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Issue Wrap No. 454, January 25
Summary:

Highlights from the EO print edition, issue no. 454, January 25, 2010 

Geely to Pay 1.8 Billion US Dollars for Vovlo
Cover
~ People close to the matter revealed to the EO that Chinese private automaker Geely's acquisition of Volvo was drawing to a conclusion.
~ The two parties would sign the acquisition contract on February 8 this year, the source added.
~ The amount of the purchase would not exceed 1.8 billion US dollars and might even be lower than 1.6 billion US dollars.
~ The Ford Motor Company spent 6.45 billion US dollars in purchasing Volvo in 1999,
~ "The acquisition has the support from China's National Development and Reform Commission (NDRC), and in the following days, officials from the central government's main economic policy setting body will visit Sweden to hold consultations" the source added.
Original article:[Chinese]

Balancing Monetary Policy
News, Page 2
~ The Chinese economy faces great uncertainty in 2010, with an urgent need to alter the structure of the economy and pressure to rein in inflated asset prices and curb inflation expectations also becoming increasingly real and severe.
~ With the possibility of weak export growth continuing to loom, China needs to maintain fiscal stimulus and loose monetary policies but at the same time needs to shift its economic driver from governmental backed investment to more investment from the private sector.
~ As the rest of the world begins to recover from the global financial crisis, upward pressure on the value of the Renminbi has began to strengthen.  
~ To deal with all the challenges, the authors suggests that the central bank should attempt to strike a balance between maintaining GDP growth, adjusting the country's economic structure and curbing potential risks.
~ At the same time, China should also provide more credit to farmers and rural areas in general and offer more financial services to middle-sized and small enterprises,
Original article: [Chinese]

China May Face More Difficulties in 2010's Iron Ore Price Negotiations
News, page 4
~ Despite China's demand for iron ore growing year by year, its ability to drive a bargain with the world's three iron ore mining giants hasn't improved.
~ An unnamed executive at one Chinese steel company told us that he had little hope in regard to the successful conclusion to this year's iron ore price negotiations.
~ "What we are worried about is not whether we can set a "China price" through negotiation but that the three giants will first sign a contract with Japanese and Korean steelmakers. If that's the case, China will once again fall into the same passive position as they were in last year," he added.
Original article: [Chinese]

China to Enact Value-added Tax in 2010
News, page 4
~ China's State Council recently issued its work plan for legislation in 2010.
~ In the plan, pushing forward an value-added tax law is one of 56 key legislation projects to be completed in 2010, people familiar with the matter revealed the EO.
~ "This means that the legislation of value-added tax has entered into a meaningful phase," the source added.
~ The EO learned taxation on business returns would be incorporated into value-added taxation system, a move aimed at shifting from a production-based VAT regime to a consumption-based system, which is applied in most countries.
Original article: [Chinese]

The Currency Debate: Internal Disagreement on RMB Appreciation
News, page 5
~ Though pegging the Yuan to the US dollar may well lead to more trade friction, it's still the best option, as an appreciated Renminbi will cause many Chinese enterprises to go bankrupt and thus force numerous workers to lose their jobs, a report conducted by a research agency close to the Ministry of Commerce revealed.
~ The report also states that letting the currency appreciate would not be enough to reverse China's current favorable trade balance.
~ Lead economist of China International Capital Corporation (CICC), Ha Jiming, also argued that although a stronger RMB would be helpful in curbing inflation in a long term, it's impossible for it to impact on inflation in the short term.  
~ However, Zhang Bin, a researcher at the Institute of World Economics and Politics under the Chinese Academy of Social Science, recommended that the Renminbi be allowed to appreciate by 10% .
Original Article: [Chinese]

SAFE Denies Influx of Hot Money, Agrees to Expand Outflow
News, page 5
~  An official from the State Administration of Foreign Exchange (SAFE), has responded to suggestions that a record amount of hot money is flowing into the country's financial system by claiming that the method used to calculate the amount of these hot money funds is not scientific and therefore the result is very misleading. The source goes on to add that the increase in China's foreign exchange reserves in 2009 is not by no means "unexplainable."
~  Sources close to the regulator say that rather than continuing to try and control capital inflows, China's financial regulators should attempt to actively expand outflow in order to help balance of international payments and deal with the large increases in the amount of foreign exchange reserves that have built up in recent years.
~ Some analysts claim that if  you subtract the trade surplus and foreign direct investments from the total increase of forex reserves over the year, the remaining 167 billion US dollars represents the flow of hot money into China. 
~ Others argue that this is too simplistic and that when calculating what contributes to a country's foreign reserves, you should also take into account factors such as cross-border flow of funds involving service trade, individual fund transfers, foreign debt and securities investments, as well as investment returns of foreign reserves and currency translations.
Original Article: [Chinese]

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