May, 2011 Compiled by Yimin Zhang, University of Shanghai for Science and Technology and distributed free of charge

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Walmart China’s ranks suffer double blow

Walmart is looking to China and other emerging markets to offset the flat performance of its US business, where it has limited growth potential, but in several foreign countries it has found the going tough. Its annual sales of $7.5bn in China are still a small proportion of its global revenue of roughly $420bn, but it says year-on-year sales in China are growing at a double-digit rate and most analysts give it decent marks for its performance. However, its business has progressed slowly. In a sign of the difficulty many foreign retailers face in converting China’s potential into profits, Walmart made its maiden profit in China only in 2008, 12 years after first entering the country.

The company did not name replacements for the two men who resigned, who were both senior vice-presidents (Roland Lawrence, its chief financial officer in China, and Rob Cissell, its China chief operating officer), and would not comment on the circumstances of their simultaneous departures or the implications for its China business. The US company was an early foreign entrant into the Chinese grocery market in the 1990s along with Carrefour of France, but the market remains fragmented and neither company has built a market share of more than 6 per cent, according to analysts. Walmart now has about 330 stores in more than 120 cities in China. Yuval Atsmon, a consultant at McKinsey, said the China businesses of many foreign retailers were feeling a lot of pressure from head offices, but that it had proved hard to replicate their success in home markets partly because the cost of opening new stores was relatively high.

Source: Barney Jopson in New York and Rahul Jacob in Hong Kong: Walmart China’s ranks suffer double blow, The Financial Times, May 23 2011

Railway investment to top 700b yuan in 2011

China's Ministry of Railways announced on Friday that its total investment this year will reach 745.5 billion yuan ($115 billion), with 600 billion yuan going toward infrastructure construction, according to ministry spokesperson Wang Yongping. Wang said the arrangement was a proper one because it reflects the continuity of railway construction, and meets the capital demands of projects under construction. He said that during the country's 12th Five-Year Plan Period (2011-2015), the ministry will proceed with railway construction in accordance with the country's economic and social development and the public's satisfaction, adding that investments during the period will hit 2.8 trillion yuan. Wang said China's high-speed rail tracks will expand to 45,000 km by 2015. Railways in the country's western regions will be extended to 50,000 km.

Source: Xinhua: Railway investment to top 700b yuan in 2011, 2011-05-07
Tourism Geography; New Tourism Geography Study Findings Recently Were Published by Y. Zhang and Co-Researchers

According to a study from Guilin, People's Republic of China, "This study investigates the spatial dependence and mechanisms of international and domestic tourist distributions in 299 cities in mainland China through a set of Geographical Information Systems (GIS)-based spatial statistical tools. The results show that during the period of investigation (1999-2007), there was a significant degree of neighbouring effect (i.e. positive spatial correlation) in both international and domestic tourist distributions." "We have also highlighted that tourism development in a given city is dependent on the developments in neighbouring cities. Specifically, the tourist distribution shows a polarized (core - periphery) spatial pattern, which is strongly connected to the economic development level and tourism resources of the cities. Furthermore, the findings reveal tourist distribution clusters that underscore the importance of geographical focus," wrote Y. Zhang and colleagues. The researchers concluded: "Overall, the results imply that policy makers are encouraged to pay attention to patterns of tourist distribution." Zhang and colleagues: published their study in Tourism Geographies (The Spatial Relationship of Tourist Distribution in Chinese Cities. Tourism Geographies, 2011;13(1):75-90).

Source: Anonymous: Tourism Geography; New Tourism Geography Study Findings Recently Were Published by Y. Zhang and Co-Researchers, China Weekly News (May 17, 2011): 415.
A Tale of 600 Cities

Gregory discusses the emerging Chinese cities. According to a new report from the McKinsey Global Institute, "Urban World: Mapping the Economic Power of Cities," The upshot is that urbanization as much as globalization is shaping the earth's economy. By 2025, with a fifth of the world's population, 600 urban centers account for some 60% of worldwide GDP. Nine of the 10 urban areas that will experience the highest GDP growth from 2007 to 2025 are in China. Out of the top 25 growth cities, an astonishing 21 are in the developing world. From the old guard, only New York, London, Los Angeles and Tokyo will outgrow places like Xi'an and Dongguan.

Source: Gregory, Sean: A Tale of 600 Cities, Time 177. 17 (May 2, 2011): 1.
PLA makes debut at US-China talks

The presence of the Chinese military for the first time at top-level US-China talks “can reduce the dangerous risks of misunderstanding and miscalculation”, according to Hillary Clinton, secretary of state. Both the Obama and Bush administrations have tried to institutionalise greater dialogue with the People’s Liberation Army, but contacts have repeatedly been cut off by Chinese protests over such issues as US arms sales to Taiwan. With the growth of the Chinese navy and a gradual extension of its power beyond Taiwan into the Pacific and Indian oceans, US officials say the potential for both co-operation and clashes with the US is rising. “To work together we need to be able to understand each other’s intentions and interests, and we must demystify long-term plans and aspirations,” said Mrs Clinton.

Source: Richard McGregor in Washington: PLA makes debut at US-China talks, The Financial Times, May 9, 2011

The United States and China are the two largest economies in the world. The growth of our economies is important to both countries and the global economy. During the third meeting of the Economic Track of the U.S.-China Strategic and Economic Dialogue (S&ED), the United States and China made progress on priority issues that will result in meaningful economic gains for U.S. households, workers, and businesses. China pledged to take actions that will provide greater market access and contribute to a more level playing field for U.S. firms and workers, ensure greater protection and enforcement of intellectual property rights, deepen financial sector reforms, and promote greater Chinese domestic consumption and imports through policy shifts, including greater exchange rate flexibility.

The S&ED brings together senior leaders of the U.S. and Chinese governments to discuss the most critical issues faced by our two countries, now and in the years to come. Secretary Geithner, joined by leaders from 15 U.S. government agencies, led a discussion of these issues with the Chinese delegation led by Vice Premier Wang and comprised of all key Chinese economic ministry and agency heads. Through the S&ED, the Joint Commission on Commerce and Trade (JCCT), and other fora, the Obama Administration is working diligently to ensure U.S. companies and workers are treated fairly and can benefit from lasting changes to economic and financial policies in China. Increasing Opportunities for U.S. Workers and Firms: Last year, U.S. exports grew 50 percent faster to China than to the rest of the world and reached more than $110 billion, supporting hundreds of thousands of jobs across the United States in a wide range of industries. To promote greater U.S. exports to the large and rapidly growing Chinese market and to level the playing field for U.S. companies and workers, the United States secured the following commitments at the 2011 S&ED. These measures will lead to more American jobs and boost U.S. exports to China and the world by contributing to a more level playing field and expanding trade and investment opportunities for U.S. workers and firms.

Improving Protection and Enforcement of Intellectual Property Rights

Implementing Commitments to Level the Playing Field

Competitive Neutrality for Private Firms and State-owned Enterprises

Ensuring Transparency for U.S. Companies

Expanding Opportunities for U.S. and Foreign Firms through a More Developed, Open, and Market-based Financial Sector: China has committed to continue and extend financial sector reforms as part of its new Five-Year Plan for the economy, actions that will be of great benefit to both China and the United States. U.S. financial services firms are innovative and competitive. Given the many obstacles that U.S. financial services firms face competing in China, China's commitment to further develop its financial services market based on the principles of national treatment and non-discrimination will provide new and significant opportunities to U.S. firms. More market-based and efficient allocation of credit and capital in China will also help level the playing field with China's SOEs, put more money in the pockets of China's consumers, and create opportunities for private enterprises - including American firms - across a broad range of service sectors.

Safeguarding the Financial System from Illicit Finance Threats. China pledged to strengthen its financial system against money laundering, counterfeiting, terrorism financing, and WMD proliferation. China also will continue to develop and strengthen its regulatory framework for freezing terrorist assets.

Promoting Strong, Sustainable, and Balanced Growth: For many years, China's economic strategy was dependent on rapid export growth. Today, China is committed to transforming its economy into one where growth is generated by home-grown demand and Chinese household consumption. China has also committed in the G-20 to reducing trade and current account imbalances. A consumption-driven Chinese economy will create more opportunities for U.S. firms to export to China, and is a critical part of ensuring strong, sustainable, and balanced global growth. Increasing the Buying Power of Chinese Households and Promoting Consumption

Increasing Opportunities for U.S. Firms in China's Services Sector. U.S. firms are world leaders in a variety of service sectors. Expanding and opening China's services sector will create opportunities for them. Shifting toward services will also reduce the energy-intensity of China's growth - an objective that the United States and the rest of the world share with China.

Continued Exchange Rate Adjustment. Despite recent movement of the exchange rate, the renminbi remains substantially undervalued. China needs to let its exchange rate adjust at a faster pace to correct that undervaluation. More rapid exchange rate adjustment will help bring down inflation in China.

Source: THE 2011 U.S.-CHINA STRATEGIC AND ECONOMIC DIALOGUE U.S. FACT SHEET - ECONOMIC TRACK, Treasury Department Documents and Publications, May 10, 2011.
Geithner hails ‘progress’ in China talks

The US and China have claimed success after two days of negotiations ended in a series of deals on US access to the Chinese market and Chinese access to sensitive US technology. China pledged on Tuesday to change regulations so that government contracts are not linked to improvements in its domestic technology base. China also promised improvements in the enforcement of intellectual property such as software. The US promised “full consideration” of China’s request for “fair treatment” over exports of sensitive US technology and said it welcomes Chinese investment.

The US also made some progress on opening up China’s financial system. The US argues that financial reform will make it easier for Chinese consumers to save and borrow, thus boosting domestic consumption in China. The US also wants to reduce the flow of cheap finance to Chinese state-owned enterprises as a result of caps on interest rates paid to Chinese depositors and create opportunities for US financial companies in the Chinese market.

China said that it will “actively study” allowing foreign-owned insurers to provide car insurance, an important demand given that China will become the world’s largest car market. In the other direction, the US gave reassurances to China about the stability of its huge investment in US financial assets through its foreign exchange reserves.

Source: Robin Harding in Washington: Geithner hails ‘progress’ in China talks, The Financial Times, May 11, 2011
China-US dialogue reaps benefits

China and the United States announced a range of agreements on Tuesday aimed at expanding strategic and economic cooperation after two days of high-level meetings. Following China's repeated requests, the US "commits to accord China fair treatment in reform of its export control regime, and relax control of high-tech exports to China", said Vice-Premier Wang Qishan, who led China's team together with State Councilor Dai Bingguo, at the news briefing. US Secretary of State Hillary Clinton and Treasury Secretary Timothy Geithner, who headed the US team, also attended the briefing. Washington also "agreed to ... speed up the process for the US to recognize China's market economy status", Wang said.

Meanwhile, China has promised to modify government rules to make it easier for US companies to compete for government contracts. China will also provide better protection for US companies against the piracy of computer software and other copyrighted materials. China's commitment to "making long-term improvements in its high-level protection of intellectual property rights and enforcement regime ... will help protect US innovators as well as Chinese innovators in all industries, not just in software," Geithner said.

"We are seeing very promising shifts in the direction of Chinese economic policy," Geithner said in his address to the media, highlighting the fact that the yuan has risen by more than 5 percent against the dollar since June. He said the Chinese currency had appreciated at an annual rate of about 10 percent "when you take into account the fact that Chinese inflation is significantly faster than that in the US". Both countries pledged to take additional measures to promote free trade and investment, to help spur economic growth, create jobs and promote innovation and prosperity. Wang especially noted the consensus on expanding cooperation in infrastructure programs as well as in clean energy, the green economy, and innovation. He said The Comprehensive Framework for Promoting Strong, Sustainable, and Balanced Growth and Economic Cooperation will lead a joint effort to ensure strong, sustainable and balanced growth in both countries.

Source: Li Xing: China-US dialogue reaps benefits, China Daily, 2011-05-12
A mountain of cash with nowhere to go

You know the feeling, you have $3 trillion in foreign currency burning a hole in your pocket and you are itching to spend. But on what? A mountain of gold, a sea of oil or a pile of paper? So far China has chosen paper, especially in the form of US treasury bills. But comments this week by China's central bank chief that the country's foreign exchange reserves exceeded reasonable requirements, and local media reports that Beijing was considering setting up investment funds in energy and precious metals, again raise the question about what the country can do with its money.

At first glance, investing in gold, which is at record highs, or oil, which has rallied for each of the past eight months, makes sense.

"Diversification of foreign reserves is certainly a worthy idea," said Lu Feng, professor of economics at the China Center for Economic Research at Beijing University. "However, the experience in the past few years shows that the endeavor could be very difficult - the scale of the foreign reserve is so massive that the price of anything that the state showed an interest in purchasing with the reserve would go up." He said those price rises, even if the purchase was successful, meant the state might end up losing even more money than by holding on to the currency.

Source: Nick Trevethan and Rujun Shen: A mountain of cash with nowhere to go, China Daily, 2011-05-03
S Korea mulls RMB-denominated assets investments

South Korea's central bank is mulling investments in the yuan-denominated assets in a bid to brace for the internationalization of the Chinese currency in the long term. "The central bank applied to China for qualified foreign institutional investor (QFII) status to be able to invest its foreign exchange reserves in yuan-denominated assets," an official at the Bank of Korea (BOK) told Xinhua. The official noted the move aims to prepare for the Chinese currency's internationalization over the long haul amid China's growing influence in the global markets. He, however, said it would take more than one year to get an approval from the Chinese authorities, hinting there would be no immediate change in the reserves' portfolio. His comment came as South Korea's foreign reserves topped the $300 billion mark for the first time in April. The country's foreign reserves reached $307.2 billion as of the end of April, up $8.58 billion from the previous month.

Source: Xinhua: S Korea mulls RMB-denominated assets investments, 2011-05-04
Ten measures to promote M&As in capital market

The China Securities Regulatory Commission (CSRC) confirmed plans which include 10 measures to promote mergers and acquisitions (M&As) in the capital market, China Securities Journal reported Wednesday. The measures include promoting the overall listing, preventing insider trading, improving the system of suspension and resumption of trading, and finalizing an information disclosure system, according to the report. The CSRC will set up specific programs for each aspect and set up regulations accordingly. Those specific measures will be released one-by-one when related programs and regulations are mature, the journal reported.

Source: Qiang Xiaoji: Ten measures to promote M&As in capital market, China Daily, 2011-05-19
China's high saving rate risks overheating

China's high savings rate may lead to increased investment, which could in turn trigger economic overheating or asset bubbles, said Zhou Xiaochuan, governor of the People's Bank of China, the country's central bank, at a forum on Friday. Zhou called for caution against "cyclical issues" brought by the high savings rate while delivering a speech at the Lujiazui Forum in Shanghai, an annual gathering of top Chinese financial officials and economists.

There are still uncertainties in the global economy, but unlike developed countries, China now requires more prudent macroeconomic policies, as the country has taken the lead in recovering from the global financial crisis, said Zhou. To implement a prudential macroeconomic regulatory framework, China should work to enhance financial stability, which may require financial institutions to have stronger capital bases, he said. The Chinese government is also "cautiously" and "gradually" promoting the use of yuan in cross-border financial transactions, in addition to using the currency in cross-border trade and investment activities, Zhou added. "The growing use of yuan in cross-border activities will require the currency to become fully convertible in a gradual and orderly way," he said.

Source: Xinhua: China's high saving rate risks overheating, 2011-05-20

Yuan may be fully convertible in '3-5 yrs'

A senior economist has said China could achieve full convertibility of the yuan in three to five years - much sooner than previous forecasts. Xiang Songzuo, deputy director of the International Monetary Institute with Renmin University of China, told China Daily on Friday that full convertibility of the yuan could be achieved within that time span, citing sources from the central bank. It is the earliest estimate for the full convertibility of the yuan, as most other experts have said such a move was about a decade away. The People's Bank of China, the country's central bank, declined to comment on Friday.

Wu Xiaoqiu, senior finance professor of Renmin University of China, said it is possible for China to achieve full convertibility of the yuan by 2015. "The yuan could become familiar to global investors very soon and become a global reserve currency," he said. The World Bank said in a report on Tuesday that by 2025 the yuan could become a major global currency together with the US dollar and the euro - echoing China's rising say in the world economy. Zhou Xiaochuan, the central bank chief, said at the Lujiazui Forum in Shanghai on Friday that when cross-border use of the yuan hits a certain level, there will be a natural demand for full convertibility. China has been trying to improve the yuan's global clout by encouraging its use in foreign trade and investment.

Source: Hu Yuanyuan and Gao Changxin: Yuan may be fully convertible in '3-5 yrs', China Daily, 2011-05-21

Int'l board to be yuan-denominated

The proposed international stock board will be denominated in yuan, reiterated an official with China's securities supervisor on May 21 during a forum in Shanghai. Tong Daochi, head of the Department of International Affairs of the China Securities Regulatory Commission (CSRC), made the remarks at the Lujiazui Forum when responding to a question about whether the international board will conflict with the B shares in China. The launch of China's international stock board will occur soon, said Shang Fulin, chairman of the CSRC, at the Lujiazui forum on May 20.

B shares are overseas-invested stocks issued domestically by domestic companies with face values denominated in yuan, but are subscribed and traded in foreign currencies.

Source: Xinhua: Int'l board to be yuan-denominated, 2011-05-23

China to buy Europe bail-out bond

Asian investors including the Chinese government are expected to represent a “strong proportion” of the buyers of Portuguese bail-out bonds when the eurozone’s €440bn rescue fund begins auctioning them next month, according to senior fund officials. Klaus Regling, chief executive of the European Financial Stability Facility, told reporters on Wednesday that Beijing was “clearly interested” in the Portuguese auctions and that he expected China to participate. He argued the intense interest from Asia and other international investors showed renewed confidence in the future of the euro as a currency. But Mr Regling acknowledged that the primary motivation of Asian investors was to find new, safe investments into which to put their growing cash piles, rather than any endorsement of how Europe has handled the debt crisis in some eurozone countries.

Chinese officials have expressed interest in investing in European assets as a way to diversify holdings in their sovereign wealth and other investment funds, which have historically concentrated on dollar-based assets. While Beijing has acknowledged it remains a significant holder in Portuguese and Greek sovereign bonds, Chinese officials have been reluctant to disclose where in Europe it will make investments. China’s involvement in the triple A rated bonds issued by the bail-out fund could be an indication Beijing is focusing on ultra-safe assets rather than more risky sovereign bonds for countries such as Ireland, Portugal and Greece.

Source: Peter Spiegel in Luxembourg: China to buy Europe bail-out bond, The Financial Times, May 25 2011

Chinese shares continue slipping on growth concerns

Chinese shares dropped for its seventh straight day of losses on Friday as growth concerns still haunted market sentiment. The benchmark Shanghai Composite Index fell 0.97 percent, or 26.58 points, to 2,709.95 points, its lowest level since Jan 26 of this year. The Shenzhen Component Index inched down 0.33 percent, or 37.99 points, to close at 11,492.71 points.

Soure: Xinhua: Chinese shares continue slipping on growth concerns, 2011-05-27

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