News Roundup

ECONOMY

The Chinese Academy of Social Sciences predicted that the countrys economy will expand 8.2% in 2013, an increase from an expected rate of 7.7% in 2012, thanks to the governments pro-growth policies. China will fine tune its economic policies next year to maintain stable growth, Xi Jinping said during his first domestic tour as the newly appointed Chinese Communist Party secretary. Domestic factory production and retail sales hit eightmonth highs in November, indicating that the economy is recovering. The positive data, coupled with 2% inflation that month, gives Beijing a broader hand to reduce monetary and fiscal stimulus or ease restrictive policies. The IMF warned that if China continues to heavily rely on investment to maintain growth, it could spark instability. Chinas Gini coefficient, a measure of income inequality, rose to 0.61 in 2010, up from 0.412 in 2000, a new survey showed, a dangerously high level that could trigger unrest. The survey also showed Chinas unemployment rate to be roughly 8% in July, nearly twice the official rate of 4.1%.

POLITICS

China must reform to develop its market economy and enhance the rule of law, Xi Jinping said during a visit to Guangdong, mirroring former CCP chief deng Xiaopings pledge to reform 20 years earlier. Censors eased restrictions on certain web content, including previously blocked searches for the names of some senior leaders. A new policy will offer tourists from most European countries short-term entry to Beijing without a visa. China excluded Norway under the policy, the latest snub since the Scandinavian country awarded the Nobel peace prize to a Chinese dissident in 2010. China unveiled a new version of national passports that includes a map claiming disputed territories in the south China sea, drawing complaints from Vietnam and the philippines.

MARKETS

Peoples Insurance Company (Group) of China (pICC), the second largest mainland insurer, attracted greater-than-expected investor interest in its US$3.1 billion initial public offering, as its share price rose 6.9% in its first day of trading in Hong Kong. The float was citys largest offering in two years. Social network YY became the first Chinese company to list in the US since April. Its shares rose to 7.8% in the first week of trading, lifting spirits for us-listed Chinese firms in a market that has been blighted by fraud allegations. The Hong Kong securities and Futures Commission released rules that would hold banks accountable for misleading content in prospectuses for IPOs that they sponsor but also give them more power to ensure clients follow the rules. The us securities and Exchange Commission charged China-based affiliates of five of the biggest us accounting firms with breaking securities laws by failing to provide documents from their audits of nine Chinese firms under scrutiny. The accounting companies – deloitte, Ernst & Young, KPMG, PwC and BDO –face possible sanctions including being forbidden from practicing before the SEC, meaning their audits of public companies would not satisfy US securities laws.

TRADE

China reported weaker-than-expected November trade data, indicating subdued external demand for Chinese goods. Exports increased 2.9% year-on-year in November, much lower than economistsforecast of 9.6%. Imports remained largely unchanged from a year ago, missing a forecasted 1.9% increase. The overall trade surplus slumped to US$19.6 billion from US$32 billion in October. Ten Southeast Asian countries said they would commence talks about forming a new trade bloc – called the Regional Comprehensive Economic Partnership –that would include China and five other regional economies but exclude the US, likely an effort to counter a US-backed Trans-pacific partnership.

BANKING AND FINANCE

Chinese bank lending was lower than expected in November, with lenders issuing US$83 billion (RMB522.9 billion) in new renminbi loans. The city of Wenzhou, a center of private business, revealed its plan to formalize high-interest, greymarket loans to open more financing to small companies. Huaxia bank said it may take partial responsibility for US$22.5 million in non-performing wealth management products that it claims were sold by an employee without permission. Wealth management products accounted for more than 85% of the US$560 billion in offerings from Chinas smaller financial institutions in the first nine months of 2012, increasing funding costs and credit risks.

ENERGY

The Canadian government approved Chinese energy conglomerate CNOOCs US$15.1 billion takeover bid for oil and gas company Nexen, following months of debate among politicians. The takeover, still subject to US and UK approval, would be Chinas largest foreign acquisition yet. petroChina will buy a stake in a major Australian liquefied natural gas project from bHp billiton for US$1.63 billion. The purchase gives PetroChina a share in Australian natural gas worth US$46 billion, according to a Deutsche Bank estimate. China reported significant increases in output of industrial materials such as copper and oil in November, a sign that smelters and refiners are increasingly confident that the nations economy is on the road to recovery.

FOREIGN INVESTMENT

General Motors will build a third commercial vehicle factory in Southwest China as it attempts to bolster its position as the countrys largest auto maker by volume. GM also revealed its newest research center in Shanghai, where it will focus on developing electric vehicle technology. Apple slipped to sixth in the Chinese smartphone market in the third quarter from fourth the quarter prior, amid strong competition from Chinese brands. The company hopes to regain lost ground with the release of the iphone 5, which sold 2 million units in its first weekend on sale. Yum brands, the owner of KFC and pizza Hut, pledged to be more selective in its pace of expansion in China, as growing competition eats into profits. The company said it is targeting smaller Chinese cities and opening more Pizza Hut units in an effort to boost its profits.

PROPERTY

Mainland real estate investment rose 16.7% in the first 11 months of 2012 compared to the same period a year earlier, a modest improvement from an annual increase of 15.4% in the first 10 months. Home prices rose in November for a sixth consecutive month in major Chinese cities. Several large Chinese property developers reported strong sales for November, signaling a nascent revival in the property sector. China Vanke, the countrys largest property developer by market share, joined Greenland Group and another investment company in buying a commercial land plot in Shanghai for US$868.6 million, the priciest land sale in the city this year.