Highlights from the EO print edition, issue no. 429, July 27, 2009 
Economic Observer's Outlook for the Third Quarter
Special Feature
~ The EO has conducted a survey of economists attitude to China's economic outlook for the third quarter of 2009. Of the 54 economists interviewed, 88% of respondents held that China's economy had already begun to improve, only 38% of economists gave this answer in our Q2 survey. However, whether the improvement could be sustained has become a concern for all the economists surveyed.
Original article: [Chinese]
Liu Mingkang Warns of Risks in Local Government Borrowing
News, cover
~ Liu Mingkang, chairman of China's Banking Regulatory Commission, recently warned commercial banks of the risks involved with financing local governments.
~ The CBRC ordered commercial banks to cancel any strategic cooperation contracts lacking the support of any substantive projects that had been signed with local governments earlier this year.
~ According to the central bank, of the total 7.4 trillion yuan of additional loans issued in the first half of the year, some 50% was invested in projects backed by local governments.
Original article: [Chinese]
Central Government Aims to Temper Property Price Gains
News, cover
~ As record prices are being paid for new land developments in the bigger cities, the central government is readjusting its policies in order to keep prices in check.
~ The EO has learned that since early July, the State Council has held two meetings with officials and experts to deal with what they see as an unbalanced real estate sector. Although growth in the sector is a sign that the economy is recovering, property investment is still weak.
~ Meanwhile, the rate of growth in both housing prices and sales volume is unevenly spread across the country. In Beijing, Jiangsu and six other provinces, both the amount of land sold and also average prices have increased, while in eight western provinces commercial property sales have dropped by 30%.
~ The central government has started to enforce regulations that restrict second-home lending and has also increased the amount of land set aside for residential property development, but is yet to tighten credit policy.
Original Article: [Chinese]
Central Government Plans 80 Billion Yuan of Investment in Third Quarter
News, page 3
~ The Chinese central government will pour 80 billion yuan of capital investment into the economy during the third quarter in order to stabilize the economy, according to an anonymous official from the National Development and Reform Commission.
~ The finance minister has announced that the total investment budget for the whole 2009 is 487.5 billion yuan. Given this, we can estimate that the central government has set aside about 200 billion yuan for investment during the fourth quarter.
~ According to historical trends, private investment and outputs grow faster during the second and third quarters, and usually decline in the fourth quarter. Given this, the central government has decided to allocate more investment in the fourth quarter, said the official.
~ A central surveying group that recently toured the country inspecting the investment in local projects, found that the supporting funds contributed by local governments were lagging behind the capital invested by the central government.
Original Article: [Chinese]
China's Monetary Policy Dilemma
News, page 6
~ Last week, China's financial media reported that the central bank would continue to carry out a "moderately loose" monetary policy and at the same time concentrate on preventing inflation and a rise in domestic asset prices.
~ However, sources from the central bank told EO that the bank's policy for the last half of 2009, wasn't likely to the same as that announced and reported in the media.
~ The central bank is facing a dilemma. On the one hand, it's worried that it will miss the chance to adjust monetary policy and increase the risk of inflation, which would no doubt leave them open to criticism. On the other hand, it's also concerned that a mild adjustment in monetary policy could be misinterpreted as being in conflict with the central government's policy stance and that they would be held responsible for any economic slide that might occur in the future.
Original Article: [Chinese]
Stimulus Requires More from Private Capital
News, page 4
~ "It's impossible to realize the goals of the 4 trillion yuan stimulus package if private investment does not contribute" Yin Zhongqin, the Vice Chairman of the Finance and Economic Committee of the National People's Congress, said in an interview with Economic Observer.
~ Yin went on to say that the major task of restructuring the Chinese economy was to readjust the income structure among ordinary people. "Domestic demand won't last long, if we don't address the imbalances."
~ Yin also revealed doubts about the quality of many public projects. "To gain political benefits, some local officials are relying on funds from central government, ignoring questions of whether local investment will be able to follow up, or whether the project has passed environmental assessment.
Original Article: [Chinese]
China's Considers Adjusting Grain Reserve Policy
News, page 5
~ China is reconsidering its grain reserve policy after the failure of an auction of soy bean reserves in late July.
~ In the auctions, 500,000 tons of the countries more than 5 million tons of temporary soy bean reserves went on sale, but because the asking price was above the current price, none of it sold.
~ According to a source, the government is considering lowering auction prices to meet the goal of selling. and thinking about how to readjust their policy of ensuring the stability of grain prices via the reserves policy.
~ In China, the government builds up reserves of grains and resells them at a price higher then the price at which they bought them. Usually, the huge government purchase helps to boost the market price and encourages farmers to grow more grains the next season.
~ Last year, however, the government found soy bean prices remained lower than the price at which the government purchased grains from farmers.
~ Experts explain that cheap exports are undermining the governments policy and that the failure of auctions are not limited to soybeans but also extend to other grains.
Original Article: [Chinese]
Rescuing the Land of Rice and Fish
Nation, page 9
~ The expansion of industrial zones and urban construction is gradually eating into the arable fields of the Middle to lower reaches of the Yangtze, or the land of rice and fish, as it's also known. Some are concerned that this gradual erosion of agricultural land might threaten the country's food security.
Original Article: [Chinese]
Steel Companies Continue to Import Iron Ore in First Half
News, page 7
~ Despite the controversy surrounding the Rio Tinto "spy gate" and the ongoing iron ore price negotiations, China imported a 310 million tons of iron ore in the past 6 months, up 21.7% on last year.
~ Despite that fact the China Iron and Steel Association has prohibited steel companies buying iron ore from the three international mining giants during the on-going negotiations, as the second quarter is the most profitable time for Chinese steel mills, they continued to import.
~ This situation is deeply rooted in China's steel industry. With a long-term contract price much lower than the price on the spot market, the big steel companies who are authorized to import iron ore directly from abroad are able to make large profits to buying iron ore and reselling it on the spot market to their smaller counterparts at home.
Original Article: [Chinese]
China's Kindle
Corporation, page 31
~ China's online digital bookstore, fanshu.com, went live this month with 600,000 digital copies and prices one third of that charged for the hard copy of the book.
~ The website, cooperated by Founder Apabi Technology Ltd., a digital publishing company, and zhongsou.com, an search engine company, was seen as the Chinese version of online books-sales pursued by Amazon.com with its portable digital reading device - Kindle.
~ "Our business model is the combination of Amazon's Kindle and Google's book search engine," said Zhao Ge, CEO of the website,"the next step is to build a best full-text book search engine."
~ The website provides a variety of services, including, searching, reading and purchasing a book - either a digital a hard copy version.
~ Fanshu.com has also cooperated with online booksellers to help expand its influence.
Original Article: [Chinese]
