30 June - 06 July 2003

No 147


Economy predicted to grow at 8%
According to the Chinese Academy of Social Sciences, China's economy will grow at 8% this year, as SARS will slow GDP growth by no more than 1%. But the experts have lowered the target for this year's GDP growth from 8.6% to 8%. (China Daily, 4 Jul)

SARS costs China jobs
SARS cost millions of rural migrants their jobs in cities. Construction and other industries that hire migrants were hurt as tourists heeded advisories to avoid SARS-affected areas, setting off a slowdown that spread throughout China's economy. Some 8% of China's 90 million rural migrants were "deprived of their jobs in urban areas," according to a report by the Chinese Academy of Social Sciences. College graduates lost out because anti-disease measures kept employers from visiting campuses for recruiting. China needs 24 million new urban jobs this year for laid-off workers and others, but expects to have only 10 million. (AP, 3 Jul)

Tax revenue unaffected by SARS
SARS had almost no negative impact on taxes raised from the industrial sector. VAT collected from the industrial sector stood at CNY50.9 billion in May, an increase of 23.7% compared with May 2002. The growth rate was 10.5 percentage points faster than April. (China Daily, 30 Jun)


Tariff change of little harm to Chinese exports
The removal of six categories of Chinese products from the EU's Generalized System of Preferences will have a minimum impact on Chinese exports, according to Franz Jessen, minister-counsellor of the EC delegation in China. In 1998, nine categories of Chinese products were removed from the GSP. However, all but one of the nine categories have seen their exports to the EU increase since then. Bilateral trade between China and the EU is growing healthily, Jessen said. He expects China to replace Switzerland as the EU's second-biggest trading partner in about two years, next only to the United States. (China Daily, 5 Jul)

CSFB forecasts higher GDP growth rate for China
Credit Suisse First Boston has revised its forecast of China's GDP growth rate back higher to 7.1% in 2003. In late April, CSFB lowered China's GDP growth forecast to 6.9% from a pre-SARS level of 8%. The consumer panic seems to have been short-lived. Sales have recovered by about 90% nationwide, said Dong Tao, chief regional economist of CSFB. He said that deflation, which had dragged China's economy over the past five years, seems to have ended. This has been supported by robust private consumption, strong export competitiveness, an upturn in the credit cycle, and rising domestic raw material prices. At the same time, Tao warned against property bubble in China'smarket. (People's Daily 4 Jul)

Youth increase spending
More and more and more young people are opting to purchase luxuries such as decent houses and cars on bank loans; the age-old tradition of saving for the future is disappearing in China. The change helps drive the country's economy, which is still shackled by insufficient market demand. Moreover, the fact that an increasing number of people seek bank loans to finance major family expenditures epitomizes the consumer's confidence in a better economic future for Chinese society. (China Daily, 4 Jul) …and the consumer is always right!

China's GDP growth hits two-year low in May
According to a report by Goldman Sachs Asia, China's economic growth in May was down by 3.7% from the same period last year, the lowest in two years, and 3 percentage points lower than April. The report attributed the slower growth to slumps in three major sectors - import, retail and transportation. Meanwhile, the expansion of fixed-asset investment and industrial production has been in recovery. Goldman Sachs noted the negative effect of SARS had peaked in the second quarter, and it would be dissipated rapidly by government policy stimulating growth. The report forecast that China would reach its target of 7.0% GDP growth in 2003. (ChinaOnline, 3 Jul)

EU urged to curb China competition
Giulio Tremonti, Italy's finance minister, called on the European Union to consider protectionist policies to defend industry against competition from China. Tremonti, who holds the rotating six-month presidency of the Ecofin council, said the EU should consider measures such as import duties and quotas. (FT, 3 Jul)

China a challenge and an opportunity for Asia economies
China's structural transformation poses significant challenges for other Asian economies but will also provide major opportunities, according to a report by the Bank for International Settlements. The report said China's structural transformation is doing no less than "changing the patterns of Asian trade and investment." (Dow Jones, 30 Jun)


Finance leaders are to converge on Dalian
Finance ministers from 26 countries in Asia and Europe are expected in the northeastern port city from July 22 to 24. The event is expected to be the single biggest gathering of finance ministers before the WTO talks in Mexico in September. (SCMP, 5 Jul)


Education market to get regulated
The Ministry of Education will set up an official centre to evaluate the quality of overseas educational institutions - whether those institutions are legally established and what kind of academic degrees they can issue. The website www.jsj.edu.cn will regularly publish information on qualified overseas schools and Chinese intermediary agencies. (China Daily, 4 Jul) How will the foreign schools be rated? Will there be Ministry of Education fact-finding missions?

China unveils competition rules
China's National Development and Reform Commission has announced ground-breaking provisional rules banning price-fixing alliances, monopoly profits and predatory pricing. The new rules are expected to be a key element of an antitrust law expected to be passed by the National People's Congress. The fact they were announced in advance as a stand-alone ministerial regulation suggests there are significant political sensitivities and that the antitrust law is still a long way off. A full text of the new rules, which are to come into effect on November 1, has yet to be released. (Chinabiz, 2 Jul)

Preferential tax system cracked open
State Administration of Taxation officials recently confirmed foreign-funded firms in which foreign partners own less than 25% of the total equities will no longer enjoy preferential income tax policies. (Business Weekly, 2 Jul)


China end-May forex reserves USD340.06 billion
China's foreign exchange reserves, the world's second-biggest after Japan, climbed to USD340.06 billion at the end of May. China's strong growth in forex reserves is seen by some analysts as reflecting growing speculation the Chinese authorities may allow the yuan, tightly pegged to the U.S. dollar, to appreciate in the coming months. Others say China, while exploring ways to make its rigid yuan currency more flexible, may resist pressures at home and abroad for a more immediate revaluation this year. (Reuters, 4 Jul)

China gives USD300 million QFII quota to Morgan Stanley
China's State Administration of Foreign Exchange awarded United States investment bank Morgan Stanley a USD300 million investment quota to trade yuan A shares and selected Chinese bonds. Swiss bank UBS previously won a USD300 million investment quota, while Japanese brokerage Nomura and Citigroup Global Markets were given USD50 million and USD75 million respectively. (SCMP, 4 Jul)

Restructuring for reinsurer
Three insurance companies will be launched later this year following a split of China Re. The reform of the Beijing-based reinsurer will lead to an injection of massive funds from corporate investors from both overseas and domestic markets. China Re will be reshaped into a holding financial group covering three different companies. They will be responsible for non-life, life and direct non-life insurance business. (China Daily, 3 Jul)

China seen gearing up for eventual yuan reform
China is exploring ways to make its rigid yuan currency more flexible, but is likely to resist pressure at home and abroad for a more immediate revaluation this year. Beijing is unlikely to allow the yuan's trading band to widen soon because, among other factors, that would mean an almost certain appreciation which would undermine the key export engine. Analysts say the government increasingly realises the urgency of reforming its currency regime amid growing restraints on monetary policy as it defends the fixed rate. A June Reuters poll showed most research houses saw the yuan's band widening by the end of 2004. (Reuters, 2 Jul)

China set to allow overseas bond purchases
China plans to allow some top corporations to invest foreign currency earnings in bonds abroad. The move would help stall the build-up of China's foreign currency reserves and reduce a rapid rate of money supply growth contributing to overheating in parts of the economy. This would relax pressure for a revaluation of the renminbi, official sources said. (FT, 30 Jun)

Watch out for China credit tightening
The PBoC has tightened property lending rules for both developers and luxury home buyers. It has also stepped up the open market operation to mop up funds and warned to increase banks' reserve requirement ratio. Credit tightening will not be just selective as over-investment is not restricted to the real estate sector. Industrial investments jumped 56.2% yoy in the first five months of this year. PRC banks have made a total of CNY1'256 billion new loan during this period, or CNY719 billion more than the same period last year. If this is not a problem, then what is? (ABM Amro, 27 Jun)


State newspapers facing a major reshuffle
A blueprint for sweeping structural reforms of China's print media could rock the foundations of lumbering state-run newspapers and prepare the industry for market competition. While the government will reduce interference in the management of newspapers, media experts say ideological control is not expected to change. (SCMP, 4 Jul)

Lianhua establishes trading firm in Europe
Chinese supermarket operator Lianhua has reportedly established a trading firm in Belgium as part of its strategy to build up its presence in Europe. The company is also reported to have not ruled out expansion into the European retail market in the future.(just-food.com, 1 Jul)


Toyota is seeking tie up with Car makers in China
In an effort to catch up in the fast-growing Chinese car market, Toyota Motor Corp. said it is in talks with foreign auto makers, including Guangzhou Automobile Group Co., on a tie-up in China. Toyota, which has already teamed up with FAW Group Corp., is preparing to boost its production in order to meet its target market share of 10% in China. (Dow Jones, 2 Jul)

VW and partner to invest EUR1 billion to double capacity
Volkswagen and its partner China FAW Group plan to invest EUR1 billion to build a new plant in China, more than doubling the venture's capacity. The plant in the northeastern city of Changchun would have an annual capacity of 330'000 cars when completed in 2007. Volkswagen aimes to double vehicle sales in China, its biggest market outside of Germany, to 1 million units in 2007 from about 500'000 last year. (SCMP, 5 Jul)

GM says plans to ramp up capacity in China
General Motors plans to invest CNY2 billion to double capacity at an existing five-year old plant in Shanghai, joining an expansion race among foreign firms that analysts fear could foment a damaging glut. Analysts expect cars sales in China to grow anywhere between 15 and 30% in 2003. GM expects to sell three million vehicles a year in China by 2012. (Reuters, 2 Jul)

Beijing 2008

Beijing Olympic organizers cleared by auditors
A pair of audits have turned up no signs of corruption within Beijing's organizing committee for the 2008 Summer Olympics. Indicating the level of concern, a vice minister of supervision has been appointed top auditor, assisted by 21 high ranking bureaucrats from the Beijing and national governments. They will audit the organizing committee's finances every six months through 2006, and every three months in the two years before the games. (AP, 2 Jul)


UPS to move Its regional headquarters to Shanghai
United Parcel Service, one of the world's top 500 companies, will move its regional headquarters from Hong Kong to Shanghai. After the regional headquarters is moved, Shanghai will become a center of logistics for UPS in greater China. (People's Daily, 4 Jul)

Shanghai to create 200'000 jobs
Shanghai aims to create at least 200'000 new jobs in the second half of this year. The new target aims to keep Shanghai's registered unemployment rate at less than 5%. By the end of June, it had already reached 4.85%, with the total number of unemployed labourers climbing to over 294'000. (China Daily, 3 Jul)

Shanghai attracts USD6 billion foreign funds in first half year
In the first half of this year, Shanghai attracted foreign investment totaling more than 6 billion US dollars, up 40% year-on-year. The number of newly approved foreign-financed projects in the first six months reached 2'486, up a considerable 85.2% compared with the corresponding period of the previous year. The figures also indicate that a majority of 61.5% of the foreign capital went to the manufacturing sector. By the end of June, Shanghai had approved an accumulated 30,226 foreign-funded projects, absorbing contracted investment of 69.4 billion US dollars. (People's Daily, 3 Jul)


China: Wirtschaftsbericht - Frühjahr 2003
The latest report on the Chinese economy by the Embassy of Switzerland in Beijing has been published in early June and can be downloaded from the Website of the Swiss Chinese Chamber of Commerce. It is, however, in German only.

Weekly Market update  04 July 2003  27June 2003
Shanghai A 1573.22 1567.45
Shanghai B 112.50 113.15
Shenzhen A 430.94 431.61
Shenzhen B 219.02 217.64
Hong Kong Red Chip  1073.67 1065.07
Hong Kong H 2683.76 2749.69
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.

Reminder: The last issue of the China Business Briefing coming from this author (No 149 on 21 July) will go to the respondents of the questionnaire only, which had been sent out on 5 June 2003 and can be found on


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