China's Economy and Stock

On February 27, the China's stock index dropped sharply by 9%
from the day before, triggering a worldwide slide. Some media
called it China Stock Woes. We do not know if the foreign hot
money will stay in Chinese stock now. Some experts thought the
woes were caused by high growth in 2006. In a word, as discussed
in CCR's February 6th issue, China's stock market is linked with
stocks worldwide more and more tightly.
   The government, who is trying to exit the planned economy mode,
now neither gives money directly to state-owned companies at no
cost nor orders banks to give loans to those companies regardless
of the prospect of a return as it did ten years ago. The
government leaves the state-owned companies to make it on their
own by issuing equity shares. More and more companies
successfully raised funds by listing in the stock market,
although a small number of them committed public fraud in the
process. Nearly 100 companies operating in the petrochemical and
chemical industry are now publicly traded in domestic stock
markets, including Sinopec Corp. which has privatized several
subsidiaries in the past two years. CNPC, which has promoted its
subsidiaries into Hong Kong and USA stock markets, is
considering the issue of shares in domestic markets in order to
let Chinese people share their high dividends. Of course,
management and supervision of the publicly listed companies is
thin and not completed.
   Most of the national government's attention will go to
financial management, energy saving, reducing pollution, taking
care of farmers and creating a harmonious and balanced society,
according to the report made by Premier Wen Jiabao at the highest
conference held in Beijing on March 6th.  The government will
complete and strictly enforce the standards for energy saving
and environmental protection in approving newly constructed
projects and managing existing companies who cannot meet the
discharge requirements. Outdated production units will
certainly be shut down - in particular those units manufacturing
cement, electrolytic aluminium, ferrous alloy, coke and calcium
carbide. Wen also proposed that the government should steadily
develop the stock market and reduce the overabundance of fluid
money and continue to promote the opening up.
   On February 28th, the National Bureau of China made public
the national economic and social statistics for the year 2006.
The gross domestic product amounted to RMB20 940.7 billion,
increasing 10.7% over 2005. Consumer spending climbed only 1.5%
- a plausible number because more than half of the citizens think
their living level remained low. The price of raw materials,
fuels and power increased 6.0% and the price of housing in cities
increased by 5.5% last year. The foreign exchange reserve
reached US$1 066.3 billion at the end of 2006, representing a
rise of US$247.5 billion from the end of 2005.
   According to the report, in 2006 China's total output of
cotton was 6.73 million tons, an increase of 17.8% compared with
2005. The total profit posted by industrial enterprises that
have an annual sales revenue over RMB5 million reached RMB1878.4
billion, up 31%. The total investment in fixed assets was RMB10
987 billion, increasing 24%, of which RMB255.6 billion was in
the chemical raw materials and chemicals manufacturing industry,
with a rise of 29.4%. The total value of exports was US$969.1
billion while imports totaled US$791.6 billion. FDI dropped 4.1%
to US$69.47 billion. The annual income for village citizens, who
account for more than 50% of the total population, averaged RMB3
587 per capita, which is the most important figure for China's
government to improve.


   Zhong Weike
   March 8th, 2007