TO THE POINT: The Hong Kong and New York listed China Netcom felt early pressure in the new year on news of its diminished telecom sales in 2007. Yet the biggest operator China Telecom came out on top, though barely meeting its year-end targets. China cut the major fuel import duty to cope with a national fuel shortage, while steel export duty was raised again in a bid to curb the export of energy-consuming products. Middle-class breadwinners must report their income from stocks and properties to the tax authorities. Foreign financial institutions will have more access to the Chinese capital market in the new year. By LIU YUNYUN

Open Market Policy

The participation of foreign investors in domestic financial institutions will be expanded according to the revised Rules for the Establishment of Foreign-Shared Securities Companies adopted in 2002.

According to the revised rules, all foreign financial institutions and ordinary institutional investors can invest in Chinese securities firms, while before, only foreign securities companies could invest. Moreover, qualified investors have to have been in operation for five consecutive years, against the previously required 10-year minimum. At least 30 employees of a foreign investment institution must be licensed to engage in a securities business in China, down from the previous stipulation of 50.

The new rules also require that shares held by an individual foreign investor in a listed Chinese company be kept below 20 percent. Overseas investors as a whole are restricted to a combined maximum 25 percent.

However, maximum shares held by overseas investors are still capped at below 33 percent for a joint-venture securities company.

These efforts are meant to honor the commitments China made at the Third China-U.S. Strategic Economic Dialogue held in December 2007 to further open its domestic financial markets.

Liu Hongru, Secretary General of Capital Market Research Institute, said more joint-venture securities companies will be established in 2008 and the domestic yuan-denominated A-share market will more closely follow international market trends.

Digging for Gold

To hedge against the risk of international gold price fluctuations, the Shanghai Futures Exchange acquired regulatory approval and launched gold futures trading on January 9.

The price of gold soared in 2007, luring many Chinese citizens to buy gold for future appreciation without realizing the potential risks accompanying the substantial price surge.

Simulation trading was conducted on January 2 and traders must trade at least 1 kg each time with 14,000 yuan ($1,917) in deposit. There will be a minimum margin requirement of 7 percent of the contract value, and the operators of the exchange will clamp down firmly on daily price fluctuations.

Strict regulations regarding risk control of gold futures will be adopted, according to the Shanghai Futures Exchange.

Gold futures are the first new precious metal product to be introduced to the mainland market this year. Zinc was the only one added in 2007.

Jia You ! Step on the Gas

China cut the import tariff sharply on petrol, diesel oil and kerosene to 1 percent from the previous 2-6 percent, effective as of January 1, 2008. The import tariff for fuel oil will remain at 3 percent, and crude oil imports still enjoy zero tax, according to the Ministry of Finance.

Numbers of the Week 8.7 million China's auto sales are likely to hit 8.7 million units in 2007, about 20 percent more than that in the previous year, said Zhu Yiping, an official with the China Association of Automobile Manufacturers. In 2006, more than 7.2 million autos were sold in the country, surpassing Japan and trailing only the United States. $3.18 billion Venture capital institutions at home and abroad injected $3.18 billion in 428 deals on the mainland over the first 11 months in 2007, up 78.9 percent from 2006, according to Zero2IOP Group.

The most recent change in oil import tariffs came on November 1, 2006, when the tariff was cut from 5 percent to 2 percent.

The move is meant to cater to the growing demand for oil in the mainland market. The country has suffered fuel shortages since October because of the widening gap between soaring international crude oil prices and artificially capped domestic prices. Because of this, oil producers and traders would rather export than import oil products.

On the contrary, energy-consuming products such as steel and coke will be taxed heavily if they are exported. Billet and other steel export duties were raised to 25 percent and 15 percent, respectively, 10 percentage points higher than the previous rates. The coke export duty was also raised to 25 percent from 15 percent.

The changes surrounding import and export duties demonstrate the government's determination to fulfill domestic demand and reduce high energy-consuming and polluting exports.

The Taxman Cometh …

Every year, citizens with an annual income of over 120,000 yuan ($16,500) must report to the local taxation department during the period from January 1 to March 31.

Differing from last year, income from trading properties and stocks must also be reported to the local taxation department, leading to a wide suspicion that the government will impose taxes on trading stocks and real estate. The mainland stock market dropped almost 2 percent on the morning the news was revealed on January 2, but soon recovered and maintained a stable level.

The rule says that investors only need to report their total earnings after factoring in losses.

The government stated that it won't impose a tax on gains from investment. However, experts aren't so sure.

Liu Huan, taxation professor at the Central University of Finance and Economics, contended that the move helps the taxation bureau track middle-class income earnings from investment and lays a foundation for future taxation reform.

China Netcom's Predicament

China Netcom, a leading fixed-line telecommunications operator in China, reported a net loss of 2.61 billion yuan ($357.53 million) in the country's 21 southern provinces and autonomous regions in 2007.

Zuo Xunsheng, President of China Netcom, concluded that the company's performance in 2007 "basically achieved its goals," though he balked on revealing the exact figures.

In 2007, most mobile operators adopted a one-way billing concept where only callers needed to pay. The move greatly spurred enthusiasm for using mobile phones instead of fixed lines.

It comes as no surprise to experts that China Netcom suffered drastic losses in the southern regions. First, one-way billing posed a major challenge to China Netcom. Furthermore, a cooperation agreement between China Netcom and China Telecom also contributed to China Netcom's losses. The cooperation agreement adopted in early 2006 forbade China Netcom from developing new customers in southern regions, and China Telecom was forbidden to develop in the country's 10 northern provinces and autonomous regions.

Fu Liang, an analyst with Wanfang Consult, said the figure could not fully represent the strength of the fixed-line tycoon. Since 2006, both China Telecom and China Netcom have been switching their focus from fixed-line users to broadband services, information services and other value-added services. They have also prepared for the upcoming third-generation services and have come up with plans for the new operation.

China Telecom fared much better in 2007. Wang Xiaochu, President of China Telecom, reported net profits of 26.6 billion yuan ($3.64 billion), up 1.9 percent from that of 2006. However, reported earnings on China Telecom's fixed-line operations were also not encouraging. A total of 2.74 million users were lost-the first loss of users since 2002. But Wang said broadband and other value-added services had brought significant profits for China Telecom and will remain major drivers for the company performance in the future.