MARKET WATCH

TO THE POINT: Strong economic data from the first half of 2010 suggest China is leading the world out of the economic downturn. Lending to SMEs grew vigorously as banks regain con fi dence. Along with rising in fl ation, as spotted in the first half, comes escalating wheat prices, whose futures jumped 30 percent after weather conditions put a dent in overall output. China’s online businesses continue to boom as an increasing number of consumers take to the Web. On the trade front, China and India have become the top exporters to the United Arab Emirates as Western companies cut their presence in the Gulf region.

By HU YUE

No Double Downturn

A “double dip” is unlikely for the Chinese economy in the second half of 2010,although the country’s industrial value-added output and trade growth is expected to slow,said China’s top industrial and commercial regulators.

China’s industrial value-added output growth fell to 13.7 percent in June from 16.5 percent in May, raising concerns of recovery deceleration. But a year-on-year slowdown is inevitable as growths will be measured against last year’s escalating growths month by month.

“We don’t think there will be a ‘doubledip’ problem in the second half,” said Zhu Hongren, spokesman of the Ministry of Industry and Information Technology.“China’s industrial output may still grow more than 11 percent this year.”

The slowdown is moderate and good for industrial restructuring because it is a result of active government controls, and China will continue to stabilize economic policies and help the recovery take hold for the remainder of the year, he said.

On July 20, the Ministry of Commerce forecasted declining exports prospects due to belt-tightening measures by EU governments deep in debt, and monetary tightening in Brazil, India and other emerging markets, in addition to material and labor cost increases and growing trade frictions.

While sovereign debt woes are cutting demand in the EU, China’s biggest market,material and labor costs in coastal regions have increased 20-30 percent in the first six months, said Yao Jian, spokesman of the Ministry of Commerce.

As a solution, the ministry would retain tax rebates and offer easy credit to exporters, while importing more equipment and machinery for the processing industry, technology-intensive products and raw materials to facilitate the country’s high growth, he said.

Export growth in the second half of this year may slow to just 16.3 percent, giving full-year growth of about 24.5 percent, the State Information Center, a leading government think tank, estimated.

Grain Price Hikes

Wheat purchasing prices have hit new highs since mid-June in China, but the country has enough grain reserves to guarantee domestic supply, said the State Administration of Grain.

China’s summer grain output declined year on year for the first time after six straight years of growth. Even so, it’s the third best harvest in the country’s history.But prices of wheat futures have soared by up to 30 percent and at the spot market wheat prices exceeded the minimum purchasing prices the government set for the first time.

State-owned China Grain Reserves Corp. was held responsible for the price hikes, as it controls the bulk of grain reserves and can easily stabilize market prices for wheat, said the top grain regulator in a recent report submitted to the State Council.

Massive capital flows have pushed up the prices, too, said the report. More state-controlled enterprises, such as food manufacturer COFCO Ltd., compete in the grain market, and foreign companies such as Yihai Kerry of Singapore and Louis Dreyfus of France have joined the scramble for wheat in Shandong and Hebei provinces making competition fi ercer.

Rising production costs, dramatic weather conditions and the government’s stern measures to squeeze bubbles out of property and stock markets all account for the increases, said Yang Jianwen, a professor of economics at the Shanghai Academy of Social Sciences.

Speculative capital retreated from property, while stock markets found the agricultural produce market ideal because of its small scale and fl exibility. But increases in grain supply in the second half of the year will help stabilize the grain prices and ease in fl ation pressures, Yang said.

E-Commerce Escalates

E-commerce related Web use has ac-celerated in China from January to June as 142 million of the country’s more than 420 million Netizens shop online, said the China Internet Network Information Center(CNNIC) in its 26th report on China’s Internet development.

By the end of June 2010, 33.8 percent,30.5 percent and 29.1 percent of Chinese Internet users had used online shopping,online payment options and online banking services. Users of the three applications have all grown by around 30 percent in the first half of this year, much faster than other applications, the report said. In addition, search engine users reached 320 million, up 13.9 percent, and quite a number of them found things they want to buy online with the help of search services.

E-commerce also highlighted venture investments in China. China’s e-commerce sector can expect a new round of investment this year, and a number of companies that have completed several rounds of fundraising will seek IPOs next year, said Zhang Yanan, an analyst with zero2ipo Group, an integrated service provider in China’s venture capital and private equity industry.

Investments worth more than $600 million in 95 cases were injected into China’s business-to-customer sector and relevant businesses between 2006 and 2009, said statistics from zero2ipo Group. In the first quarter of 2010 alone, the sector attracted 11 investments, and seven of them, with disclosed investment details, averaged $21.32 million each, higher than the 2008 and 2009 levels, said the company.

Lending to SMEs

The Chinese economy picked up momentum much faster than other economies—and loans to small and medium-sized enterprises (SMEs) were kicked up a notch as well.

SMEs in China were given new loans totaling 1.12 trillion yuan ($164.7 billion) in the first quarter of this year, up 22.9 percent year on year.

Du Jinfu, Vice Governor of the People’s Bank of China, the central bank, said new loans for SMEs are growing faster than those for big companies as government measures to allow easier access to fi nancing have begun to take effect.

Financing has long been a bottleneck in the development of SMEs, as banks prefer to lend money to big enterprises, particularly state-owned enterprises with good reputations.

Lenders used to shun SMEs, as they feared smaller companies might not be able to survive the crisis, leaving them with large debts.

The Chinese Government has taken various measures to help SMEs acquire financing. For instance, the central bank has imposed a differentiated reserve requirement ratio to the Rural Credit Cooperative, the major lender to SMEs, and encouraged innovation in SMEs’ bond issuance.

Du said the government will learn from international practices and lend more to SMEs as they absorb most of the surplus labor from rural areas.

Top UAE Exporters

In the aftermath of the global financial crisis, China and India replaced longstanding Western countries to be the biggest suppliers of goods to the United Arab Emirates (UAE).

The Emirates Business 24/7 reported China’s exports to the UAE stood at 47.8 billion dirhams ($13 billion) in 2009, accounting for about 10.7 percent of the UAE’s total imports of 447.3 billion dirhams ($121.8 billion).

India took the dominant position in exports to the UAE. It exported a record high 61.5 billion dirhams ($16.7 billion) worth of goods to the UAE in 2009, accounting for around 13.7 percent of the UAE’s total imports, the report said.

The export surge was a result of an aggressive marketing campaign by India and China, the competitive product price, proximity to the region, strong political relations,and persistent volatility in imports from key Western economies. ■

Numbers of the Week

534 billion

China’s centrally administered state-owned enterprises reported combined pro fi ts of 543 billion yuan ($80 billion) in the first six months of this year, up 61.6 percent from one year ago,said the State-owned Assets Supervision and Administration Commission of the State Council.

25.2 million

China’s third-generation (3G) mobile phone service subscribers reached 25.2 million at the end of June, said the Ministry of Industry and Information Technology.

EARLIER THAN EXPECTED: A rail link in Qinghai Province connecting Xining, the provincial capital, and Gomud City will be completed by the end of 2010, 21 months ahead of schedule. The segment is part of the Qinghai-Tibet railway and will be able to transport 50 million tons of goods annually