Consumption in China will continue to grow quickly in 2016 as the government promotes supply-side reforms to ensure better quality goods and services, Minister of Commerce Gao Hucheng said. Consumption took up 66.4% of China’s gross domestic product (GDP) growth in 2015. Online sales jumped 31.6% from a year ago to CNY3.2 trillion, or 11% of the total retail volume. Last year saw 120 million outbound Chinese travelers who spent CNY1.5 trillion on overseas trips and shopping as consumers bought luxury items as well as high-quality and cost-effective daily consumer goods. Minister Gao said one of the government’s priorities this year is to encourage the development of cross-border e-commerce to allow more consumers to purchase from overseas vendors. He added that global uncertainty was the main reason China saw negative trade growth last year. China’s foreign trade fell 8% in U.S. dollar last year, failing to reach the 6% growth target set at the beginning of 2015 following growth in 2014 of 2.3%. The country’s trade had grown at an average annual rate of about 15.3% over the past three decades, but now the speed is slowing as the economy shifts gears, Gao said. He expressed confidence in China’s foreign trade growth prospects in 2016.

China is assembling its second space laboratory and its latest manned spacecraft, and plans to send them into space in the second half of this year, according to the China Manned Space Agency. The Tiangong 2 space lab is scheduled to be launched in the third quarter. The Shenzhou XI spacecraft, which will carry two astronauts, will be launched in the fourth quarter and will dock with Tiangong 2. Astronauts will stay in the space lab for several days to test its life support systems and carry out scientific experiments. In the first half of next year, a next-generation Long March 7 rocket will transport the Tianzhou 1 cargo spacecraft to dock with the Tiangong 2 to resupply fuel and other materials. Tianzhou 1 will focus on fuel resupply technology, which is a major challenge for long-term, in-orbit operations. The space agency said the two Shenzhou XI astronauts are receiving training, while Tiangong 2, Shenzhou XI, two Long March 2F rockets to lift them into space, the Long March 7 rocket and Tianzhou 1 are all being assembled. China’s multibillion-dollar space program aims to put a permanent manned space station into service in about 2022.

China’s stock market tumbled by more than 6% on February 25, and investors’ concerns about the upcoming registration-based IPO system might be a main reason, experts said. Other factors include rising property prices in big cities, tighter liquidity in the financial system and investors’ booking profits after the market’s recent rebound. The market recovered somewhat the next day. On February 26, the benchmark Shanghai Composite Index rose by 0.95% to close at 2,767.21 points. The Shenzhen Component Index increased by 0.24%, while the startup index ChiNext dropped by 1.09%.

Automotive

• The China Association of Automobile Manufacturers (CAAM) announced that passenger car sales totaled 2.2 million units in January, 9.3% more than a year earlier, and the production of new-energy vehicles (NEVs) surged by 144%. Sales of sport utility vehicles (SUVs) reached 784,900 units, a surge of 60.5% year-on-year. About 261,400 multi-purpose vehicles were sold in January, a jump of 15.9% from the same period last year.

Finance

• The New Development Bank is expected to extend the first batch of loans and first renminbi bonds in the second quarter of this year, Vice President Paulo Nogueira Batista Jr said. The first loans will be granted to each of the founding members – Brazil, Russia, India, China and South Africa – for their renewable energy sectors. All United Nations members can apply to join the bank, but it will only lend to developing countries. The China-led Asian Infrastructure Investment Bank (AIIB) is also expected to have its first batch of loans approved before the end of this year.
• China’s five largest commercial lenders will no longer charge fees on domestic yuan transfers through mobiles, including interbank transactions. The banks also said they planned to scrap fees on domestic yuan transfers through the internet, on transactions of less than CNY5,000.
• People’s Bank of China (PBOC) Governor Zhou Xiaochuan said that the country still has some monetary policy tools to shore up economic growth, and that the government isn’t worried about decreasing foreign exchange reserves. “We will continue to adopt a stable monetary policy,” Zhou said. “We will focus on maintaining healthy and stable domestic growth and shifting to a new growth pattern against the backdrop of the new normal of the economy.”
• China’s commercial banks are gaining more room in pricing and risk valuation in mortgage lending. “Mortgage lending should be further encouraged, as it remains quite safe compared with corporate lending,” said Zhou Xiaochuan, Governor of the People’s Bank of China (PBOC), at the conference held by the Institute of International Finance in conjunction with the G20 Finance Ministers and Central Bank Governors Meeting in Shanghai. Zhou said individual mortgage loans in China account only for between 10% and 20% of total banking loans, “much lower than in some countries, where the ratio is between 40% and 50%”.
• The value of bonds issued in China in January surged more than 117% from a year earlier to CNY2.1 trillion. Of the bonds issued, CNY1.8 trillion worth were issued through the interbank bond market, up 109.9% year-on-year, according to the People’s Bank of China (PBOC). By the end of January, the total balance of the bond market was CNY48.8 trillion.
• The People’s Bank of China (PBOC) has defended the removal of sensitive data from a regular financial report used by the market to assess the flow of capital in and out of the country. The central bank said in a statement that the figures were no longer published as they were misleading and not an accurate reflection of capital flows. The removal of the data comes as a huge amount of cash is flowing out of China. China’s foreign exchange reserves fell by a record USD108 billion in December and USD99.4 billion in January.

Foreign investment

• Thanks to the One Belt, One Road initiative, China so far has established 75 overseas economic and trade cooperation zones in 35 countries and regions, Commerce Minister Gao Hucheng told a news conference in Beijing. These zones have paid more than USD100 billion in taxes to governments in host countries over the past four years, and they created 950,000 jobs by the end of last year, he said.
• Economics experts from London & Partners are forecasting that there will be record investment from China in the UK in 2016, increasing by 35%. The past year saw some major mergers and acquisitions in the UK from Chinese investment, totaling 22 deals.
• The world’s largest Cognac maker LVMH-Moet Hennessy Diageo is stepping up its investments in China as it remains upbeat on the company’s long-term growth prospects in its second-largest market. Hennessy launched its first online flagship store on JD.com in January.
• French industrial and medical gas maker Air Liquide has opened its fifth global research and technology center in Shanghai. It will focus mainly on energy efficiency, CO2 emission reduction, wastewater treatment, urban air quality, food safety and healthcare. The center, with an investment of €25 million, covers 12,000 square meters of laboratories, offices, and showrooms, and is housing 250 employees.

Foreign trade

• The International Silk Road Think Tank Association was launched in Shenzhen, Guangdong province, to provide sustained intellectual support for China’s Belt and Road Initiative. The Inaugural conference of the Association attracted about 60 foreign delegates, including Roza Otunbayeva, former President of Kyrgyzstan and Alfred Gusenbauer, former Chancellor of Austria.
• Fluctuations in the yuan within 10% in either direction would not significantly impact China’s trade, Commerce Minister Gao Hucheng said. China’s exports fell for the seventh month in a row in January, while the yuan weakened nearly 5% against the dollar in the onshore market last year.

Health

• Shares of Hong Kong-listed Alibaba Health Information Technology sank 14% after the company said a regulatory change might adversely affect its business operations. The China Food and Drug Administration said it would suspend the Product Identification, Authentication and Tracking System while it drafts changes to regulations on monitoring drug sales.

IPR protection

• A condom maker in Guangdong province has won a lawsuit against a Japanese company over its competing claim to be manufacturer of the world’s thinnest prophylactic. The Guangzhou Yuexiu District People’s Court ruled that Tokyo-based condom brand Okamoto used unfair practices to compete against Guangzhou Daming United Rubber Products. Guinness World Records verified the Chinese company’s Aoni condom, which has an average thickness of 0.036 mm, as the world’s thinnest in December 2013 – breaking the previous record of 0.038 mm set by Okamoto in 2012.

Macro-economy

• China’s Ministry of Human Resources and Social Security has urged the public to pay into their pensions after the minimum 15-year contribution is completed, saying it is “worthwhile” amid a looming pensions crisis. The Ministry is working on incentive policies for pension contributors to make sure those who pay more will receive higher pensions when they retire.
• China will work to keep its economic growth within a reasonable range this year, the Politburo of the Communist Party announced after a meeting chaired by President Xi Jinping. The government would continue its proactive fiscal policy and prudent monetary policy. The government will also “work to strengthen supply-side structural reform” to nurture new driving forces for growth.
• China will spend CNY100 billion over the next two years to relocate workers in steel, mining and other sectors suffering from overcapacity. The government is also trying to close a large number of non-profitable state-owned enterprises, known as “zombie” companies, to curb production of steel, flat glass, cement and other materials amid weak demand, said Feng Fei, Vice Minister of Industry and Information Technology.
• The Blue Book of China’s Provincial Competitiveness (2014-15), an annual report compiled by Chinese Academy of Social Sciences (CASS), found big discrepancies between regions in China based on nine indexes including macro-economic strength, industrial economic strength, sustainable development and government functions. The eastern region was the most competitive, with a rating of 48.8. The western region, with a rating of 33 points, lagged far behind. The northeast region also scored low on competitiveness. Overall economic competitiveness was highest in Guangdong, Jiangsu, Beijing, Shanghai and Zhejiang.
• Shanghai’s population was 24.15 million by the end of last year, including 9.72 million migrants who had resided in the city for over six months. There were 195,300 babies delivered in the city in 2015 – 96,200 were registered residents and 99,100 had migrant status.

Mergers & acquisitions

• For the third year in a row, Chinese planned acquisitions of U.S. companies constituted the largest number of those reviewed by the Committee on Foreign Investment in the United States (CFIUS). It reviewed 147 purchases of U.S. businesses by foreign interests in 2014. Deals involving investors from China, totaling 24, topped those from any other nation. Second was the UK with 21, while Canada was third with 15.
• China National Travel Service (HK) Group Corp (HKCTS) and China International Travel Service Group Corp (CITS) announced they were considering merging. Both are state-owned travel service providers. China has four state-owned tourism companies, all relatively small, said Lin Zhouyong, Analyst from Haitong Securities Co, who was not surprised by the proposed merger, adding that it is reasonable to reform or integrate them.
• HNA Group and a consortium led by Ontario Teachers’ Pension Plan Board and Borealis Infrastructure, are in the lead to buy London City Airport from Global Infrastructure Partners (GIP) for more than GBP2 billion. Cheung Kong Infrastructure Holdings is also still interested in bidding. The airport, located about 10 kilometers from London’s financial district and opened in 1987, was bought by American International Group and GIP in 2006.

Real estate

• The Chinese government has issued a directive not to build “weird-looking” buildings. The directive demands that urban architecture be “suitable, economic, green and pleasing to the eye”, in contrast to the “oversized, xenocentric, weird” buildings devoid of character or cultural heritage that have sprung up in some cities. But criteria to define “weird architecture” still have to be issued.
• The Chinese government said that walls and barriers separating private residential compounds would be demolished to allow public access to the roads and facilities in the compounds. But after many residents objected, the Ministry of Housing clarified that this would be a gradual process and would not be carried out uniformly. “Opening up residential compounds is not simply tearing down walls,” a Ministry Spokesperson said. But all new residential developments will have to be incorporated into the public street system.
• Dalian Wanda Group Co, the Chinese entertainment, property and finance conglomerate, is expected to announce a major deal in Europe and to make the United Kingdom the group’s headquarters in Europe. Chairman Wang Jianlin, speaking at Oxford University, said he was negotiating a major project, which would generate about 10,000 jobs. Wanda is China’s largest property developer, generating about USD40 billion in revenue globally each year.
• China will reduce or stop issuing land for new residential housing projects in areas where there is a supply glut. The Chinese government will not release vacant land to commercial property developers in cities and other areas where there are large levels of unsold inventory.
• According to a report by Fitch Ratings, land sales represented around 27% of local and regional governments’ aggregated revenue in 2015, and played a critical role in funding Chinese local and regional governments’ local infrastructure projects.
• Shanghai will increase the supply of medium to small-sized apartments to allow more people to own homes. Shanghai’s latest policy requires that medium to small-sized apartments should account for at least 60% of new housing development in the city’s outlying areas, and 70% and above in urban areas. For newly built homes near subway stations, at least 80% should be medium to small-sized houses.
• New World Development (NWD) has achieved just 28% of its HKD10 billion sales target for the financial year ending in June as prospective buyers stayed on the sidelines. The developer reported underlying profit for the second half of last year plunged 25% year-on-year to HKD3.28 billion. The decline was mainly due to the impact of its 70%-owned China property arm, New World China Land, recording an exchange loss of HKD1.24 billion arising from the devaluation of the yuan by 4.4% since June.
• China’s first-tier cities are likely to experience a real estate boom, and analysts believe the property market is off to a well-grounded start this year as property group China Vanke Co plans to raise its property prices in Beijing. In Shanghai, the average price for new homes has grown by more than 10% in the past two months, from CNY42,300 to CNY47,000 per square meter, as demand remains robust.
• Hong Kong has overtaken London as the world’s most expensive office rental market while Beijing and Shanghai have risen into the top-five ranking, global property consultancy JLL said. Renting a top quality office in Hong Kong will cost an average USD2,819 per square meter per year. Beijing ranked third and Shanghai fifth.
• China Everbright announced it has agreed to buy the Dah Sing Financial Center at Gloucester Road, Wan Chai, Hong Kong, for HKD10 billion, in the second-largest office transaction in Hong Kong.
• Shenzhen is planning to offer more affordable housing over the next five years as part of an initiative to cool the red-hot property market. New-home prices in Shenzhen increased a staggering 47.5% year-on-year in 2015, recording the sharpest home price increase for a Chinese city. “One of the efficient measures to cool the market is to introduce more affordable housing in the years ahead,” said Qiao Hengli, Deputy Director of the Shenzhen Urban Planning and Land Resources Commission.
• Prices of new homes rose in 38 cities in January, one fewer than in December. Prices fell in 24 cities and were flat in the remaining eight, compared with 27 and four cities in December, respectively. Shenzhen again led as the month-on-month price increase rose from December’s 3.2% to a gain of 4.1%. Shanghai was next with a 2.6% gain followed by Nanjing where prices rose 2.5%. Nationwide, the growth in home prices picked up notably in the first month of 2016 with an overall acceleration of 0.4 percentage points for new homes and 0.6 percentage points for existing properties.

Retail

• Chinese tourists spent about CNY1.2 trillion abroad last year, about 20% more than the previous year, according to the Ministry of Commerce (MOFCOM). Luxury purchases grew 10%, helped along by favorable exchange rates and competitive pricing in popular destinations like Japan, South Korea, Europe and Australia.
• China is to open 19 duty-free shops for domestic consumers to cater to their increasingly sophisticated demand for overseas products. The shops will be located at 13 airports, including Guangzhou Baiyun, Hangzhou Xiaoshan and Qingdao Liuting, and six ports in Shenzhen and Zhuhai in Guangdong province and also in Heihe, Heilongjiang province. Passengers will be allowed to carry duty-free goods worth up to CNY8,000, up from CNY5,000 previously.
• Consumption reached CNY30.1 trillion in 2015, rising 10.7% from a year earlier, and accounted for 66.4% of China’s GDP growth, up 15.4 percentage points from 2014. “In other words, China has successfully transformed economic growth, from being mainly driven by investment and foreign trade to being driven by domestic demand,” the Commerce Minister said.

Science & technology

• The Ministry of Science & Technology has launched the Major R&D Programs, a new national funding program that will replace previous science projects, including the State High-Tech Development Plan, the National Basic Research Program of China and a number of state-funded projects operated by other ministries. The Ministry initiated 25 special pilot projects under the program, covering a wide range of research fields from quantum technology to forestry cultivation. All programs are open to foreign researchers.

Stock markets

• The top priorities of the newly appointed Chairman of the China Securities Regulatory Commission (CSRC) are to clamp down on market malpractices and ensure that more funds are injected into the stock market, according to a Bloomberg News report. Liu Shiyu has indicated that the CSRC’s main tasks include strictly supervising the market and cracking down on market manipulation. Expectations are running high for Liu to take steps to boost investor confidence and revitalize the market.

• China General Nuclear Power (CGN) and rival China National Nuclear (CNNC) plan to build four more reactors based on the indigenous Hualong One design. Shenzhen-based CGN plans to deploy the new design in the fifth and sixth reactors of the nuclear project in Ningde, Fujian province, while CNNC is seeking to use the Hualong One design in the first two reactors of a proposed project in Zhangzhou, also in Fujian.
• Xie Zhenhua, China’s Special Representative for Climate Change, said China’s carbon intensity could be cut by about 50% below 2005 levels by 2020, more ambitious than the previous target set by Beijing.
• China’s second-richest man Jack Ma, Founder of Alibaba, has bought the Chateau de Sours vineyard in the famed wine-growing region of Bordeaux, which boasts a castle dating back to the 18th century and an 85-hectare property which produces 500,000 bottles of wine a year.
• Newly formed China COSCO Shipping Corp and France’s CMA CGM are reported to be planning a new container partnership to challenge the 2M alliance. Orient Overseas Container Line of Hong Kong and Taiwan-based Evergreen Line could also join the partnership in a group which would have an estimated capacity of 3 million TEUs.
• Beijing will build a new ring road between its crowded third and fourth ring roads to ease traffic pressure. Several urban expressways totaling 28 kilometers in length – forming the new road dubbed the 3.5 Ring Road by media – will be built during the 13th Five Year Plan (2016-20). The total length of Beijing’s subway lines will increase from 527 kilometers to more than 900 kilometers by the end of 2020, and an Automated People Mover will also be built in Beijing’s central business districts.