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Market Avenue

Market Watch
Business> Market Watch
UPDATED: September 19, 2010 NO. 38 SEPTEMBER 23, 2010

FOR THE BIG AND SMALL: The seventh China International Small and Medium Enterprises Fair is held on September 15-18 in Guangzhou, capital of Guangdong Province. Nearly 3,000 Chinese companies and 800 foreign ones attended the event (LU HANXIN)

Numbers of the Week

397.5 billion

Electricity consumption in China rose by 14.7 percent in August from a year earlier to reach 397.5 billion kilowatt hours, said the National Energy Administration.

545.2 billion

Newly added loans denominated in renminbi totaled 545.2 billion yuan ($80.5 billion) in August, said the People's Bank of China, the central bank.

TO THE POINT: CPI growth rate hit a 22-month record high in August, igniting fears of inflation. Foreign trade is recovering, with exports and imports on the rise. Uncertainties abound over the property market, as price increases slow and sales volume rebounds. China maintains its attractiveness to foreign investors as indicated by continuous FDI growth. Video website Tudou.com gears up for an initial public offering in a scramble to acquire more financing.


Threat of Inflation?

The National Bureau of Statistics (NBS) said the consumer price index (CPI), an effective barometer for inflation, rose 3.5 percent in August. This represented a 22-month high and was 0.2 percentage points higher than in July.

The producer price index, a major measure of inflation at the wholesale level, rose by 4.3 percent in August from a year earlier, declining from July's 4.8-percent growth.

The CPI was largely driven by the ripple effect of last month's increase and a surge in food prices, said NBS spokesman Sheng Laiyun.

Vegetable prices, for example, soared 19.2 percent year on year in August, while those of grain leapt 12 percent as nationwide rainstorms disrupted agricultural production.

But the government's target of a sub-3-percent inflation rate for the entire year remains achievable, given ample grain supplies, he said.

After six straight years of bumper harvests, China has rich grain reserves at its disposal, said Fan Gang, Director of the National Economic Research Institute.

Meanwhile, the overcapacity in many industries also provides a cushion against inflation, he said.

But Liu Yuhui, a senior economist at the Chinese Academy of Social Sciences, struck a note of caution. The surges in international commodities prices will filter through China, adding to inflation in the country, he said.

In addition, labor costs are also on the rise as wage growth picks up pace, said Liu.

Trade Dynamism

Foreign trade in China is regaining lost ground, providing a solid floor under the real economy.

Exports skyrocketed 34.4 percent in August from a year earlier to $139.3 billion, said the General Administration of Customs.

Imports are bursting with vitality as well, surging 35.2 percent year on year to reach $119.27 billion in August, 12.5 percentage points faster from that in July. The trade surplus was $20.03 billion in August, 30.4 percent lower than that of July.

The trade surplus totaled $103.9 billion in the first eight months of the year, down 14.6 percent from the same period last year.

The export recovery slowed because the Chinese Government cancelled export rebates for 406 items, effective as of July 15, said Zuo Xiaolei, chief economist at the Beijing-based China Galaxy Securities Co. Ltd.

Meanwhile, demands from the rest of the world weakened as the global downturn lingered, she said.

But a bright spot was the faster-than-expected imports, a reflection of buoyant domestic demands, said Gao Shanwen, chief economist at the Shenzhen-based Essence Securities Co. Ltd.

In addition, the government will enhance efforts to facilitate imports, especially advanced technologies and key equipment, said Chong Quan, Deputy China International Trade Representative of the Ministry of Commerce.

Housing Conundrum

House prices in 70 large and medium-sized cities grew 9.3 percent in August year on year, down from 10.3 percent in July. This was the fourth consecutive month of slowdown as policymakers vowed to let air out of the real estate bubbles.

The austerity measures included curbing bank credit to property developers, limiting loans for third-home purchases and higher down-payment requirements for second-home purchases.

Home sales topped 353.3 billion yuan ($51.96 billion), down 8.6 percent year on year. But compared to July, the number represented a robust growth of 15.2 percent.

Property developers are also retracing their strength. The China Vanke Co. Ltd., for example, experienced a dizzying 149-percent increase in sales revenues in August from one year ago while the Poly Real Estate Group Co. Ltd. said its August sales almost doubled year on year.

The market remains sluggish, but the pent-up demands vented in August, as evidenced by a rebound in transactions, said Xue Jianxiong, an analyst at the China Real Estate Information Corp.

Chen Guoqiang, Director of the Real Estate Research Institute of Peking University, said it is still too early to predict a substantial turnaround, given uncertainties hanging over the market.

Once the market rally spins out of control, the government will likely enact an even heavier clampdown over the sector, he said.

Capital Destination

China's foreign direct investment (FDI) in August grew by 1.38 percent to $7.6 billion, said the Ministry of Commerce. The approved foreign-funded enterprises numbered 2,262 in August, up 21.2 percent year on year.

The August figure brought the FDI inflow in the first eight months of this year to about $65.96 billion, up 18 percent from one year ago. While the manufacturing sector maintains appeal to foreign investors, the service sector is quickly catching up, absorbing 45.09 percent of the total FDI in the eight months.

The August FDI reflected significant attraction of the Chinese economy, said Yao Jian, a spokesman of the ministry. "We have confidence for growth potential of investment in the country," he said.

The Chinese Government has vowed to keep an open and transparent investment environment and stiffen efforts to attract foreign companies, especially those from energy-efficient and environment-friendly industries.

Despite uncertainties looming ahead, the Chinese economy has steered a steady path of recovery, adding luster to its appeal as a global investment destination, said Peng Cheng, an economist at Citibank China Co. Ltd.

Tudou's IPO Plan

China's video website Tudou is pushing for an initial public offering (IPO) overseas as it competes with Chinese rival Youku.

"Capital is a core requirement in the online video industry and an IPO is inevitable for Tudou. That could happen fairly soon," said Gary Wang, CEO of the Shanghai-based company, on the sidelines of the 2010 Summer Davos forum held in Tianjin on September 13-15.

In December 2009, Wang told reporters that the company aimed to list on the NASDAQ market within three years.

If successful, Tudou will become the third video website in China to go public after Ku6 and Letv.

Online video viewing is experiencing a rise in popularity as young Chinese look for a wider variety of programs than are offered on television. In the first quarter of 2010, Tudou controlled around 13 percent of the online video market, compared with 18 percent of Youku, said a recent report by the Analysys International Consulting Co. Ltd.

However, the websites have yet to break even as they dig deeper into their pockets for professional content and reduce pirated videos uploaded by users.

Competition in the industry is becoming a battle for capital, said Hu Yuanyuan, a senior analyst at the iResearch Consulting Group. But that is helpful with consolidation of the sector as smaller companies may fail due to financial distress, she said.

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