09 June - 15 June 2003

No 144


Economic Impact: Summary of latest developments

  • Latest figures for industrial output, trade and foreign investment are slightly down, but better than expected.
  • Government warns that exports may decline further down the road. However, officials in general insist that the SARS epidemic will have limited impact on the economy.
  • A survey of almost 1'000 companies in SARS-affected areas indicates that the business sector sees SARS as being far more damaging than officials would like the public to believe.

Nation beset by post-Sars pessimism
A survey of almost 1'000 companies in SARS-affected areas conducted by the state council shows that half of the business sector has seen revenue drop in recent months. Although most of the damage seems to be in the services sector, 52.5% of respondents across all sectors said SARS had hurt or damaged their business. Only 5.6% said they felt no impact, while 41.7% said they felt some impact. Exporters saw the least damage, with 62% saying they saw no drop in business in the second quarter. Strangely, even the majority of exporters said they expect a decline in orders for the year as a whole. Although government economists have continued to repeat the mantra that SARS will have little if any impact on the economy, the state council survey of enterprise managers indicates that the business sector sees SARS as being far more damaging than officials would like the public to believe. (SCMP, 15 Jun)

No serious SARS impact on financial sector
A report released by the People's Bank of China said that the latest statistics give no indication of a severe impact by the SARS on China's financial sector. In the first five months of this year, the money supply continued to grow rapidly, both deposits and loans increased considerably and the exchange rate of Renminbi remained stable. At the end of May the outstanding broad money (M2) was CNY19.95 trillion, up 20.2% from the same period last year, recording the largest year-on-year growth since August 1997. (People's Daily, 14 Jun)

China's tourism sector starts to recover
The National Tourism Administration has decided to gradually re-open the domestic tourism market following the WHO lifting of its tourism advisory against Guangdong Province. It also decided to resume the work of organizing Chinese citizens traveling abroad and overseas tourists traveling in China in compliance with the SARS situation. (China Daily, 12 Jun)

China's economy sees limited SARS impact
The latest trade figures and strong industrial data suggest that China's economy may be emerging relatively unscathed from the SARS epidemic, which had all but halted tourism and travel and closed shops and restaurants for weeks in hard-hit Beijing and elsewhere in China. Value-added industrial production rose 13.7% in May over the same period last year, supported by a 26% rise in manufacturing for export delivery. Economists now forecast that SARS will keep economic growth for the full year below the 9.9% rate of the first quarter. (WSJ, 11 Jun)


China's private car ownership tops 10 million
More than 10 million cars are privately owned in China and the number is set to continue to rise in the world's fastest growing auto market. 1.36 million cars were sold in China during the first four months this year, with about 60% bought by individuals. Driven by the strong growth in car sales, the income from auto sales has surpassed that of the textile industry and electronics manufacturing, making auto industry a major industry. The National Bureau of Statistics predicts China's annual car output will reach 4.5 million in 2003, surpassing France and making China the world's fourth major car producer. (People's Daily, 14 Jun)

China's inflation slowed to 0.7%
China's inflation slowed from a 20- month high in May as food prices returned to normal after SARS- related panic buying the previous month. Consumer prices rose 0.7% from a year earlier after rising 1% in April. The latest figures suggest the economic disruption caused by SARS was shorter lived than economists projected. May exports, imports and factory production all grew faster than economists forecast. (Bloomberg, 13 Jun)

Country's FDI growth slows
Growth in China's use of foreign direct investments slowed in May compared with the first four months of 2003 due to the mid-April SARS outbreak. But the actual inflow of FDI still grew 39.47% from last May to USD5.45 billion, although it was down from the first four months year-on-year growth rate of 51.03%. More obvious is the negative effect of SARS on China's contractual FDI in that month. It grew by a mere 17.62% from last May to USD7.7 billion, compared to the 51.03% of the first four months. China's actual FDI increased 48.15% year-on-year to USD23.27 billion and contractual volume rose 42.22% to USD38.22 billion in the first five months. (China Daily, 13 Jun)

China's high-tech trade hits USD77.89 billion
The trade volume of Chinese high-tech products soared 51.1% year-on-year to USD77.89 billion for the first five months of 2003, while imports amounted to USD42.137 billion, and exports totaled USD35.753 billion. The primary export markets of Chinese high-tech products are developed countries including the US, the EU and Japan. Computers and telecommunication facilities accounted for 95% of high-tech exports and nearly 90% of the exported high-tech products were traded under the processing trade. (People's Daily, 13 Jun)

China faces clothing export war with US
United States textile manufacturers request their government to unilaterally impose quotas or tariffs on Chinese textile exports, following huge increases in Chinese exports of gloves, bras and 29 other items that were removed from quota controls in January last year. They fear even worse after quotas are lifted on all garment categories in January 2005. The US textile industry also blames "Chinese currency manipulation" and "China's illegally pegged currency" for the sharp increases, alleging that the yuan is about 40% undervalued. (SCMP, 13 Jun)

Trade growth defies forecasts
China's foreign trade weathered the mid-April SARS outbreak and continued to grow robustly in May. Exports grew 37.3% year-on-year to USD33.84 billion in May and imports rose 40.9% to USD31.61 billion. For the first five months, exports grew 34.3% to USD155.86 billion and imports rose 45.5% to USD153.48 billion. This beat many economists' expectations that the SARS outbreak in mid-April would put heavy pressure on China's exports. (China Daily, 12 Jun)

Currency dip boosts exports
Due to a currency depreciation that made domestic goods cheaper in the European and Japanese markets, exports in May were valued at USD33.8 billion, a jump of 37.3% from last year, while imports rose 40.9% to USD31.6 billion, compared with a 34.4% rise in April. However, experts say that the statistics in May only reflect trade deals signed several months ago before the SARS outbreak, a big drop in exports is predicted for the second half of this year as domestic trade companies have already witnessed an obvious absence of deals. (Shanghai Daily, 12 Jun)

Industrial output growth rate drops 1.2%
China's industrial output growth slowed by 1.2 percentage points in May compared with a month earlier, due to the outbreak of SARS. But still amounted to CNY319 billion, an increase of 13.7% compared with the same period last year. For the first five months of 2003, industrial output rose a year-on-year 15.9% to CNY1.47 trillion. (China Daily, 11 June)

China's state-owned assets up RMB11 trillion in 2002
The total volume of China's state-owned assets topped RMB11 trillion in 2002, up 8.2% over the previous year. Statistics from the Ministry of Finance showed that by the end of 2002, the commercial sector claimed RMB7.69 trillion, a rise of 5.2% or 65% of the total. Non-profitable assets increased by 14.4% over 2001 and accounted for 35% of the total. (SinoSCAN, 11 June)

EU rules distress exporters
Starting in July, 30'000 varieties of chemical-related goods exported to the EU will have to be re-registered before they can be certified as harmless to people and the environment. Exporters will have to pay an inspection fee for every category of product they want to sell in the EU and many domestic products are deemed unqualified by EU standards. (Shanghai Daily, 11 June)

Improved SARS situation raises retail sales in late May
Retail sales for the last two weeks of May grew by 3.98% year-on-year, the first increase since the outbreak of SARS. The improved situation of SARS gradually helped retail businesses adopting new strategies to reactivate markets, including offering clients the opportunity to place orders over the phone, online shopping and selling articles in universities. Health care goods and seasonal commodities topped the list. (People's Daily, 9 June)


Overhaul of tax systems essential to private trade
Xinhua published a long article by a senior researcher with the Taxation Research Institute, calling upon the Chinese Government to act to adjust tax policies to fuel further development of the country's private businesses, because "development of private companies is an important aspect for improving the country's market economy mechanism." The author's suggestions - being so prominently displayed - may hint at forthcoming changes in the tax system, such as:
Bring uniformity to enterprise income tax policies. A nationwide process which places both domestic and foreign-funded companies on an equal footing needs to be implemented (currently, the income tax rate for domestic companies is 33%, while that for foreign-funded companies is 17%). Speed up changes to the value-added tax levy from the current production-based one to that which is consumption-based. Under the production-based system, fixed assets are classified as consumer goods and are subject to the tax. (Xinhua, 9 Jun)


EU official: China behind on WTO pledges
China is falling behind in some of its commitments to the WTO and needs to clarify laws and practices that violate those agreements, EU Trade Commissioner Pascal Lamy said. (AP, 13 Jun)


China to allow foreign-owned tour agencies from July
China will allow foreign travel firms to set up solely owned agencies or take a controlling stake in joint ventures from mid-July in a step to meet its WTO commitments. Foreign operators would be able to open outlets in five major cities - Beijing, Shanghai, Guangzhou, Shenzhen and Xi'an - and at government designated resort areas. (Reuters, 14 Jun)

Tax break to spur foreign merger and acquisitions
The State Administration of Taxation recently issued a notice saying foreign companies, which hold more than 25% of a domestic firm due to an M&A, will enjoy the same conditions as foreign-funded companies. The income tax rate for domestic companies is 33%, while that for foreign-funded companies is about 17%. In the long run, the dual-track enterprise income tax system should be unified, officials said. (China Daily, 13 Jun)


PICC gets go-ahead to set up AMC
People's Insurance Co of China has been given approval to set up an insurance asset management company. The move was taken as a gradual and overall liberalization of insurers' investment options, partly to alleviate the problem insurers faced of insufficient investment returns to match guarantees made to policyholders. (SCMP, 10 Jun)


China's largest hotel group founded
The Jinjiang International Group Co. Ltd., the largest hotel group in China, was established in Shanghai. It is composed of 71 hotels and office buildings in 14 provinces with a registered capital of CNY2 billion and total assets of CNY15 billion. The group strives to be one of the world's top 30 hotel groups in three to five years. (People's Daily, 10 Jun)

China's top 50 listed companies unveiled
China's top 50 listed companies were unveiled recently, with Sinopec, China Unicom and Bao Steel taking the first three places on the list. By the end of 2002, the total assets of the 50 companies were CNY2.15 trillion, up 60% over the previous year, accounting for half of the total of 1'198 companies listed on Shanghai and Shenzhen stock exchanges. (People's Daily, 10 Jun)

Biggest auto JV revs up
China's state-run Dongfeng and Japan's Nissan have launched a much-anticipated joint venture in Wuhan. The 50-50 operation has a registered capital of CNY16.7 billion. The JV aims to produce 550'000 automobiles annually by 2006, including 330'000 Dongfeng-brand commercial vehicles and 220'000 Nissan-brand passenger cars. It will also produce engines and spare parts. Dongfeng Motor Co Ltd is the biggest Sino-foreign automobile JV so far in terms of investment and business scope. (China Daily, 10 Jun)


Beijing cut growth forecast
Beijing's projected GDP growth will decline by three to four percentage points to 6%-7% in 2003, the Economic Daily reported, citing the Beijing Municipal Economic and Social Research Institute. Pre-Sars, Beijing's GDP had been expected to grow 10% this year. (FEER, 12 Jun)

Beijing reports 10.4% GDP growth in first 5 months
Beijing announced that the city's GDP for the first five months hit CNY120 billion, an increase of 10.4% year on year. The figure for May reached CNY25.42 billion, a 4.8% increase year on year. A spokesman said it was still possible for Beijing to attain its goal of a 9% economic growth this year. (People's Daily, 10 Jun)


China starts building one of world's longest bridges
China has begun building one of the world's longest bridges south of Shanghai, adding to an ambitious series of dams, railway lines and other massive construction projects. The 36-kilometer-long bridge across Hangzhou Bay is to open in 2009. The bridge is part of a planned 5'200 km highway that is to link the northern Chinese province of Heilongjiang with China's southernmost city of Sanya on Hainan. (AP, 8 Jun)

Weekly Market update  13 June 2003  06 June 2003
Shanghai A 1640.79 1629.70
Shanghai B 116.80 116.37
Shenzhen A 454.61 455.36
Shenzhen B 222.84 220.51
Hong Kong Red Chip  1077.04 1045.43
Hong Kong H 2692.81 2521.71
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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