MARKET WATCH

Greater Use of the Yuan

In a bid to bolster the global presence of the yuan,China has expanded its yuan settlement program in cross-border trade to cover the entire nation.

In July 2009,China launched the pilot program in five cities including Shanghai and Guangzhou.The mechanism was widened to cover 20 provinces,municipalities and autonomous regions across the country in June 2010.

The extension is a crucial step in encouraging greater use of the yuan and better serving the needs of enterprises,said the People’s Bank of China,the central bank.

In the first half of 2011,China’s yuan settlement of cross-border trade surged to 957.57 billion yuan ($149.62 billion),increasing 13.3 times from that of the same period last year,according to statistics from the central bank.

Meanwhile,the Chinese Government plans to allow cross-border direct investment in the yuan to facilitate internationalization of the Chinese currency.

Foreign investors will be able to make direct investments in China with yuan legally obtained from overseas,said a draft released by the Ministry of Commerce,which is currently soliciting public feedback on the new rules.

The ministry said the yuan funds obtained through cross-border trade settlement and overseas issuance of yuan-denominated bonds or stocks are eligible for such direct investments.

However,those overseas funds cannot be used to invest in negotiable securities and financial derivatives in China directly or indirectly,nor to provide entrusted loans in the country or repay domestic or overseas loans.

Property Clampdown

Signs are emerging that China’s property market is tapering off,though massive price declines have yet to be seen.

In July,39 out of 70 monitored cities witnessed month-on-month increases in prices of new commercial residences,while only 14 experienced declines.Prices stood unchanged in 17 cities,said the National Bureau of Statistics (NBS).

As for second-hand homes,prices rose in 36 cities in July over June prices,and 22 cities saw their prices drop.

Policymakers have been pushing all their buttons to strike hard against speculative demands.The government plans to expand purchase restrictions to cover a string of second-and third-tier cities where home prices are escalating beyond the reach of many working families.

Property developers have felt the pinch of tightening measures.The Shenzhen-based Gemdale Group reported 480 million yuan($75 million) in net profits for the first half of this year,plunging 61 percent from a year ago.China Vanke Co.had 171.37 billion yuan ($26.8 billion) worth of unsold house inventories as of June 30,up 28.5 percent from three months earlier.

Zhang Yue,chief analyst with Homelink,the country’s largest property agency,said the balance sheet of real estate developers will weaken if China continues to tighten credit and restrict home purchases.

“It is likely that a turning point for the market will arrive in the third quarter,”she said.

Liu Mingkang,Chairman of the China Banking Regulatory Commission,said the banking sector can endure a 50-percent plunge in property prices,dismissing fears over the ripple effects of a possible property market slump.

Gold Rush

Chinese investors are buying up gold as inflation jitters proliferate.

In the second quarter,China’s demand for gold jewelry edged up 16 percent year on year to reach 102.9 tons while its demand for gold coins and bars jumped 44 percent to 53 tons,said the World Gold Council (WGC).

China and India accounted for 52 percent of total bar and coin investment and 55 percent of global jewelry purchases,said the WGC.

The growth in the two Asian markets,which have a traditional preference for gold,is likely to continue due to increasing economic prosperity,high levels of inflation and upcoming traditional festival and holiday seasons,said the WGC.

“Gold buying trends,particularly in China,should also be supported by improved access to the market,with banks actively promoting gold investment products,”said Marcus Grubb,Managing Director of Investment at the WGC.

While the longer-term outlook appears favorable,the market is likely to experience a bumpy transition,said the WGC.Disposable income,particularly among a younger demographic,could be directed toward consumer electronics and an expanding array of financial and saving products will compete with gold.

Numbers of the Week

18.1 billion yuan

In the first seven months,China’s five largest electricity companies—Huaneng,Datang,Huadian,Guodian and China Power—incurred combined losses of 18.1 billion yuan ($2.8 billion) from thermal power generation,said the China Electricity Council.

92.95 billion yuan

China Construction Bank reported 92.95 billion yuan ($14.5 billion) in net profits for the first half of 2011,up 31.33 percent from a year ago.

BUYING SPREE:A consumer in Xuan’en County,Hubei Province,looks at personal computers at an electronics mall.U.S.research firm IDC said China became the world’s largest PC market in the second quarter,with 18.5 million units in PC shipments,overtaking the United States

BYD Withers

As the auto market turns bearish,BYD Automobile Co.Ltd.is struggling to make ends meet.

The Shenzhen-based company generated a net profit of 275 million yuan ($43 million)for the first half of 2011,falling 88.63 percent from a year ago.Its revenues totaled 22.54 billion yuan ($3.5 billion),plunging 10.77 percent.

A former manufacturer of rechargeable lithium and nickel batteries,BYD has been making a push into new energy vehicles.It was even considered a rising star when U.S.investor Warren Buffet paid $230 million for a nearly 10-percent stake in the company in September 2008.

BYD attributed the gloomy performance to intensifying competition and tepid demands.The government this year rolled back some supportive policies,including a favorable purchase tax for smaller cars,subsidies to rural buyers and an old car replacement program.

In addition,acute costs inflation is eating into the profit margin,said the company,in a statement.

From January to June,BYD sold 220,000 cars,down 23.37 percent year on year.The only bright spot was its battery business,which reported a 17.3-percent increase in revenues.

BYD said it will strengthen efforts to promote new energy vehicles.It expected its sales of F3DM plug-in hybrids to exceed 1,000 units this year,compared with around 300 units in 2010.

“But a rapid surge in the new energy vehicle business is less likely due to concerns over battery safety and a lack of recharging infrastructure,”said Chen Huanyu,an analyst with the Guotai &Jun’an Securities Co.Ltd.

China Mobile’s Prospects

China Mobile,the country’s largest telecom carrier by subscribers,added 32.77million new customers in the first half to reach a total of 610 million at the end of June.

The telecom giant also reported 61.28 billion yuan ($9.58 billion) in net profits for the first half of this year,an increase of 6.3 percent from the previous year.Its revenues went up 8.8 percent to reach 250.1 billion yuan ($39.1 billion).

Although the company is basking in the glow of a significant market boom as Chinese consumers switch from fixed-line phones to mobile phones,its customer growth has slowed due to cutthroat market competition.

Meanwhile,subscribers are paying less as more than half of its new customers came from the relatively underdeveloped countryside.The average revenue per user—a key barometer for long-term growth prospects—dropped to 70 yuan ($11) from 72 yuan($11.2) a year earlier.

The company has been promoting penetration of 3G networks,but the prospect is somewhat overshadowed by a lack of handsets available for its homegrown TDSCDMA standard.But the good news is Apple has agreed to develop future versions of its iPhone using China Mobile’s 4G network of TD-LTE technology.

“We will look for appropriate investment opportunities in an active but cautious manner to broaden our presence in the telecom market,”said Wang Jianzhou,Chairman of the China Mobile.