TODAY'S BRIEFS China Economic Review 1 July 2008

TODAY'S BRIEFS China Economic Review 1 July 2008

CSI 300 completes worst month ever
The benchmark CSI 300 Index fell 0.9% to 2,791.82 on Tuesday, taking its June decline to 23%, the worst monthly performance since it was introduced in April 2005, Bloomberg reported. Financial companies led yesterday's declines after Zhou Xiaochuan, head of China's central bank, told reporters in Basel, Switzerland that said he wouldn't rule out an interest rate increase to curb inflation. Two airlines, Air China and China Southern Airlines gained after regulators agreed to raise ticket surcharges to help cover rising fuel costs. The CSI 300 has fallen 48% this year, the most among benchmark indexes in the world's 20 biggest equity markets.

Airlines raise fuel surcharges by up to 50%
Chinese airlines won approval from regulators to raise fuel surcharges on domestic flights to help offset high oil prices, Reuters reported. Regulators approved a higher surchage of US$11.67, up from US$8.75, for flights of 800 km or less, and US$21.87, up from US$14.58, for longer distances. The increases will begin today. China's big airlines, Air China, China Eastern Airlines and China Southern Airlines have been seeking permission from regulators for a surcharge increase. However, according to one analyst who spoke to the South China Morning Post, the surcharges will only cover about 66% of the airlines' increased fuel costs. The air transport industry has forecast a loss of US$2.3 billion this year if crude oil averages US$107 a barrel. Oil prices rose to about US$143 a barrel yesterday.

Share sale of securities firm fails to fetch buyers
China Minsheng Banking Corp failed to sell its 3.26% stake in Haitong Securities Co for a second time yesterday, even after asking for less than half the market price, Bloomberg reported. Minsheng had planned to raise US$458 million by selling 269 million shares of Haitong, China's largest securities firm by market value, with a floor price set at RMB11.68 (US$1.70). Potential investors didn't pay the margin deposit for the stake by yesterday's deadline, according the auction house that handled the deal. Only Chinese individuals and domestic institutions were allowed to bid in the auction because of regulations, and buyers would have been required to hold the Haitong shares until November 2009.

Taiwan allows banks, hotels to begin trading renminbi
Taiwan began allowing 14 financial institutions to offer exchange services in renminbi on Monday as the island prepares to begin hosting an expected surge of mainland tourists in mid-July, state media reported. In addition to the banks, 40 of the island's hotels and 15 department stores can now also buy renminbi in exchange for the Taiwan dollar. The two currencies were previously not exchangeable through official channels except for in small amounts on several of Taiwan's outlying islands. A landmark cross-Strait tourism deal was signed on June 13, which will see up to 3,000 mainland tourists per day visiting the island by mid-July.

China's pension fund soared fivefold in 2007 on stock market plays
The operating income of China's national pension fund grew more than fivefold last year to US$16.45 billion amid strong gains in local stocks, according to its annual report posted by state media on Monday, the Wall Street Journal reported. The National Council for Social Security Fund did not provide a breakdown of its domestic and overseas stock investments, but it appeared to be lured by the high returns offered by domestic stock markets during most of last year. Its income from stock market investments jumped to US$612 million from US$160 million the previous year. The fund also said that by the end of 2007, its bond holdings had more than tripled from a year earlier as stock-market volatility increased.

Toyota to add Camry hybrid in China in 2010
Toyota will begin building and selling a hybrid version of its Camry sedan in China in 2010, Reuters reported, citing Japanese newspaper Nihon Keizai Shimbun. Japan's largest carmaker plans to manufacture 10,000 cars annually in Guangdong province as part of its joint venture with Guangzhou Automobile Group. The company is currently assembling a small number of its hybrid-only Prius model in China. Of the 430,000 hybrid vehicles Toyota built last year, only 320 were produced in China. The US$539 million car-making plan in Guangzhou, launched in 2004, currently assembles Toyota's Camry model.

US secretary Rice presses China on Zimbabwe, human rights
US Secretary of State Condoleezza Rice met with President Hu Jintao and Premier Wen Jiabao in Beijing, and called on them to back international action on Zimbabwe and lessen party controls on the internet, Reuters and AFP reported. Rice, on the second day of her two-day visit, urged China - a permanent member of the UN security council - to back UN action against Zimbabwe's president, Robert Mugabe. On Sunday, China's Foreign Minister Yang Jiechi held back from saying where he stood on the UN's approach to Zimbabwe. Rice also raised the cases of several political dissidents and voiced concern that government controls on the internet "shouldn't be something used to constrain and limit political speech."