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Market Watch
Business> Market Watch
UPDATED: March 25, 2011 NO. 13 MARCH 31, 2011

AUTO MANIA: Auto enthusiasts look at a car on display at the 2011 Harbin Spring Auto Expo held on March 22-28. Auto makers from home and abroad brought their latest products, totaling 476 cars, to the show (WANG JIANWEI)

Numbers of the Week


China had 2,614 microcredit companies by the end of 2010, with outstanding loans totaling 197.5 billion yuan ($30.4 billion), said the People's Bank of China.


China's centrally administered state-owned enterprises reported net profits of 131.94 billion yuan ($20.11 billion) in the first two months of 2011, up 30.2 percent year on year, said the State-owned Assets Supervision and Administration Commission.

TO THE POINT: By ordering another hike in the reserve requirement ratio, China strengthens efforts to combat inflation. Housing prices continue to creep up in tracked cities. Domestic enterprises look to expand beyond China's borders as reflected in the soaring outbound direct investment. The aviation sector loses steam as profits fall dramatically. China's Internet giant Tencent sees its profit growth slow down.


Liquidity Squeeze

The People's Bank of China, the central bank, on March 18 announced it will increase the reserve requirement ratio by another 0.5 percentage points in a move to siphon excess liquidity from the market. It was the third hike this year after six increases in 2010.

Effective on March 25, large commercial banks must set aside 20 percent of their deposits in reserve, locking down nearly 360 billion yuan ($54.8 billion) that they could otherwise lend.

In the wake of proliferating inflationary fears, China has vowed to take a prudent monetary stance this year. The central bank has soaked up liquidity through a series of market operations and required commercial banks to slow their pace of lending.

"The aggressive move is beyond market expectations since the problem of excessive liquidly has obviously abated," said Zhu Baoliang, chief economist at the State Information Center. "The growth of money supplies is already tapering off this year."

The policymakers may be concerned about the ripple effect of massive monetary expansion in Japan, he said.

"This is clear evidence that the tightening agenda is still alive in China and signals that when nerves have settled, we will get more interest rate hikes," said Stephen Green, a Shanghai-based economist for Standard Chartered Bank.

China may continue to rely on the reserve requirement ratio to fine-tune its monetary environment since there is less room for interest rate adjustments and currency policies, said Wang Qing, chief economist for Greater China of Morgan Stanley.

Housing Woes

China's home prices have defied austerity policies and continued heading north.

In February, 56 out of 70 major cities witnessed month-on-month increases in prices of new commercial residences, while only eight reported declines. Prices stood unchanged in six cities, said the National Bureau of Statistics (NBS).

As for second-hand homes, prices kept climbing in 50 cities in February from January, and only four cities saw their prices drop.

The NBS has stopped releasing national average property prices, which do not reflect sharp differences between cities and may lead to misunderstanding.

In attempts to let air out of the property bubble, the policymakers are trying a variety of options. In the latest move, the government ordered to raise the minimum down payment for second-home buyers to 60 percent from 50 percent of the property's value and approved the launch of property taxes in Shanghai and Chongqing. The country has also pledged to bump up supplies of affordable houses and put a damper on financing to property developers.

Liu Yuan, a senior manager of the Centaline Group, a Hong Kong-based property agency, said excess liquidity shored up house prices, though the transaction volume shrank sharply.

Over the long term, the wealth boom of residents and fast urbanization will remain drivers of house prices, he said.

"Home buyers and sellers are now stuck in the stalemate, waiting for the other side to compromise first," said Yang Hongxu, an analyst with Shanghai-based E-house China Research and Development Institute. "The turning point is likely to arrive in April or May, with more property developers offering discounts to stimulate sales as their cash flow gradually tightens."

Expanding Globally

With deep pockets at their disposal, ambitious Chinese companies are quickening their pace of venturing abroad.

China's outbound direct investment (ODI) in the non-financial sector stood at $5.27 billion in the first two months of this year, surging 13.1 percent from a year ago, said the Ministry of Commerce (MOFCOM).

The figure had brought the country's accumulated ODI in non-financial sector to $264 billion by the end of February.

During the January-February period, Chinese entrepreneurs invested in 680 overseas enterprises in 88 countries and regions, said Yao Jian, spokesman of the MOFCOM.

"This wave was driven by China's thirst for natural resources," said Xing Houyuan, Director of the Research Center for Overseas Investments of the Chinese Academy of International Trade and Economic Cooperation, a MOFCOM-affiliated think-tank.

Meanwhile, more companies are looking to snap up brands and technological know-how, said Xing.

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