14 July - 20 July 2003

No 149

1st Half Results

  • GDP up 8.2% (7.8%)1
  • Exports up 34.0% (14.1%), Imports up 44.5% (10.4%)
  • FDI up 34.3% (18.7%)
  • Industrial output up 16.2% (11.7%)
  • Fixed asset investment up 31.1% (21.5%)
  • Tax revenue up 22.4% (10.9%)
  • Retail sales up 8.0% (8.6%), CPI up 0.6% (-0.8%)

All figures compared with the same period last year (Jan - Jun), if not indicated otherwise.
1)1st half 2002 figures in brackets


China's GDP growth records 11-year low
China's economy grew 6.7% in the second quarter of this year, the lowest quarter growth in 11 years, due to the outbreak of SARS. But the country's GDP still rose a year-on-year 8.2% to CNY5 trillion during the first half of this year. This is also 0.4 percentage higher then GDP growth of the first half of last year.
China's total foreign trade volume was USD376.1 billion, up 38.8% compared with the same period last year. Imports stood at USD185.8 billion, up 44.5%, while exports reached USD190.3 billion, up 34.0%.
Actual foreign direct investment hit USD30.26 billion, up 34.3% from a year earlier. Contracted foreign investment, an indicator of future trends, rose 40.3% to USD50.96 billion, and the number of newly approved foreign-invested companies rose 22.3% to 18'877 in this period. Experts said the SARS outbreak could have cost USD1 billion FDI in the second quarter.
Fixed asset investment, China's benchmark measure of State-driven capital expenditure, rose 31.1% year on year to CNY1.93 trillion, the highest since 1994.
Tax revenue rose 22.4% compared with the same period last year to CNY1.03 trillion, accounting for 54.4% of the year's revenue target.
Industrial output increased 16.2%, amid accelerating production of passenger cars, garments and information-technology products. In June, China's industrial production rose 16.9% from a year earlier, a pace that was 3.2 percentage points faster than in May. Industrial output is an important indicator of China's economic development as it contributes about 60% to GDP.
By the end of June, the outstanding broad money supply (M2) was CNY20.5 trillion, up 20.8% from the same time last year; that of narrow money (M1) was CNY7.6 trillion, up 20.2%; while that of money in circulation (M0) was CNY1.7 trillion, up 12.3%. Forex reserves reached USD346.5 billion, up USD60.1 billion from the same time last year. China's consumer price index (CPI) rose 0.6% in the first half. Retail sales rose 8% to CNY2.16 trillion. They went up only 6.7% in the 2nd quarter, far lower than the 9.2% rate achieved in the first quarter. (source: PRC Government and media)

The first-half figures show China's economy is shrugging off the impact of SARS but still suffering in places. Overseas investment remains robust. Foreign direct investment surged. But the services sector is ravaged, and the labor market suffered badly. The panic over the SARS outbreak, which emptied stores, interrupted travel and spurred many migrant workers to return home, meant the services industry grew only 0.8% in the second quarter, 6.1 percentage points slower than the same period last year. The contrast highlights how the SARS imprint may not be easy to erase. For all of its manufacturing muscle and export might, China still struggles to employ people. The slowdown in second-quarter economic growth cost about eight million jobs among rural residents and erased about CNY35 from the nation's average income during the quarter, according to government estimates.
To boost the economy, government spending has become increasingly aggressive. State-driven fixed-asset investment rocketed up 31.1% in the first half, the fastest since 1994. The investment, which comes on the back of easy credit from Chinese banks, has gone mostly toward job-creation efforts: infrastructure and construction projects. This pattern of investment has prompted concern among foreign experts, who worry about an overheated economy and a buildup of bad loans in the banking system.
(WSJ, 17 Jul)


OECD: Serious inconsistencies in China's FDI reporting
The OECD (Organization of Economic Cooperation and Development) said in its latest China FDI report that official FDI statistics disseminated by China's Ministry of Commerce are not based on the internationally recognized standards. Consequently, the differences in the statistics compiled by OECD countries on their investment in China and the statistics published by MOFCOM on OECD members' investment in China exhibit serious inconsistencies. According to the report, at USD30 per capita, China receives far less than the main South American FDI destinations, Argentina, Chile and Brazil, or its competitors for FDI in Southeast Asia, Singapore and Malaysia. These figures suggest that China has received far less than its maximum absorptive capacity for FDI inflows. The report also pointed out that much FDI in China still takes the form of short-term, labor-intensive manufacturing, while foreign investment in hi-tech activities, particularly in services sectors, lags far behind. (Interfax, 18 Jul)

Employment growth ranks top for China's economic development
The secretary general of China's State Development and Reform Commission, said that China regarded employment growth as the top economic priority and the country would take every measure to boost employment. He acknowledged that China started to feel growing employment pressure due to the impact of SARS. (People's Daily, 16 Jul)


Free trade deal proposed between mainland, Taiwan
A senior Taiwan affairs official formally proposed a pact similar to a free trade agreement to boost economic ties between the mainland and Taiwan. This is the first time Beijing has officially proposed strengthening cross-Straits economic exchanges in such a way. (China Daily, 18 Jul)


China's first foreign-funded travel agency approved
The China National Tourism Administration approved the establishment in Beijing of the Jalpak International Company, the first foreign-financed travel agency in China. The company is expected to open by the end of the year. Its main business activity will be organizing Japanese tourist delegations to visit China. (Xinhua, 20 Jul)

China scraps guarantee deposit for companies investing abroad
China's State Administration of Foreign Exchange scrapped the guarantee deposit previously required for domestic enterprises when investing abroad. The decision is part of China's overall strategy to encourage domestic companies to invest overseas. At present, there is a handful of large SOE and listed companies with operating units and projects overseas. (Dow Jones, 17 Jul)

China quietly scraps M&A review
China has quietly scrapped a much-ballyhooed antitrust review after investors complained that it was vague and unfair in applying only to foreign acquisitions of Chinese companies and not domestic-only deals. The review was a key part of China's first comprehensive M&A law enacted in April after about a decade of development. The about-face marks a potential embarrassment for China's government, which seeks to strike a balance between requirements from the WTO and the temptation to regulate foreign buying activity in its increasingly market-driven economy. (yahoo.com, 15 Jul)

Fox, Disney, Universal sue China firms over pirated films
Three major US film studios have filed suit against three Chinese companies alleging copyright violations through the sale of pirated videodiscs. The studios are seeking a public apology, compensation and a halt to the alleged violations. Chinese law currently allows foreign film companies to seek a maximum CNY500'000 in compensation for each title if they are unable to provide exact details on losses or the counterfeiters' profit. (AFP, 14 Jul)


China joins forces to push WTO to stick by panel decision
China will work together with seven other plaintiffs to ensure the WTO adopts a panel decision that the US safeguard measures on imports of steel products run contrary to WTO rules and should be immediately set aside. The eight plaintiffs - the EU, Japan, South Korea, China, Switzerland, Norway, New Zealand and Brazil - had welcomed the panel's decision and called for the United States to at once end its safeguard measures. (People's Daily, 16 Jul)


Europe joins US in calling on China to revalue yuan
The European Commission has added its voice to those in the US expressing fears that the low level of the yuan is becoming a problem for the world's financial system. EU Commissioner Romano Prodi said the situation could eventually spark trade protectionism. (SCMP, 18 Jul)

Greenspan gently chides China on strong Yuan
The voice of Federal Reserve Chairman Alan Greenspan has joined the chorus of top financial and monetary officials from around the world expressing concern over the Chinese yuan's peg to the US Dollar. Greenspan said Chinese central bank purchases of dollars to keep the yuan stable could spell trouble down the line for the Chinese economy. (Dow Jones, 15 Jul)

Overseas insurers call for greater investment scope
At the China Insurance Regulatory Commission's first conference with foreign-funded insurance firms, many of them said the current scope of investment has constrained their investment yield and is hampering further business growth. Insurance companies in China now hold the majority of their funds in bank deposits, treasury bonds, financial bonds and corporate bonds, and can only invest a maximum of 15% of their assets in securities funds. They cannot trade stocks directly. And the situation is worse for foreign-funded insurers, as they are still barred from signing large-sum deposit agreements with banks, where Chinese insurers put as much as 70% of their entire bank deposits. (China Daily, 14 Jul)


Starbucks Coffee opens 1'000th store in Asia in Beijing
Nasdaq-listed Starbucks Coffee Co. has expanded its presence to 1'000 stores across Asia with the opening of its newest outlet in Beijing. It is the 38th shop to open in China's capital. (Dow Jones, 15 Jul)


China's car industry headed for over-supply
China's fast-growing car market will probably see increasing over-supply in the next two years as significant new capacity comes on stream and imports increase. The industry registered a sizzling 82% year-on-year growth in car sales to 842'780 units in the first half of this year. (SCMP, 18 Jul)

China's sedan output doubles in first half this year
China produced 903'400 sedans in the first half of the year, a rise of 100% compared to the same period last year. In June, China produced 179'200 sedans, breaking the monthly sedan production record for the fourth time this year. Sedans constitute a growing portion of the overall auto manufacturing industry. (Xinhua, 17 Jul)

Auto maker to expand business
First Automotive Works Corp. announced that it will double its annual output to 2 million vehicles over the next five to eight years. FAW unveiled the ambitious target to mark its 50th anniversary. (China Daily, 16 Jul)

Shanghai GM to expand production to include Cadillacs
General Motors has announced plans to incorporate its famous Cadillac model into its Shanghai operations next year. (People's Daily, 16 Jul)

Plans to protect China carmakers
China's central government has proposed prohibiting car dealerships that sell domestically made vehicles from carrying imported models, in a move aimed at protecting mainland producers. The proposal would prevent global carmakers from selling imported cars through the sales outlets of their mainland joint ventures. It would also increase distribution costs for imports and encourage foreign carmakers to make more higher-end models in their China factories. (SCMP, 15 Jul)


Boom areas expect blackouts
Some North, East and South China regions, including Shanghai Municipality and Guangdong Province, are in for temporary power shortages this summer when consumption peaks. The shortage is mainly due to the rapid economic growth, which boosted electricity consumption by more than 15% year-on-year in the first half of this year. (China Daily, 18 Jul)


Beijing to rejuvenate SOEs through foreign, private investment
Beijing selected 104 well-performing state-owned industrial enterprises to attract both foreign and private investors to participate in regrouping the SOEs, in a bid to further the reform of its state sector. The selected enterprises are in the fields of electronics, machinery, medicines, light industry, textiles and building materials. (People's Daily, 18 Jul)

Beijing 2008

City gears up to 2008 Games market
Beijing will officially launch its marketing program for the 2008 Beijing Olympic Games in September. The program was previously scheduled to be launched in June but was postponed for three months due to the SARS outbreak. (China Daily, 19 Jul)

China agrees to spend more on security for 2008 Olympics
Beijing has agreed to an IOC request to spend an extra USD450 million on security for the 2008 Summer Games. Operating expenses for the games were originally budgeted at USD1.65 billion. That doesn't include the cost of new sports facilities and Olympics-related urban improvements, which the government says will raise the total cost for the games to USD33.8 billion. (AP, 18 Jul)


City has more cells than EU
The penetration rate of mobile phones in Shanghai has exceeded that in the European Union. 10.15 million local citizens had subscribed to mobile phone networks, 60% of the city's 16.7 million people. (Shanghai Daily, 18 Jul)

Electrolux will make Shanghai a key hub
Electrolux, the world's largest manufacturer of domestic electric appliances, is setting up a global purchasing center in Shanghai. It expects to buy more than USD1 billion a year of products in China over the next five years. It had also set up a product design center in Shanghai and an electronic research center in Shenzhen. (SCMP, 18 Jul)

Financial crime may curb rise of Shanghai
The International Finance News, managed by the People's Daily, has raised the alarm over a steady increase in financial crime in Shanghai, saying the prevalence of the trend threatens the city's rise as an international financial center. (SCMP, 16 Jul)

Pearl River

Two HK leading secretaries resign
Hong Kong Financial Secretary Antony Leung and Secretary for Security Regina Ip, the two principal officials of Chief Executive Tung Chee-hwa's cabinet, resigned, causing a major shock for the Hong Kong political arena. (China Daily HK Edition, 17 Jul)


China growth aims environmentally impossible
China's ambitious economic growth plans are environmentally unachievable because the world does not have enough resources to allow its 1.3 billion people to become Western-style consumers, Klaus Toepfer, head of the UN Environment Program, said. (Reuters, 16 Jul)

Unpaid bills, piracy plague investors in China
Based on a survey conducted at the end of last year by the Japan Chamber of Commerce and Industry in China on its corporate members, the chamber estimates product piracy costs Japanese firms more than JPY1 trillion (USD8.4 billion) a year. (Yomiuri Shimbun, 17 Jul)

Tycoon Yang Bin sentenced to 18 years
Chinese-Dutch tycoon Yang Bin, picked by North Korea to run a short-lived free trade zone, was on sentenced to 18 years in jail for fraud. (AFP, 14 Jul)

Weekly Market update  18 July 2003  11 July 2003
Shanghai A 1578.09 1601.23
Shanghai B 113.64 113.32
Shenzhen A 429.76 437.94
Shenzhen B 229.98 227.46
Hong Kong Red Chip  1167.15 1132.80
Hong Kong H 2983.66 2895.19
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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