Chinese Finance Minister Xie Xuren says China will maintain a ‘prudent’ fiscal policy to maintain stable and rapid economic growth as well as basically stable consumer prices.

In an article in the official People’s Daily, Minister Xie said the fiscal policy will be implemented along with a tight monetary policy to prevent economic overheating and widespread inflation.

In truth, there is nothing overly new in this.

When China concluded its three-day 2007 Central Economic Work Conference, which ran from December 3 to 5, 2007, the official communique said that China will maintain a ‘prudent’ fiscal policy for the coming year.

The conference said various monetary instruments would be used to regulate liquidity and to strictly control the size of loans and frequency of credit extension, so as to better regulate domestic demand and balance international payments.

The December conference said that with a prudent fiscal policy and a tight monetary policy, China will be able to achieve ‘the Two Prevents’ in the coming year: to prevent economic growth developing from rapid to overheating, and to prevent price rises evolving from structural to evident inflation.

In truth, China has been implementing a prudent monetary policy since 1997. From 1998 to 2002, the country increased money supply to counter deflationary pressure.

From 2003 to 2007, the monetary policy began to tighten in order to help address changes in economic development, including rapid growth in credit extension, investment and foreign exchange reserves.

Now Finance Minister Xie Xuren states the government plans to improve its consumption tax system adding that the government is also waiting for a suitable time to launch a planned new fuel tax. A new tax to protect the environment is also under consideration.

China’s annual legislative meeting, bringing thousands of delegates to deliberate the country’s economic and political issues, opens tomorrow, March 5, in Beijing.
Source: RTT News

The Ministry of Finance reports China’s state-owned enterprises posted a 31.6% rise in 2007 total profits. They reached a record RMB1.62 trillion ($221.9 billion), from RMB1.23 trillion a year earlier.

The 119,000 state-owned enterprises paid a record RMB1.57 trillion in taxes last year, up 21.8%. Their sales revenues grew 20.1% to RMB18 trillion.
State-owned enterprises administered by the central government contributed 67.9% of the total profits, or RMB1.1 trillion, up 29.2%. Their sales revenues rose 19.1% to RMB11 trillion.

China has 152 centrally administered enterprises, all under the supervision of the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council.

Although the number of such enterprises dropped to about 160 by the end of 2006 from more than 190 in 2002 due to economic restructuring, their total sales jumped 146% and profits increased by 219%.
Source: China View

Overall Chinese business conditions remain positive but results for the main indexes in the November Xinhua Finance/MNI China Business Sentiment Survey show conditions deteriorating across the board.

The growth of new orders has slowed to its lowest level ever, with production and corporate financial positions declining to record lowsl. Most of the indexes remain in positive territory but indicate that growth has slowed considerably since the booming conditions reflected in the survey earlier this year.

The overall business sentiment index for current conditions stood at 63.85 in November, the lowest result ever in the survey which began in Jaunary 2005. That result was down from 64.58 in October and from 75.67 in November last year.

The index was above 80 in the first three months of this year.

The index for new orders fell sharply to 60.36 in November, also its lowest level ever, from 73.39 in the previous month and 71.48 a year ago.

The financial position index fell to the lowest level in survey history at 60.00, down from 63.64 in the previous month and 71.72 for the same month in 2006.

Logan Wright, China analyst for Stone and McCarthy Research Associates, said, ‘A combination of cost pressures have been building throughout this year, in the form of higher input prices, higher interest rates, faster yuan appreciation, and declining sales prices; these effects are depressing both corporate financial positions and overall sentiment.’

The survey results suggest Chinese companies still expect better times ahead, with the indexes showing expectations for conditions in three months outperforming the current indexes in most categories, and with some improving from the previous months’ survey. Our illustration is of a low pressure system. Seemed appropriate.
Source: Forbes

Although one knew of the growth and growth of China and its exports it comes as a surprise to read that China Life Insurance has passed AT&T in market value, giving China five of the world’s 10 largest companies. The United States only has three.

Allowance must be made for the fact that many, most?, of the world’s financial analysts says China’s stock is overvalued but it it nevertheless astounding to see that in the area by which the United States judges the rest of the world — the stock market — China reigns supreme.

China’s stock rally has almost tripled its benchmark index this year. China’s households are pouring more of their $2.3 trillion savings into shares to beat inflation, which exceeds the return on bank deposits, and to profit from the world’s fastest growth among major economies.

Beijing-based China Life, the nation’s largest insurer, gained 1.1% in Hong Kong and added 6.7% in Shanghai valuing the company at RMB1.94 trillion yuan, or $259.1 billion.
China Life, PetroChina Co., China Mobile, Industrial and Commercial Bank of China and China Petroleum and Chemical are now in the list of the world’s 10 biggest companies by market value.
However, as an indication to the skew in valuations only two of those are in the top 50 by sales.

The CSI 300 Index, which tracks shares traded on the Shanghai and Shenzhen stock exchanges, has risen 170% this year, the best performance among 90 global benchmarks tracked by Bloomberg. Hong Kong’s Hang Seng Index, which is dominated by Chinese companies, has gained 58%.

Only China Petroleum and Chemical, or Sinopec, and PetroChina are among the world’s biggest 50 companies by revenue.

Investors pay 78 times estimated full-year profit for China Life in Shanghai and 42 times in Hong Kong. That compares to 9.3 times for New-York-based American International Group, the biggest U.S. insurer, and 8.4 times for Europe’s largest, Munich-based Allianz.

China’s CSI 300 benchmark is valued at 43 times estimated earnings, compared with the average 29 times for Chinese companies on the Hang Seng China Enterprises Index, according to data compiled by Bloomberg. In the U.S., home to the world’s biggest stock market, the S&P 500 Index is valued at 16 times.

Fraser Howie, co-author of the book Privatizing China: The Stock Markets and Their Role in Corporate Reform, said, ‘Chinese companies are far too expensive from any rational measure. It’s a bubble and in a bubble things are priced wrongly.”

Leslie Phang, who helps manage $1 billion at Commonwealth Private Bank in Singapore, said, ‘It’s pretty unnerving. It’s all building into one big bubble. The Chinese companies are trading on euphoria.”

On the other hand Marc Faber, who manages $300 million at Marc Faber Ltd. in Hong Kong, said, ‘European countries were also surprised at the beginning of the 20th century when American companies overtook European companies. The world better get used to it.’

Source: Bloomberg

Caijing finance magazine has reported that China’s central government is expected to receive about RMB17 billion in dividends for 2006 from major state-owned enterprises (SOEs).

The report, which quotes unidentified sources from the Ministry of Finance, states the government will start taking 10% of the after-tax profits earned by the oil, coal, power, chemicals, telecommunications and tobacco industries.

Other state enterprises will hand over 5.0% of their after-tax profits. Scientific research institutions and military enterprises will be exempt from the plan for three years.

It was reported earlier that China’s 159 key central government-controlled state-owned enterprises posted a combined profit of RMB754.69 billion in 2006, up 18.2% from the previous year.

Beijing stopped collecting dividends from state enterprises in 1994 during the financial crisis.

The illustration is Hu Shu-li, the editor of Caijing, which means Finance and Economy. She was named one of the Wall Street Journal’s Ten Women to Watch in Asia.
Source: Forbes

Shares in Shanghai have now broken through a new ceiling to reach a record high. This breakthrough came through reports of good interim earnings, particularly by airline and coal companies.

The benchmark Shanghai Composite Index added 50.95 points, or 0.99%, to close at 5,218.83. Yesterday’s advance meant a cumulative monthly gain of 747.8 points in August. It finished at 4,471.83 on July 31. Which is fairly amazing.

China Securities Journal reported that 1,471 out of the 1,503 listed companies which had year-on-year comparable data, recorded a weighted average earnings per share of RMB0.19 for the first six months. Deducting new offerings, the figure was revised to RMB0.22, as against the RMB0.134 for the same period of last year.

Between January and June, the 1,471 listed companies realized RMB3.57 trillion in combined revenues, up 24.5%, and RMB468.7 billion in gross profits, up 66.78%.

The Shenzhen Composite Index, which tracks the smaller of the two mainland markets, rose 1.25 percent to 1,457.83.

There may be a bubble but, at the moment, it shows no sign of bursting.

Zhu Keming, an analyst with Huatai Securities said, ‘The rapid profit growth shown in the earnings reports enhanced investors’ confidence. The high valuation of the stocks also cast even higher requirements on the future performances of the companies.’

This is true but the mainland listed companies posted a 70% increase in net profit in the first half on average, maintaining the momentum shown from last year’s second-half report.

An online survey by Sina.com found that less than 20% of the punters thought the market would fall. More than 2,500 participated in the poll although, to be fair, these would tend to be small investors.

Wang Xingjun, an analyst with Donghai Securities summed it up when he said, ‘The risk awareness is quite weak in the market. Many investors don’t look at the price or cumulative growth or price-to-earnings ratio of a stock in trading, only focusing on whether it will go up or down.’

Indeed, it would be fair to say that many investors have no idea what cumulative growth or price-to-earnings mean.
Sources: Jongo News and TDC Trade.com

The combined business revenue of China’s top 500 companies accounted for 83.5% of the gross domestic product in 2006, almost six percentage points higher than the previous year.

The China Top 500 Enterprises 2007 list — issued by the China Enterprise Confederation and China Enterprise Directors Association — states the top 500 took in RMB17.49 trillion ($2.3 trillion) of business revenue last year, up 23.7% over 2005.

Sinopec, which has many interests mainly in petrochemical areas and one of its rigs is our illustration, stayed at the pole position with business revenue of RMB1.06 trillion, up 29% year-on-year.

Second to fifth rankings went to China National Petroleum Corporation, State Grid, Industrial and Commercial Bank of China and China Mobile.

A total of 349 enterprises, or nearly 70% of the total in the list, are state-owned or state-controlled. Their combined assets reached RMB14.9 trillion at the end of 2006, accounting for 85% of the total.

The number of private-owned enterprises in the list rose to 89, with RMB1.4 trillion in business revenue.
Source: China.org.cn

In the first five months of this year China’s industrial-company profits swelled 42.1% which, to some extent, nullified government efforts to cool investment in the world’s fastest-growing major economy.

The National Bureau of Statistics said today in an e-mailed release that combined net income increased to RMB902.6 billion ($119 billion). Sales jumped 27.4% to RMB14.2 trillion.

Premier Wen Jiabao is trying to prevent a rebound in factory investment that would increase the risk of overcapacity. Besides curbs on bank lending, the government has ordered state companies to start paying dividends to trim the money available for investment.

Qu Hongbin, chief China economist at HSBC Holdings in Hong Kong, said, ‘The strong growth will fuel increased investment. Monetary tightening needs to be continued.’

The government announced the trial dividend program last month. China has also tightened project approvals, curbed land use, increased energy costs, and cut export rebates. The central bank has raised interest rates twice this year. More monetary tightening is likely.
Source: Shanghai Daily News

Alan Greenspan and Li Ka-shing have been widely reported as saying China has a stock market bubble and something or someone will stick in a pin at which point there will be a general collapse. It has not happened yet. Yes, there have been severe hiccups but the market has recovered and continues it onward march.

Liu Tianjun, seen in our illustration, who runs the best-performing fund in China, increased stock holdings in Fund Taihe, his RMB5.31 billion, $696 million, fund, even during the 16%, four-day rout that started on May 30 but which has now been totally recovered.

He said he used up almost all his cash to buy pharmaceutical, engineering and insurance companies because, according to Liu Tianjun, their share prices will more than double in the next three years.

He said in an interview in Beijing, where he runs the fund for Harvest Fund Management, ‘After bubbles burst, they eventually have to rise, don’t they?’ So far he has been right.

The CSI 300 index has has doubled this year, making it the best major stock benchmark in the world.

Fund Taihe, which Liu Tianjun runs, has posted a 338% return in the past 12 months, which is the best performance among 601 China-focused funds tracked by Bloomberg.

Liu Tianjun said, ‘A lot of stocks have entered the area where you want to buy. When the market is pessimistic, it fails to see there are still a lot of positive factors. Market movements and macro economic trends are only for reference when I make adjustments to my portfolio.’
Source: China Daily

According to a survey by Hong Kong-based CLSA in May China’s manufacturing activity rose to the highest level in more than two years after a surge in bank lending.

CLSA said the Purchasing Managers’ Index (a new concept to the writer) climbed to 54.1 from 53.3 in April which is the highest since April 2005. Bloomberg News, which tends to get it right, said a reading above 50 reflects an expansion in manufacturing.

Jim Walker, CLSA’s chief economist, said, ‘Accelerated monetary tightening measures should be expected over the next six months as China fights to regain control of its overheating economy. China’s commercial banks continue to ignore pleas to restrain lending just as its local governments ignore pleas to restrain spending.’
Source: Shanghai Daily