Finance

• Chinese Banks granted CNY1.04 trillion in loans in January, the People’s Bank of China (PBOC) said. That was CNY200 billion less than analysts’ expected and also 25.2% less than the CNY1.39 trillion the banks issued in loans during the same period last year. However, it was about CNY100 billion more than the government’s target of CNY900 billion. Last year, the regulator set a full-year quota of CNY7.5 trillion, following a record CNY9.6 trillion lent in 2009.
• HSBC and Bank of China (Hong Kong) have begun issuing yuan denominated cashier’s orders in Hong Kong, in another step towards the development of a fully functioning offshore market for the Chinese currency.
• Shanghai has identified 123 major projects this year to help the city push ahead to become a leading global financial center by 2020. The yuan settlement in cross-border trade is expected to break the psychologically important CNY100 billion level by March since the program was started as a trial in Shanghai in mid-2009. The number of Chinese companies authorized to settle export accounts in yuan rose from 365 at the start of the program to 67,359 at the end of 2010.
• The CBRC again raised the banks’ reserve requirement ratio (RRR) by 0.5 percentage points from February 24. Reserve requirements vary between lenders of different sizes. China’s biggest banks will face a record requirement of 19.5%. The move is expected to freeze more than CNY350 billion from the market. China also announced an interest rate rise on February 8, the last day of the week-long Spring Festival holiday.
• Chinese banking authorities have started a pilot program at China Merchants Bank (CMB) to liberalize its deposit rates. CMB is the only major commercial bank chosen for the trial, among a few small-scale city commercial banks. The reform would see deposit rates increase and the net interest margin shrink. The pilot program began two months ago. “During the 12th Five Year Plan (2011-2015), we expect to see significant progress in interest-rate liberalization,” Zhou Xiaochuan, Governor of the People’s Bank of China (PBOC) said.
• China Everbright Bank plans to list in Hong Kong, raising as much as HKD47 billion. Proceeds from the initial public offering (IPO) will be used to supplement the bank’s core capital, increase its capital adequacy ratio, improve profitability, guard against future risks and support rapid development in businesses, Everbright Bank said in an announcement.
• More than 70% of cross-border yuan trade settlements conducted in Hong Kong last year came from mainland buyers paying yuan to settle bills with overseas sellers in Hong Kong, according to the Hong Kong Monetary Authority (HKMA). Yuan trade settlements in Hong Kong totaled CNY369.2 billion last year, up from only CNY2 billion in 2009.
• Bank of Shanghai has filed an application to the China Securities Regulatory Commission (CSRC) for a listing on the Shanghai Stock Exchange this year, and Guangdong Development Bank, in which Citigroup has a 20% stake, is planning a dual listing in Shanghai and Hong Kong, expecting to raise combined proceeds of up to CNY20 billion.
• Royal Bank of Scotland will boost its head count in wholesale banking as well as hire more senior bankers in China. The bank hired Frank Hamer, a veteran with 15 years’ experiences in the industry, as head of global transactions services for China.

Foreign investment

• France’s nuclear policy council, chaired by President Nicolas Sarkozy, announced the start of discussions to set up a wide-ranging partnership with China. The partnership could include the building of new EPR reactors and the joint development of a medium-sized 1,000-megawatt reactor.
• Construction started on Baha Mar, a USD3.4 billion complex on Nassau’s Cable Beach in the Bahamas, which will employ some 8,000 workers and is projected to contribute 10% to the Bahamas gross domestic product (GDP). The development plan calls for four hotels with a total of about 2,250 rooms, as well as a golf course, retail space, a convention center and  the largest casino in the Caribbean. The complex is scheduled to open in December 2014 .

Foreign trade

• China will increase efforts to expand imports this year to help balance trade, and to maintain the surplus-deficit ratio at below 3% of GDP, the Ministry of Commerce (MOFCOM) said. The General Administration of Customs (GAC) said the trade surplus in January narrowed by 53.5% to USD6.46 billion, with imports growing faster than exports. In 2010, China’s trade surplus fell by 6.4% from a year earlier to USD183.1 billion.

IPR protection

• Shanghai industrial and commercial authorities have destroyed more than 425,700 fake products, including clothing, purses and cell phones, all of them bearing world-famous brand names, such as Louis Vuitton, Burberry, Armani, North Face and Apple’s iPhone.

Macro-economy

• Chongqing aims to foster an economic boom over the next five years by introducing policies to encourage entrepreneurship and develop 150,000 “micro-businesses”. Mayor Huang Qifan said the move would raise the number of registered businesses in Chongqing to half a million. To benefit from the program, the businesses cannot be a shell company, withdraw funds, engage in speculative business, give loans or invest in stocks or futures.
• Shanghai is considering freezing the pay of civil servants in an attempt to plug an annual shortfall of more than CNY10 billion in its pension fund. The municipality’s pension payments are still far below the national average, Shanghai Communist Party Secretary Yu Zhengsheng said. Pension payments in Shanghai over the past five years equated to 44.9% of average earnings in the city compared to the national ratio of 64%.
• The National Bureau of Statistics (NBS) said the Producer Price Index (PPI) grew 6.6% in January, up from December’s 5.9%.
• Nearly 70% of Shanghai residents participating in a survey said that their salary did not increase or that it fell in 2010, but most of them think a pay rise is possible this year, according to the Shanghai Statistics Bureau. Nearly half of the people earned between CNY2,001 and CNY4,000 and many of them were dissatisfied with their salary last year. The survey found 43.2% of respondents working in foreign-invested firms said their salaries rose last year from a year earlier.
• The growth in M2, the broad measure of money supply, slowed 2.5 percentage points to 17.2% by the end of January from 19.7% a month earlier. Total yuan loans outstanding at the end of January rose 18.5% year-on-year to CNY48.35 trillion, 1.4 percentage points lower than a month earlier.
• The National Bureau of Statistics (NBS) reduced the weighting of food by 2.21 percentage points in the revised consumer price index (CPI) basket, a change that is partially responsible for a month-on-month drop in the inflation figure. China’s inflation rose 4.9% last month from a year earlier. The price of homes was raised by 4.22 points in the CPI basket, which is reviewed every five years to reflect new spending patterns. Food will account for around 30% after the CPI.
• China’s consumer confidence index dropped in the fourth quarter, the second consecutive quarterly decline, as expectations for rising prices hurt sentiment, the National Bureau of Statistics (NBS) said. Of those consumers polled, 84% thought food prices would climb further over the next 12 months, up from 78% in the third quarter. About 67% of those surveyed believed property prices were on the ascent, up from 62% in the previous quarter.
• The State-owned Assets Supervision and Administration Commission (SASAC) wants to raise the dividend paid to the central government by the 121 large non-listed state-owned enterprises (SOEs) in order to help fund social welfare programs. State firms administered by SASAC paid a total of CNY168.6 billion of dividends to Beijing between 2006 and last year in addition to CNY 5 trillion in other taxes.
• HSBC’s flash manufacturing purchasing managers’ index (PMI) fell to 51.5 from January’s final reading of 54.5. The index made its debut this month and is likely to be released about a week before the final reading each month as an early indication. The February index is the lowest since July, when the reading was 49.4. The flash PMI is based on up to 90% of total responses to the monthly survey and is designed to be an accurate snapshot of the final data.
• The Chinese government’s No 1 water plan sets administrative limits on consumption, stipulating that the country’s total water usage should not exceed 670 billion cubic meters in 2020, and 700 billion cu m in 2030. Those targets will be hard to reach as 600 billion cu m was used in 2009. The central government will spend CNY4 trillion over the next 10 years on water conservation projects aimed at more efficient water use. More than two-thirds of China’s 660 cities suffer water shortages, which have cost the economy a 2% loss in gross domestic product (GDP), according to the ADB.
• To overcome the limits of manufacturing-based growth, Suzhou will try to tap the services sector in the next five years, Vice Mayor Huang Qin said. The “golden time” for manufacturing, especially low-tech, export-oriented processing, was already past, Huang said, adding that Suzhou would be content to be known as “Shanghai’s backyard garden”.
• An All-China Federation of Trade Unions (ACFTU) survey of about 4,500 workers found that the average monthly pay of migrant workers was CNY1,748, about half of the CNY3,047 earned by urban residents, despite recent increases in minimum wages across the country.
• Chinese Prime Minister Wen Jiabao said China is lowering its annual economic growth target from 8% to 7% and is determined to contain soaring prices to ensure that growth was sustainable. The lowering of the growth rate is mainly symbolic as economic growth has exceeded the 8% target every year in the last six years. Last year, growth reached 10.3%, making China the world’s fastest-expanding major economy.

Mergers & acquisitions

• China recorded 1,798 mergers and acquisitions (M&As) in 2010 with a combined disclosed value of USD82 billion, an increase of 13.8% from 2009, according ChinaVenture Group. The number of foreign takeovers grew by 57.9%  in 2009. Thirty Chinese firms were acquired by overseas buyers in deals with a disclosed value of USD2.39 billion.
• An Ernst & Young survey showed that 31% of the 62 Chinese companies taking part in the survey will try to take advantage of merger and acquisition opportunities in the next six months. By comparison, only 29% of foreign executives are enthusiastic about M&As. Chinese companies are more optimistic about global economic recovery, and they are bullish about the local economy. In 2010, the total trading value of M&As undertaken by Chinese listed companies was CNY133.8 billion.

Petrochemicals

• The International Energy Agency (IEA) said in a report that China’s state-owned oil companies are operating overseas with a high degree of independence from the government and that their investments helped increase global energy supplies. “Their actions appear mainly to be driven by commercial incentives to take advantage of available opportunities in the global marketplace,” said the report.

Real estate

• Hong Kong has leapt six places to become the world’s third most expensive city for expatriates to rent a two-bedroom apartment, according to a survey by human resources consultant ECA International. Hong Kong’s 22% surge in rents last year propelled it from 9th place at the end of 2009, to 3rd position last year. The average monthly rental for a two-bedroom apartment climbed to USD2,830 last year, in contrast to the previous year, when rents fell around 25% in Hong Kong. Tokyo is the most expensive location.
• Banks in Shanghai extended CNY5.7 billion in mortgages last month, up CNY4.6 billion from December, the Shanghai headquarters of the People’s Bank of China (PBOC) said. But the amount in January was lower than the CNY21 billion in mortgages extended a year ago. There was a peak in home buying in December, as consumers expected more tightening measures. It normally takes a month for banks to extend home loans following the signing of a home purchase contract.
• New home prices rose in all but two of the 70 major cities monitored in January, with 10 of them reporting a surge of more than 10%.
• Statistics from the Beijing Property Transaction website show that property sales in Beijing dropped 60% in the first week after the Spring Festival holiday compared to the week prior to the holiday. China has been cracking down on property bubbles, with around 30 cities imposing restrictions on home purchases.
• Tianjin has become the latest Chinese city to try to clamp down soaring property prices, following the example of Beijing, Shanghai and Guangzhou. Residents who own two or more flats and non-local residents who own one or more flats have been prohibited from buying more property in the city, under rules from the Tianjin Land Resources and Housing Authority. Non-local residents must prove that they have paid taxes in Tianjin for one year before they can buy a home in the city.
• Tao Xiaoxing, a former official who was in charge of Shanghai’s land-use approvals, admitted taking CNY10.45 million in bribes when he appeared in court. He took advantage of his position to speed up land-use approvals for seven real estate developers. Prosecutors said the developers involved had made huge profits — up to hundreds of millions of yuan — because of Tao’s actions.
• Fourteen of the 78 state-owned firms (SOEs) whose core business is not real estate pulled out of the property market last year following a central government order in March. More than 20 companies are expected to follow suit this year, Shao Ning, Deputy Director of the State-owned Assets Supervision and Administration Commission (SASAC), parent of the 78 firms, said.

Retail

• The General Administration of Quality Supervision, Inspection and Quarantine (GAQSIC) ordered a crackdown on the illegal use of additives in milk products in response to public concern over products containing protein extracted from leather scraps or animal fur, which was found in milk products in 2005 as producers attempted to raise the protein level of milk products.
• Retailer Carrefour is likely to shut down another two stores in China. One is expected to be in Changchun, the other one in Shaoxing, Zhejiang province. Analysts said Carrefour did not understand the local market well and did not adapt its products and services to meet local people’s preferences. Carrefour has closed four stores in Dalian, Xian, Jiaozuo and Foshan — all second- and third-tier cities like Changchun and Shaoxing.
• Carrefour and Wal-Mart Stores have paid a total fine of CNY9.5 million after being found guilty of cheating Chinese consumers, the National Development and Reform Commission (NDRC) said. Each of the 19 outlets of the two retailers has been fined CNY500,000, the maximum amount under related laws.

Science & technology

• Haematologist Wang Zhenyi has won one of two State Scientific and Technological Awards this year for his treatment method of APL-type leukemia which uses all-trans retinoic acid (ATRA) and arsenic, a famous poison, but also a common ingredient in traditional Chinese medicine. More than 95% of his patients have recovered within five years, without any need for chemotherapy. His method is now also being adopted in the West.

Stock markets

• Zuoan Fashion, a Chinese casual menswear retailer, gained as much as 2.6% on its first day of trading after raising USD42 million in its U.S. initial public offering (IPO), 51% less than originally sought. The Shanghai-based company sold 6 million American depositary receipts (ADRs). The fashion company originally filed to raise as much as USD86 million before it cut the size of its IPO. Zuoan Fashion plans to use the proceeds to open new stores and to establish a center for storing finished products.
• The total revenue for all 15 listed Chinese brokerages plunged by 69.18% to CNY3.73 billion in January from a month earlier, while net earnings fell nearly 77% to CNY1.2 billion from December. The Shanghai Composite Index extended a loss of 0.62% in January, following a 14.3% drop last year. Haitong Securities was the best among the declining brokers as its monthly revenue tumbled 43.88% and net profits fell 8.11% from December.
• Growing awareness of animal rights looks set to foil an initial public offering (IPO) by Fujian-based Gui Zhen Tang Pharmaceutical, an operator of bear bile farms. The company is seeking a listing on the ChiNext market of the Shenzhen Stock Exchange. The CSRC stipulates that companies whose business operations are against public interests are barred from launching IPOs. If the offering is rejected, it would be the first one in China due to animal rights concerns.
• Profits of China-listed companies are expected to grow 16% to 25% this year, according to Citic Securities, which also cautioned that profit growth would slow from about 30% last year since higher prices for raw materials and the central government’s controls on end-product prices would dent corporate earnings. According to Guotai Junan Securities, a forecast of 20% growth appears optimistic.
• China is considering reopening its over-the-counter board to individual investors who meet the threshold minimum of CNY500,000 in their accounts and have at least two years’ experience of trading stocks, nearly two years after China closed the door due to low trading volumes. Individual investors will be allowed to trade a minimum 1,000 shares each time. China launched its first OTC market in June 2001.
• Zhang Xiaojian, former Vice President of Sealand Securities Co, will be barred from the stock markets for five years because of his involvement in an insider-trading case. He was also fined CNY600,000.

Travel

• Shanghai-based Ctrip.com International is aiming for 20% net revenue growth this quarter after posting a 51% increase in net income to CNY362 million in the fourth quarter last year, driven by high demand for hotel and air ticket reservations, and package tours. Net revenue, which excludes business tax and related surcharges, was up 39% to CNY787 million from CNY566 million the previous year.
• Ten airport projects cost taxpayers CNY159 million in false accounting and tax avoidance, the National Audit Office (NAO) said, and a total of 23 airports spent CNY1.94 billion on projects that were not open to public tendering, even though they were supposed to be, the office added, implying contracts were open to abuse. The NAO said CNY32.4 billion had been spent in 10 provincial-level regions on building or revamping 53 airports by the end of 2009. The audit focused on 31 key airports that benefited from 94.4% of the investment.
• Guangzhou plans to spend CNY63 billion to expand its metro system with three more lines in the next five years, taking its total to 11. The city will also begin work on the Guangzhou section of an intercity railway linking Dongguan and Shenzhen and work on another one linking Guangzhou to Shantou will begin within the next five years. The Chinese government also approved a high-speed railway project along the coast of western Guangdong, at a cost of more than CNY45.8 billion.
• Vice Premier Wang Qishan called for an overall improvement of the behavior of tour guides, after numerous scandals surfaced in the past few weeks. He added that tourists’ legal interests should be safeguarded. He also proposed the introduction of a more appealing wage and benefits system in the sector, institutional reforms including the establishment of a workers’ association, and a better management mechanism.
• Final tests have begun on the 645-kilometer Shanghai leg of the Beijing-Shanghai high-speed rail track, in preparation for its opening this summer. The section extends from the Zaozhuang West station in Shandong to Hongqiao station in Shanghai, via Nanjing, Jiangsu province. Testing will cover the new generation of high-speed bullet trains. When it opens, the 1,318-km, CNY220.9 billion line will become the world’s longest single high-speed rail connection, cutting travel time between Shanghai and Beijing to four hours.
• Shanghai fire authorities have refused to approve the city’s first, and perhaps last, capsule hotel – Shanghai Xitai Capsule Hotel – saying that fiberglass-reinforced plastic materials used in its construction do not meet safety standards. The 300-square-meter hotel, located near the main downtown train station, has 68 capsules. The hotel still lacks approval by the police and health bureaus. China has no regulations governing capsule hotels or specific quality standards.

One-line news

• Chinese people view Sino-EU relations more favorably than relations with the United States and many other countries, according to a survey conducted in six major Chinese cities, polling 3,019 randomly selected people.. Among the respondents, 74.1% viewed the European Union positively, while 73.6% did so for Russia and 59.9% for the United States.
• Temasek Holdings, Singapore’s state-owned investment company, named China International Capital Corp’s Ding Wei as Country Director. The investment firm owns stakes in Bank of China (BOC) and China Construction Bank (CCB), two of the three largest banks in China.
• The new five-year medicare plan aims to increase the average lifespan to 74.5 years, up from 73 in 2009; to cover all outpatient treatment with basic medical insurance, compared with very little now; to upgrade all county-level hospitals; and to lower the medical bill burden on individuals to below 30%.
• Minister of Railways Liu Zhijun has been formally dismissed and an inquiry has been launched into corruption at the Ministry, as well as a nation-wide safety inspection.
• About 75 Chinese companies were operating in Libya, involving about 36,000 staffers and 50 projects. China is in the process of evacuating its citizens from Libya, as several construction sites had been attacked.

“We should change the criteria for evaluating officials’ work. The supreme criterion for assessing their performance is whether the people feel happy and satisfied, rather than skyscrapers.”
Chinese Premier Wen Jiabao, quoted in the Shanghai Daily, February 28, 2011.

“As the world seems to be talking about China’s rise, my understanding is that the ultimate rise of China should mean the rise in its education and its talent.”
Chinese Premier Wen Jiabao, quoted in the South China Morning Post, February 28, 2011.

“We absolutely must not any longer sacrifice the environment for the sake of rapid growth and reckless roll-outs. That will lead to production capacity gluts and deepening pressure on the environment and resources so that economic development will be unsustainable.”
Chinese Premier Wen Jiabao, quoted on the BBC News website, February 28, 2011.

Lenovo Group announced it will invest USD175 million with NEC Corp to form a joint venture to sell personal computers in Japan. Lenovo will own 51% of the joint venture to be known as NEC Lenovo Group Japan, with NEC taking the balance. NEC has the option of selling its stake to Lenovo at the end of five years. As part of the deal, NEC will receive Lenovo shares worth USD175 million. It’s the biggest international expansion for Beijing-based Lenovo since its USD1.25 billion acquisition of IBM’s PC unit in 2005. Yang Yuanqing, Lenovo’s Chief Executive, said “it reinforces our commitment to our core PC business while, at the same time, providing important new opportunities for growth in Japan.” A combined Lenovo-NEC could become the world’s 3rd largest PC provider, although rankings are unclear until 2010 global sales figures are reported, Lenovo’s Chief Financial Officer Wong Wai Ming said. NEC is Japan’s biggest PC brand with an 18% market share, according to research firm Gartner. The two companies, which will keep their separate brand names in Japan, have also agreed to explore further business cooperation in areas such as tablet devices and servers, while seeking a possible partnership in global PC sales. Hideyo Takasu, President of NEC Personal Products, will become President and CEO of the venture while Roderick Lappin, currently Lenovo Japan President, will serve as Executive Chairman, the Shanghai Daily reports.

China Unicom and Spain-based Telefonica will buy USD500 million worth of shares in each other to boost their stakes and raise cooperation. Telefonica agreed to increase its stake in China Unicom to about 9.7% while China’s No. 2 telco aims to boost its holding in Telefonica to 1.37%, according to their joint statement. The higher stake will help China Unicom get a representative position on the Spanish telco’s board. Each company will buy USD500 million of shares in the other, with China Unicom paying Telefonica €17.16 for each share. Telefonica will buy China Unicom shares from third parties over the next nine months. In December, China Unicom was reported to have added 1.28 million 3G users which raised its total number of 3G users to 14.06 million last year due to booming sales of the iPhone 4 since the phone debuted in the domestic market in September. China Unicom is expected to attract 30 million new 3G users this year, according to China International Capital Corp. Unicom Chairman Chang Xiaobing and Telefonica Chairman Cesar Alierta, who signed the new agreement, said cooperation would increase in areas such as equipment purchases, mobile service platforms, roaming, technology and service to multinational corporations and wholesale carriers. Their new deal followed one forged in September 2009, when the two sides agreed to invest the equivalent of USD1 billion in each other. The two operators have a combined customer base of 590 million worldwide, the South China Morning Post reports.

China will commercialize 4G technology in 2012, which provides mobile users a 50 times higher mobile download speed compared with the existing 3G network, the Ministry of Industry and Information Technology (MIIT) said. The 4G trials should last for 18 months before the technology will be commercialized. China Mobile’s users will also be able to use Apple’s next-generation iPhone, which will support the 4G TD-LTE technology, without changing numbers. The 4G tests will include both domestic and overseas telecom firms, including Ericsson, Huawei and ZTE. China is testing the fourth-generation mobile services based on TD-LTE (Time Division-Long Term Evolution) in cities including Shanghai. Apple said it will “fully support” China Mobile’s 4G network with its future iPhone, Sina.com reported citing China Mobile’s Chairman Wang Jianzhou.