MARKET WATCH

PMI Holding Up

The purchasing managers index (PMI), a barometer of manufacturing activities, stood at 51.2 percent in September, up 0.3 percentage point from August. This was the second consecutive month of increase after four straight months of decline, said the China Federation of Logistics and Purchasing(CFLP). The index came in at a 29-month low of 50.7 percent in July.

Meanwhile, this was the 31st straight month in which the index was above the boom-and-bust line of 50 percent. A reading above 50 percent indicates economic expansion.

The new orders sub-index, an effective gauge of domestic demand, stood at 51.3 percent in September, compared with 51.1 percent in August. The input prices subindex, a measure of how much factories pay for raw materials and other intermediary goods, dropped to 56.6 percent, down 0.6 percentage points from August.

“Evidence is emerging that the Chinese economy is finding its feet despite a worsening global economic outlook,” said Zhang Liqun, a researcher with the Development Research Center of the State Council.

Inflation is likely to abate in the rest of the year, but efforts are still needed to soothe financing woes of smaller businesses, he said.

China’s economic growth is slowing gradually and the chances of a “hard landing” are small, said Lu Ting, an economist with the Bank of America Merrill Lynch.

“But China should be prepared for the worst of a eurozone crisis,” Lu said. “The weakness in the global economy will be felt by China’s exporters in the coming months.”

Meanwhile, the PMI for the non-manufacturing sector, an indicator for economic activities in the service industry and other non-manufacturing businesses, rose to 59.3 percent in September from 57.6 percent in August.

Tepid IPOs

China’s initial public offering (IPO) market is losing momentum due to fragile stock markets.

The first three quarters of this year witnessed 227 IPOs on domestic stock markets, down from 258 cases during the same period last year, according to data from the Shanghai and Shenzhen bourses. Of this total, only 84 companies went public on the Small and Medium-Sized Enterprise Board,plunging 45 percent from a year ago.

The 227 IPOs raised a total of 230.54 billion yuan ($36.59 billion), down 40 percent year on year. The Sinohydro Group, the builder of the Three Gorges Dam, was the only company who launched an IPO worth more than 10 billion yuan ($1.57 billion).

Analysts attributed the gloomy performance to weakening investor confidence as the stock markets turned bearish. The benchmark Shanghai Composite Index has slumped 15.98 percent so far this year, ending at 2,359.22 points on September 30.

“Fewer large IPOs will come to the market in the immediate future, as most large enterprises are already listed,” said Zhang Xiang, an analyst with Guodu Securities Co. Ltd.

Meanwhile, smaller companies may choose to go public at a slower pace, given the dark market prospect, he said.

Shipbuilders’ Woes

China’s shipbuilders are feeling the pinch of an industry downturn as uncertainties hang over the global shipping markets.

Chinese ship makers source their orders largely from the United States and Europe.Clouds are gathering over their prospects since demands from developed nations have become lackluster. The Baltic Dry Index, a proxy for shippers’ costs and profits, averaged at 1,372 points in the first half of 2011,falling 56.7 percent from a year ago.

Zhang Changtao, a senior researcher with the China Shipbuilding Economy Research Center, said Chinese shipyards are losing their competitive edge as low-cost manufacturers because of domestic cost inflation.

China replaced South Korea to become the world’s biggest shipbuilder in the first half of 2007 by winning more orders in terms of deadweight tonnage, but South Korea remained far ahead in manufacturing high-end products, like LNG (lique fied natural gas) ships and large container ships.

The ongoing industry gloom has provided a catalyst for Chinese firms to improve their technologies and solidify their market foothold, said Zhang.

Numbers of the Week

178.9 billion yen

China bought a net 178.9 billion yen ($23 billion) of Japanese government debt in August, marking the first net purchase since October 2010, said Japan’s Ministry of Finance.

12.5 billion yuan

China Vanke, the country’s largest listed property developer,said its sales in September fell 12 percent year on year to

12.5 billion yuan ($1.96 billion).

TRAFFIC BOOM:Travelers wait in line for trains at the Nanjing Railway Station on October 7. In the first three quarters of 2011,China’s railway passenger traffic volume increased 11.6 percent from a year ago to reach 14.2579 trillion people

Mobile Momentum

China’s mobile payment industry is picking up steam, boosted by the expanding number of smart phone users.

China is expected to have 230 million mobile payment users by the end of this year,generating 11.37 billion yuan ($1.8 billion) in transaction value, up 400 percent on the previous year, said a report of the consulting firm iResearch and Minsheng Securities Co. Ltd.

Mobile payment is used to pay for a wide range of services and digital or tangible goods using a mobile device. It has become an alternative payment method for cash or credit cards.

Song Ming, a researcher with the China Mobile Research Institute, said mobile payment is an inevitable trend reflecting the development of smart phones and the mobile Internet.

Chinese telecom operators and financial institutions have showed significant interest in the emerging sector due to its user convenience and economic benefits.

The government has awarded licenses to 40 third-party payment companies nationwide. Most of them are making a push into the mobile payment sector. Alibaba’s Alipay,for instance, in July launched a new service allowing small retailers to receive payments via mobile phones.

Retailers need to login to Alipay’s online cash register, enter the cash amount, and then scan or key in the barcode. The customer would then receive a con firmation notice to con firm the transaction.

But the industry is not without concerns.“Many users are worried about Internet virus, security of the payment and their personal information,” said Cheng Shanbao, an analyst with iResearch.

“Efforts are still needed to improve the security technology and spur the spread of mobile payments,” said Cheng.

Banking Challenge

Foreign banks in China are facing headwinds due to limited market presence and intensifying competition.

The international accounting firm KMPG surveyed 33 locally incorporated foreign banks in China, disclosing their China operations had a 24-percent growth in profits for 2010, compared with 36 percent of their Chinese counterparts.

Deutsche Bank AG raked in 46.3 million yuan ($7.3 million) of profits in China last year, down 13 percent from 2009. A striking contrast, the Industrial and Commercial Bank of China, the country’s largest lender,earned 166 billion yuan ($26.1 billion) in pro fits, jumping 28 percent year on year.

“A major reason for foreign banks lagging behind is that they face difficulties attracting deposits in China,” said KPMG, in a report. “Luring deposits in a market where you cannot compete on deposit rates and have a limited branch network is very challenging.”

Competition for talent among foreign banks also pushed up costs and slowed their profit growth, said Simon Gleave, regional head of financial services at KPMG.

“People are relatively mobile between the foreign banks and they jump ship pretty regularly,” said Gleave.

But one area where foreign banks have “a great deal of opportunity,” according to the report, is yuan internationalization-related services, including yuan-denominated trade settlements, which were introduced by the government in 2009.

JPMorgan Chase & Co. and Deutsche Bank’s yuan-denominated trade settlement businesses in Shanghai each exceeded 10 billion yuan ($1.57 billion) in the first half of this year. ■