China Economic Review 2 July 2008

China Economic Review 2 July 2008

TODAY'S BRIEFS

Manufacturing growth near three-year low in June
Mainland manufacturing experienced its slowest pace of growth in nearly three years last month, the South China Morning Post reported. China's June purchasing managers' index (PMI), which measures manufacturing activity, fell to 52 in June, near a three year low, and down from 53.3 and 59.2 in May and April, respectively. A PMI reading of above 50 indicates manufacturing growth, while a reading below 50 indicates contraction. Higher input costs, fewer new orders and slower buying activity contributed to the decline. The PMI survey also indicated rising output prices as manufacturers pass on higher raw material costs to customers.

Banks lead declines as Shanghai shares fall 3.1%
Shares in Shanghai fell 3.1% on Tuesday to close at 2,651.61, the Wall Street Journal reported. The fall in the Shanghai Composite Index left it at its lowest level since February 5, 2007, and follows the completion of the worst-ever month for China's benchmark CSI Index last month. Banks fell sharply after People's Bank of China Governor Zhou Xiaochuan said on Monday that interest rate increases remained a possibility. The approval of initial public offerings by China South Locomotive & Rolling Stock and Everbright Securities also had investors worrying about the market's ability to absorb new issues.

Shanghai residential sales down 50% in first half
Housing sales in Shanghai fell by nearly 50% in the first half of 2008, the South China Morning Post reported. Sales of new residential property fell to 5.27 million square meters, down from 10.43 million sqm in the same period last year. The decline drove residential property prices down 4.3% to RMB16,635 per sqm in the last week of June after hitting a record of RMB17,393 per sqm the previous week. Government policies to rein in growth and curb inflation dampened enthusiasm for property as banks raised interest rates and required higher initial deposits for buyers of second homes. Despite the decline, however, demand for high-end residential properties remained strong.

China Iron & Steel Association slams BHP pricing plans
The China Iron and Steel Association (CISA) criticized plans by Australian miner BHP Billiton to revise iron ore contract pricing, the Melbourne Herald Sun reported, citing reports in Chinese state media. BHP had proposed the use of a price index to set ore prices, rather than through traditional yearly agreements between suppliers and customers. "The index is improper and unfair," said the CISA in a statement. "It's not good for long-term stable co-operation between the supply and demand sides, so we firmly oppose it." Rival firms Rio Tinto and Vale have already reached agreements with Chinese steelmakers, leaving BHP Billiton the only one of the world's top three miners yet to reach an agreement with China. Baosteel, China's largest steelmaker, earlier agreed to pay up to 96.5% more for Rio Tinto's ore, while Vale announced price hikes of between 65% and 71%.

COFCO to invest in US food firm
COFCO, China's largest agricultural trading and processing company, will buy a 4.95% stake in US pork producer Smithfield Foods, Reuters reported. Smithfield said COFCO would buy 7 million shares of Smithfield's common stock in a move that is expected to help COFCO expand in China's pork industry. A spokesperson for the Chinese firm said the investment was not intended to increase pork imports, but that COFCO intends to learn from Smithfield's technology and management expertise. While Chinese pork prices have begun to stabilize, sharp rises earlier in the year drove overall food price increases, raising China's consumer price index and contributing to inflationary concerns.

Beijing meets with Dalai Lama representatives
Envoys of the Dalai Lama began two days of meetings with Chinese officials on Tuesday, AP reported. The time, place and agenda of the talks were not provided. Ahead of the meetings, foreign ministry spokesman Liu Jianchao told reporters that the Dalai Lama's side must implement the three "stops" - stop separatist activities, stop sabotaging the Olympics and stop violence. The meetings come after earlier, informal talks in Shenzhen in May produced an offer by Beijing to continue negotiations. The talks are being seen in some circles as an attempt by China to address international criticism over its handling of riots in Lhasa in March, which killed 22 people. However, Chinese Foreign Ministry spokesman Liu Jianchao said the meetings were an internal matter.

State Council calls for curbs on inefficient industries
The State Council said that energy-intensive industries are developing too quickly and preventing China from reaching its energy efficiency goals, state media reported. Warning that industries with high energy consumption and pollution emissions were standing in the way of pollution reduction and efficiency targets in the 11th Five-Year Plan, the State Council said such industries should be "resolutely curbed." Under the 11th Five-Year Plan, China has a goal of reducing overall energy intensity by 20% and emissions of major pollutants by 10%, from 2005 levels by 2010. The State Council reiterated its commitment to close inefficient small thermal power generators.