8 May 2009 edition | China Economic Scan

8-May-2009

China Economic Scan - Your daily update on the Chinese economy.

In this edition: The PBOC hints at no rate cuts for 2009, SASAC to review derivatives use by SOEs, Geely said to be one of three bidders for Ford's sale of Volvo, Alibaba shares surge after CEO comments, Chinese stocks close mixed on Thursday.

Top 5 headlines

No increase in rates, hints PBOC

• The Central bank of China has indicated that it will likely follow a moderately loose monetary policy, reducing speculation of a normalization of monetary policy.
• "The central bank will continue to ensure ample liquidity in the banking system and reasonably increase loans to fund the economy," the People's Bank of China (PBOC) report said.
• Tao Dong, chief Asia economist of Credit Suisse in Hong Kong, said "The PBOC is likely to maintain the one-year lending rate at 5.31% this year and raise it by 99 basis points only next year."

Review into investments by SOEs

• State-owned Assets Supervision and Administration Commission (SASAC) will be launching an investigation into investments made by SOEs in the financial sector as a risk management measure.
• A total of 28 SOEs, including Air China, China Eastern Airlines and China COSCO Holdings Co, have invested in financial derivatives but most of them suffered losses. Air China lost 7.5 billion yuan on fuel-hedging contracts, and China Eastern 6.4 billion yuan.
• Li Wei, vice director of SASAC said "SOEs which plan to invest in financial derivatives must meet 4 conditions - abiding by hedging rules, hiring financial institutions for consultation, controlling risks and getting the commission's approval."

Ford Volvo Sale Said to Accelerate; Geely Sees Books

• China's biggest privately owned automaker Geely Holding Group has sent a team to Volvo's factory in Sweden to look over the books as Ford seeks to sell. There is apparently to other bidders also.
• Ford is seeking about $2 billion for Volvo, less than a third of what it paid for the maker of station wagons a decade ago.
• Geely Automobile Holdings, Geely’s listed unit, rose +14%, the most in 3 months, to close at HK$1.34 in Hong Kong trading. The stock has more than doubled this year, compared with the benchmark Hang Seng Index’s +20% gain.

Alibaba Shares Rise After CEO Says Stock Undervalued

• Alibaba stock surged as CEO David Wei said the shares were undervalued. Everbright Securities also raised Alibaba to "buy" from "reduce", also recently Citigroup raised it to a "buy" from "sell" and JPMorgan Chase raised it to "neutral" from "underweight".
• Alibaba's Q1 profit fell 16% to 253.4 million yuan ($37 million, and above analyst estimates of 201 million yuan) after sales and marketing costs rose 43%.
• Alibaba is considering international acquisitions as it aims to derive one third of its revenue from overseas customers in 3-5 years, from about 2% at present. Alibaba rose +15% to close at HK$11.74 on Thursday.

China shares mixed after 5 day rally

• Chinese stocks were mixed on Thursday, the Hang Seng was the leader surging a further +2.28% to 17,218 the Shanghai Composite was basically flat +0.19% at 2,597 and the Shenzhen Component eased back but is still above 10k, -0.40% to 10,109.
• Coal miners extended gains, with Datong Coal Industry +5.3% to 35.3 yuan and Anhui Hengyuan Coal Industry +3% to 22.74 yuan.
• Financials were boosted by a central bank report. Industrial & Commercial Bank of China, +0.9% to 4.28 yuan; Bank of China +0.6% to 3.59 yuan and China Construction Bank +2% to 4.61 yuan.

Financial Indicators:

Metric	Value	Point change	% change
Hang Seng Index	17,218	383.32	2.28%
Shanghai Composite	2,597	4.93	0.19%
Shenzhen Component	10,109	-40.13	-0.40%
TAIEX	6,573	6.17	0.09%
CNY/USD	6.8263	0.0037	0.05%

SOURCE: China Economic Scan