Highlights from the last week of China business news.

A-share IPOs: No longer shooting for the stars
While 2008 may be a good year for sports, it’s apparently a bad year to go public in China. The total value of initial public offerings in China shrank to US$7.85 billion in the first quarter, down from US$9.06 billion in the same period last year. The quarter’s largest offering, in which China Coal Energy raised US3.65 billion, was also the quarter’s worst performing IPO. Sliding stock prices were partly blamed for dampening investor enthusiasm. But who can fault skittish investors in times like these? The Shanghai Composite Index fell by just over 4% on Tuesday to a one-year low, while the Shenzhen Composite Index closed down 7.3% amidst fears that the government would tighten monetary policy to rein in inflation. While the markets in Shanghai staged a small comeback the next day on the back of a Wall Street rally, the Shenzhen Composite Index fell another 4.4%.

Pundits cut back on their China growth forecasts
The World Bank scaled back its forecast for China’s economic growth this year to 9.4% from 9.6% (not to mention the 10.8% they’d predicted earlier). Shortly afterwards, the Asian Development Bank said it expected the economy to grow by 10% this year, though it also outlined a worst-case scenario that might see growth decline to 7%. Both banks cited rising prices as cause for concern. But have no fear. Wen Jiabao said that while rising prices for rice are having an effect on food prices here, China’s supply of rice remains “abundant.” The NDRC had previously announced it would increase payments to farmers for rice and wheat in order to boost supplies and fight inflation. And it’s not just farmers who’ll find a little extra cash in their pockets. The National Bureau of Statistics found the average salary of employees in China’s urban areas rose by 18.7% in 2007 to US$3,561.

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Here’s a curious statistic: China is the world’s top exporter of creative goods, accounting for US$61 billion worth in 2005.

Don’t believe it? Take it up with the United Nations Conference on Trade and Development (the catchily acronymed UNCTAD), which published these figures ahead of a big meeting in April to discuss the increased influence of creative industries in world economies.

What exactly are creative goods? According to UNCTAD:

Creative products can be exclusive or mass-produced, since they are at the crossroads between the artisan, service and industry sectors.

They’ve broken products into categories like:

Cultural heritage: Crafts, traditional cultural expressions, festivals and cultural sites

Creative services: Architecture, advertising, research and development, cultural and recreational services

Design: Furniture, interior, graphic fashion, jewelry and toys

All sounds a bit vague, doesn’t it? These definitions have led UNCTAD to name Italy the top creative goods exporter among developed nations, and Europe as a whole as the world’s top source of such goods, accounting for US$149 billion, or 44% of the world total.

Where does the United States stand on this list? The US is a textbook case of a creative economy, and surely few countries can match its cultural reach? Apparently, however, American creative output pales in comparison to China’s, coming up to just US$25.5 billion in 2005.

Surely there must be a problem with the methodology here. Can the US, which pumps out the movies, music, software, clothing and other stuff consumed by people everywhere, really export three-times fewer creative goods than China? That’s a strange conclusion to reach.

Some of this is explained by this AFP report on the figures. Merely manufacturing a product that falls into the ‘creative goods’ category counts toward that country’s total.

At present, a fashion product by a French designer which is made in China would count as Chinese, said Edna dos Santos-Duisenberg, chief of Unctad’s creative economy and industries programme.

This is a fairly controversial methodology, but the paper’s authors didn’t highlight it. Instead, it looks like they’re downplaying it by saying it’s just a starting point for further studies. But this starting point is already directing us down the wrong path.

Highlights from the last week of China business news.

Inflated figures
China’s third-quarter macro figures came out last week. The trade surplus in October continued to surge, which for once is actually surprising. Expensive commodities worldwide meant that the value of imports was up 25.5% from a year ago, but export growth still outpaced it, leaving the month’s trade surplus at US$27.05, a record high. The central bank said GDP rose 11.5% in the first three quarters, compared to a total increase last year of 11.1%. On the other hand, inflation rose 4.1% in the first three quarters, compared to a 1.5% rise in 2006. Goldman Sachs analyst Hong Liang raised a warning about inflation again (she did this a few months ago at the height of the pork shortage too), saying that the monthly CPI could hit 7% this year. The central bank has done the only thing it can do: raise interest rates. The reserve requirement rate will go up for a ninth time this year, to 13.5%, effective November 26. Central bank governor Zhou Xiaochuan has pledged to fight inflation, but how exactly he plans to do this is anyone’s guess. Goldman predicts two more rate hikes by year’s end.

Planning a buying spree
Remember all that talk about a gush of Chinese capital outflows? Well, it’s definitely in the works. China National Offshore Oil Corp, which reduces to the rather cute acronym CNOOC, was linked to acquisitions in Australia and Nigeria this week. There was a rumor that CNOOC wanted to take over Shell’s stake in an oil project in Australia’s Northwest Shelf region for US$450 million, which was later curtly denied by the Chinese company. Now, a new story has surfaced, saying CNOOC wants to hand over US$900 million to Shell, again, but this time for almost 50% in two Nigerian offshore blocks. No comment from CNOOC.

But commodities acquisitions aren’t really news - banking buy-ins, however, are. The FT broke the news - citing anonymous sources - that China’s top three banks, Bank of China, ICBC and China Construction Bank, approached Singapore’s Temasek Holdings to buy its 17% stake in Standard Chartered. The contacts were “informal and discreet,” which could mean anything, really. In any case, no deal is on the cards - Temasek isn’t selling, and Standard Chartered isn’t keen on having its independence questioned by having the Chinese as its largest stakeholder. An ICBC official denied that any such offer to Temasek took place. Lastly, the much-ballyhooed China Investment Corp revealed that it’s a cornerstone investor in China Railway Group’s Hong Kong listing. The sovereign fund will take US$100 million, the biggest institutional stake, in the H-share offering. This is its second move after buying into Blackstone months ago.

Singapore boosts its guanxi
China and Singapore indulged in a week of cozy relationship-building, with top officials of both countries meeting here and in the land of the Merlion. Singapore’s Lee Kuan Yew told Singapore’s newspaper, the Straits Times, that the man tipped to be Hu Jintao’s successor, Xi Jinping, belonged to the “Nelson Mandela class of persons,” upon meeting him for the first time in China. Meanwhile, Premier Wen Jiabao spoke candidly at a conference in Singapore, saying that illegal money flows threatened China’s stability and that his government would have difficulty reaching the environmental targets they set for themselves. This culminated in the announcement that China and Singapore would build an “eco-city” together in Tianjin, that hot economic development zone the central government is now so keen to promote. It brings to mind another Singapore-China project, the Suzhou Industrial Park, which was started when China was still trying to encourage industry in the Yangtze River Delta. More eco-cities are a good idea, because hopefully it will mean hearing less disturbing news, like the report this week about China’s increasing appetite for nuclear energy, and how it has just signed a landmark deal with Kazakhstan to buy the uranium it needs to build 40 new nuclear power plants by 2020.

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Do we see positive signs for the trade balance in the latest CLSA Purchasing Managers’ Index (PMI)? Although the manufacturing sector continued to expand thanks to a steady stream of new orders, most of the demand came from the domestic market. Export orders saw only a modest rise, which is seen as evidence that the removal and reduction in tax rebates on a wide range of exports is having its desired effect.

New orders were certainly at nothing like the levels recorded in May and June when manufacturers were rushing to get business done ahead of the tax changes.

These changes were brought in ahead of this summer’s round of US-China trade talks in Washington - an attempt to appease the hawks who were squawking about China accounting for the largest portion of America’s record trade deficit. Removing the tax rebates would push up export prices as suppliers moved to protect their profit margins, thereby making Chinese goods less financially attractive. Less exports means a lower trade surplus.

This is how the theory goes and, according to the CLSA figures, there may be some truth behind it: Output prices are at their highest in a year. However, the key driver of the price inflation is believed to be a spike in input prices. Respondents to the CLSA survey pointed to oil, steel, foodstuffs and transportation as areas where they are experiencing significant cost increases.

The verdict for foreign buyers in China is not a happy one. “Profit margins will collapse in China if any weakness in top line sales emerge over the next few months on the back of a global credit crunch,” said CLSA Chief Economist Dr Jim Walker.

Elsewhere in the Sinoblogosphere today, Dan Harris at the always interesting China Law Blog has a good post on the scant amount of official data on crime in China, raising questions about the accountability of statistics bureaux and the suspiciously high “cracked” murder case rate - which happens to match the Ministry of Public Security’s “required” solving rate quite closely. (How do they do that?) Regardless of how reliable the numbers are, Harris notes that crime rates certainly compare favorably to those in the US.