23 June - 29 June 2003

No 146


Bankers, economist raise China's 2003 GDP forecasts after SARS
A day after the WHO declared China SARS-free, bankers and economists issued a new flurry of forecasts predicting that the nation's economy will grow between 7 to 8% this year. Lehman Brothers raised its China 2003 GDP growth forecast to 8% from 7.3% due to the country's rapid recovery from SARS, with the virus controlled a month earlier than expected. Citigroup upgraded China's 2003 GDP growth forecast, to 7.5% from 7%. It said the full impact of SARS on annual GDP growth was reduced to 0.5 percentage point from 1.5. According to the State Development and Reform Commission, annual growth will likely slow by 1.1 percentage points from earlier forecasts due to the SARS outbreak but the growth rate will still exceed 7%. Morgan Stanley earlier this month raised the GDP growth forecast to 7.5% from 6.5% and the growth forecast for exports to 21% from 12%, due to an expected stronger global economic environment. A UBS analyst meanwhile said GDP will likely grow at a consistently slower rate over the next few years, from 8% in 2003 to 7% in 2004 and 6% or below by 2005. (AFP, 25 Jun)

World Economic Forum's China Summit rescheduled for November
The World Economic Forum, a Swiss-based think tank, has rescheduled its SARS-delayed annual summit in China to November. (Dow Jones, 27 Jun)

6th Beijing Int'l High-tech Expo scheduled for September
The 6th China Beijing International High-Tech Expo will be held from September 12-15. The high-tech expo was originally scheduled for May, and will be Beijing's first post-SARS large-scale international event for trade. (People's Daily, 27 Jun)

China accelerates tax rebates to boost exports
In an effort to minimize the negative impact of SARS on exports, the Ministry of Commerce and the State Administration of Taxation issued a notice requiring local commerce and taxation departments to strengthen co-operation and speed up payments of tax rebates to ensure steady export growth. (People's Daily, 27 Jun)

China '03 fiscal surplus to fund SARS relief tax rebates
China will direct the majority of the government's 2003 fiscal surplus to fund export tax rebates to help cushion the negative economic impact of SARS. The announcement marks the latest in a series of measures China's central government has taken to offset the toll taken on the economy by the deadly illness. Those measures have included central bank directives to increase lending to hard-hit sectors, as well as increasing fixed-asset investment to create jobs that will offset layoffs in China's hospitality and retail service industries. (Dow Jones, 25 Jun) Fiscal surplus? Last time I checked they had budgeted a deficit.

Economy in post-SARS China taking off 'like a rocket'
China has weathered the financial fallout from the SARS virus so well that some economists now worry crucial sectors are at risk of overheating. "China is rising like a rocket," says Jonathan Anderson, head of Asia-Pacific economics at UBS. One worry is that China's sizzling market for high-end residential property could overheat. And as China grabs global manufacturing market share from other countries, it is coming under pressure to revalue its currency to make its exports more expensive. (USA Today, 24 Jun)


Hong Kong, China sign Free Trade Pact
Hong Kong and China signed a free-trade agreement that officials say will boost the territory's economy as it recovers from the SARS crisis and looks ahead to opportunities presented by the mainland's growth. Some 273 types of goods from Hong Kong will be able to enter China with no tariffs as of Jan. 1, with many more products to lose their tariffs within two years. Many see the SARS outbreak as Hong Kong's biggest crisis since the handover, and any boost to the economy would be welcomed by Hong Kongers suffering from a downturn that has pushed unemployment to a record 8.3%. (AP, 29 Jun)

Top Hi-Tech supplier to America
A report by US hi-tech association AeA said China replaced Mexico and Japan in 2002 as the largest supplier of hi-tech products to the US. High-tech imports from China rose from USD26 billion in 2000 to USD35 billion in 2002. Imports from Mexico and Japan fell from USD37 billion to USD34 billion and from USD48 billion to USD29 billion in the same period. (FEER, 3 Jul)

Half of college graduates have found jobs
Around half of this year's college graduates in China have found jobs. The news comes as a record 2.12 million graduates flood an employment market rocked by SARS, which closed many job fairs and made face-to-face interviews impossible. (People's Daily, 27 Jun)

Chinese industry sees lower growth of profits in May
The growth of profits of industrial enterprises in the first 5 months was 12.9 percentage points lower than in the Jan-Apr period. Industrial enterprises reaped CNY291.82 billion in total profits from Jan to May, 62.8% more than the same period of last year. (Xinhua, 25 Jun)


India's prime minister Vajpayee visits China
China and India have committed to set up a Joint Study Group to examine the potential for expanding trade and economic co-operation between the two countries and draw up a five-year programme to develop that potential. By 2005, the two countries want to double their bilateral trade volume to USD10 billion by 2005. They also agreed to launch a financial dialogue and co-operation mechanism to strengthen co-ordination, to enhance co-operation at WTO forums and totalk on a regular basis on WTO issues. (China Daily, 25 Jun)
In 1980, India had about 687 million people, 300 million fewer than China. Living standards, as measured by purchasing power per head, were roughly the same. By 2001, India had 1'033 million people against China's 1'272 million. But China's national income per head was USD890, nearly double India's USD450. Some 5% of Chinese now live below the national poverty line, compared with 29% of Indians. Bilateral trade has grown from a paltry USD338 million in 1992 to a still meagre USD5 billion in 2002. China received USD52.7 billion of foreign direct investment last year; India got just 4% of that amount, USD2.3 billion. (Economist, 21 Jun)


China close to lifting ban on European cosmetics
China is close to reaching an agreement with the EU on lifting a ban on imports of European cosmetics. Beijing imposed the ban after the EU blocked imports of a variety of Chinese food products in January 2002, saying it had found traces of prohibited antibiotics in Chinese shrimp, rabbit meat and honey. (AP, 26 Jun)

China to regulate transfer of Land-use Rights
China plans to regulate the transfer of land-use rights as of August 1 of this year in a bid to curb irregularities in management of land resources. (People's Daily, 25 Jun)

Mainland market watchdog moves to raise transparency
The CSRC has further tightened mainland listing rules by requiring share offer candidates to disclose financial information on their largest shareholders. China's USD516 billion stock market, with more than 1'240 listed firms, is characterised by the dominance of major shareholders and weak protection of the vast army of retail investors. (SCMP, 24 Jun)


WTO openings may again slow
China's domestic politics threaten to slow implementation of market-opening commitments to the WTO, the U.S.-China Business Council said in a report. According to the report, leadership transitions slowed implementation of commitments in 2002 and the creation of a Ministry of Commerce and the SARS outbreak threatened to block progress. Firms were worried that China's WTO membership produced "laborious gains measured in inches at best, and retreats from pre-WTO levels of business access at worst." (FEER, 3 Jul)


China's central bank does not see yuan revaluation
China's Central Bank Governor Zhou Xiaochuan said on the sidelines of an annual meeting of the Bank for International Settlements he did not see the possibility of the yuan being revalued higher. (Reuters, 29 Jun)

Mutual Fund fever rages
China's asset-management industry is poised to overtake Hong Kong's in size by 2004, to become the largest in the region outside Japan, according to Cerulli Associates. According to Cerulli, assets under management in mainland mutual funds would reach USD26.7 billion by 2004. The rapid growth of China's mutual-fund industry is driven largely by investments from insurance firms and the National Social Security Fund. (FEER, 3 Jul)

Yuan forwards gain after Snow remarks
Yuan forward contracts rose yesterday after US Treasury Secretary John Snow said China was considering widening the range in which the currency could trade. It was the second time this month that Mr Snow had spoken publicly on the subject. (SCMP, 28 Jun)

Mainland curbs fee competition by banks
China has issued a provisional rule on banking fees to curb price competition between lenders and bring its banking sector closer to international standards. Analysts hope the new regulation will help boost Chinese banks' fee-based revenue and reduce their over-reliance on interest revenue. (SCMP, 28 Jun)

Problems at China's banks overshadow reform effort
China's national auditor uncovered a USD120 million fraud case in the mortgage-lending business of the China Construction Bank. The auditor's report also detailed two fraud cases of more than USD100 million at the Agricultural Development Bank of China. The recent replacement of the head of Bank of China Hongkong over questionable loans to a Shanghai businessman touched off a wider probe among government banks in Shanghai, where investigators suspect as much as USD1 billion may have been misappropriated. All the while, smaller scandals continue to percolate up at banks in other parts of the country, most of them involving alleged collusion between bankers, government officials and businessmen. Since banking reform began in earnest nearly five years ago, the government has injected USD32 billion in capital at the country's four state banks, and financed the removal of another USD170 billion in bad loans from the banks' balance sheets. It also has shut thousands of unprofitable bank branches and spent billions of dollars on new computer systems. (WSJ, 27 Jun)

China faces tough fiscal challenge
Minister of Finance Jin Renqing cautioned that fiscal performance faces a tough challenge in the latter half year as the impact of SARS on the nation's finance bites. But despite the bleak, short-term financial outlook, Jin pledged more investment in public health and the building of a contingency handling mechanism. (China Daily, 26 Jun)

China's fiscal revenue growth to slow down in latter half year
The growth of fiscal revenue of the Chinese government is expected to slow down over the latter half of the year due to the SARS epidemic as revenue growth fell and expenditures surged in the past two months. (People's Daily, 25 Jun)

China's financial deficit exceeds CNY300billion in 2002
China's central financial deficit reached CNY309.687 billion in 2002, exceeding CNY300 billion for a second year. In his report to the NPC Standing Committee, Minister of Finance Jin Renqing said implementing some of the revenue programs was far more difficult than expected, which led to a revenue decrease of 7.8% in the first 3 months from the same period last year. Meanwhile, tax refunds in exports were CNY15 billion more than the budget. (People's Daily, 25 Jun)

China's Monetary Policy Committee supports stable yuan
A newly appointed monetary policy committee at China's central bank has endorsed the "strong and stable yuan policy" during its first quarterly meeting. It is the committee's first quarterly meeting since its new members were announced, and comes amid talk that China is considering replacing the strong and stable yuan policy adopted since 1994. (Dow Jones, 23 Jun)

Bank steps in to cool Chinese economy, no interest rate rise
China's central bank issued its clearest signal so far that it is concerned about economic overheating, announcing measures to rein in the rapid growth in money supply and damp down bank lending to real estate and other projects. China's money supply grew in May at its quickest rate since August 1997, shortly before China began to suffer the fall-out from Asia's financial crisis. Under normal circumstances, surging money supply, some USD316 billion in forex reserves, rapid loan growth and signs of overheating might be expected to prompt a tightening in monetary policy. But the central bank appears to have decided against this. The main reason for China's reluctance to raise interest rates has been its desire to fuel consumer spending, an increasing proportion of which is fuelled by mortgages and consumer credit. (FT, 23 Jun)

China banks to recall billions of dollars in loans from property developers
China's banks are expected to recall up to CNY180 billion in short-term loans from property developers in line with new guidelines launched by the central bank. The move may pose a severe liquidity crunch for small real estate development companies. Outstanding property loans of Chinese banks stood at CNY1.836 trillion by the end of April, with CNY900 billion accounted for by property developers and the rest by individual home buyers. (AFP, 23 Jun)

Much ado over China's peg
Markets are buzzing about China's currency policy, and some of the world's biggest investment banks are feeding the frenzy, with Citigroup, Deutsche Bank and UBS joining Goldman Sachs in predicting that the country will scrap its peg of 8.277 yuan to the U.S. dollar within a year. Speculation reached a fever pitch last week after US Treasury Secretary John Snow said China was considering a shift to a more flexible exchange rate. However, if there are two taboos in the Chinese political psyche, they are change and uncertainty. Freeing the yuan would mean embracing both at the same time. (Bloomberg, 23 Jun)

S&P says Chinese banks need bailout estimated at USD500 billion
China's state-owned banks urgently need a government bailout estimated at more than USD500 billion - 40% of the country's GDP in 2002 - to help them deal with their bad loans, Standard & Poor's said in a new report. The report said the huge bad-debt burden renders the state banks technically insolvent and obstructs government plans to restructure the country's four large state-owned commercial banks into shareholding companies. (Dow Jones, 23 Jun)

UBS takes China A-share companies on roadshow in HK, Singapore
Setting the stage to be the first foreign direct investor in the local currency securities markets, UBS AG is taking several China A-share companies on a roadshow in Hong Kong and Singapore this week. According to China's Securities Times 14 A-share companies in the banking, steel, transport, logistics and consumer product sectors would participate in the road show, meeting 40 fund managers. (Dow Jones, 22 Jun)


BMW to start producing cars in China at end 2003
BMW plans to start producing cars at its Chinese joint venture at the end of the year. The company had previously said it will begin producing its 3-series and 5-series cars in China in the second half of 2003. The joint venture will have an annual output of around 30'000 cars. In 2002, BMW sold just 6'700 cars in China. (Dow Jones, 26 Jun)

China's IT giant aims to raise international profile
Legend Group Ltd., China's biggest computer manufacturer, has launched its new English name "Lenovo" in a move to raise its profile in the international market. (People's Daily, 26 Jun)

China internet stocks fuel a return to dotcom mania
Sina, Sohu and NetEase have been the biggest beneficiaries this year of the return to internet mania on the Nasdaq stock market. All three companies listed their shares in the US in 2000, catching the tail-end of the last dotcom boom only to suffer in the collapse that followed. Although the portals earned only USD16 million between them in the first three months of this year, investors are betting that rapid growth and attractive profit margins will quickly turn those profits into sizeable numbers. (FT, 25 Jun)

Surging demand lifts earnings at leading mainland carmakers
China's 14 biggest carmakers said combined profit more than doubled in the first five months of the year as demand for new passenger cars increased. Total profit increased to CNY14.8 billion. Car sales rose by half to CNY177 billion, while inventories climbed 13% to CNY20.6 billion. Mainland carmakers and their overseas partners such as GM, Ford and Volkswagen are selling more vehicles as rising incomes make private cars affordable to more individuals and businesses. One person in 120 owns a vehicle in China. (SCMP, 24 Jun)

China group to take over German passenger jet plane project
Chinese investment group D'Long has bought Fairchild-Dornier's project to build the 728 passenger jet, saving thousands of jobs threatened when the aircraft maker filed for bankruptcy last year. (AP, 23 Jun)

Beijing 2008

Games chief says Beijing build-up is back on track
Beijing's 2008 Olympics organisers prepare to relaunch their postponed countdown to the Games. Wang Wei, the secretary-general of the Beijing Organising Committee, said the SARS epidemic had not seriously affected the build-up to China's hosting the Games. (SCMP, 28 Jun)


Growth expected at 11.3%
The growth of Shanghai's economy in the first half of 2003 will surpass 11% and is expected to reach 11.3 to 11.4%. Despite the negative impact of SARS, the strong performance of industrial firms and solid foreign investment had kept the economy robust. (Shanghai Daily, 28 Jun)


China stifles curb-defying magazine
Chinese authorities have barred the latest issue of the business magazine Caijing from news stands after it flouted a ban on sensitive subjects with a bombardment of exposes and calls for greater media transparency. The magazine -- full of articles on the impact of SARS, a thickening banking scandal in Shanghai and moves by Communist Party leaders to amend the constitution -- reached subscribers over the weekend, but not kiosks. Editors and academics say the controls aim to temper a debate on the need for legal and media reforms fomenting since the outbreak of SARS and other scandals, lest it aggravate high-level political frictions. (Reuters, 23 Jun)

Weekly Market update  27June 2003  20 June 2003
Shanghai A 1567.45 1611.31
Shanghai B 113.15 115.39
Shenzhen A 431.61 446.19
Shenzhen B 217.64 219.97
Hong Kong Red Chip  1065.07 1100.78
Hong Kong H 2749.69 2717.08
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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