TODAY'S BRIEFS 24 June 2008

TODAY'S BRIEFS

Stocks fall over fears of counter-inflation measures
The Shanghai Composite Index fell 2.5% to 2,760.42 on Monday in response to concerns about the potential impact of tougher inflation control measures on financial institutions, Bloomberg reported. The Shenzhen Composite Index also declined, closing down 1.9% at 770.94. China Merchants Bank was the biggest loser among the financial institutions, its stock plunging 3.6% to RMB23.76 (US$3.46), while Ping An Insurance slid 3.3% to RMB48.68 (US$7.08). CITIC Securities, China's largest publicly traded brokerage, dropped 3% to RMB25.16 (US$3.66). Aluminum Corp of China also struggled, closing down 5.2% at RMB12.30 (US$1.79), after announcing that its first-half profit will likely fall by more than 50%. The company blamed rising input costs - the government increased gasoline and diesel prices by 17% and 18% respectively on June 20 - and production disruptions caused by the snowstorms earlier this year.

Steelmakers agree to huge iron ore price hike
Mining giant Rio Tinto has secured a record 96.5% increase in iron ore prices following negotiations with Chinese steelmakers, the Financial Times reported. This is well beyond the 9.5% increase paid last year and it is likely to have a knock-on effect on the cost of cars, machinery and other products, exacerbating fears of global inflation. The price increase, which works out to an average of 85% across several categories of iron ore, beats the previous record rise of 71.5% set in 2005. Traditionally, industry-wide contract prices for iron ore have been negotiated by Brazil's Vale Do Rio Doce, with Australia-based Rio Tinto and BHP Billiton following suit. But Vale's agreed increase of 65-71% was rejected by the Australian miners on the grounds that the proximity of their iron ore to China reduces shipping costs and therefore warrants a premium price. BHP has yet to confirm whether or not it will accept the price secured by Rio as a benchmark.

Xi: China not to blame for rising oil prices
Chinese Vice President Xi Jinping defended his country's energy policy in the face of claims that demand from China and India is responsible for a doubling in oil prices in the last year, the South China Morning Post reported. Speaking at a Middle East oil summit, Xi noted that more than 90% of China's energy needs were met domestically and consumption levels were below the world average on a per capita basis. He also stressed that China, the world's second-largest energy consumer, is looking to improve its energy conservation and reduce its reliance on coal through tapping a number of alternative energy sources. Beijing's recent decision to increase retail petroleum and electricity prices met with a mixed reception at the summit. Critics argued that China is still a long way from market-based energy pricing and that controlled prices simply encourage oil demand growth.

Chery to establish car-financing joint venture
Chery Automobile, China's fourth-largest carmaker, has received regulatory approval to set up a joint-venture auto-financing arm, the South China Morning Post reported. It is the first time a mainland carmaker has been allowed to participate in such a venture. Chery will put up US$72.7 million and take an 80% stake in the joint venture, said Jin Yibo, an administration office director at the car company. The remaining 20% will be held by Huishang Bank, which, like Chery, is based in Anhui province. Only 20% of Chinese car owners took out loans to finance their vehicle purchases, according to Fitch Ratings. This compares to 50% in Japan and 90% in the US. Foreign players have already started car financing in China. The financing arm of GM's joint venture with SAIC, GMAC-SAIC Automotive Finance, became the first to receive government approval last November.

Foreign banks expect strong growth in China
Foreign banks in China expect to generate healthy revenues in 2008 despite regulatory challenges and staff retention problems, the Financial Times reported. Nine out of 42 banks surveyed by PricewaterhouseCoopers (PwC) said they projected a 100% increase in revenues this year, while a further 10 expect growth of 40-50%. Their positive outlook is based on a belief that Chinese clients will be attracted by foreign banks' sophisticated product offerings and global reach - areas in which domestic players are still lacking. The PwC report claims there are 76 foreign banks now operating in China, 20 of which have incorporated locally in order to offer a wider range of local currency products. However, these foreign banks account for just 2.4% of China's total banking assets. HSBC, Citibank and Standard Chartered scored highest in terms of local brand awareness, the survey found.

China Airlines considers mainland investment
Taiwan carrier China Airlines may invest in the mainland airline industry according to the company's chairman Ringo Chao. Chao was speaking on the sidelines of a signing ceremony for a cooperative agreement between China Airlines and mainland carrier China Southern Airlines, the South China Morning Post reported. The cooperative agreement, which covers a range of issues from code-sharing to staff training, is another indication of closer relations between the mainland and Taiwan aviation sectors ahead of the commencement of cross-Strait charter flights on July 4. However, analysts warned that any investment by China Airlines in the mainland airline industry is likely still some time away. The company has seen disappointing returns on its investment in Shanghai-based cargo operator Yangtze River Express Airlines while rising fuel costs are threatening its performance in the Taiwan market.

Report: Anti-corruption key to Communisty Party survival
The Chinese government released its 2008-2012 anti-corruption plan on Monday, warning that the survival of the Communist Party rests on its ability to stamp out graft, Reuters reported. "Resolutely punishing and effectively preventing corruption relates to whether the people support you or not and to the Party's life-and-death survival," the report said. Corruption is a major cause of public resentment in China and it has been targeted in a number of clean-up campaigns. However, these have enjoyed limited success as there are no meaningful checks on power. The report calls for state-owned companies to create "legal, clean and democratic management" and reduce wasteful spending of government money. It also recommends a financial sector clean-up, including the introduction of budget management reform and a standardized system for fiscal transfers. The report suggests more public hearings and professional consultation to improve transparency.