed foreign involvement in the strategic emerging industries highlighted in the 12th Five-Year Plan, and he also applauded the extension of China's six-month campaign to crack down on violations of intellectual property rights.

Export Prospect

Chinese exporters are seeing increased deals at the ongoing Canton Fair, though uncertainties still loom large.

The first phase of the 109th Canton Fair, a barometer of China's foreign trade climate, witnessed export deals worth $23 billion, an increase of 8.9 percent year on year, said Liu Jianjun, a spokesman of the fair. The number of foreign purchasers totaled around 107,000, up 8.4 percent.

Officially known as China Import and Export Fair, the biannual Canton Fair is held every spring and autumn, and each fair has three phases. The 109th fair was held from April 15 to May 5, 2011.

"Despite emerging signs of recovery, pressure is mounting on exporters due to labor costs and domestic inflation." said Liu.

Gree Electric Appliances Inc., for example, has seen its exports soar more than 30 percent year on year in the first three months, said Wang Zhiwei, a sales manager of the Guangdong Province-based company.

"But profit outlook is less bright as prices of labor and raw materials creep upward," he said. "We may even struggle to make ends meet if the yuan further appreciates."

Wang suggested exporters strengthen their operational efficiency and innovation through product development.

To fend off currency exchange risks, exporters can shorten their delivery cycle or sign forward contracts with banks to lock down favorable exchange rates, he said.

In a recent report, the Ministry of Commerce predicted China's foreign trade will experience slightly slower growth this year than 2010. But the trade structure will continue to improve, with imports outpacing exports.

The government will encourage exporters to upgrade their products and enhance branding, and vigorous efforts will also be made to soothe financing woes of smaller trade companies, said the report.

E-commerce Slowdown

China's red-hot e-commerce sector lost some steam in the first quarter due to lackluster B2B activities and online shopping.

The e-commerce transaction volume in the January-to-March period amounted to 1.5 trillion yuan ($230.8 billion), growing a modest 7.6 percent over the October-to-December period of 2010, said the Shanghai-based iResearch Consulting Group.

"The first quarter has always been a slack season for B2B activities and online shopping," said iResearch in a recent report.

The online shopping transactions climbed 5.5 percent over the previous quarter to reach 170 billion yuan ($26.2 billion), compared with the 41.5-percent growth in the October-to-December period of 2010.

Meanwhile, China's B2B platforms raked in combined revenue of 2.93 billion yuan ($450.8 million), up 7.7 percent from a quarter earlier.

"Smaller enterprises become a driving force of the B2B sector, as they have increasingly recognized the importance of online markets," said the report, "In addition, B2B platforms have handed out generous incentives to lure smaller clients."

The third-party payment industry slowed down as well, with its transaction value edging up 3.2 percent to 365 billion yuan ($37 billion).

The government last year ordered non-bank payment service providers to apply for a business license. The policy is expected to create a healthier business environment and steer the sector on a steady path toward growth, said the report.

Sohu Booms

The Chinese Internet portal Sohu.com reported revenues of $174.4 million for the first quarter of 2011, soaring 35 percent year on year, thanks to strengths in online advertising, search, Internet games and online video businesses. Its net profit jumped 41 percent from a year earlier to reach $39.3 million.

The key online gaming segment, which accounts for more than half of Sohu's total revenue, surged 32 percent to $94.9 million, while online advertising revenue totaled $57.2 million, up 45 percent from a year ago.

"We believe that alongside China's continued economic boom, our ad market will also pick up momentum, especially the video ad sector." said Wang Xin, COO of Sohu.

Meanwhile, its search engine Sogou brought around $8 million of revenues in the first three months of this year, skyrocketing 183 percent from the previous year. Sogou gained a chance to shine as Google Inc. shrinks its presence in China.

In October 2010, Sohu sold 16 percent of Sogou shares to Alibaba Group. The tie-up is expected to allow Sogou to benefit from the vast customer base of the e-commerce giant.