The annual session of China’s parliament closes in Beijing

The annual meeting of China’s parliament, the National People’s Congress (NPC), closed on March 18. This year’s focus was on three primary areas: economic and social policy priorities, State Council reform and personnel changes in the legislature and executive and judicial branches of the government.

Economic policies focused on inflation. In February this year, monthly CPI rose 8.7 percent, the highest monthly rise in 11 years. Approximately 80 percent of this inflationary growth is in foodstuffs, which greatly affects lower-income citizens.

In order to tackle inflation and prevent economic overheating, the central government has adopted a number of monetary and food supply measures. Premier Wen’s work report stressed that monetary policy would remain tight with strict loan ceilings enforced to control money supply and excessive investment. Responsibility for staple and non-staple food supplies was decentralized to provincial and city leaders, respectively. Wen emphasized the importance of ensuring food supply during high levels of inflation and during crises, such as the recent snow storms.

Leading up to the NPC, there had been high expectations for significant reform of ministries and commissions in the executive branch. A consolidation of government “super ministries” was the main stated purposes for this reform. Under the plan, the government created an energy watchdog and brought the drug regulator, State Food and Drug Administration (SFDA), under the Ministry of Health to improve governance in the two fields.

Other reforms include the creation of a new Ministry of Transportation, based on the former Ministry of Communications and the Civil Aviation Administration. Also, the State Environmental Protection Administration was upgraded to become the Ministry of Environmental Protection and a new Ministry of Industry and Information (MII) has integrated the former Ministry of Information Industry with other small government bodies.

A primary goal for the central government is to transform economic growth models. This transformation has three facets: upgrading China’s economic development from one reliant on manufacturing to a balance between industry, agriculture and services; transforming urban-centered Chinese economic growth to economic development in rural areas; and transforming China’s energy intensive and heavy polluting economic growth model to one that is environmentally sustainable.

Comments from President Hu and Premier Wen stressed the need for full implementation of Scientific Development, which focuses on bringing economic opportunity and social infrastructure to underdeveloped areas. The draft budget released early in the NPC underlined these priorities, with 16 percent of total expenditures allocated to improving agricultural output and large increases in healthcare and education funding targeted at rural areas.

Taming inflation while ensuring steady economic growth is China's top priority, but mounting pressures will make targets hard to achieve, Wen said. "Number one, we need to ensure the fast yet steady economic development in the country, and at the same time we need to effectively hold down inflation," he stated at an annual press conference following the end of parliament.

China reports strong GDP growth, high inflation in Q1

China's economy slowed slightly in January-March, but still expanded at 10.6 percent from a year earlier. This was slightly lower that the previous quarter's 11.2 percent rate owing to weaker global demand for exports and government steps to cool an investment boom. Inflation stayed above 8 percent in March, the government said, adding further pressure to rein in prices.

The central bank announced an increase of 0.5 percentage point in big banks' reserve requirements to 16 percent from April 25. This was the 16th increase since the middle of 2006.

The export growth rate in the first quarter fell 6.4 percentage points. Exports totaled USD305.9 billion, up 21.4 percent. A 15 percentage point fall in exports to the U.S. was offset by higher shipments to emerging markets, the National Bureau of Statistics said. Meanwhile, imports rose 28.6 percent to USD264.5 billion. The trade surplus fell USD4.9 billion year-on-year to USD41.4 billion. At the end of March, China's foreign exchange reserves totaled USD1.68 trillion, up USD153.9 billion from the end of 2007.

World Bank cuts 2008 China growth forecast to 9.4 percent

The World Bank cut its forecast for China's 2008 economic growth to 9.4 percent in its half-yearly update on East Asia and Pacific region economies. Louis Kuijs, senior economist of the World Bank's Beijing office, said the adjustment was made purely out of concerns over external factors of the Chinese economy. As the world economy had slowed more rapidly in the past two months, this had a negative impact on the growth of Chinese exports, Kuijs explained.

The World Bank's lower China growth forecast was a minor adjustment following its decision in February to slash its outlook to 9.6 percent from 10.8 percent previously due to the global slowdown. Analysts point out that the slower growth estimate would be compatible with the Chinese government's use of macro-economic policies to rein in inflation.

The World Bank stated that, "While the uncertain global outlook may slow China’s exports, the country's growth is expected to remain robust," and that China could "continue to emerge as a growth pole in the world economy, providing a possible counterweight to the slowing industrial economies."

China ranks No. 2 in buying power, World Bank says

China ranks as the world's second-largest economy according to new World Bank data, which uses new measurements of countries buying power in U.S. dollars. China remained in the No. 2 spot despite a downward revision by the World Bank in its purchasing power parity estimates.

This year's data introduces new estimates of purchasing power parity based on price data on goods and services in 146 countries, and adjusted to reflect local costs and affordability and converted to dollars. Under this measure, it said China's gross national income was USD6.1 trillion in 2006, compared with Japan’s USD4.2 trillion and the U.S.' USD13.2 trillion. According to the new data, China's 1.3 billion people had a per capita income of USD4,660 in 2006.

"There are a lot of implications. One of them is it helps us to see that the domestic market in China is really much larger than people might have thought when they were looking at the exchange rate data," said Eric Swanson, program manager for the World Bank's development data group. "China will continue to have a vast domestic market that produces for it but it also suggests to other participants in the world economy that China is not just a producer of goods but also a vast potential market," he said.

Foreign banks post 47 percent growth in gross assets

Foreign-funded banks on the Chinese mainland recorded USD171.46 billion in gross assets at the end of 2007, a growth of 47 percent over the level at the beginning of the year. According to a report by the People's Bank of China, the combined assets of foreign-invested banks made up 2.4 percent of the total assets of financial institutions nationwide.

The foreign-funded banks' gross assets included USD95.16 billion in outstanding loans, up 54.7 percent. Their combined liabilities rose 45 percent to USD155.4 billion, including USD60.66 billion in outstanding deposits, up 68.8 percent. By the end of 2007, the China Banking Regulatory Commission approved branches of 21 foreign banks on the mainland to transform into corporate banks, and 17 of them have begun operations.

M&A deals to maintain strong momentum

Merger and acquisition activities will continue to see strong growth in 2008, especially in the local market, analysts said. The overall state of economic growth facilitates an active M&A market as companies look to restructure, grow in scale and develop new markets. But equity markets, internally generated funds and bank loans will continue to provide ample liquidity for financing M&A deals.

Domestic M&As are expected to remain the theme in 2008 due to government support and state-owned enterprise (SOE) restructuring, analysts said. A report released by local brokerage Hongyuan Securities listed the industries expected to see more domestic M&A deals in 2008.

These include steel manufacturing, cement and equipment manufacturing, which will see integrations in line with the national energy saving and pollution reduction policy. The report also lists the IT, electronic equipment, biotechnology and retail industries, for which M&As are seen necessary to boost competitiveness, especially in the international market.

China allows banks to invest in U.S.

Chinese banks may now invest their clients' money in U.S. stocks and mutual funds, allowing them to diversify their portfolios at a time of increasing market volatility, China Banking Regulatory Commission (CBRC) said. China's banking and securities regulators signed an agreement with the U.S. Securities and Exchange Commission in April that will enable Chinese investors to invest in U.S. stocks and mutual funds.

The United States joins Hong Kong, Britain, Japan and Singapore as potential investment destinations for banks' funds under the Qualified Domestic Institutional Investor (QDII) scheme. Currently, a total of USD40 billion in QDII quotas have been granted to qualified investors in China, which allows Chinese banks, fund managers and insurers to invest in government and corporate bonds, overseas equities and fixed-income instruments, according to reports.

QDII was launched in 2006 as a way of offering greater investment options to residents, helping to avoid the creation of asset bubbles at home and encouraging capital outflows, thereby easing some of the upward pressure on the yuan.

China's online advertising market near USD1.4 billion

China's market in online advertising surged by 75 percent to RMB10.6 billion (USD1.48 billion) in 2007, according to a report by Internet consultant iResearch Inc.

The increase was largely driven by a boom in search engine advertising, or keyword advertising, which experienced an annual growth rate of 108.6 percent, said the report. Search engine advertising accounted for 27.3 percent of the market in terms of value, up 4.3 percentage points over the previous year, and it was predicted to hit 30 percent this year, the report said.

Advertising embedded in games, software and video clips would also become the major driving forces for online advertising, it said. The firm forecast that China's online advertising market would hit RMB17.2 billion this year and RMB37 billion in 2011. However, the United States reported more than USD22.5 billion in online advertising last year, about 15 times that of China.

Software industry profit up 20 percent

China's software sector generated RMB580 billion (USD80.8 billion) in revenue in 2007, an annual increase of 20.8 percent, the Ministry of Information Industry reported.

Sales of software products surged 22.5 percent to RMB201.7 billion, while system integration income rose 16 percent to RMB147.8 billion, the latest ministry statistics revealed.  The income of software and technology services hit RMB 97.8 billion, up 24.8 percent. Revenues of embedded system software hit RMB115.5 billion, up 21.8 percent year-on-year.

Revenues generated from integrated circuit design jumped 16.8 percent year on year to RMB17.1 billion, the ministry said without giving further details.

China handsets sales soar to 200 million a year

The number of mobile phones sold annually in China will surpass 200 million by 2009, local analysts reported. Falling handset prices and steadily increasing average incomes are driving an increase in unit sales of at least 6.4 percent per year, according to Beijing-headquartered CCID Consulting.

While the number of phones sold increased 23 percent last year, the total value of the market remained almost unchanged at USD22.85 billion as average handset prices fell sharply, driven down by low-cost handsets from manufacturers like Nokia. Phone sales will likely be boosted by the introduction of 3G mobile networks in China.

Tourism to boost hotel industry

The country's fast-developing tourism industry is expected to boost the hotel sector, a senior official has said. About 200,000 new hotels, resorts and guesthouses are likely to be built by 2015, head of China National Tourism Administration (CNTA) Shao Qiwei said on Thursday.

Addressing a seminar on domestic and international hotels' groups, he said the new structures will include about 10,000 star-rated hotels. The number of five-star hotels in the country is expected to rise from 361 to 500. "The World Tourism Organization has forecast that China will grow into a huge tourism market and have 100 million each of inbound and outbound visitors and 2.8 billion domestic tourists by 2015," he said.

Investment from home and abroad into hotels will hit RMB340 billion (USD47.14 billion) between 2006 and 2010, the CNTA has forecast. The hotel sector was one of the first to be opened up in China, with Jianguo Hotel in Beijing being the first foreign-invested hotel to be approved by the State Council in 1979.