China Economic Scan Weekly Economic Review –1 May 2009

In the past week SASAC revealed SOE profits dropped 42%, and thegovernment announced it would spend an additional 70 billion yuan ofits 4 trillion yuan stimulus package.

In the past week SASAC revealed SOE profits dropped 42%, and the government announced it would spend an additional 70 billion yuan of its 4 trillion yuan stimulus package. Internationally, China and Taiwan finished talks productively and positively, and China signed a free trade deal with Peru after a year of negotiations.

The Chinese government announced it is preparing to spend an additional 70 billion yuan ($10.3 billion), mostly on infrastructure projects. The spending will be the 3rd installment of the 4 trillion yuan ($586 billion) package, which was announced in November. The central government has so far spent 230 billion yuan ($33.8 billion) of the package: 100 billion yuan ($14.6 billion) in Q4 08 and 130 billion yuan ($19 billion) in Q1 09.

The 138 SOEs directly controlled by the central government, reported profits of 119.49 billion yuan in the first quarter, down 41.8% year on year, on sales revenue of 2.36 trillion yuan, down 9.1% year on year, according to the State-owned Assets Supervision and Administration Commission (SASAC).

The profit for March was 62.29 billion yuan, up 85.7% from February, on sales of 935.54 billion yuan, up 26.8% versus Feb. In 2008, SOEs recorded the first annual decline since 2002, falling more than 30% year on year to 665.29 billion yuan.

Internationally, talks last Sunday between the Association for Relations Across the Taiwan Straits (ARATS) and the Straits Exchange Foundation (SEF) resulted in an initiative that will see Chinese mainland companies being allowed to invest in Taiwan for the first time in 60 years. Another initiative involves setting up a regulatory framework for financial services firms to operate in both markets. Including gradually setting up a clearing system for the Taiwan dollar and the yuan.

“This will drive new investment in the domestic market and bring strong interest from foreigners as well,” Standard Chartered economist Tony Phoo was quoted as saying. A few days following this development, China Mobile said it would buy a 12% stake in Taiwan’s Far EasTone for $529 million; one of the biggest investments by a Chinese firm in Taiwan.

Chinese Vice President Xi Jinping and his Peruvian counterpart Luis Giampietri Rojas witnessed the signing of a free trade agreement (FTA) between China and Peru, after a year in the making. “The pact covers a wide range of fields and features a high-degree of openness,” said Zhu Hong, deputy director general of the International Department of China’s Ministry of Commerce. The FTA includes opening service sectors and offering favourable treatment of each other’s investors. Trade between the 2 countries reached $7.5 billion in 2008.

Macao’s trade deficit for the first quarter of 2009 dropped by 3.2% year-on-year to 6.18 billion patacas (US$782 million). The figures showed that Macao’s total exports of goods fell by 49.2% year-on-year to 2.03 billion patacas (US$257 million dollars), with the value of domestic exports and re-exports declining by 63.5% and 24% respectively, while total imports of goods slid by 20.9% to 8.21 billion patacas (1.04 billion dollars) during the first quarter.

The value of Textile and garment exports by Macao declined by 64% year-on-year to account for 42.1% of the total exports of goods and the value of Non-textile exports also dropped by 27.6%.

On the environmental front China allocated 23 billion yuan (3.37billion U.S. dollars) for energy saving, anti-pollution, ecological and environmental protection projects since Q4 2008. Han Yongwen, secretary-general of the NDRC, said investment in these sectors totaled 10% of the 230 billion yuan government spending to date.

Of the 23 billion yuan spending, 13 billion went to improving urban water treatment facilities, 4 billion yuan to pollution prevention projects on the Huaihe and other big rivers, 3.5 billion yuan to forest planting projects and the other 2.5 billion yuan to key energy saving projects across the country.

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