14 April - 20 April 2003

No 137

1st Quarter Results

  • GDP up 9.9%
  • Exports up 33.5%, Imports up 52.4%
  • FDI up 56.7%
  • Industrial output up 17.2%
  • Fixed asset investment up 27.8%
  • Fiscal revenue up 36.7%
  • Retail sales up 9.2%, CPI up 0.5%, Household savings up to CNY9.5 trillion

All figures compared with the same period last year (Jan - Mar), if not indicated otherwise.


China's economy grows faster than ever
China's economy grew 9.9% (GDP) to CNY 2.356 trillion in the first three months of this year. It was the fastest growing quarter since 1997.
China's total foreign trade volume was USD173.66 billion, up 42.4% compared with the same period last year. Imports stood at USD87.34 billion, up 52.4%, while exports reached USD86.32 billion, up 33.5%, resulting in the first quarterly trade deficit (USD1.03 billion) in seven years .
Actual foreign direct investment hit USD13.09 billion, up 56.7% from a year earlier. Contracted foreign investment, an indicator of future trends, rose 59.6% to USD22.98 billion.
Fixed asset investment, China's benchmark measure of capital expenditure, rose 27.8% year on year to CNY616 billion.
Tax revenue rose 26.6% to CNY500.7 billion. Income from all major types of tax increased, with VAT and business tax up 20% to CNY288.1 billion. Income tax revenue from Chinese companies, foreign-funded companies and foreign individuals rose 29% to CNY110.8 billion. Import tariff revenue jumped 70.2%.
Industrial output reached CNY834 billion, up 17.2%, with SOE production rising 16.4%, and foreign enterprises production up 20%. Six major industries including telecommunications, computers, electronics and transportation equipment led the fast rise. Industrial output is an important indicator of China's economic development as it contributes about 60% to GDP.
By the end of March, the outstanding broad money supply (M2) was CNY19.4 trillion, up 18.5% from the same time last year; that of narrow money (M1) was CNY7.1 trillion, up 20.1%; while that of money in circulation (M0) was CNY1.7 trillion, up 10.1%. The total deposits stood at CNY19.5 trillion, up 22.5%, of which corporate deposits were CNY6.2 trillion, up 25%; and individual savings deposits were CNY9.5 trillion, up 20.1%. Meanwhile, total loans reached CNY14.8 trillion, up 19.5%. Forex reserves reached USD316 billion, up 38.8% from the same time last year. China's consumer price index (CPI) rose 0.5% in the first three months, the first positive growth since November 2001. Retail sales rose 9.2% over the same period last year to reach CNY1.1 trillion, with most of the growth coming from urban spending on housing, automobiles, medical and entertainment services.
Per capita disposable income of China's urban residents stood at CNY2'355 (up 8.4%) and that of rural people stood at CNY737 (up 7.5%). (source: PRC Government and media)

The first-quarter results beat market forecasts, which centered on a rise of 8.2%, and also clearly surpasse the 8.1% increase of GDP in 4th Q 2002. Officials refer to the strong economic growth as a result of the central government's efforts to boost domestic demand, and they see indications that the Chinese economy has entered a new period of accelerated development. They admit, however, that some problems still exist, such as overinvestment in some industries and consistent overcapacity and oversupply in others. Also, rural consumption level is still too low. Worried about sustaining growth, the government continues funnelling massive funds into state banks, thereby undermining the banks' discipline in according loans to non-performing SOEs. Clearly, the Chinese economy still depends to a large extent on fixed asset investment for growth, whereas consumption lags behind. This unhealthy growth structure is hardly sustainable.

Apart from structural challenges, the question of how much damage the SARS virus will do to the Chinese economy is being asked more urgently by the day. When announcing the 1st Q results on 18 April, Yao Jingyuan, the chief economist at the National Bureau of Statistics, said that SARS will have some effect on the economy this year, but he remained confident that measures to control the spread of SARS both at home and abroad would limit the harm. He said it was too early to forecast the impact of SARS on China's GDP, but that the consumption sector, including transportation and tourism, would bear the brunt of the fallout. However, Yao's confidence may be misplaced, as there is at this point no sign that the virus will be under control any time soon. After some wavering and as a clear indication of how severe the situation has become, the Government on 20 April cancelled the week-long May Day holidays. Consumer spending during China's three major holidays - Lunar New Year, May Day, National Day - counts for up to 25% of the service sector's income, which makes up roughly one-third of the nation's GDP.

Several major foreign brokerage houses have estimated that SARS would hurt the mainland's GDP growth this year. Morgan Stanley Dean Witter estimated that the disease would cut 0.5% off an expected 7% growth rate. Salomon Smith Barney said that SARS would cut 0.3% off an estimated 7.6% growth rate, while Credit Suisse First Boston revised downwards its estimated growth rate to 7.8% or 7.9%, down from 8%. Based on assessments by international investment banks and multilateral lending agencies, the Ministry of Finance estimates that the damage can be contained - to perhaps as little as a 0.3 percentage-point drop in the overall economic growth rate - but only if the government gets control of the outbreak by June. (WSJ, 14 Apr)


China cancels week-long May Day holidays to curb SARS
The State Council has decided to cancel the week-long May Day holidays to prevent the spread of SARS. Although the move may cause great losses to the country's tourism industry the Chinese Government is determined to place its people's health first. (Xinhua, 20 Apr)

How to fail the people
China's leaders seemed at last to be coming to terms with the scale of the challenge that SARS poses to their reputations, the economy and Hong Kong. The wonder is that it took them so long. SARS was the new administration's first major test, and it wrecked much of their image of being more attuned to the concerns of ordinary people. The belated decision to give full attention to SARS appears to have less to do with public health than with concerns about the harm that adverse international perceptions of China's handling of the disease would do to the economy and the country's reputation. (FEER, 25 Apr)

SARS: Damage in the Delta
SARS could be the biggest challenge China's manufacturing sector has faced since the 1989 Tiananmen Square massacre. For the past decade, the Pearl River Delta has become one of the world's most important production bases for everything from stuffed toys to PCs. But now, some companies are beginning to see risks they may not have perceived before the outbreak. However, it won't be easy for rivals to eclipse the Pearl River Delta, unless the SARS outbreak lasts for many more months and gets far deadlier. The delta has simply become too important a link in the global supply chain. (Business Week, 21 April)

War in Iraq

Chinese eye rebuilding of Iraq
Merchants from Zhejiang Province have been to the Middle East to seek business opportunities, even though the Iraq War has not ended. A textile businessman, who refused to be named, said: "The early bird catches the worm. We believe that the rebuilding of Iraq will definitely require a great deal of textile products." The confidence of the merchants came from their successful experience during the rebuilding of Afghanistan last year. (People's Daily, 15 Apr)

CCTV's ad revenue jumps
China may be adamantly against a US-led war in Iraq, but the nation's state-owned media companies have cheerfully capitalized on surging advertising revenues as companies race to place ads during television broadcasts from the battlezones. "Our statistics show that viewer rates at CCTV jumped 28 times since we began our live broadcasts of the war in Iraq, which of course attracted many firms to put their ads on our channels," said an advertising executive at the flagship channel. (AFP, 14 Apr)


Economic planners sketch blueprint to aid growth
Officials from the newly formed State Development and Reform Commission announced a series of micro-economic measures to cope with a potential downturn in the coming months that may result from the impact of global trade protectionism, the SARS crisis, and the war on Iraq. The government will focus on minimising electrical power shortages in key industrial zones as well as inland provinces to support more industrial development. It also wants to minimise potential over-heating in the car sector. In the words of Ma Liqiang, director of SDRC's Bureau of Economic Operation: "The government must lead and manage through proper policies." (SCMP, 19 Apr)

China earns a pass mark for tackling economic problems
Despite SARS, Standard & Poor's upgraded from "stable" to "positive" its outlook for China's long-term, foreign-currency sovereign credit rating. Analysts with the agency said the outlook revision reflects growing progress on structural reform that is rapidly laying the foundations of a more market-oriented economy, less reliant on government spending to maintain GDP growth. S&P is particularly optimistic about Premier Wen Jiabao's new policy of stimulating private-sector growth. China's weak financial system, primarily its poorly run and highly indebted state-run banks, was the biggest challenge facing the government, said S&P. (SCMP, 17 Apr)

China foreign debt down 0.9% on year to USD168.5 billion at the end of 2002
China's foreign debt at the end of 2002 was 0.9% lower than a year earlier at USD168.54 billion, well below the country's total foreign reserves. Short-term debt, totaling USD52.98 billion, accounted for 31% of China's outstanding foreign debt. Medium- and long-term debt totaling USD115.56 billion accounted for the remaining 69%. By comparison, China's total foreign reserves rose by 35% to USD286.4 billion by end of 2002 from a year earlier, the second highest in the world behind Japan. The ratio of short-term debt to foreign reserves, a key indicator of sovereign credit risk, was 18.5% at the end of 2002. China's debt service ratio based on foreign income of USD365.4 billion in 2002 was 7.89%.(Dow Jones, 17 Apr)

Cross-straits trade volume hit USD44.6 billion in 2002
The cross-Straits trade volume reached a record USD44.6 billion in 2002, and the Chinese mainland had become the biggest export market for Taiwan. By the end of 2002, the actual amount of Taiwan investment in the Chinese mainland had reached USD33.1 billion. (People's Daily, 14 Apr) Inofficial figures for Taiwanese investment in the mainland are much higher.

China encourages more credit to rural areas
The People's Bank of China issued a circular urging rural credit cooperatives to step up assistance for agriculture and rural development. RCCs must realize this year's target of more than 15% growth in total loans and a 20% growth in loans to agriculture. (People's Daily, 14 Apr)


China gives blessing to 1st foreign - owned IPO
A Japanese-controlled metal parts maker has ecome the first foreign-owned company allowed to hold an initial share sale in China. The approval may pave the way for other overseas companies lining up to tap China's pool of 65 million stock investors. Listing in China is attractive for companies looking to fund a local expansion and gain a higher profile there. (Bloomberg, 14 Apr)


ADB contributes to investment fund for SMEs in ASEAN, China
The Asia Development Bank approved a USD15 million equity participation in a new private equity fund that provides capital for small and medium sized enterprises in the member countries of ASEAN and China. The ASEAN China Investment Fund seeks to capitalize on investment opportunities in privately-held SMEs, particularly those that can benefit from expanding regional trade and investment linkages, and global integration. Besides ADB, the fund's initial core limited partners include the State Secretariat of Economic Affairs of Switzerland, which will also invest up to USD15 million, and the United Overseas Bank Group of Singapore, which will invest up to USD10 million. (People's Daily, 16 Apr)


Buyout to boost technology
The Dalian Machine Tool Group has bought the production division of a US machine tool company. The buyout is the first such acquisition in the history of China's machine tool industry. (China Daily, 18 Apr)

Auto price war revs up in China
A price war has erupted on the Chinese car market as Shanghai VW, the largest passenger car manufacturer, slashed the prices of its Passat sharply. The Passat's sales in Beijing started to nosedive in March due to the increased competition, according to FAW VW's dealers. Over the last week, many other carmakers based in China, including Nanjing Fiat and Dongfeng Peugeot Citroen, also cut their products' prices. (China Daily, 15 Apr) Oh, that elusive China dream…

China's vehicle outputs rise to record high
The output of vehicles made in China reached a record high of 1.0197 million units during the first quarter of this year, representing an increase of 54.7% on a year earlier. Output of domestically made passenger cars rose by 127.28% year-on-year to 398'000 units. Total vehicle sales during the first quarter amounted to 974'800 units, up 51.71%. (China Daily, 14 Apr)


China's Tianjin makes a quarter of world's bicycles
The city of Tianjin produced 25 million bicycles in 2002, accounting for 41% of the country's total and one quarter of the world's bikes. Tianjin earned USD90 million from exporting 2.46 million bicycles in 2002, a big leap from 230'000 in 1999. (People's Daily, 15 Apr)


Alcatel wins Shanghai contract
European telecoms equipment maker Alcatel has won a contract to expand China Mobile (Hong Kong)'s Shanghai network with enhanced data services capabilities. Alcatel said the project, due to be completed in June, would increase Shanghai Mobile's GSM network capacity to about 10 million subscribers. (SCMP, 19 Apr)

Shanghai's Pudong magnet for foreign investment
The Pudong New District of east China's Shanghai City celebrated the 13th anniversary of its founding. By March, the district had attracted 8'869 foreign-funded projects from 81 countries and regions, with contractual investment totaling USD20 billion. (Xinhua, 19 Apr)

Shanghai to expand rail lines
Shanghai is to establish 500 kilometres of railway line, connecting it with the rest of the Yangtze Delta before the start of World Expo 2010. (China Daily, 17 Apr)

Lack of demand cuts rentals
A shortage of demand in high-price prime-area properties has caused Shanghai's shop rentals to correct in the past two months, which might restrain investments in the city's commercial space. (Shanghai Daily, 14 Apr)

Pearl River

Foreign traders value business opportunities in Export Fair
Over 7'600 foreign visitors from 151 countries have come to participate in the ongoing 93rd China Export Commodities Fair in Guangdong. "I was concerned about SARS before I came, but everything is in good order here and people don't wear masks," said the Malaysian general consul in Guangzhou. A turkish businessman expressed great confidence in the Chinese government's efforts to combat the disease. He said, "I believe that SARS is effectively contained here." (People's Daily, 18 Apr) People's Daily's funny pages… In April 2002, the Fair had more than 120'000 foreign visitors. See also below from some more reliable source.

Dismal start for spring trade fair
The trickle of foreign buyers who shrugged off war and illness to come to China were dwarfed by the cavernous exhibition halls. Only about 100 foreign visitors were on hand, meaning the fair will have a hard time matching the last fair's average of 13'500 a day. At the last spring fair, orders booked accounted for 14% of China's annual exports. (SCMP, 16 Apr)

Guangdong tips strong growth, despite the gloom
Guangdong's economy grew an impressive 13% in the first quarter and is expected to grow by more than 11% this year, despite the global slump and SARS. Guangdong's economy grew by 10.8% last year. In the first quarter of last year the growth rate was 11%. "Domestic demand is strong and is driving GDP growth so there will be very little impact from SARS,'' Guangdong Statistics Bureau director Pu Xinmin said. (SCMP, 16 Apr) Keep your fingers crossed.


China launches first 'indigenous' management theory
China introduced its first "indigenous" management theory. Based on the data gathered through 20 years of case studies of 100 Chinese enterprises by 2000 researchers from 80 universities and dozens of governmental departments, it recommends eight principles for successful management, such as the importance of flexible policy implementation, integrity, market orientation, human resources, capital, technology, authority and strategy. According to one entrepreneur, management theories with Chinese characteristics are badly needed to help companies survive and succeed in the current competitive environment. (People's Daily, 19 Apr)

Chinese managers told to treat Kazakh oil workers better
Authorities in Kazakhstan have told the Chinese managers of an oil joint venture they must stop alleged breaches of the rights of their Kazakh employees within a month. Prosecutors accused the management of providing Kazakh workers with less favorable employment terms than those enjoyed by Chinese employees. The Chinese managers have also hidden incidents of injuries and deaths among their Kazakh workers to avoid paying compensation. (AP, 14 Apr) A case of indigenous management theory?


Battered mainland investors are cheered by recent rally
Eighteen months into a grim bear market, China's battered investors have recently been offered cheer with a hardening rally that goes against the grain of world markets. Market players attribute the bounce to institutional buying after an unexpectedly strong increase in economic growth and improved corporate earnings. (SCMP, 19 Apr)

Weekly Market update  18 April 2003  11 April 2003
Shanghai A 1676.88 1649.80
Shanghai B 128.37 124.68
Shenzhen A 467.81 457.94
Shenzhen B 226.40 217.24
Hong Kong Red Chip  893.02 903.22
Hong Kong H 2192.47 2194.36
Source: South China Morning Post

China Business Briefing is a random selection of business related news gathered from various media and news services covering China, edited by the Embassy of Switzerland in Beijing and distributed among Swiss Government Offices and other interested parties. The Embassy does not accept responsibility for accuracy of quotes or truthfulness of content. Upon request and depending on the resources available, the Embassy will provide further information on the subjects mentioned in the China Business Briefing.

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