Numbers of the Week

52

China had opened 52 new-type rural financial institutions in western areas by the end of June, including 41 rural banks, three lending firms and eight rural fund cooperative agencies.

126.5%

China's credit card debt that was at least six months overdue rose 126.5 percent year on year in the first three quarters of 2009 to 7.43 billion yuan ($1.09 billion).

TO THE POINT: While the Chinese economy recovers, it remains uncertain whether a new round of inflation is approaching, forcing the country to take preventative measures by soaking up liquidity. Various sectors, cash-swash state-owned enterprises are embarking on aggressive expansions, raising worries over the survivability of their private counterparts. Australian ore miner FMG wavers on favorable iron ore prices for China, casting a shadow over the country's upcoming pricing negotiations. Riding on the convergence trend of PCs and handsets, Lenovo Group is set to reacquire its mobile phone asset. China's electronics sector is picking up momentum as industrial investments soar. German appliance giant Bosch and Siemens Home Appliance Group aims to tap into the Chinese market.

By HU YUE

Government Assurance

Chinese economists are divided on whether inflation should replace deflation as the greater concern as emphasis shifts toward post-economic crisis concerns.

Xia Bin, a senior economist with the Development Research Center under the State Council, believes a flood of low-interest lending is fueling asset bubbles and inflationary fears, although the consumer price index (CPI) remains in negative territory.

But He Qiang, a securities professor at the Central University of Finance and Economics, disagrees.

Excessive industrial capacity is expected to hold inflation at bay in the near future, said He.

Instead of fanning inflation, the booming real estate and stock markets are in fact absorbing liquidity from the consumer sector, He said, adding that housing prices are excluded from the CPI basket.

The risks of a return to inflation are apparent, but it has yet to be felt throughout the economy, he said.

The Chinese Government recently reaffirmed its pro-growth stance for 2010, pledging financial support until the economy settles. Analysts say this indicates policymakers are confident that the consumer price increases will stabilize and inflation will remain a relatively distant risk for the economy.

Though tightening control measures are off its agenda, the government has been mopping up liquidity. The People's Bank of China, the central bank, has siphoned 299 billion yuan ($43.7 billion) from the banking system through open market moves, including auctions of central bank bills and repo operations.

A Blessing or Curse for Private Firms?

After receiving massive stimulus-related loans, many state-owned enterprises are quickly utilizing the opportunity to underpin their market foothold, either through mergers and acquisitions of competitors or by boosting their resource reserves.

The state-owned Shandong Iron and Steel Group, for instance, recently merged with the private Rizhao Steel, an obvious government-arranged marriage given the severe financial distress of the bidder.

Another clear clue was given by the burning-hot real estate market. With soaring housing prices in sight, an array of deep-pocketed state-owned property developers are paying substantial prices for land to lock up future returns. In early September, China Overseas Land and Investment Ltd. agreed to pay an astronomical 7 billion yuan ($1.02 billion) for a plot of land in Shanghai, the country's biggest land transaction this year.

Analysts worry that aggressive advances from state firms come as a heavy blow to the private sector, many of which are still reeling from the economic downturn. More efforts are needed to stabilize the private economy, the biggest source of job creation and growth momentum, analysts said.

Wu Jinglian, a renowned economist with the Development Research Center under the State Council, said both state and private enterprises should be placed on the same playing field to compete. Private players, in particular, must try to move up the value chain and press ahead with technological innovations.

In response, the National Development and Reform Commission, the top economic planner, said that government stimulus packages will bring equal opportunities for all companies, and policymakers will not cease in their attempts to staunch the financial pains of private firms.

Iron Ore Deal Dilemma

Chinese iron ore negotiators received a heavy blow when they geared up to push for a steeper discount for mass ore imports.