AUTO EXPO: A Carnival sedan model from Chang'an Ford Automobile Co. Ltd. is displayed at the 11th Xinjiang International Auto Industry Expo, which was held from August 3-8 in Urumqi, and attracted over 60 domestic and foreign automakers (WANG FEI)

Numbers of the Week

5.32 trillion yuan

China's petroleum and chemical industry saw their output value in the first half of 2011 increase 34.4 percent year on year to reach 5.32 trillion yuan ($825.8 billion), said the Ministry of Industry and Information Technology.

3,000 yuan

Land prices in 105 monitored cities of China averaged 3,000 yuan ($465) per square meter in the second quarter, up 8.9 percent from a year ago, said the Ministry of Land and Resources.

TO THE POINT: China's manufacturing industry continues to lose momentum, as reflected by a falling PMI. The third-party payment sector's transactions have grown rapidly as a result of an e-commerce boom. Foreign companies make inroads into China's restaurant industry by acquiring local competitors. The Ministry of Railways is burdened with a load of debt due to a building spree of high-speed railways. The Internet portal Sohu.com has generated juicy profits.

Manufacturing Withers

The purchasing managers index (PMI), a barometer of manufacturing activities, stood at a 29-month low of 50.7 percent in July, down 0.2 percentage points from June, said the China Federation of Logistics and Purchasing (CFLP).

It was the fourth consecutive month of decline for the index. But it still marked the 29th straight month in which the index was above the boom-and-bust line of 50 percent. A reading above 50 percent indicates economic expansion.

The new orders sub-index, an effective gauge of domestic demand, stood at 51.1 percent in July, up from 50.8 percent last month. The input prices sub-index, a measure of how much factories pay for raw materials and other intermediary goods, slowed to 56.3 percent, compared with 56.7 percent in June.

"The real economy is losing some strength as enterprises continue destocking," said Wang Jun, a researcher with the China Center for International Economic Exchanges. "But shrinking manufacturing is less likely as the country accelerates construction of affordable homes."

"Growth is truly undergoing a correction," said Zhang Liqun, a researcher with the Development Research Center of the State Council. "An economic slowdown is inevitable and reasonable as the country rebalances the economy."

China needs to closely monitor the trends in consumption, investments and export, as well as changes in inventories, in order to keep the economy on a stable path, said Zhang.

"We believe China has successfully avoided an economic hard landing," said Nigel Chalk, IMF's mission chief for China. "But rapidly rising food prices, a possible real estate bubble and a decline in credit quality are all potential risks that could impede China's growth."

Third-Party Prosperity

As e-commerce takes off in the country, China's third-party payment companies are basking in the glow of a significant market boom.

In the first half of this year, the transaction value of the third-party payment industry amounted to 830 billion yuan ($128.7 billion), skyrocketing 112 percent from a year ago, said a recent report of the China e-Business Research Center.

Alipay dominated the sector, with a market share of 47.2 percent in the first six months, followed by 20.3 percent held by Tenpay and 9 percent by Chinapay. The report also expected the transaction value to maintain rapid growth to reach 2.25 trillion yuan ($348.8 billion) in 2012.

It is estimated that China now has around 300 third-party payment service providers, but some unscrupulous firms are believed to be involved in illegal activities, such as money laundering and credit fraud.

Policymakers have spared no effort to streamline the thriving but highly fragmented industry. The People's Bank of China, the central bank, on May 26, issued the first batch of licenses to 27 qualified third-party payment service providers. Those that failed to receive a license before the deadline of September 1 may have to withdraw from the market.

Despite the consolidation efforts, competition will remain fierce, and companies will try to specialize in different fields to lure customers, said Zhang Meng, a researcher with the consulting firm Analysys International.

The Beijing-headquartered Yeepay, for instance, has gained a leading position in the education sector while Tenpay focuses on the airline ticketing businesses.

Expanding in China

Foreign companies are making a push into China's restaurant industry, hoping to benefit from the country's burgeoning consumer market.

On July 26, the European private equity firm Apax Partners announced it had purchased Golden Jaguar, a buffet-style restaurant chain in China.

"Apax is focused on identifying and capturing consumer and retail opportunities that capitalize on China's continued domestic consumption growth," said Richard Zhang, partner at Apax and head of Apax Greater China.

In another move, Yum! Brands Inc., the largest U.S. operator of fast food chains, also plans to acquire Little Sheep, a Chinese chain of hot pot restaurants.

Yum!, which owns KFC and Pizza Hut and already owns a 27.2-percent stake in Little Sheep, said it made a preliminary proposal to buy the Chinese company's outstanding shares.

The U.S. giant has nearly 4,000 restaurants in China. Its sales in the country jumped 13 percent year on year in the first quarter, while falling 1 percent in the United States.

"China's restaurant industry is gaining momentum, boosted by rising income and favorable government policies," said Feng Enyuan, Deputy Director of China Cuisine Association.

In the first half of 2011, the sales revenues of the restaurant industry totaled 957.9 billion yuan ($148.5 billion), up 16.2 percent year on year, said the National Bureau of Statistics. Feng expected revenues of the sector to reach 3.6 trillion yuan ($558.1 billion) in 2015, doubling that in 2011.

Yan Minghang, an analyst with the Shenzhen-based research company CIConsulting, said forays of foreign companies would intensify market competition.

But for Chinese firms, it is also an opportunity to learn from advanced management and marketing expertise, he said.

Railway Debt Concern

In a bid to finance the construction of massive and expensive high-speed railway projects, the Ministry of Railways (MOR) has taken on a mountain of debt.

By the end of June 2011, the debts of China's railway operators, all affiliated to the MOR, totaled 2.09 trillion yuan ($324.1 billion), with an asset-liability ratio of 58.53 percent, slightly up from 58.24 percent in the first quarter, according to data from the Shanghai Clearing House, an interbank clearinghouse under the People's Bank of China.

Meanwhile, the MOR-affiliated transportation companies posted a profit of 4.29 billion yuan ($665.1 million) for the first half of 2011, reversing a loss of 3.76 billion yuan ($583 million) in the first quarter.

The ministry is coming under mounting financial pressures as the country continues to expand the high-speed transport networks, said Ou Guoli, a professor with the Beijing Jiaotong University.

It is necessary for the government to fend off possible risks and ensure the sustainability of its debt, he said.

So far this year, the ministry has auctioned 85 billion yuan ($13.2 billion) worth of bonds to finance the building of high-speed railways.

Stephen Green, a senior economist with Standard Chartered Bank, said he doubts if the ministry's operations can generate enough free cash flow to cover the interest payments on its debts.

But Yu Bangli, chief economist of the MOR, downplayed the worries. "A debt crisis is less likely because the debt ratio remains within a safe range," said Yu, at a press briefing in June.

High-speed railways may require hefty investments, but they can effectively facilitate transport, and stimulate the flow of human resources, technologies and capital, he said.

Sohu's Profit Up

The Chinese Internet portal Sohu.com reported revenues of $198.7 million for the second quarter of 2011, soaring 36 percent year on year, drawing strength from strong growth in advertising and online gaming businesses. Its net profit jumped 37 percent from a year earlier to reach $42.7 million.

The key online game segment, which accounts for more than half of Sohu's total revenue, surged 31 percent to $101.5 million, while online brand advertising revenue totaled $67.7 million, up 27percent from a year ago.

"The online brand advertising revenues hit a new high as we saw strong advertising demand from the Internet sector, including e-commerce companies," said Belinda Wang, COO of Sohu.

In addition, Sohu has been boosting its presence in the online video and search engine sectors to expand its product line and cater to a widening group of Internet users.

Its online search unit Sogou has become the country's third largest search site in terms of advertising income, with a 2.4-percent market share by the end of the second quarter, trailing Baidu's 75.9 percent and Google's 18.9 percent.