TO THE POINT: The mainland securities watchdog took on the task of rejuvenating the nation's stumbling stock markets with further endeavors. It approved two new qualified foreign institutional investors to invest in the mainland financial markets. The Ministry of Commerce made a clear statement that foreign-invested companies can be listed on the mainland. Hot money continues to flow into the country, adding pressure to liquidity control. To date, most listed companies had issued their first quarter reports, showing profit growth rate slowdown. The oil giants Sinopec and PetroChina suffered from profit slump, due to policy reasons. By LIU YUNYUN

Adding to the QFII Family

The securities watchdog granted qualified foreign institutional investor (QFII) status to the Prudential Asset Management Co. Ltd. of the Republic of Korea on April 12, without revealing the exact investment quota for the company.

It is the second QFII the China Securities Regulatory Commission (CSRC) has approved so far this year. The first was Columbia University, approved in March, which ended a long period (since October 2006) when no new members were added to the QFII family. Currently, there are 54 QFIIs on the mainland.

In May 2007, on the occasion of the Second China-U.S. Strategic Economic Dialogue, China vowed to expand its QFII quota to $30 billion from $10 billion. To date, $9.95 billion has been used up. The approval of the two new QFIIs signals the government's effort to introduce more capital into the stumbling mainland stock markets, while QFIIs are able to share the achievements brought about by China's endeavor to develop the nation's financial markets.

The mainland stock markets showed signs of rebounding after a stricter rule on block-trading system was adopted, as well as a reduction from 0.3 percent to 0.1 percent.

"From our point of view, the worst time has passed. Though the markets might go down another time, the global capital markets are performing rather effectively. The U.S. Federal Reserve set up a good example in extinguishing financial risks," said Gong Fangxiong, Chief Economist at JP Morgan Chase & Co. (China), which was one of the first few QFIIs approved by the government.

Oil Giants Profits Plummeted

The two largest national oil companies, China Petroleum and Chemical Corp. (Sinopec) and PetroChina Co. Ltd. (PetroChina), both reported profit slumps in their first quarter report.

Sinopec net profits dropped 65.78 percent, while PetroChina's net profits were down 28.6 percent compared with that of the first quarter last year due to loss-making oil refining businesses.

The international crude oil price continued to surge and almost reached $120 per barrel in the first quarter, while domestic refined oil prices were fixed by the government at a very low level, approximately half of the international crude oil price. This was the major reason for the profit slump, said both companies. The government intended to make oil affordable to ordinary users to avoid social instability.

Sinopec, China's largest oil refiner, made a profit of 6.7 billion yuan ($957 million), and the profit only came after it got a subsidy of 7.4 billion yuan ($1.06 billion) from the government. Sinopec's turnover from operations in the first quarter stood at 332 billion yuan ($47.43 billion), growing 20 percent over the same period last year.

PetroChina, the country's largest oil and gas producer, reported a first-quarter revenue of 259 billion yuan ($37 billion), an increase of 41.9 percent year on year. It paid over 20 billion yuan (about $3 billion) to the government as special oil gain levy.

Analysts contended it was not likely that the government would lift refined oil prices soon, as the inflation pressure was very heavy at this time.

Hot Money Surge

The hot money continued to flow into the mainland with first quarter figures standing at around $80 billion, equivalent to two thirds of the entire influx of last year. The Shanghai Securities News quoted Zhu Baoliang, Vice President of State Information Center, a research institution under the National Development and Reform Commission.

"The inflows of international speculative money in the first quarter have increased market liquidity, which in turn could put more pressure on inflation," Zhu said.

Zhu warned the government to keep close watch of renminbi appreciation, arguing that further appreciation will attract even more hot money. Many foreigners have opened renminbi accounts, and were keen on seeing the renminbi gain value from time to time. They can enjoy both renminbi appreciation and the mainland's high interest rate. So far this year, the Chinese currency against the U.S. dollar appreciated 4.2 percent. Meanwhile, the Chinese benchmark one-year interest rate is much higher than that of the United States, 4.14 percent and 2.25 percent respectively (subject to further interest rate reduction).

The mainland stock investors once suspected the half-year market turmoil was caused by the outflow of international speculative money. But the figure provided by Zhu told a different story.

"The first quarter hot money inflow was the biggest compared with any same period of time in history. Our research group concluded the hot money largely flows into the Chinese capital market, but not the property market," said Li Youhuan, a veteran researcher at Guangdong Academy of Social Sciences.

Foreign-invested Companies Getting Listed

China has started efforts to internationalize its capital market by guiding qualified foreign-invested companies to be listed on the mainland stock markets.

On April 22, the Ministry of Commerce issued Guiding Opinions of the General Office of the Ministry of Commerce on the Work of Absorbing Foreign Investment Nationwide in 2008. It vowed to create a sound capital environment for foreign-invested companies to launch initial public offerings on the mainland Shanghai and Shenzhen stock markets.

The Guiding Opinions promote innovative utilization of foreign capital. Meanwhile, foreign companies are encouraged to merge and acquire state-owned enterprises (SOEs) to participate in SOE reshuffle.

Attracting foreign investment is one of the key aspects of opening-up policy. Ministry of Commerce statistics show that last year, the industrial value created by foreign-invested companies took up 30.9 percent of the nation's total, while the imports and exports conducted by foreign-invested companies accounted for 57.73 percent of the total foreign trade value.

Unemployment Rate Stable

The first quarter urban unemployment rate was registered at 4 percent, 0.1 percentage point lower than that of the same period last year.

China had a registered unemployed population of 8.25 million in urban areas at the end of the first quarter of this year, according to data from the Ministry of Human Resources and Social Security on April 28.

Between January and March, 3.03 million urban dwellers found work, or 30 percent of the annual goal of 10 million. Meanwhile, 1.28 million layoffs were re-employed, or 26 percent of the annual target of 5 million.

The three-month period also saw 204.7 billion yuan ($29.2 billion) gained on basic pension fund, a growth of 31.9 percent on the same period of last year.

The national basic pension fund covered 205 million people at the end of March, an increment of 3.32 million over the level at the end of last year.

The ministry added that at the end of March, 40.88 million migrant workers were covered by work injury insurance nationwide, up 1.22 million from the end of last year, and 33.61 million migrant workers protected by basic medical insurance, up 2.3 million.

Expensive Steel

Steel prices have been rising for a month since the end of March in China, bolstered by strong demand.

The China Iron and Steel Association (CISA) website said domestic steel prices surged by almost 20 percent in the first quarter. The domestic steel price index rose to a record high of 142.31 points in March, up 32.51 points from the same period last year.

The price was pushed up by high demand on the domestic market, where growth in steel output remained comparatively slow, said the CISA. A rise in fuel prices that resulted in higher production cost also contributed to surging steel prices.

Analysts believed the steel prices would continue growing, as there is a price gap of about $100 to $200 per ton between domestic and international markets.

Numbers of the Week

9.29%

The mainland stock markets' benchmark Shanghai Composite Index surged 9.29 percent on April 24 following the news of stock trading stamp tax reduction. The jump was the highest in eight years.

890

Altogether 890 cars produced by over 2,000 automobile manufacturers were showcased at the 2008 Beijing International Automotive Exhibition held on April 20-29.