CHINESE ECONOMY MONITOR--NOTE NO.10: OBAMA'S WAR-CRY AGAINST UNDERVALUED YUAN ANGERS, UNNERVES CHINA

B.RAMAN


( What will be the impact of the global financial and economic melt-down on the Chinese economy?This question should be of interest to the other countries of the South and South-East Asian region.If the Chinese economy is badly affected, they too are likely to feel the negative consequences of the down-turn in the Chinese economy.Keeping this in view, we have been bringing out a periodic "Chinese Economy Monitor" based on open source information. This is the tenth in the series.)


ASSESSMENT


The war-cry in President Barack Obama’s State of the Union message to the Congress against what the US looks upon as the undervalued yuan, which, in the US view, gives an unfair advantage to Chinese exports to the US has angered and unnerved Chinese officials and non-governmental analysts. It has angered them because , according to them, the US campaign against China's huge trade surplus does not project a correct picture. According to the Chinese, the low value of the Chinese imports from the US is not due to any Chinese reluctance to buy American goods. It is due to the US refusal to sell to China high-technology goods in which China is interested. US manufacturers are not allowed to export to China what China is interested in buying from the US. Instead of curtailing its negative list of goods not to be exported to China, the US has embarked on a campaign against the yuan in order to make Chinese exports of consumer goods to the US more expensive. Many are unnerved because they fear that ultimately China may have to revalue the yuan to accommodate Mr.Obama's concerns for saving jobs in the US and this could affect the profitability of Chinese exports at a time when China is still in the process of restrucuring its manufacturing sector in order to reduce the dependence on exports and increase the dependence on the domestic market. In view of the decline in the popularity of Mr.Obama and the Congressional elections due later this year, the Chinese feel he is trying to correct his soft image by raising issues relating to arms sales to Taiwan, human rights in Tibet and forcing China to revalue the yuan. They point out that as a result of his negative domestic image, the same Obama, who had last year discounted allegations of Chinese manipulation of the value of the yuan, is now subscribing to these allegations despite the fact that there has been no change in Chinese policies during this period. Many analysts want the Government to stand firm and reject the pressure from Mr.Obama to revalue the yuan. The recovery in the Chinese economy as seen from the indicators relating to the GDP growth rate, the flow of foreign direct investments and a modest increase in exports has been maintained. At the same time, policy-makers including President Hu Jintao have been cautioning that the recovery cannot as yet be described as stable and likely to endure. They point out that the improvements since the end of last year may be impressive as compared to the low rates of growth during the height of the melt-down, but not that impressive when compared with the indicators that prevailed before the melt-down started. They stress the need for keeping up the restructuring of the manufacuring sector in order to reduce the dependence on exports and increase domestic sales. Their objective continues to be-----recovery due to restructuring and not recovery due to regaining the old export markets.



BASIS FOR RECOVERY STLL UNSTABLE, SAYS HU

2.Inaugurating a seminar on transforming the economic growth mode at the Party School of the Communist Party Central Committee at Beijing on February 3,2010, President Hu Jintao, who is also the General Secretary of the Party Central Committee, said that 2009 was the most difficult year for the Chinese economy in the new century, but it managed to start recovering from the difficulties as a result of the corrective measures carried out by the Government. However, he cautioned that the basis for the recovery was still unstable and that the international economic situation continued to be complicated. He added: “On the surface, the global financial crisis impacted on the speed of China’s economic growth, but in essence, it was the economic growth pattern that was worst hit.” He called for shifting the reliance mainly on investments and exports as before the crisis to reliance on a well co-ordinated mix of consumption, investment and exports; from the secondary industry serving as the major driving force to primary, secondary and tertiary industries jointly driving the economic growth; and from reliance on increased consumption of material resources to reliance on advances in science and technology, improvement in the quality of the work force and innovation in management.

--- Source Xinhua of February 4,2010.

US-CHINA WAR OVER THE YUAN

3.Mr.Ma Zhaoxu, a spokesman of the Chinese Foreign Office, said on February 4: “ We expect the US to take a rational view of bilateral trade issues and to adhere to equality in negotiation. Accusations and pressures will not bring solutions.” He was replying to President Barack Obama’s statement the previous day that his Administration would put “constant pressure” on China to liberalise its capital account and appreciate its currency. Mr.Ma added: “Our currency the RMB has appreciated more than 20 per cent against the US dollar since July 2005 when China moved to a floating exchange rate regime. Before 2005,the RMB was pegged to the US dollar at a fixed rate. The RMB exchange rate has drawn close to a reasonable and balanced level, given the international balance of payments and the market supply and demand for foreign exchange. China has never attempted to seek a trade surplus. China-US trade cooperation is mutually beneficial. It is not correct that the RMB exchange rate is the major cause of the US trade deficit.”

---- Source Xinhua of Feb.4, 2010.

YUAN APPRECIATION WON’T HELP U.S.

4.In an editorial titled “Yuan Appreciation won’t Ease US Pain” carried on February 9,2010, the “Global Times” published by the party-owned “People’s Daily” group said: “ When the US economy is mired in recession, finding fault with another fast-growing economy and blocking their development by pressing for currency appreciation is an old ploy the US has been known to use. Germany and Japan have both been victimized in this way. The exchange rate will be the main Sino-US battlefield in the future. In his State of the Union address, Obama made it clear that the US will seek new markets aggressively to create more jobs, specifically by doubling exports over the next five years to support two million jobs in the US. Blaming China on the currency issue will not necessarily increase US exports, but Obama has to show he is doing something. Forcing yuan appreciation would deal a heavy blow to China's exports, which are crucial for its job market and overall growth. Since China's landmark currency exchange reform in July 2005, the yuan has appreciated over 15 percent against the US dollar. Given the small profit margin involved in China's exports, appreciation of the yuan would significantly undermine China's export-dependent economy, which is slowly undergoing industrial upgrading. Millions of jobs will be lost in the process. The free conversion of the Chinese yuan will happen sometime in the future, as that is unavoidable for improving production efficiency and quality. But when the conversion is to be allowed and by what margin of adjustment are issues to be decided by the Chinese authorities. These cannot be done under external pressure. Forcing yuan appreciation will drag both countries into a costly trade war, and cause unpredictable diplomatic damage. Both sides need to be guided by a broader vision and take constructive steps to prevent conflict from getting out of hand. “

--- “ Global Times” of Feb.9,2010

REFLECTION OF OBAMA’S DOMESTIC SLIDE

5.A commentary disseminated by the Xinhua news agency on Feb.9 said: “ As the U.S. President Barack Obama vowed to get "much tougher" with China on exchange rates and trade, economists from Beijing said China should not give in to increased U.S. pressure that stems from its domestic problems. "His words are only aimed to appeal to domestic interest groups," said Tan Yaling, an expert at the China Institute for Financial Derivatives at Peking University. Given China's growing international clout and the lack of jobs in the United States, Obama will certainly try to make China change its currency policy as this is an easy way to weaken China's export industry, she said. It was also a relevant tactic given the President was losing ground in opinion polls and facing tough conditions leading up to the mid-term election later this year, she said. Although the U.S. economy recovered to 5.7 percent growth in the fourth quarter last year, a record high in six years, jobless rate surged to more than 10 percent. Fiscal deficit is set to hit 1.56 trillion U.S. dollars in 2010, or 10.6 percent of its GDP, a new record since the Second World War. In the State of the Union Address on Jan. 28, Obama made it clear he would focus on jobs in 2010 and pledged to double exports in five years which could create two million jobs in the States. Tan Yaling said Obama's export drive could not fix the job problem, while a stronger yuan would add costs for U.S. consumers. It's an old trick for the U.S. to force its major trade partners to appreciate their currency to help itself in a time of crisis, said Zhang Yansheng, director of the Institute of Foreign Trade of the National Development and Reform Commission. "China's reforms, including exchange rate reform, should be independent of other countries," he said. He noted China's currency policy should comply with the country's macroeconomic conditions and industry restructuring. As many exporters' sales were just starting to pick up, a rising renminbi would hurt their fragile recovery. Many foreign experts also agreed that the appreciation of the renminbi would not remedy the global economic imbalance. A 20 percent rise in the yuan and other major Asian currencies would at best lead to a rise in U.S. exports worth 1 percent of gross domestic product, as the International Monetary Fund (IMF) estimates suggested, said Olivier Blanchard, Economic Counsellor and Director of the Research Department of IMF. "I think it's very important not to bash China over the RMB. What China should do, and is actually doing, is to decrease its saving rate, thus increase domestic demand, and reorient production to satisfy this higher domestic demand," he said in an interview with Reuters on Jan. 29. The renminbi has gained around 21 percent since July 2005 when the Government delinked the yuan from the U.S. dollar. However, China's trade surplus with its major trading partners did not fall accordingly. "The exchange rate of renminbi is not the main reason for the Chinese-U.S. trade deficit," Foreign Ministry Spokesman Ma Zhaoxu said . "We expect the United States to view bilateral trade issues rationally and to negotiate fairly. Accusation and pressure would not bring a solution," said Ma. Ma Zhaoxu's remarks were echoed by some analysts as they said the main reason for the enormous trade gap, instead of the exchange rate, was the U.S. restriction on high-tech exports to China. "Although there's a massive demand in China for technology and industrial equipment amid its industrialization drive, this is ignored by the U.S.," said Zhao Jinpin, Deputy Director of the Foreign Economic Relations Department of the Development Research Center under the State Council, China's cabinet. The U.S. limitation dates back to the United States Policy Regarding Trade with China in 1949, also known as NSC 41. During the Cold War, the restricted items for exports to China more than doubled compared to those to the Soviet Union. Only 8 percent of China's high-tech imports were from the United States, sharply down from 18.3 percent in 2001 because of the policy limitation. In 2007, the U.S. Department of Commerce unveiled a new export control regulation, known as China Rule, imposing additional licensing requirements for exports of high-tech products in 31 entries to China, including aircraft and aircraft engines, avionics and inertial navigation systems and high performance computers. Zuo Xiaolei, chief economist of the China Galaxy Securities, said the international trade balance should be based on the nations' comparative advantage. High-tech products were the U.S.'s strength, and the export limitation was not fair. Zhang Yansheng said a stable yuan was a necessary measure to get through the crisis. As Chinese leaders have repeated on various occasions , a stable renminbi is what China contributed to the world in times of crisis. Zhang Yansheng said it seemed China was caught in a dilemma. "If China lets the yuan weaken to shore up exports, it is called 'irresponsible'; However, if it did not do so, it is accused of 'manipulating' the currency. It is really a vexing problem." Nobel Prize Winner Andrew Michael Spence has noted in an article in the Financial Times that "the West is wrong to be obsessed about the renminbi". "The singular focus on the exchange rate appears based on the assumption that it is the key cause of the surplus and the main policy instrument for removing it. The reality is more complex. Exchange rate appreciation by itself will not get rid of the trade surplus." he said. "China will allow its currency to rise in the long run. But it is China to say when, not the United States," Zhang Yansheng said.

---- Source Xinhua of Feb.9, 2010.


WILL PRESSURE FOR REVALUATION OF YEN INCREASE?

6.The “China Daily” wrote on the same subject on Feb.11 as follows: “Growing domestic consumption and the international balance of payment have led to a rise in the country's latest imports and a drop in trade surplus, which analysts say will likely ease pressure on yuan appreciation. Imports in January skyrocketed by 85.5 percent from a year earlier, when companies were left idle for the weeklong Spring Festival holiday, customs figures showed. China's imports in January reached $95.31 billion, buoyed by burgeoning demand on resource-related products including copper, iron ore and aluminum. The increase in turn led to a trade surplus fall of 64 percent from last year's $39.3 billion figure. January exports rose 21 percent from a year earlier, up from a 17.7 percent growth in December, customs figures showed on Feb.10.Despite the increase, the country's exports fell from December last year. In January, exports increased by 21 percent to $109.47 billion year-on-year, but it declined by 16 percent compared with the previous month. With the growth of imports expected to remain high in the months ahead and the outlook of exports grim, analysts said pressure for the appreciation of the yuan will not grow in the short term. "The month-on-month figures show that recovery of China's exports is still fragile, but any strain for the revaluing of the yuan is loosening," said Standard Chartered economist Yan Jinny. "There is little possibility that China will appreciate the yuan in the first half," she said. China's exports started to rebound last December, rising for the first time since November 2008 by 17.7 percent and subsequently adding new pressure on the Chinese Government to appreciate the yuan. United States President Barack Obama also said recently that his country will get much tougher with China on trade and currency issues, in response to complaints that US exports are at a disadvantage because of the currency issue. But Chinese economists have urged the Government not to hasten the appreciation of the yuan under US pressure. "It's really difficult to evaluate January figures as the growth (for exports) is mainly supported by the low reference point back in 2009 due to the financial crisis, and the growth for the first quarter will likely remain high," said Li Jian, a researcher from the trade research institute under the Ministry of Commerce. Last year, China for the first time surpassed Germany as the world's largest exporter. But Minister of Commerce Chen Deming predicted at the annual commerce working conference that China's exports this year will present a hopeful picture as the global economic recovery is in limbo. "It's not the right time to revalue the yuan as China is still very much reliant on exports," said Wang Xiaoguang, a Chinese economist and researcher from the decision consulting department of the Chinese Academy of Governance. The increase in China's imports in January was also the third consecutive month of growth, with prices going up as well. "The imports were led up by growing investment made by the Chinese Government," Wang said. Imports of resource-related goods including iron ore, crude oil, steel, copper and aluminum grew by 59, 142.2, 17.5, 144.4 and 76.2 percent, respectively, in terms of value. "As the policy on boosting domestic consumption is continuing, the momentum will be sustained and this could help China keep its currency stable," Wang said. Vice-Premier Li Keqiang said China, faced by a gloomy export situation, will try to boost domestic consumption to drive up the economy.

--- Source “China Daily” of Feb.11,2010


GRADUAL APPRECIATION OF YUAN LIKELY

7.According to data released by the General Administration of Customs (GAC) on Feb.10, China’s imports surged 85.5 percent from a year earlier to a total of $95.31 billion in January, the highest growth rate since 1993, while exports rose 21.0 percent to record $109.48 billion, falling short of market expectations for a 30 percent increase. The total trade in January rose 44.4 percent to reach $204.78 billion. Analysts said the figures are not as exciting as they looked. "Don't take the January trade data too seriously," Lu Ting, an economist with Bank of America-Merrill Lynch in Hong Kong, said in a research note released the same day. The different timing of the Chinese New Year festival, which was in January last year and in February this year, made the year-on-year comparisons "almost meaningless," Lu said. The January figures declined from December, with exports down 16.3 percent and imports down 15.1 percent. The growth in both exports and imports is mostly due to a low base in January 2009, said Lu Zhengwei, a senior economist with the Industrial Bank. Exports totaled $90.45 billion in January 2009, while imports reached only $51.34 billion, the lowest level since June 2005.The faster growth in imports, which shrank China's trade surplus, was also noteworthy. The trade surplus in January was $14.17 billion, compared with $39.11 billion in January last year. China's booming domestic demand drove higher import growth, Sun Mingchun, chief China economist at Nomura Securities in Hong Kong, said in a research report. Ultimate consumption contributed 4.6 points to the 8.7 percent gross domestic product (GDP) growth in 2009, while net exports subtracted 3.9 points, the National Bureau of Statistics said on February 2. "The global economic recovery, particularly in emerging markets, is buoying China's exports, which have a high import content," Sun added. Imports are expected to grow 20 percent this year, while exports will likely grow 11 percent, with imports growth being "almost twice as fast as exports this year," Sun predicted. The country's exports will generally continue on a recovery track, but it won't be smooth, given the protectionism haunting global trade, Lu of the Industrial Bank said. Export growth year-on-year is likely to slow down, as the low base effect will gradually fade away, he added. Both Sun and Wang Tao, head of China Economic Research at UBS Securities, also said an appreciation of the yuan is expected to happen sometime in the second quarter of this year. Wang wrote in a report that "the Government has been seriously studying the issue of the exchange rate and [is] increasingly concerned about rising protectionism from abroad." The appreciation of the yuan is expected to happen gradually, with $1 equaling 6.40-6.50 yuan by year's end, Wang said.

---Source “Global Times” of Feb.11, 2010

GDP UP BY 8.7 PER CENT IN 2009

8.China's gross domestic product (GDP) in 2009 grew by 8.7 percent year-on-year to reach 33.53 trillion yuan ($4.91 trillion), according to figures released by the National Bureau of Statistics (NBS).In the fourth quarter, China's economy rose 10.7 percent year-on-year. The country's economy expanded by 6.2 percent year-on-year in the first quarter to reach 6.5745 trillion yuan, the lowest in 10 years as the global financial crisis affected the world's fastest-growing economy. In the second and third quarters, China's GDP grew 7.9 percent and 9.1 percent year-on-year respectively.

----Source " Global Times" of January 21, 2010.

GOOGLE OR NO GOOGLE, FDI WILL GROW

9.Foreign direct investment (FDI) in China more than doubled in December, in the latest sign of economic recovery. FDI skyrocketed by 103.1 percent from a year earlier to $12.14 billion, compared to the 32 percent year-on-year growth in November, the Ministry of Commerce said. The foreign investment, which excludes investment in the financial sector, jumped for five months since August. However, if full-year data is taken into account, China's FDI and newly approved foreign enterprises fell by 2.6 and 14.8 percent to $90.03 billion and 23,435 respectively. Ministry spokesman Yao Jian said the latest figure signals foreign investors' confidence in the Chinese market despite the financial crisis. Last year, 52 percent of foreign investment went to the manufacturing sector and 42 percent went to the service sector. But Yao said the service sector will attract more investors, who are expected to resort to mergers and acquisitions more often. Yao called China "a most attractive FDI destination" and said the country's investment situation is getting better. Chinese analysts echoed Yao's claim."As China's economic growth gains speed, the nation gains more trust from global investors," said Li Jianfeng, a macro-economy analyst at Shanghai Securities. "The global economic recovery is also helping push up the surge," he said. "The financial crisis made them (foreign investors) hold back, but now they are turning active again," said Jinny Yan, an economist from Standard Chartered. The better-than-expected exports in December had already provided a clue to the FDI surge, Li said. Chinese exports rose by 17.7 percent year-on-year last month, the first growth in the past 14 months. "The FDI will continue to grow during the first half of this year, but at a slow speed," Li said. Yao also said online search giant Google's recent intention to pull out of China will not hurt Sino-US trade or dampen investors' confidence. "No matter what decision Google makes, it will not affect overall trade and economic relations between China and the United States," Yao said. "The two countries have multiple communication channels. We are confident in the healthy development of economic and trade relations between China and the United States." The world's largest Internet search company threatened to quit the Chinese market - which contributed less than 2 percent of its global revenue - citing concerns of censorship and cyber hacks. A number of foreign investors said they would not follow Google's move. In a Bloomberg interview , Microsoft Corp CEO Steve Ballmer said the company will not consider exiting China, citing the growth trend. Similarly, the 2010 Business Climate Survey released by the American Chamber of Commerce in China showed its members remained optimistic about China over the medium- and long-term.

---Source "China Daily" of January 16, 2010

RELATIVELY LOW INFLATION RATE

10.Mr. Zhou Xiaochuan, the Governor of the Central Bank, said on Feb.9 that China's inflation rate remained "relatively low", amid ongoing debate among officials and economists on when policymakers should raise interest rates to rein in rising inflation and asset prices. The inflation rate still needed to be "closely watched", he said. China's consumer price index (CPI), a major measure of inflation, rose by 1.9 percent in December, 2009, from 0.6 percent in November, due to the country's ample liquidity. The rapidly rising inflation, together with surging house prices, has led to expectations of imminent interest rate hikes. The stock market has also been declining in recent trading days as investors expected more tightening policies following the country's move to raise the reserve requirement ratio of commercial banks and tighten real estate deals. But Dai Xianglong, chairman of the influential National Social Security Fund, said on Feb.8 that China was unlikely to raise interest rates in the first half of 2010 as the economic recovery was still not on solid ground. Dai, a former central bank Governor, said that despite possible policy adjustments to combat inflation and asset bubbles, money and lending supply will remain relatively loose over the course of the year. "Interest rate hikes are not the most appropriate tool if policymakers want to control inflation," said Zuo Xiaolei, chief economist of China Galaxy Securities. China's recent inflation rise, in essence, stems from increasing liquidity in the financial system. The best way to curb inflation is to raise banks' reserve requirement rate or conduct open market operations, she said. China announced the raising of banks' reserve requirement ratio, or the proportion of money commercial banks must keep in reserve, on Jan 12. It has also resorted to a number of open market operations to mop up liquidity as banks rushed to lend to pre-empt a possible tightening of policy. China may continue to raise the requirement ratio this year, possibly increasing it three or four times to 18 percent from the current 16 percent, said Qu Hongbin, chief China economist of HSBC. Qu said an interest rate hike could come in April because inflation could be very serious if interest rates are not raised. China is scheduled to release its first-quarter economic data in mid-April. Economists also forecast that China's CPI could be mild in January, because of the relatively high base of last January. But it can rise up to 3 percent in February as consumption can still pick up during the Chinese New Year period, which starts on Feb 14. Inflation could stabilize later, Nomura Securities reported. "If that happens, the possibility of interest rate hikes would decrease," said Zhang Lan, head of research at Shanghai-based Changjiang Securities.

---- Source “China Daily of Feb. 10,2010

EMERGING MARKETS LEAD RECOVERY

11.Talking to a correspondent of the Xinhua news agency on the sidelines of the World Economic Forum at Davos in Switzerland on January 31, 2010, Mr.Jaspal Bindra, Asian Chief Executive Officer of the UK’s Standard Chartered bank, said:" China is a core pillar market for us. The 150-year-old Standard Chartered has remained on a growth path through the entire crisis largely because its majority business is based in Asia, especially China. What this financial crisis has created is the market in the most populous spots in the world. What we do realize is that there is going to be an increased focus on Asia because the rest of the world is slowing down while emerging markets are growing quickly. Asia is a key part of the bank and we don't shy away from making huge investments in China. For countries like China and India, we have no cap on investments. Now the bank is one of the first three foreign banks with a license to do underwriting of bonds in the Chinese market. From my standpoint of view, China's ambition of making Shanghai a big financial center in the world and making RMB (yuan) as the global reserve currency is helpful for foreign banks to expand business in the country. For this end, China will liberalize its capital market at a reasonably fast pace. A common sense has been reached at the Davos meeting that the recovery is led by emerging markets. First, there is a renewed confidence now in Asia. Many people used to think that if the Western economies struggled then the emerging markets would collapse, but this has not happened. Secondly, unlike in the past when Asian economies and other emerging economies learnt from the West in terms of economics, financial management, banking, and industrial sector, now they have the confidence to say maybe we should do it our way. As for Western economies, they are now still weak in recovery, but they will have a revival over a long term. The fundamental difference between the Western economies and Eastern ones is the different balance sheets of the government, corporate and individual. In the United States and Europe, governments are in huge debt and companies are highly leveraged including the banking system itself and individuals are living on zero-saving.”

---- Source Xinhua of January 31,2010

RATE OF INCREASE OF VEHICLE SALES MAY COME DOWN

12.China's vehicle sales may see a growth slowdown in 2010 because of a large base, according to the Ministry of Commerce. Auto sales in 2010 are forecast to rise more than 10 percent from 2009 to more than 15 million units, the "China Daily" quoted the Ministry as saying. "We are still confident of sales for 2010, as the Government's policy to stimulate consumption at all levels will continue. But the robust growth momentum of last year cannot be sustained," said Chang Xiaochun, Director of the department of market system development under the Ministry of Commerce. China's reported 46.2 percent of growth in auto sales in 2009 from the previous year was the fastest in more than a decade. Last year, 13.65 million units were sold, making China the largest auto market by overtaking sales in the United States for the first time.

Source: Xinhua of January 30, 2010.

MORE LUXURY CARS SOLD IN CHINA THAN ELSEWHERE IN THE WORLD

13.China has become the target market for the world's luxury auto manufacturers as demand for upscale vehicles surged last year despite a global slump. "China has been the most important market for luxury vehicles, so with consumption power increasing, the structure of the global automobile market is also changing and shifting its focus to China," said Liu Siyang, chief researcher with Samsung Economic Research Institute. "In the years to come, China's automobile market will not only improve sales numbers, but also enhance itself through sector restructuring." Analysts believe that with the economy growing again wealthy individuals will increasingly drive demand for luxury vehicles in China. Statistics from the Boston Consulting Group show that by the end of 2009, China had 450,000 millionaires (calculated in US dollars), and over the next four years that number will rise to 800,000. In 2008, 33.4 out of 100 Chinese families owned a vehicle, compared with 16.2 out of 100 in 2005.According to the German luxury carmaker Audi, last year, 392,000 premium cars were sold in China, a surge of 38 percent over 2008. "In the European and American markets, as well as Japan, one out of every five car owners drives a luxury sedan. However, the figure in China is one in 10," Klaus Maier, president and CEO of Mercedes-Benz China told China Daily, indicating the growth potential for the luxury car market is strong. The German automaker concluded 2009 with its highest sales figures in its 23-year history in China, with 68,500 units moved off lots last year, That positioned the company as a market leader with the highest growth rate in the luxury sector, an annual increase of 77 percent year-on-year. The Mercedes' S-Class luxury car had sales of nearly 15,000 units in 2009, reinforcing the fact China is one of the company's largest markets in the world. "China was our group's fourth-largest market last year we are confident that the country will be Mercedes' No 3 global market this year," said Maier. He predicts China's luxury car sector will expand slightly faster than the industry as a whole, which is up 10 to 15 percent so far this year. Mercedes' German rival BMW reported record sales of 90,536 units in 2009, a 38 percent year-on-year increase. BMW and its Chinese partner, Brilliance Auto Group, announced last November that they would invest at least 5 billion yuan in China to construct a new plant designed to boost the joint-venture's - BMW Brilliance Automotive - annual output from 30,000 to 75,000 units by the end of 2010. For Audi, 2009 China sales surged 33 percent to 157,188 vehicles over the previous year, allowing it to easily maintain its dominance of the nation's luxury car segment. Johannes Thammer, general manager of Audi sales division at Sino-German joint venture FAW Volkswagen Automobile Co, said he expects China's overall luxury car sector to rise by 25 to 30 percent this year. Porsche SE, which counts China as its third biggest market, said it aims to sell over 10,000 cars in the country this year as rising wealth makes luxury vehicles more affordable. Porsche increased sales by about 9 percent to 9,090 vehicles in China last year.

---Source “China Daily” of Feb.9, 2010.

SECOND LARGEST BUYERS OF DIAMONDS AFTER US

14.China surpassed Japan to become the world's second largest diamond consumer market in 2009, according to the latest figures from the Diamond Administration of China (DAC). Polished diamond import turnover amounted to $699 million in 2009, a 30.7 percent increase year-on-year, the Xinhua news agency quoted figures from the DAC as saying. From January-November 2009, Japan's polished diamond imports amounted to $575.9 million, said the country's Customs Bureau of the Finance Ministry in December. "The booming wedding ceremony and gift markets have boosted diamond sales, and Chinese young couples are more likely to show their love through diamonds," said Yang Qingshan, a researcher at the Cheungkei Research Center for Luxury Goods and Services of the University of International Business and Economics in Beijing. Every year about 10 million couples get married, and the figure is expected to reach 11.82 million in 2010, according to figures from the Ministry of Civil Affairs. Yang said various sales channels also make diamonds, once seen as a luxury, more "close to" consumers. De Beers, the largest diamond producer in the world, expected China would surpass the US to become the world's largest diamond consumer market by 2020. Make Lumer Shopping Plaza, a diamond marketplace, opened in Beijing January 1 and saw sales revenue of 12 million yuan ($1.76 million) during the three-day New Year holiday. "Our diamonds' prices are 30-50 percent lower than those in traditional shopping centers, because we purchase polished diamonds from producers in South Africa, Japan and India rather than distributors," said Liu Shanshan, communications manager with Make Lumer. Liu said 80 percent of the company's consumers are young couples preparing to get married, and diamonds ranging from 0.3 to 0.7 carats sell well. "We plan to extend our business around the country in the next two years," she said. The booming diamond market has not only benefited traditional retailers, but also online retailers including sites such as zbird.com, 9Diamond.com and kela.cn. Zbird.com, an online retailer started on ebay.com in 2002, realized sales revenue of 200 million yuan ($29.30 million) in 2008. The company now has an independent website and stores in Beijing and Shanghai. Tu Rui, a 28-year-old Beijing resident who got married last month, bought a diamond ring for his wife from zbird.com. "We went to the China Wedding Expo in Beijing in July and decided to buy the diamond at zbird.com, which can provide customized services," he said.
Yang, the UIBE researcher, said online jewelry sales have become a trend, but consumers should be cautious if they choose to buy a diamond through the Internet. "Consumers should choose credible online retailers and diamonds with certificates," he said.

----Source "Global Times of January 25,2010

INTERNET SURGE

15.Tibet is expected to have 100,000 Internet users this year, a 15 percent rise from 2009, according to the Tibet Autonomous Regional Communications Administration. The number of such users was 919,000 in 2009, up 15.43 percent from the previous year, much higher than the growth rate of telephone and mobile phone subscribers. Meanwhile, the overall telecommunications rates in 2010 will decrease by nine percent. Tibet's telecommunications industry reported a turnover of five billion yuan RMB (732 million U.S. dollars) last year, up 25.3 percent year on year, with its operating income hitting 2.2 billion yuan RMB (322 million dollars), an increase of 21.23 percent, higher than any other province-level area in China. Tibet had 1.79 million telephone and mobile phone users at the end of 2009, with every 100 people having 19 telephones and 43 mobile phones. Qing Qi, director of the administration, said that Tibet's telecommunications sector is set to garner 5.4 billion yuan RMB (790 million dollars) in its turnover and 2.3 billion yuan RMB (337 million dollars) in its operating income this year, up 7.92 percent and 2.79 percent, respectively. Tibet made telephone service accessible to 404 villages in 2009, with the number of villages having access to telephones reaching 4,454, or 85 percent of its total. This year, Tibet will enable another 176 villages to have access to telephones, with telephones accessible to 88 percent of its villages.

------Source: Xinhuanet of January 31, 2010

16.China's Internet users hit 384 million by the end of 2009 due to the expansion of Internet access in more areas and a rapid increase of mobile phone Internet users, according to the latest report by China Internet Network Information Center (CNNIC). The number registered a 28.9 percent jump since the end of 2008. Mobile Internet users increased by 120 million to reach a total of 233 million. More people have chosen to access the Internet through mobile phones since the Chinese Government issued third-generation (3G) licenses to major telecom operators in January last year, which enables high-speed connectivity to the Internet. About 8 percent of all Internet users access the Internet only through mobile phones. By November last year, the Government had used 277.3 billion yuan ($40.62 billion), part of its 4-trillion yuan stimulus package, to develop telecommunications infrastructure. Also, the government-funded project to sell household electric appliances in rural areas at lower prices contributed to more Internet coverage in the country. Despite a disparity in Internet use between the urban and rural areas, Internet users in rural areas reached 106.8 million by the end of 2009, an increase of 26.3 percent from 2008. The most frequent online practices included listening to music, reading news, and doing searches, said the report. Though China's Internet users are engaged more in recreational activities, they are gradually shifting to consumption related practices, including tourism reservations, online stock playing, and e-banking, which respectively registered increases of 77.9 percent, 67 percent, and 62.3 percent respectively. China passed the United States to boast the largest population of Internet users in 2008, but the country's Internet penetration rate is still low, with just 28.9 percent of the total population online in 2009. (13-2-10)

---- Source "China Daily" of January 16, 2010.


( The writer is Additional Secretary (retd), Cabinet Secretariat, Govt. of India, New Delhi, and, presently, Director, Institute For Topical Studies, Chennai. He is also associated with the Chennai Centre For China Studies. E-mail: seventyone2@gmail.com )