18 February - 24 February 2002

No 85

Something rotten in the state of China
Under the above title, the Economist takes a look at corruption in China. It says that, so pervasive is the practice "that it would be hard to find any leader whose associates and family members are beyond suspicion". It also cites the Chinese Academy of Social Sciences, which gave warning that "unless the problem of corruption is genuinely tackled as a systemic issue, it could become the main cause of social turmoil". 67.3% of respondents to a survey the academy carried out last year believed that political reform was urgently required. (Economist, 14 February) This article had miraculously disappeared from the magazine's copies sold at Beijing's newsstands.
http://www.economist.com/World/asia/PrinterFriendly.cfm?Story_ID=988457&CFID=61457&CFTOKEN=25295137&

Taiwan lifts banking and trade restrictions
The Taiwanese government eased restrictions on direct trade and banking issues with China. Banks in Taiwan and on the mainland will be allowed to make direct remittances in any currency except the Renminbi or the New Taiwan dollar. Furthermore, Taiwanese companies are allowed to directly import more than 2'000 agricultural and industrial goods from across the Strait. Until now, most of this trade was done indirectly through Hong Kong to avoid the restrictions. (www.cbiz.cn, 18 February)

Haier, Sampo team up to explore cross-straits markets
Chinese mainland's leading electronic appliance maker Haier and Taiwan-based Sampo signed a strategic alliance agreement. Haier and Sampo will market each other's products, including home appliances, IT electronic products, telecommunications products and electronic accessories. The two electronic giants will also outsource each other's electronic parts and make joint investments. (People's Daily, 21 February)

China's January CPI down 1.0%
China's consumer price index fell 1% year-on-year in January, the third consecutive monthly fall in the inflation measure. The decline confirms that China's economy continues to struggle to shrug off deflation due to overproduction by state-owned firms and sluggish consumer demand. The main contributors to the decline in China's CPI in January were lower prices for food, clothing, transportation and telecommunication equipment. The declines were offset by a rise in housing prices. (Dow Jones Newswires, 21 February)

China cuts interest rates by 0.25 percentage points
The People's Bank of China decided to lower the interest rates of deposits in Renminbi by an averaging 0.25 percentage points. A spokesman for the PBOC said that the central bank's decision aims to overcome the negative effects of the slowed growth of global economy on the development of China's economy, and maintain a sustained, fast and healthy development of the national economy. The annual interest rate of current deposit is lowered from 0.99% to 0.7%, while that of one-year fixed-term deposit is lowered from 2.25% to 1.98%. At the same time, the annual interest rate of various loans is lowered by an average of 0.5% points. The interest rates for deposited reserves by financial institutions in the central bank is lowered from 2.07% to 1.89%. (People's Daily, 21 February)

Mixed response to China rate cut
China's announcement that it is cutting interest rates - of 0.5 per cent in lending and 0.25 per cent in deposit rates - is likely to draw cheers from a wide spectrum of mainland businesses, which will be expecting lower borrowing costs and stronger consumer spending to boost profitability. However, most analysts expect the benefits to be marginal in the short term. The bigger cuts in lending rates are conducive to improving companies' ability to service their debts, which will help banks curb growth in their non-performing loan ratios. On the other hand, cuts in lending rates outpacing reductions in deposit rates will squeeze banks' profit margins. The decision was likely to have a limited impact on the country's stock market. (SCMP, 21 February)

Steady growth of money supply in January
At the end of January the outstanding broad money (M2) stood at RMB 15.97 trillion, 13.1% higher than a year earlier; while the outstanding narrow money (M1) rose 9.5% to RMB 6.06 trillion. The total amount of money in circulation (M0) was RMB 1.67 trillion, down by 1.7%. At the same time, outstanding loans by all financial institutions added up to RMB 11.3 trillion, up 10.9% in constant terms. Outstanding deposits were RMB 14.34 trillion, RMB 7.5trillion of which came from personal deposits which were up 12.6%. (People's Daily, 21 February)

Foreign banks go for RMB biz
Four foreign banks (2 from Japan and 2 from the Republic of Korea ) in Tianjin have applied to the People's Bank of China to conduct renminbi business. The four banks are among about a hundred foreign-funded banking institutions that are expected to be able to get access to renminbi business this year. (China Daily, 21 February)

BOC insists listing plans on schedule despite fresh allegations
Plans to list the Bank of China's Hong Kong arm this year have not been affected in spite of new allegations surrounding the Hong Kong-based branch, according to sources close to the bank. The bank, which has already been hit with a fraud scandal involving its New York branch and disgraced former governor Wang Xuebing, was yesterday said to have its Hong Kong branch, as well as its Tokyo and Grand Cayman branches, embroiled in an investigation. (SCMP, 22 February)

China reduces categories of import licenses
China has reduced its control of import licenses to 12 categories of goods from 26 as part of its commitments to the WTO. The eight categories of goods requiring import quota licenses are refined oil, natural rubber, auto tires, autos and key parts, motorcycles and key parts, cameras, wrist watches and crane trucks and its chassis. The four categories goods requiring import licenses are laser disk production equipment, controlled chemical products, easily-made poisonous chemical products and ozone-destroying substances. (Dow Jones Newswires, 22 February)

Analysts blamed for drop in Chinese shares
A number of prominent Chinese analysts employed by blue-ribbon securities companies have come under bitter attack on the mainland for their comments about listed companies in recent weeks. In one case an analyst has been sued for defamation. The attacks, by Chinese commentators searching for a scapegoat for the worrying decline in share prices, have come just ahead of the reopening of China's markets on Monday after a two-week break for Chinese new year. (FT, 22 February)

ICBC arm's profit surges 120%
ICBC (Asia), the Hong Kong-listed arm of the mainland's largest bank, Industrial and Commercial Bank of China, posted a 120% surge in net profits to HKD 330.41 million last year. The result, which fell at the higher-end of analysts' forecasts, was mainly attributable to income from newly acquired Hong Kong businesses and a cut in bad loans. (SCMP, 22 February)

Another construction wave on way in Shanghai
Apart from Shanghai Global Financial Center to be built as Shanghai's "world's first top skyscraper", a dozen or so landmark projects will be launched at Lujiazui operating as the only financial trade center at a state level in Shanghai. As planned by Shanghai Municipality, these are going to cost a total of over RMB 22 billion. (People's Daily, 22 February)

China's agriculture more profitable than modern sectors in coming years
A recent study released by Morgan Stanley showed that the total factor productivity of agricultural sector in China has been growing at about 4% per annum, about the same as that of the non-rural sector. China's agricultural labor force is shrinking but output is expanding. (People's Daily, 23 February)

Axing of discriminatory rules fuels boom in overseas buyers for units
The number of overseas buyers of apartments in Shanghai has jumped following the removal of discriminatory policies on property sales by the local government. Last year, buyers from overseas purchased 3'639 apartments in Shanghai, a rise of 34% over the 2000 figure. (SCMP, 23 February)

Intel buys into Chinese IT Firm
Intel Capital, a strategic investment arm of Intel Corporation, has bought a 2.86% stake in Anhui USTC iFLYTEK Co., Ltd., a Chinese company that has developed mature data voice convergence technology (DVC). (People's Daily, 24 February)

Weekly Market update		22 February 2002	08 February 2002
Shanghai A		no trading	1571.11
Shanghai B		no trading	142.29
Shenzhen A		no trading	449.74
Shenzhen B		no trading	218.70
			15 February 2002
Hong Kong Red Chip		1190.06	1228.25
Hong Kong H		2011.25	1992.25
Source: South China Morning Post