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Market Watch
Business> Market Watch
UPDATED: January 14, 2011 NO. 3 JANUARY 20, 2011

STIMULATING THE JOB MARKET: Shanghai's first job fair in 2011 for university graduates took place on January 8, providing more than 8,000 jobs. China has vowed to shore up the employment landscape and strengthen support for university students and migrant workers (LIU YING)

Numbers of the Week

$2.85 trillion

China's foreign exchange reserves amounted to $2.85 trillion at the end of 2010, up 18.7 percent year on year, said the People's Bank of China.

7.74 trillion yuan

China's tax revenues jumped 22.64 percent from a year ago to 7.74 trillion yuan ($1.17 trillion) in 2010, said the State Administration of Taxation.

TO THE POINT: China has toppled the United States from its decades-long position as the world's largest auto market for the second consecutive year. New yuan-denominated loans, totaling 7.95 trillion yuan ($1.2 trillion) in 2010, indicate mounting inflationary pressures. China's foreign trade recoups strength, with both imports and exports hitting record highs in December 2010. Chinese steelmakers reel from skyrocketing iron ore prices. The Purchasing Managers Index for the non-manufacturing sector rebounds as the service sector picks up steam.


Hot Wheels

China retained its crown as the world's top auto market by selling a record number of vehicles in 2010.

Vehicle sales across the nation grew a robust 17.9 percent in December 2010 from a year ago to reach 1.67 million units, said the China Association of Automobile Manufacturers (CAAM). The December figure brought the amount for the entire year to 18.06 million units, up 32.37 percent year on year.

Such euphoria has kept China in the spotlight on a dim global automobile landscape. The U.S. market regained some of its lost ground, with sales rebounding to 11.5 million for 2010, but still well below the pre-crisis level of more than 16 million.

While cheering about the auto euphoria, analysts are wondering how much longer the good times could possibly continue since the government has rolled back some policy incentives, including a favorable purchase tax for smaller cars, subsidies to rural buyers and an old car replacement program.

Besides this, Beijing's latest decision to issue a limited number of new license plates this year may also take some steam out of the market, and more cities are expected to follow suit.

After a year of turbo-charged growth, the auto boom is about to take a breath, with growth dipping to less than 15 percent, said Dong Yang, Secretary General of CAAM.

The generous incentives have brought most potential buyers to the table, leaving little room for growth this year, said Rao Da, Secretary General of the National Passenger Car Information Exchange Association.

But the slowdown will provide a catalyst for manufacturers to improve their technological expertise and product quality, he said.

Over the long term, the industry still has deep potential of growth due to low car ownership, said a recent report by the market research company Nielsen

Car owners in first-tier cities like Shanghai are starting to trade up—good news for luxury models. But the real opportunity is in smaller towns where income grows fast, it said.

Lending Spree

Chinese banks granted 7.95 trillion yuan ($1.2 trillion) of yuan-denominated loans in 2010, overshooting the government-set target of 7.5 trillion yuan ($1.1 trillion), said the People's Bank of China, the central bank. The figure, however, represented a 17.1-percent drop from 2009.

The broad money supply (M2), which covers cash in circulation and all deposits, stood at 72.58 trillion yuan ($11 trillion) by the end of 2010, up 19.7 percent year on year, also topping the government's target of 17 percent.

The lending surge was one of the triggers for runaway inflation that has been stretching the nerves of policy makers.

"Lending remains strong due to robust domestic demands," said Guo Tianyong, Director of the Research Center of China's Banking Industry under the Central University of Finance and Economics. "A number of infrastructure projects and construction of massive affordable houses are shoring up the needs for financing."

The policy makers have not set a target for new loans this year, but they are less likely to risk killing the economic growth by putting a freeze on credit expansion, said Ding Zhijie, a professor of finance at the University of International Business and Economics.

In a recent statement, the central bank vowed to keep liquidity at a reasonable level, fend off financial risks and also strengthen financing support for the small and medium-sized enterprises.

Trade Hits Record High

Imports and exports both hit record highs in December 2010, with total volume reaching $295.22 billion, up 21.4 percent from the previous year, said the General Administration of Customs.

Imports soared 25.6 percent year on year to reach $141.07 billion in December. The exports added up to $154.15 billion, an increase of 17.9 percent.

The trade surplus stood at $13.08 billion, shrinking 28.9 percent from one year earlier. It was also the smallest surplus since April 2010.

A slowdown in exports was in part because of a relatively high comparison base in the same period last year, said Lu Zhengwei, chief economist at the Industrial Bank Co. Ltd.

Meanwhile, after a rush of Christmas orders, exporters have to face bleak market demands, he said.

Imports have largely held up, a reflection of vibrant domestic demands, said Lu, adding that the country is expected to further encourage imports this year to narrow the trade imbalance.

Zuo Xiaolei, chief economist at the China Galaxy Securities Co. Ltd. said the underlying growth momentum of exports remains healthy.

"But it remains to be seen how the exporters fare in 2011 given the daunting challenges including simmering trade protectionism and appreciation pressures facing the yuan," she said.

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