TODAY'S BRIEFS Daily News Update 13 June, 2008

Shanghai index hits 15-month low
The benchmark Shanghai Composite Index (SCI) fell 2.2% to close at 2,957.53 a 15-month low on Thursday, AP reported. Worries of inflation and surging commodity prices helped push the SCI to below 3,000 points, considered a psychologically important barrier. The market was weighed down by oil giants PetroChina and Sinopec, which fell 3.3% and 3.4%, respectively, while CITIC Securities dropped 7.3%. However property developer China Vanke rose 3.5% after two consecutive days of falling by the 10% daily limit. The SCI has dropped by over 43% since the beginning of the year.

May inflation falls to 7.7%
Consumer price inflation in China fell to 7.7% in May, Bloomberg reported. Slowing food inflation helped to push the country's consumer price index (CPI) down from 8.5% in April, which was close to a 12-year high of 8.7% in February. Food prices, which had gained 22.1% in April, were up 19.9% in May, while non-food inflation fell slightly, to 1.7% from 1.8%. However, producer price inflation rose to 8.2% from 8.1% in April. The lower CPI is still above the official target of 4.8% inflation for the year, leading some analysts to suggest the government will allow the renminbi to appreciate more quickly in an attempt to lower costs of imports.

PRC, Taiwan reach agreements on flights, tourism
The People's Republic of China and Taiwan have reached agreements for regular non-stop charter flights, bilateral tourism and plans for future talks, the Financial Times reported. The agreements came out of the first official meeting between mainland and Taiwan representatives in a decade, following the election of Ma Ying-jeou as Taiwan's president last month. Under the agreement, a long-standing ban on direct flights across the Taiwan Strait has been lifted, and 3,000 mainland tourists will be allowed to visit the island every day starting in mid-July. Taiwan's parliament has also passed leglislation allowing the conversion of renminbi in Taiwan. The next round of talks will be held in Taiwan, though no date has been set.

China Mobile may acquire Tietong's fixed-line assets
China Mobile may acquire the fixed-line assets of China Tietong, the South China Morning Post reported, citing industry sources. China Tietong, which owns networks along China's railroads, was ordered to be merged with China Mobile as part of the nationwide telecom restructuring announced last month, but the specifics of that merger have not been determined. Industry sources suggest that China Tietong could split into railway communications, communications service, and retail and internet connectivity businesses. Chinese regulators said earlier this week that China Mobile was required to submit a merger proposal by the end of July.

Canadian fund targets China resource projects
A Canadian mining fund is hoping to become the first foreign fund focused on helping China secure foreign resources assets, the Financial Times reported. Global Mining Corporation, based in Toronto, is working to raise US$250 million from sovereign wealth funds in China and the Middle East to target Chinese overseas mining projects. "There are a lot of sovereign wealth funds that have money to deploy and are looking for new ways to put that money to work," said Global Mining's president, Keith Spence. The fund aims to provide expertise in identifying projects and potentially preparing exit strategies.

Sharp to enter China handset market
Japanese electronics maker Sharp will begin selling mobile phones in China this month, the Wall Street Journal reported. Sharp said that its Aquos clamshell phones will be sold through Dixintong, one of China's largest phone retailers, for US$648. The company's decision to sell phones in China follows the exit from the market of rivel Japanese handset makers NEC and Matsushita due to poor sales. Sharp said it expected the Aquos to sell better in China than other Japanese phones due to an established brand in China through LCD televisions. Sharp holds 23% of the Japanese cellphone market, but has only a 1% share globally.

Shandong increases peak-period power tariffs
Shandong province has introduced regulations aimed at moving power demand from industrial users to off-peak hours, the South China Morning Post reported. The province, which is faced with a 10% power shortfall this summer, raised the tariff premium for peak-period power, and increased the discount for off-peak power, to 60%, from 50%. The changes apply to retail tariffs only, and will not improve the profitability of power producers, which sell power to grid companies according to separate tariff agreements. Agricultural and residential users will not be affected by the new regulations, which are aimed at industrial users. Industrial users are the heaviest users of power in China, and pay the highest tariffs.

1. Power sector: recent price hike policy no material favor

Since the policy only covers enterprises, we do not see it as material goodnews for power enterprises. We reiterate that it is only a matter of time forauthorities to hike electricity price to rescue power companies.

2. Jinan Iron and Steel (600022): comments on expected growth

According to the current share price, the relative 08 PE is 9.3X, slightlylower than the average industrial level. Given the competitiveness andfuture growth of the company, we maintain the ADD rating.

3. Wuhan Steel Processing (600005) invests in Pingdingshan Coal Co.

The EEPS in 2008 is 1.21 yuan, implying 10.5X F PE. We maintain BUY.

4. Ganyue Expressway (600269):
Comment on investment in PenghuExpressway We expect this investment scheme will have little effect on companyperformance in the next two years. Pressure will be added to the companyin terms of depreciation costs (an increase of about 50 million) and financialcosts after the project is completed. We maintain BUY rating.


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