Nov. 12 - We’re pleased to be able to share with China Briefing subscribers this brand new China economic presentation by Stephen Green, the head of China research for the Standard Chartered Bank. “China in 2009 and beyond: How bad is it out there?” covers both current and projected figures from 2007 forecast to 2012 as regards FDI, GDP growth, US$/RMB valuation, government spending, consumption growth, reliance on overseas markets, export growth, inflation, salaries, and fiscal stimulus reform. We are grateful both to Professor Green and Standard Chartered for sharing this information with us and our subscribers (click on the photo at right to download the pdf).

Forecast snapshots
US$/RMB valuation: 5.7 by 2010
GDP growth: 7.1 percent by 2010
US$ forex reserves: Up another US$1,000 billion by 2010
Inflation: Lowering to 5 percent by 2010
Consumption growth: On high upward curve (more…)

Nov. 11 - China’s State Council said that beginning January 1, it would reduce value-added tax (VAT) for all industries by more than RMB120 billion.

The move is part of a stimulus package worth RMB4 trillion scheduled to be spent by 2010. It is expected to spur Chinese companies to develop technology, increase domestic demand and thrust industrial restructuring.

The new regulation also aims to encourage a movement from the current production-based VAT regime to a consumption-based one that would allow companies to get tax deductions on spending on fixed assets.

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Nov. 11 - Work began on Sunday on a high-speed rail link between Nanning and Guangzhou that will cut travel time between the two south China cities from almost 13 hours to three.

The 577.1 kilometer-long route, 61 percent of which will run through Guangxi, will allow trains to run at up to 200 kilometers per hour Xinhua reports. It is scheduled to be completed in an estimated 54 months and cost about RMB41 billion, according Chen Boshi, chief of Nanning Railways Administration.

The cost will be shared by the Ministry of Railways, Guangdong Province and Guangxi, said Chen.

The governor of Guangdong province, Huang Huahua, said he hoped the link would advance the goal of a Pan-Pearl River Delta and help connect southeast China to members of the Association of Southeast Asian Nations. (more…)

Nov. 10 - The governor of Guangdong province, Huang Huahua, has stated that the value of exports leaving for overseas markets has dropped by 10.9 percent this year, with GDP slowing from 14.5 percent in 2007 to 10.2 percent for 2008.

The figures are important as Guangdong is both China’s wealthiest province, with two of its cities, Guangzhou and Shenzhen enjoying a higher per capita income than Shanghai. Guangdong also accounts for 28 percent by value of China’s entire exports.

Commenting that Guangdong was facing severe trading pressures, he acknowledged that increasing numbers of local and foreign invested enterprises were posting losses. Hong Kong business associations, including the Hong Kong General Chamber of Commerce, have been estimating that up to 3,000 Hong Kong-owned firms in the Pearl River Delta have closed in the past 12 months, and that thousands more could shut down over the coming months.

That perspective has also been echoed in Shanghai, with Party Secretary Yu Zhengsheng stating last week that industrial and fiscal tax revenues were at an all-time low, and that GDP growth had been 10.1 percent during the first nine months of the year. Beijing, with its dynamic Bohai Rim, is also struggling to meet targeted double digit growth this year as exports from Tianjin retrench. Economists are expecting matters to get worse: “These regions are vulnerable to changes because xports constitute the biggest proportion of their economy,” said Zhang Ming, an economist with the Hong Kong University. (more…)

Nov. 7 - China’s budget for government agency spending will be capped at the same levels in 2009, reports the Ministry of Finance on its website.

In the past five years, agency budgets increased by average of 5 percent annually. China’s central government is now working towards cultivating a thrift society.

“The budgets for next year should be capped at the same amount as this year’s and every project would be looked at,” said the ministry’s website.

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Nov. 7 - China’s investment arm, Central Huijin Co., has agreed to lend state-owned Agricultural Bank of China (ABC) a RMB130 billion capital injection for its stock listing.

According to China Daily, Central Huijin and the Ministry of Finance each will have half of the bank’s ownership. Central Huijin will help ABC improve corporate governance and boost the bank’s capital base, improve its financial status and enhance its profitability.

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New president should Heed Bush’s early mistakes with China relations

By Chris Devonshire-Ellis

Nov. 5 - With Barack Obama confirmed as the next president of the United States, eyes will now fall upon China to see how it reacts. While the Chinese media has tended to take a more conciliatory role regarding the American administration in recent years, that was definitely not the case seven years ago when George W. Bush came to power. Despite his father being popular with the Chinese government, rhetoric against Bush began almost as soon as he had taken office, largely in response to his “axis of evil” comments in the 2002 State of the Union. Those remarks, which labeled North Korea as a rogue and dangerous nation, towards a state with which China has long had deep and long standing relationships, were very badly received. With North Korea at the time looking to come out of the dark ages and tentatively embrace change—Madeline Albright had visited Pyongyang in 2000—President Bush’s remarks set back years of Chinese diplomacy in just three words.

China’s media were quick to label the president as “Little Bush,” a term highly demeaning in Chinese, and disliking his foreign policies, describing him within weeks of taking office as a “warmonger” and worse, seeking to belittle him at every opportunity. Come the Hainan spy plane incident, China went to town. Within the space of just a matter of months, President Bush had upset most of the world’s leaders, being seen as provocative, and was forced into an embarrassing climb down and an apology to the Chinese people over the Hainan air crash, in which a Chinese pilot lost his life and the American crew of the reconnaissance aircraft were detained for ten days. (more…)

Nov. 5 - A senior government official says China may revise its value-added tax (VAT) system in 2009 to help lower business costs and help firms cope with the global downturn.

According to China Daily, the government could allow companies to deduct the tax incurred when buying machinery and other capital assets from their VAT bills. If this pushes through, it would decrease business costs by as much as RMB200 billion.

“We are quite likely to launch the overhaul of a VAT system next year,” said Han Yongwen, chief secretary of the National Development and Reform Commission, reports China Daily.

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Nov. 4 - The government of Hong Kong Special Administrative Region is set to implement the Loan Guarantee Scheme starting November 6 to help small and medium enterprises (SMEs) cope with the global credit crisis.

Currently, ten participating lending institutions (PLI) are qualified to accept applications for the enhancement measures. The sub-ceilings for the Business Installations and Equipment Loans and Working Capital Loans (WCL) will be cancelled in addition to an overall maximum amount of guarantee for each SME to be maintained at HKD6 million.

The maximum guarantee period for WCL will be extended to five years and each SME will be allowed to avail of a guarantee again after full payment of the loan backed by the guarantee.

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Nov. 3 - The November issue of China Briefing magazine is out now and available for download (click on the image - subscription required however this is complimentary).

With a global recession and domestic downturn in China just commencing, this issue examines lessons learned during the previous Asian Financial Crisis of 1997, SARS and the impact these slowdowns had on foreign invested business in China. We look at managing your cash flow, properly assessing your sales projections, dealing with creditors, and an alternative way to look at the value of the RMB when sourcing. We also examine expanding business elsewhere into Southeast Asia and look at the emerging, and potentially downturn proof markets of Cambodia, India, Laos, Malaysia, Thailand and Vietnam.

In our series on China’s second- and third-tier cities, we focus on Liuzhou in Guangxi and Zhanjiang in Guangdong – both key cities in China’s increasing trade connections with the rest of ASEAN.

Included in this issue:

On the ground in China: Managing cash flow, dealing with creditors, assessing sales projections

On the ground China sourcing: Purchasing power parity, assessing the true buying value of the RMB

Expanding the China market: How emerging Asia will help counter the global downturn

3TC: Liuzhou and Zhanjiang