22 June 2009 | China Economic Scan

22-June-2009

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

In this edition: Wen says China should have 'moderately loose' monetary policy, China state firms profits fall 30.3%, China increases cigarette tax, Suning Appliance to raise 3 bln yuan in private placement, Franklin Templeton renews Chinese investment license.

Top 5 headlines

China Should Have ‘Moderately Loose’ Monetary Policy

• China should have a “moderately loose” monetary policy and implement “proactive financial policies,” Premier Wen Jiabao said during a visit to Hebei.
• “We need to fully realize the stimulus measures,” Wen said, according to the statement. “We should focus on structural adjustment while maintaining economic stability and relatively fast growth.”
• Wen “is trying to maintain optimism while acknowledging risks,” David Cohen, head of Asian forecasting at Action Economics in Singapore, said over the phone today. “Global demand will start to pick up and that should provide some boost to Chinese manufacturing.”

China Jan-May state firm profits down 30.3 pct y/y

• Profits at Chinese state-owned enterprises (SOEs) continued to fall in the first five months from year-earlier levels, but the pace of decline slowed from the first four months, an official newspaper said on Saturday.
• Overall profits of SOEs in the first five months reached 425.4 billion yuan ($62.3 billion), down 30.3% from a year earlier, compared with a drop of 32.3% in the first four months, the Securities Times quoted the Ministry of Finance as saying.
• Among them, enterprises controlled by the central government registered profits of 331.55 billion yuan from January to May, down 23.3% year on year, while those backed by local governments had profits of 93.85 billion yuan, down 47.4%.

China increases cigarette tax to add to state coffers

• China has increased tax on cigarettes by between 6-11% to tap additional revenue for for future government spending.
• The tax rise took effect from the beginning of May 1, and a new tax of 5% was also imposed on cigarette wholesalers, China State Administration of Taxation said in a statement posted on its Web site (www.chinatax.gov.cn) on late Friday.
• "This is to appropriately increase the government's fiscal revenue and also to perfect the cigarette taxing system," it said. The tax has not yet been passed on to smokers.

China's Suning to raise 3 bln yuan in placement

• Chinese retailer Suning Appliance said on Saturday that it intended to raise around 3 billion yuan ($439 million) in a private placement for purposes including building new chain shops around China.
• Suning planned to issue up to 200 million new yuan-denominated A shares to private investors, including its chairman Zhang Jindong, it said in a statement published in the China Securities Journal.
• Proceeds would also be used to build six logistics centres in Chinese cities including Beijing and Tianjin and to supplement working capital, it said.

Franklin Templeton Gets Chinese Investment License

• Franklin Resources Inc., manager of the Franklin and Templeton mutual funds, said it received a new license to invest in Chinese stocks and bonds after an earlier permit held by a unit expired.
• Franklin Templeton will also invest in China through private-equity and its joint venture in the world’s third- largest economy, the statement said. It will also buy shares of Chinese companies traded in Hong Kong, it added.
• Citigroup Inc., Goldman Sachs Group Inc. and HSBC Holdings Plc are among more than 80 overseas institutions cleared to invest in Chinese stocks and bonds under the so-called QFII program.

Financial Indicators:

Metric

Value

Point change

% change

Hang Seng Index	17,921
Shanghai Composite	2,880
Shenzhen Component	11,242
TAIEX	6,231
CNY/USD	6.8376

Source: China Economic Scan

6 June 2009 | China Economic Scan

6-June-2009

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

In this edition: Chinalco "Very Disappointed" with Rio Tinto deal collapse, inflation expectations could benefit stocks, ICBC buys Bank of East Asia's Canadian unit, China considers penalty tax on polluting businesses, Chinese stocks fall slightly but close the week up.

Top 5 headlines

Chinalco Is ‘Very Disappointed’ With Rio Rejection

• Aluminum Corp. of China, the nation’s largest producer of the material, said it is “very disappointed” with the rejection of its proposed $19.5 billion investment in Rio Tinto Group.
• “Our proposal presented an outstanding value creating opportunity for all Rio Tinto shareholders and would have provided a strong platform for a long-term strategic partnership between the two companies,” said Xiong Weiping, president of Chinalco, as it’s also known.
• The failed deal would have been the largest single foreign investment by a Chinese company. Rio, the world’s third-largest mining company, said today it will raise as much as $15.2 billion in a share sale, helping reduce $38.9 billion in debt.

Analyst: Inflation expectations benefit stocks

• Although surging prices are not good for the economy, inflation expectations can drive up asset prices and boost stocks in the Chinese market, a senior investment banker told the official China Securities Journal on Thursday.
• According to Frank Gong, JP Morgan's China chief economist, financial authorities worldwide are now taking various measures against economic recession and deflation.
• But these moves, if not well managed, could incur inflation risks in the future.

ICBC’s Canadian Foray May Prompt North American Push

• Industrial & Commercial Bank of China agreed to buy control of Bank of East Asia’s Canadian unit, gaining a foothold for expansion in North America with its first acquisition on the continent.
• ICBC is making the Canadian foray to “learn the lay of the land and decide whether or not to make a bigger push,” John Aiken, an analyst with Dundee Securities Corp., said in an interview. “ICBC has the potential to deploy a ton of capital within the domestic marketplace if they so choose.”
• ICBC, which has more customers than Russia has people and $247 billion of cash and equivalents, has spent more than $6 billion on acquisitions in Indonesia, Macau and South Africa during the past 2 years. Chairman Jiang Jianqing aims to triple the share of profit coming from abroad to 10%.

China mulls penalty tax on polluting businesses

• Zhang Lijun, vice minister of environmental protection, said collecting environmental taxes from polluting enterprises was one of the directions of the country's tax system reform.
• "It has been put on the agenda of the ministries of finance, environment protection and the state administration of taxation," Zhang told a press conference. "We are jointly studying the issue, and when conditions are ripe, we'll launch the taxation system on polluting enterprises."
• Zhang admitted that air in a few cities remained "very polluted" and the problem of acid rain remained serious.

China’s Stocks Decline, Paring Weekly Gain; Developers Retreat

• Chinese stocks slipped slightly on the Mainland with the Shenzhen Component down -0.62% to 10,667, the Shanghai Composite down -0.48% to 2,754, however The Hang Seng registered a gain of +0.96% to 18,680.
• Gemdale, the country’s fourth-largest developer by market value, retreated -1.6% after almost tripling this year. Haitong Securities dropped -2.3% as the stock traded near its priciest level in a year. Liquor maker Sichuan Swellfun gained +6.8% after Diageo boosted its stake in the parent.
• “Stocks are expensive so the rally needs a pause,” said Larry Wan, Shanghai-based deputy chief investment officer at KBC-Goldstate Fund Management Co., which oversees about $583 million in assets.

Financial Indicators:

Metric

Value

Point change

% change

Hang Seng Index	18,680	176.76	0.96%
Shanghai Composite	2,754	-13.35	-0.48%
Shenzhen Component	10,667	-66.61	-0.62%
TAIEX	6,767	-18.96	-0.28%
CNY/USD	6.8360	0.0032	0.05%

Source: China Economic Scan