Top news of the week
Third quarter GDP set to beat forecasts
A raft of economic data released recently have led economists to ramp up their forecasts for third-quarter gross domestic product numbers, due on Thursday. Most economists have forecast GDP growth rate of more than 8%.
September exports totalled $116 billion, up 12% from the previous month and the best level since last October. Although the number is still down 15% year on year, this represents the smallest contraction so far this year. It is worth noting also that the basis of comparison was quite high, as exports reached a record high of $136 billion last September. The y-o-y decline in imports narrowed significantly in September to minus-3.5%, compared to double-digit drops in each of the previous months this year. Demand for imports rose as more idle capacity was brought back to production and domestic consumption continued to grow.
Another indication of economic recovery comes from power usage data, often viewed as a more accurate gauge of real industrial activities (which account for more than 70% of total power consumption in China). In September, power consumption rose by 10.2% year over year, compared to an 8% y-o-y increase reported for August. Power consumption had been falling for eight consecutive months since last October before growth resumed in June. The rebound in power usage is consistent with another measure of industrial activities, the purchasing managers' index (PMI). The index in September was at the highest level since April of 2008. Signs of recovery in China drew more foreign direct investment into China in September, which totalled $7.9 billion, up by 19% from the year-ago period.
Bank loans in September were slightly higher than expected at CNY 516 billion, bringing the total new loans so far this year to a staggering CNY 8.6 trillion, but the growth in new loans has slowed significantly from the frenzied pace seen earlier in the year. While the official line is still to maintain sufficient liquidity to fuel growth, banking regulators have already moved to rein in credit supply to industries with excess capacity and requested major banks to raise provisions for bad loans.
Market recap
Better-than-expected economic data showing improving export and import,
stable bank lending and rising power usage in the month of September
boosted investor confidence, leading to a rebound in the stock indices.
Over last week's five trading days, the Shanghai Composite Index climbed
2.2% to 2,977, while the Shenzhen Composite Index increased 2% to 12,033.
Macro and industry updates
Regulators order five major banks to raise bad debt provisions
Banking regulators have issued a notice to China's five big state-owned banks, urging them to raise the bad debt reserve to 150% before the end of 2009. The five banks are Industrial and Commercial Bank of China, China Construction Bank, Bank of China, Bank of Communications and Agricultural Bank of China.
The announcement reflected concerns among regulators about growing credit risk at the large banks after an explosive loan growth earlier this year. Chinese banks lent out a total of CNY 8.6 trillion in the first nine months of 2009, 150% higher than the same period last year, although the pace has been slowing in the most recent months.
Bank of China veteran may join IMF
Zhu Min, a senior banker at Bank of China, will first join China's central bank as a deputy governor before moving on to the International Monetary Fund as a deputy managing director, according to overseas media reports. If the talk is confirmed, Zhu would be the second Chinese banker to hold influential positions at major international financial institutions. Chinese economist Justin Lin took the position of Chief Economist at the World Bank in 2008. Zhu was an economist at the World Bank for six years up to 1996 when he joined the Bank of China. In recent years, China has been calling for an overhaul of the voting quota system at IMF to give a bigger say to emerging economies. China accounted for 7.1% of the world's total output in 2008 based on World Bank data, but the country has only 3.7% of IMF voting rights.
China Unicom unveiled iPhone price plans
The number two mobile operator recently announced pricing plans for the iPhone, which is expected to hit the market starting in November. The market was surprised by the higher-than-expected prices for both the phones and data plans. An unlocked iPhone 3G (8G) will set you back by $730, while an iPhone 3GS (32G) carries a price tag of $1,024. The prices are unattractive relative to prices in Hong Kong or from parallel importers, which can be $150 cheaper.
With a two-year contract, the total phone plus service (including voice, data and messaging) package can cost between $900 and $3,000. While this may look reasonable, especially on the lower end, many subscribers are discouraged by Unicom's requirement for an up-front deposit of between $424 and $1,170 (which can be used for future monthly payment). In the case where a subscriber is considering the cheapest iPhone and service plan, he or she will have to cough up $880 upfront for the phone and the deposit when they sign up with Unicom. Additionally, none of the plans offer unlimited data plans to allow subscribers to take full advantage of the iPhone's wireless internet capabilities. The plans cap monthly data usage at 450MB for entry-level plans and at 4GB for the most expensive ones.
Mobile TV advertiser VisionChina buys smaller rival
China's largest mobile TV advertising operator Vision China acquired rival DMG for $160 million in cash and stocks. DMG is a leader in subway advertising market covering all subway lines in Shanghai and 27 lines in nine other Chinese cities including Hong Kong. According to third-party research firm Analysys, Vision China and DMG together account for slightly over half of China's mobile TV advertising market by the number of television screens installed.
All figures are in US dollars, unless otherwise specified. Contributions from Iris Tan.
