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UPDATED: October 11, 2010 NO. 41 OCTOBER 14, 2010

TONS TO TRADE: The 2010 China (Ningxia) International Investment and Trade Fair opens on September 26 in Yinchuan, capital of NingxiaHui Autonomous Region. More than 254 foreign companies from 66 countries and regions brought their products (PENG ZHAOZHI)

Numbers of the Week


China's software industry posted revenues of 828.6 billion yuan ($123.7 billion) in the first eight months of 2010, soaring 29.8 percent from one year earlier, said the Ministry of Industry and Information Technology.


The country's insurance industry collected 1.01 trillion yuan ($151 billion) in insurance premiums in the first eight months of 2010, up 33 percent year on year, said the China Insurance Regulatory Commission.


China's manufacturing sector warms up as indicated by an increase in the Purchasing Managers Index (PMI). The catering and retail sectors gain momentum each year during the National Day holiday (October 1-7). China allows interbank loan transfers, giving the lenders greater flexibility to manage their credit assets. Gold producer China National Gold Group Corp. fares well amid a prolonged gold market boom. Cotton prices skyrocket, casting an ominous shadow over prospects for the textile industry. The growth rate for China's industrial profits slows, as government emission reduction measures take effect. The e-reader maker Hanvon makes forays into the Taiwan market.


PMI Increase

The Purchasing Managers Index (PMI), an effective gauge of the manufacturing sector, came in at 53.8 percent in September, up 2.1 percentage points from August, said the China Federation of Logistics and Purchasing. Nine of the 11 sub-indexes, including production and new orders, increased in September compared with August.

The September index reading was the highest since May and marked the 19th consecutive month that the index was above 50 percent. A reading above 50 percent indicates economic expansion, while below 50 percent indicates contraction.

"The September index shows the slowdown in China's economic growth has stabilized," said Zhang Liqun, a researcher with the Development Research Center of the State Council.

Holiday Prosperity

For China's service industry, the National Day holiday (October 1-7) is always a powerful perk.

During the seven-day holiday, retail and catering sales totaled 592.5 billion yuan ($88.3 billion), representing a surge of 18.7 percent year on year, said the Ministry of Commerce.

The tourism industry prospered as well. Beijing, for example, received 9.3 million domestic tourists, 13.7 percent higher than the holiday last year, said the Beijing Tourism Administration. Its tourism revenues totaled around 6 billion yuan ($895.52 million), up 21.7 percent from one year ago.

Interbank Lending

China's banks are now allowed to sell loans to each other, marking a significant stride toward a market-driven financial system.

At a ceremony on September 25 in Shanghai, 21 banks, including the Industrial and Commercial Bank of China Ltd. (ICBC), Agricultural Bank of China Ltd. and Bank of Communications Ltd. (BOCOM), joined the interbank transfer system.

The first deals were also announced, including one in which BOCOM sold 40 million yuan ($6 million) in loans to ICBC's Shanghai branch.

The transfer system will liberalize interest rates, help lenders optimize their credit structure and keep a handle over market risks, said Zhou Xiaochuan, Governor of the People's Bank of China, the central bank.

It will also help the central bank supervise the banking system and control the macro-economy, he said.

As part of the country's stimulus program, Chinese banks lent 9.6 trillion yuan ($1.4 trillion) in 2009. Despite a much slower lending pace this year, some lenders are still struggling to meet the regulatory requirement of a loan-to-deposit ratio of 75 percent.

With the chances to transfer loans off their balance sheets, it should be easier for banks to comply with the rules, said Zhou Shanshan, a senior analyst at BOCOM International Holdings Co. Ltd.

Good as Gold

The China National Gold Group Corp., the country's top gold producer, is basking in the glow of a significant market boom.

The company said its profits amounted to 2.4 billion yuan ($358.2 million) as of September 20, four times the amount at the end of 2006. Sales revenue totaled 38.2 billion yuan ($5.7 billion), 4.5 times that of the end of 2006.

The group controls 30 percent China's gold reserve and accounts for more than 20 percent of national output.

Risk-aversion took hold as investors scoop up the precious metal on worries about uncertainties hanging over the economy, such as inflation, said Wang Lixin, General Manager of the World Gold Council (WGC) in China.

The Chinese gold market is bound for prosperity with demand burning hot, he said.

Prices of gold futures at the Shanghai Gold Exchange have gained more than 18 percent so far this year.

China's per-capita ownership of gold coins and bars are still much less than that of Western countries, meaning there is ample room for growth, said Wang.

Textile Gloom

With cotton prices skyrocketing, China's textile industry seems to be caught in a tight spot.

The China Cotton Index, a gauge of nationwide spot market prices, has gained at least 35 percent so far this year, as gold output shrank while demands strengthened.

"The surge in cotton price is putting enormous pressure on textile manufacturers," said Wang Wei, Deputy Director of the Department of the Consumer Goods Industry under the Ministry of Industry and Information Technology.

"A cotton shortage will become a serious concern if supplies continue to plunge," he said.

China's cotton output totaled 6.4 million tons in 2009, diving 15 percent year on year as farmers reduced their harvest after suffering rock-bottom cotton prices in 2008.

Textile manufacturers are expected to pass the cost burdens on to consumers, but this would not be an option for exporters. Most exporters are small manufacturers with low-technology and labor-intensive production lines, and therefore have less pricing power in international markets, said Dai Ling, a senior analyst at the Webtex.cn, a Shanghai-based textile industry information website.

Complicating matters is the appreciating yuan, a reduction in export rebates and the threat of trade protectionism, said Dai.

China's textile exports came in at $35.7 billion in the first half of this year, growing 32.3 percent from one year ago. But the euphoria may fade as impact of the cost inflation starts to be felt, she said.

It is necessary now for the industry to improve technology innovation and brand recognition for greater creations of value-added, said Xu Wenying, Deputy Director of China Textile and Apparel Council.

Industrial Profits

China's industrial boom has lost some steam compared with the first half, as government efforts to cut emissions gain traction.

From January to August, industrial enterprises with annual sales exceeding 5 million yuan ($746,194) generated profits of 2.6 trillion yuan ($388.1 billion), surging 55 percent year on year, compared with 81.6 percent in the first five months, said the National Bureau of Statistics. Their revenues totaled 43.1 trillion yuan ($6.4 trillion), up 33.4 percent, 4.8 percentage points lower than the January-May period.

Among the 39 industrial sectors, 36 saw their profits increase from last year. The best performer was the non-ferrous metals smelting and processing industry, which experienced a 130-percent surge in January-August profits. But this still represented a sharp decline from the 330-percent growth in the first five months.

The measures to cut emissions affected the profitability of some industrial enterprises, especially the energy-intensive firms, said Zhuang Jian, a senior economist at the Asian Development Bank.

Zhu Jianfang, chief economist at the CITIC Securities Co. Ltd., said the industrial profits are expected to decline further, mounting financial pressures on the firms.

Hanvon's Taiwan Debut

Hanvon Technology Co. Ltd., the largest e-reader maker on the Chinese mainland, opened its first subsidiary in Taiwan as part of its effort to expand overseas on September 27.

The subsidiary would carry out product development, research and sales, and seek opportunities to work with the island's content providers, said Zhang Ray, chief strategist of Hanvon Technology.

"The establishment of the new platform in Taiwan is an important step to tap into the overseas market," he said.

The mainland company teamed up with a local distributor, Xander, to build its sales network on the island. It also opened the Taiwan site of its online bookstore, which would allow users to download books.

Hanvon is now the world's second largest e-reader maker, and controls more than 60 percent of domestic market shares. It raked in a profit of 86.88 million yuan ($12.8 million) in the first half of this year, soaring 321 percent from one year ago.

Wine and Commerce

The fourth Yantai International Wine Festival was held September 22-35 in Yantai, a coastal city of Shandong Province, attracting more than 100,000 businessmen from home and abroad. The festival is widely considered an important international platform for exhibition, investment and trade cooperation in the wine industry.

This year, a total of 47 foreign investment and trade deals worth $2.24 billion yuan were made.


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