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TRADE BOOM: The 17th China Yiwu International Commodities Fair, held on October 20-25 in Yiwu, Zhejiang Province, attracted more than 3,050 companies from 36 countries and regions and witnessed 15.75 billion yuan ($2.5 billion) of trade deals, up 23.4 percent year on year (ZHANG JIANCHENG) |
Numbers of the Week
2 trillion yuan
Accumulated cross-border trade settled in the yuan has exceeded 2 trillion yuan ($315 billion) since July 2009, when China started the pilot program allowing yuan settlement in cross-border trade, said the People's Bank of China.
1.3 trillion yuan
China's software sector generated 1.3 trillion yuan ($205 billion) in revenue in the first nine months of 2011, up 31.7 percent year on year, said the Ministry of Industry and Information Technology.
TO THE POINT: The auto markets stage a mild comeback, with sales rebounding in September. The government starts a trial scheme allowing four local governments to issue bonds. Not only small companies, but also some larger, listed companies are feeling the pinch of financial difficulties. Parts of the country are reeling from diesel shortages as demand shoots up. China's total household wealth is expected to become the second largest in the world by 2016.
Acute diesel shortages are sweeping through parts of China due to surging demands and tighter supplies.
More than 20,000 private gas stations have run out of diesel, said the China Chamber of Commerce for Petroleum Industry in a report. Moreover, the shortfalls, which previously occurred in wealthy areas in southern and eastern provinces, are now spreading to inland regions, including Anhui, Sichuan and Hubei provinces.
"The fourth quarter is usually a peak season for diesel use," said Yuan Xuezhi, a senior researcher with the Shenzhen-based research company CIConsulting.
Meanwhile, owners of private gas stations have complained that it is difficult to purchase diesel from PetroChina and Sinopec, the country's two largest oil suppliers.
The two energy giants account for more than 80 percent of diesel supplies in China, but they have been blamed for reducing output and stockpiling diesel to pressure the government to raise prices.
The National Development and Reform Commission on October 8 announced a reduction in retail prices for gasoline and diesel of 300 yuan ($47.2) per ton.
The two companies denied the allegations, saying all their refineries are operating at full capacity and are not rationing how much customers can buy.
But data from 315.com.cn, a leading Chinese oil information site, showed operating rate of the two refiners was only around 77 percent between June and September, 7 percentage points lower than the same period of last year.
"State-owned oil companies should shoulder their responsibility of ensuring supplies, instead of blindly seeking profits," said Lin Boqiang, Director of China Center for Energy Economics Research at Xiamen University.
Signs are surfacing that the tepid auto market is recovering its strength, though uncertainties still loom large.
Auto sales across the nation totaled 1.65 million units in September, up 5.52 percent from a year ago, said the China Association of Automobile Manufacturers (CAAM). Output in September stood at 1.6 million units, a modest increase of 0.37 percent.
The September figure brought sales for the first three quarters of this year to 13.63 million units, growing 3.62 percent year on year. The output from January to September amounted to 13.46 million units, up 2.75 percent.
The once-sizzling auto market turned lackluster after the government canceled favorable purchase taxes for smaller cars and put new limits on car purchases in Beijing.
"The sales rebound in September as buyers rushed to showrooms before the government tightened up its subsidy policy on October 1," said Fu Yongchong, a senior analyst with the Datong Securities Co. Ltd. The government has announced an adjustment of its subsidy policies for energy-efficient cars, making many models ineligible for the incentives.
"As a result, the sales growth may drop in months to come, and the industry will continue to suffer from the negative impact of incentive withdrawal." he said.
Still, Dong Yang, Secretary General of the CAAM, expected sales to grow at least 3 percent this year, saying that the fourth quarter is usually a peak season for the auto market.
The Ministry of Finance (MOF) has recently launched a pilot program allowing local governments of Shanghai and Shenzhen, and Zhejiang and Guangdong provinces, to issue bonds for the first time.
The MOF said it will pay the principal and interest on the bonds to investors after the debt matures, and the local governments then repay the ministry. Half of the debt sold in the program will be three-year and the other half in five-year bonds.
The international credit rating firm Moody's said the move may yield benefits for local governments seeking access to capital market funding, help develop a municipal bond market, and is therefore credit positive for China as it will enhance fiscal transparency and discipline.
China's local governments were not allowed to directly get loans or issue bonds, and many have set up special investment vehicles to finance infrastructure projects. As those financing vehicles mushroom and local government indebtedness grows, worries abound about a possible debt crisis in the country.
By the end of 2010, debts of China's local governments totaled 10.7 trillion yuan ($1.69 trillion), around 26.9 percent of GDP.
Jia Kang, Director of the Research Institute of Fiscal Science, a think tank affiliated with the MOF, said the pilot program will take some financial pressures off local governments and strengthen transparency of their debts.
Moreover, it will help local governments wean off reliance on land transfer fees as a major source of fiscal revenues, said Shao Yu, an analyst with the Orient Securities Co. Ltd.
China has been struggling with skyrocketing house prices in part because local governments are reluctant to lower land prices.
"But it is still necessary to take a cautious approach to the bond issuance, and keep alert over possible risks." said Lu Zhengwei, chief economist with the Industrial Bank Ltd.
China's small companies are finding themselves financially strained due to a tightening monetary environment and a slowing economy. Signs are emerging that capital pressures may be spreading to larger firms.
The combined operating cash flows of 682 listed non-financial companies totaled 29.11 billion yuan ($4.6 billion) in the first three quarters, diving 28.92 percent from a year ago, according to data from the Shanghai-based Wind Information Co. Ltd. Worse still, nearly half of those firms reported negative operating cash flow.
The figure for the wind turbine maker Goldwind Science and Technology Co. Ltd., was minus 6.84 billion yuan ($1.1 billion), compared with minus 1.89 billion yuan ($298.1 million) one year ago. In the first nine months, the Xinjiang-based company generated 615 million yuan ($96.9 million) in net profits, plunging 60 percent year on year, because of cost inflation and intensifying market competition.
In another move, the aluminum giant Chalco said some of its units may face tough financial situations as prices continue plummeting.
Aluminum prices have decreased close to production costs while the government's tightening policies make financing increasingly difficult, said Luo Jianchuan, President of Chalco.
China is expected to replace Japan as the world's second wealthiest country after the United States with total household wealth shooting to nearly $40 trillion by 2016, said Credit Suisse, in a recent report.
However, the accumulation of wealth will be achieved along with an expanding wealth gap in China where the Gini coefficient, an effective measure of wealth inequality, has already passed an extremely dangerous level, it said.
China now has a total household wealth of $20 trillion, third in the world behind only the United States and Japan but ahead of France, according to the report.
The report downplayed overall wealth inequality in China, saying it remains moderate with 37 percent of the adult population lying in the middle segment of the wealth pyramid with a fortune of $10,000 to $100,000 per adult.
With the increasing wealth of successful entrepreneurs, professionals and investors, inequality has been rising strongly, it cautioned.
The Gini coefficient in China reached 0.5 in 2010 after hitting the recognized warning level of 0.4 more than 10 years ago. Developed European nations and Canada tend to have Gini indices between 0.24 and 0.36. A low Gini coefficient indicates a more equal distribution.
The fifth Forum on the Futures was held on October 22 in Beijing. The forum, organized by Beijing Wuzi University, brought together a number of industry researchers and insiders to discuss opportunities and challenges facing the country's futures markets.
China currently has three futures markets in Shanghai, Dalian, Liaoning Province and Zhengzhou, Henan Province. The markets are getting into full swing, with the combined transaction value topping 300 trillion yuan ($47.2 trillion) in 2010.
"But China's futures industry remains at an initial stage and futures companies in the country still rely heavily on commissions and lack an effective profit model," said Wu Xiaoqiang, Vice Chairman of Shanghai Futures Exchange.
Moreover, China's futures products are still not able to influence prices in international markets, he added. | 
