TODAY'S BRIEFS 9 July 2008

TODAY'S BRIEFS

Coal shortages force plant shutdowns
China has shut down 2.5% of its coal-fired power plants due to insufficient coal supplies, Bloomberg reported. The closure of 58 power plants, with a total generating capacity of 14.02 gigawatts came after data from State Grid Corporation of China, China's largest grid company, showed coal inventories were sufficient for only 11 days of consumption. Supplies, hit by the closure of small and unsafe mines, were further reduced by price caps imposed on thermal coal. Those price caps were introduced to reduce pressures on power producers, but have encouraged traders to sell Chinese coal overseas at higher prices. Partly as a result of this, China's coal exports jumped 84% in June.

Government sources: Inflation down to 7.1% in June
Consumer price inflation in China decreased to 7.1% in June, Reuters reported, citing government sources familiar with the matter. This represents a significant decline on the 7.7% figure posted in May. For the first six months of the year, consumer prices were 7.9% higher than the same period a year ago, exceeding the government's official target of 4.8% for the year. China's consumer price basket is heavily weighted toward food, and food price growth has been slowing as supply of staples like pork improves. However, China's producer price index (PPI) has continued to rise, suggesting continued inflationary pressure in the production pipeline. The government sources quoted by Reuters indicated June's PPI was "still high," but did not provide details.
For more on China's long-term inflation challenges, see this report from our July issue.

Sinosteel nears successful Midwest bid
Sinosteel's US$1.3 billion bid for control of Australian miner Midwest Corp moved closer to completion yesterday, despite opposition from rival Australian firm Murchison Metals, the Wall Street Journal reported. While Murchison refused to sell Sinosteel its existing 10% stake in Midwest, which would give Sinosteel more than 50% of Midwest shares, the Chinese firm reached agreements with four Midwest directors with holdings of 4.1%. That would increase Sinosteel's holdings to 49.7%. A source familiar with the situation was quoted as saying Sinosteel is now set to cross the 50% threshold. Murchison had earlier announced that it would scrap a proposed merger with Midwest, citing an inability to reach an agreement with Sinosteel.
For more on Chinese investment in Australia's iron ore industry, see this report from our July issue.

Poly Real Estate to issue bonds as profits soar
Property developer Poly Real Estate Group has received approval to offer up to US$626.3 million in five-year convertible bonds to repay loans and boost cash supplies, Reuters reported. The approval was announced as Poly estimated that net profits for the first half of 2008 jumped 220%-270% despite property market weakness. The company did not provide an explanation for the rise. The company's first-quarter profits rose 253% over the same period a year ago, to US$40.3 million. Poly will release its full earnings report next month. Chinese-listed firms are required to make preliminary estimates if earnings are expected to swing by more than 50%.

China to delay fuel tax
An official from the Ministry of Finance said that China would delay the implementation of a fuel tax until oil prices stabilized, Reuters reported, citing state media. It is expected that the tax, which has been in the works for over a decade, could be around 25%, and could cover retail gasoline and diesel sales, while eliminating road tolls. ""The introduction of fuel tax needs some essential preconditions, such as relatively stabilising oil prices and a fuel price scheme in place," said a senior ministry official. Beijing recently introduced price hikes of up to 18% on gasoline and diesel prices, but fuel remains heavily subsidised.

Strong auto market raises GM, Ford China sales
China's growing auto market helped push strong first-half sales for General Motors and Ford, AP reported. GM reported sales of its Buick, Cadillac and Chevrolet brands rose by 12.7% from the same period a year ago, driven by strong growth of its Chevrolet brand, while Ford said sales rose by 21%. GM sold a total of 590,126 vehicles in the first six months of 2008 and Ford sold 172,411. Growth was slower than in 2007 when Ford posted a 30% increase in sales, but China's auto market remained signficantly stronger than North America's. Subsidized fuel prices in China have helped to keep demand for new cars high, with sales of SUVs and luxury sedans growing at around 100% per year.

G8 indirectly calls for yuan appreciation
Leaders at the meeting of the Group of Eight industrial nations in Japan indirectly called for China to allow its currency to appreciate, Reuters reported. In a statement, the G8 said, "In some emerging economies with large and growing current account surpluses, it is crucial that their effective exchange rates move so that necessary adjustment will occur." While it did not name China directly, the statement was seen as clearly targeting the country. Leaders at the G8 summit also expressed concern about rising food and oil prices, and warned of significant "downside risks."