China Economic Scan: Jun 1, 2009

2-June-2009

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

In this edition: Chinese PMI comes in at 53.1 for May, NDRC says gasoline and diesel benchmark retail prices to rise, Melco opens $2bln casino in Macau's Cotai strip, academics and industry practitioners say derivatives not a bad thing, Chinese stocks jump 3% on Monday.

Top 5 headlines

Chinese Manufacturing Grows, Adding to Evidence of Recovery

The official Purchasing Manager’s Index (PMI) was at a seasonally adjusted 53.1 in May after registering 53.5 in April, the Federation of Logistics and Purchasing said.
A reading of the PMI above 50 indicates an expansion.
Industrial production growth may accelerate to 8% this quarter as stimulus spending gathers momentum, up from 7.3% last month and 5.1% in the first three months, the Ministry of Industry and Information Technology said May 22. Output may increase 10% in the second half, it added.

China to raise gasoline, diesel benchmark retail prices

China will raise gasoline and diesel benchmark retail prices by 400 yuan (58.6 U.S. dollars) per tonne as of Monday, the National Development and Reform Commission (NDRC) said.
The benchmark retail price for gasoline would increase by 7% and the price of diesel by 8%, according to the NDRC
According to the new mechanism, China's domestic fuel prices are to be "indirectly linked" to global crude prices "in a controlled manner." China would adjust domestic fuel prices when global crude prices reported a daily fluctuation band of more than 4 percent for 22 working days in a row.

Melco Opens $2 Billion Casino in Macau’s Cotai Strip

Melco Crown Entertainment Ltd. opens its City of Dreams casino today in a $2 billion bet that Macau will rebound from a slump that prompted rival Las Vegas Sands Corp. to halt construction on a neighboring project.
The complex on Macau’s Cotai Strip has 516 gambling tables in a 420,000-square-foot casino, Hard Rock and Grand Hyatt hotels as well as a multimedia theater and shops run by DFS.
“The gaming sector had a very bad year in 2008 because of a weakening Macau economy,” Winson Fong, who helps manage $2 billion at SG Asset Management H.K. Ltd., said. “Now, people are buying into the sector because as a speculative one, it tends to perform better during a recovery,”

'Let more firms trade in futures'

Allowing more Chinese companies to trade in the international futures market is a better solution to protect State-owned enterprises (SOEs) from potential losses in overseas derivatives trading than simply blaming the investment banks that offer these products, experts said.
Despite the fact that some SOEs have suffered enormous losses, derivatives continue to be a very important financial instrument for large corporations around the world, including Chinese companies, to hedge business risks, Hu Yuyue, a futures professor at Beijing Technology and Business University.
According to the professor, a report from the International Swaps and Derivatives Association (ISDA) indicated that over 94% of Fortune 500 companies use derivatives as a tool to manage risks.

China Stocks Rise Most in Three Months as Manufacturing Expands

Chinese stocks recorded strong gains with the Hang Seng up 3.95% at 18,889, the Shanghai Composite up 3.36% to 2,721, and the Shenzhen Component up 2.90% to 10,421.
“The pick-up in the economy is better than expected and that’s giving investors a strong reason to buy,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which manages about $285 million.
Jiangxi Copper, the country’s biggest producer of the metal, surged +9.1% and Industrial & Commercial Bank of China gained +3.7%. PetroChina climbed +4.9% after China increased fuel prices and crude oil rose to a 7-month high. China Vanke added +4.3% after the government eased requirements for real-estate projects.

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