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FLYING HIGH: An employee (right) of China Southern Airlines shows an Airbus A380 model to a visitor. The first Airbus A380 plane China Southern Airlines has purchased, also the first in China, will arrive in Beijing on October 15 and come into operation two days later (XINHUA) |
Numbers of the Week
1.11 trillion yuan
The added value of China's cultural industry totaled 1.11 trillion yuan ($173.98 billion) in 2010, accounting for 2.75 percent of the country's GDP, said the National Bureau of Statistics.
$642.5 billion
China's outstanding foreign debt amounted to $642.5 billion as of the end of June, said the State Administration of Foreign Exchanges.
TO THE POINT: The real estate market fever is cooling down with signs of price declines emerging. Despite proliferating worries about the safety of dollar assets, China has boosted its holdings in U.S. Treasury securities for four consecutive months. China maintains its appeal to foreign investors as reflected by strong FDI inflows. Internet companies are picking up momentum, raising hopes for a renewal of global investors' confidence in China-concept stocks. State-owned enterprises report handsome profits, but challenges remain.
The once-bullish property market is tapering off, as government measures to cool the market take effect.
In August, 24 out of 70 monitored major cities reported month-on-month increases in prices of new commercial residences, down from 39 in July, said the National Bureau of Statistics. Meanwhile, 16 cities experienced price declines, compared with 14 in the previous month. Prices stood unchanged in 30 cities.
As for second-hand homes, prices rose in 27 cities in August, decreasing from 36 cities in July. Also, 26 cities saw their prices head lower, an increase of four cities from July.
Policymakers have tried all levers to let air out of the real estate bubble. The government will expand purchase restrictions to second- and third-tier cities where prices are skyrocketing.
The price restrictions will intensify financial pressures on property developers and help drag prices down. But the measure may face local opposition as local governments rely on land transfer fees as a source of revenue, said Gu Yunchang, Vice President of the China Real Estate Association.
Chen Sheng, Vice President of the China Index Academy, said both developers and home buyers took a wait-and-see attitude in the past two months, but it is clear that the government's clampdown will continue or become even tougher in the future.
The People's Bank of China recently conducted a survey of over 20,000 urban residents in 50 cities, and 75.6 percent of respondents said the current house prices remain too high, 1.3 percentage points higher than three months ago.
Nigel Chalk, China mission chief at the IMF, believes the restrictions on speculators only treated the symptoms, not the causes, of the malaise.
"Ultimately, the solution has to involve higher interest rates, efforts to create a broader set of financial assets for the population to invest in, and a broad-based property tax that covers the majority of China's housing stock," he said.
China increased its holdings in U.S. Treasury securities by $8 billion in July for the fourth straight month, after five consecutive months of decline, said the U.S. Treasury Department.
China retained its position as the largest foreign holder of U.S. Treasury securities, with $1.1735 trillion in its portfolio.
The buying came amid one of the biggest bullish sprees in the Treasury market due to worries about global growth and the euro zone's debt crisis.
Japan, the second largest foreign holder, boosted its holdings by $3.8 billion to a record high of $914.8 billion. Overall foreign holdings stood at $4.478 trillion at the end of July.
A compromise deal to raise the U.S. debt ceiling has soothed default worries, but fears are growing about the safety of China's holdings due to the poor health of the U.S. economy.
Andy Xie, an independent economist and a director at Rosetta Stone Advisors Ltd., said China should buy more U.S. equities, instead of Treasury securities.
"The U.S. stock market can be a credible alternative," he said. "U.S. companies are reporting strong earnings and they are selling a lot to emerging markets. Even though U.S. stocks aren't cheap by historical standards, they are a better investment relative to Treasury securities."
Guo Tianyong, Director of the Research Center of the Chinese Banking Industry at the Central University of Finance and Economics, said a more permanent solution is to diversify holdings of foreign exchange reserves, and at the same time push forward internationalization of the yuan to wean off reliance on the U.S. dollar.
China's Internet companies are thriving, basking in the glow of a significant Internet boom.
The 37 globally listed Chinese Internet companies saw their revenues surge 38.7 percent year on year in the second quarter, compared with 36.7 percent in the same period of 2010, according to a recent report by China Venture, a Beijing-based investment consulting firm.
The best performers were video sharing companies and social networking websites, which experienced 118.4-percent and 68.6-percent growth in revenues, respectively. Portal websites and e-commerce firms also fared well, with revenues growing 45.7 percent and 23.9 percent, respectively.
Despite the market buoyancy, eight of the 37 firms spilled red ink, including the online bookstore Dangdang and video sharing websites Youku and Tudou.
China now has the world's largest Internet market, with user population totaling 485 million at the end of June 2011.
If Chinese Internet companies continue with strong performances, investors' enthusiasm may be boosted again and the listing of Chinese Internet firms on the U.S. stock market is likely to resume in the fourth quarter, said the report.
Nasdaq-listed Tudou was the only Chinese firm that went public overseas in August.
Despite a macroeconomic slowdown, China's state-owned enterprises (SOEs) have maintained their bullish runs.
In the first eight months of 2011, SOEs raked in a combined profit of 1.53 trillion yuan ($238.7 billion), up 21.9 percent from a year ago, said the Ministry of Finance (MOF). Of this total, centrally administered SOEs earned 1.04 trillion yuan ($162.8 billion), and the rest went to local ones. But in August alone, their combined profit dropped 10.5 percent from July.
Their revenues totaled 23.72 trillion yuan ($3.7 trillion) from January to August, up 24.4 percent. In August alone, the amount climbed 0.2 percent month on month.
But the SOEs witnessed a decrease in profitability as their profit-to-sales ratio came in at 4.9 percent in August, 0.2 percentage points lower than the same period last year.
Not every sector is faring well. While petroleum and telecommunications SOEs reported rapid month-on-month increases in profits, state-owned steelmakers, automakers and electric generators experienced a month-on-month plunge in profits, said the MOF.
"Some SOEs are facing headwinds because the broader economy is losing momentum," said Song Yu, an analyst with the Gaohua Securities Co. Ltd.
"In addition, domestic cost inflation and tightening monetary environment also deepened their woes," he said.
China received $8.45 billion in foreign direct investment (FDI) in August, up 11.11 percent from a year ago, said the Ministry of Commerce.
The August figure brought the amount for the first eight months to $77.63 billion, up 17.71 percent. A total of 18,006 foreign-funded enterprises were approved from January to August, climbing 7.68 percent year on year.
"China remains the only bright spot amid the global financial turmoil," said Li Huiyong, an analyst with the Shenyin & Wanguo Securities Co. Ltd. "Solid growth momentum ensures juicy investment returns, and local governments are also offering incentives to attract overseas investors."
The German auto giant Volkswagen, for example, has announced plans to invest $14.6 billion through its joint ventures in China by 2015. In another move, Caterpillar, the world's largest maker of construction and mining equipment, said it plans to open a new plant in Jiangsu Province to manufacture undercarriage components and track assemblies used on hydraulic excavators.
"China's goals of promoting innovation and the service sector are providing fresh opportunities for European companies," said the European Union Chamber of Commerce in China, in a recent report.
Still, the chamber called for greater market access and urged improvements in regulatory efficiency and innovations through protection of intellectual property rights. | 
