No. 389 October 13

Highlights from the Economic Observer, issue 389 October 13 2008

China Using Financial Crisis Early Warning and Prevention Scheme
Cover
On October 4, government spokesperson announced that a scheme had already been drafted to protect China from the financial crisis that is ravaging markets across the world. As part of the scheme, the top three Chinese securities, insurance, and banking watchdog agencies along with China’s central bank would prepare daily reports for the State Council and work closely to identify mounting risks to the Chinese financial system. China’s main banking watchdog agency has been busy forcing commercial Chinese banks to report on their non-performing loan ratio, their exposure via US investments, and other bank-health indicators. Chinese insurance funds are not allowed to invest in foreign derivatives, they have generally been insulated from the crisis. That said, some firms, such as Pingan Insurance, had been suffering from other foreign investments.
Original article: [Chinese]

A Christmas Without Presents
News, page 5
Major Christmas present exporters in China have seen decreased orders from the US as the financial crisis there deepens. Manufacturers have simplified product designs to cut prices out of fear that expensive presents would be shunned in the US. The depressed housing market, growing unemployment, and rising costs of food and energy have led to weaker retail consumption there according to the US National Retail Federation.
Original article: [Chinese]

Deflation Looms Ahead of China
News, page 6
With the Consumer Price Index (CPI) in August was already lower than the market anticipated, market watchers estimated that September’s CPI, which would be released on October 21, would continue dropping to below 4%, and JP Morgan expected the index to stumble to 2.5% in 2009. Experts said tight monetary policies in the past year of high inflation pressure had accelerated the rate that the economy has slipped, while shrinking exports, decreasing corporate profits, lower individual income and pessimistic consumption expectations might lead to worse deflation in China and the rest of the world.
Original article: [Chinese]

A Private Quake Museum in China
Nation, page 12
Some 40 thousand collections dealing with the Sichuan earthquake are on exhibit in WenChuan Quake Museum, privately built by Fan Jianchuan, a 51-year old Chinese. The collections, which have attracted large numbers of visitors, recorded the lives of those who experienced the quake. On exhibit are articles tied to events during and after the quake, including the book thrown by "Runaway Fan", the school teacher who was controversially shamed in the media for fleeing his school before his students were able to.
Original Article: [Chinese]

Beijing’s Post-Olympic Concerns
Nation, Page 15
Beijing has suffered a seven-year low economy to hold a successful Olympics, whereby it yearned to grow into an influential metropolis like Tokyo. During the Olympic month, its industrial-added-value was down by 9.1%, and basic industries including iron, chemical and cement lost tens of billions yuan. As a response, the Beijing municipal government was considering a 500-billion-yuan economic stimulus package to boost infrastructure construction and high-end manufacturing.
Original article: [Chinese]

Is China the Only Hope in the Global Financial Crisis?
Market, page 17
China has been called “the only country with sufficient resources to recapitalize the US banking system” by western media, thanks to its huge foreign reserve at USD1.85 trillion. As the world watched closely if China would offer support by acquiring more US government and agency bonds, the predominantly dollar-denominated Chinese foreign reserves had shrunk in real value as the US economy tumbled. “We are supportive and helping by not off loading the US bonds,” said a Chinese official from the Finance Ministry who declined to be name. The official stressed that the priority of Chinese policymakers now would be ensuring stable growth for domestic economy.
Original article: [Chinese]

Agricultural Stocks May Gain as Land Reform Looming
Market, page 19
Chinese market analysts have projected stock values of agricultural-based companies that owned land to rise, after the government committed to vigorous rural reform in a just concluded communist party’s central committee meeting. Though the government did not spell out in details, market observers and scholars believed rural land would be liberated and open for market transactions. Such expectations would drive up value of companies with massive amounts of contracted land in hand.
Original article: [Chinese]

Chinese and South African Bank Join Hands
Market, page 20
The realignment and restructuring in South Africa’s Standard Bank, after a merger with China’s Industrial and Commercial Bank of China (ICBC) in March this year, would lead to extra profit generation of USD 50 million by July next year, according to Standard Bank chief executive officer Jacko Maree. The merger was the largest foreign direct investment made by a Chinese company abroad, ICBC had bought 20% stake in the African bank at USD 5.2 billion. The investment was also the only profitable one to date made by Chinese financial institution oversea, according to ICBC top management.
Original article: [Chinese]

Opportunities for Chinese Corporations During Financial Crisis
Special Focus, Corporation, page 25 - 31
With substantial liquidity in hand and smart strategising, Chinese corporations may emerge stronger and bigger in the event of a global financial crisis. The EO explores potential opportunities and tactics for Chinese firms in this special focus series by interviewing the chiefs of leading companies in several industries. Keeping high ratio of liquid assets available, absorbing quality manpower left jobless by the downsizing of multinationals, taking advantage of drooping raw material prices, identifying sound and valuable companies with depressed market prices for takeover, and maintaining low costs in production were among the strategies mentioned.
Original article: [Chinese]

Chinese Internet-based Companies Facing a Harsh Winter
Industry, page 33
Funding from venture capital firms have been drying up as credit crunch swept across the globe, affecting Chinese internet-based start-up companies, which depended heavily on foreign funding. Towona Media, an mobile advertisement company, is facing increasingly grim prospects after it was unable to secure a market listing this past summer. Having previously rode VC funding, it is finding its operations spread too thin to be fueled indefinitely. One estimate said that two thirds of all funding for Chinese internet startups had come from abroad. One VP of a Chinese online video company estimated that many sites in his industry would run dry over the next year and a half, with smaller sites going belly-up.
Original article: [Chinese]