SECTOR REPORTS

MEDIA, TECH & TELECOM

China has new Internet standard
The China Education and Research Network 2 (CERNET2), which was unveiled in late September, was heralded as an ultra-fast network that may reduce China's dependence on foreign Internet firms. The network reportedly links up to 167 institutes and departments at 25 universities in 20 cities and operates on Internet Protocol version 6 (IPv6). Most people currently use IPv4, which has limited domain names and inferior security and high-tech functions.

eBay China boss quits
The head of eBay's principal Internet auction site in China, EachNet, stepped down from his post at the end of September after a year to pursue other opportunities. Martin Shixiong Wu was replaced by Liao Guangyu, who took over EachNet while still head of PayPal China, which runs transaction processing for EachNet. Wu's departure comes amid concerns over the fading fortunes of foreign Internet firms in China. EachNet has been overtaken by domestic auction site Taobao and Google's Chinese search engine trails Baidu.

China Telecom to use Microsoft
Microsoft will provide its Live Search service to China Telecom's 25 million broadband customers and more than 80 million Internet users. Microsoft's search engine has less than 3.7% of the China market, behind Baidu on 50.3%, Google on 16.2% and Yahoo on 15.7%.

MySpace heads to China
Wendy Deng, wife of News Corp CEO Rupert Murdoch, was said to be working on a plan to bring the popular networking site MySpace to China. "I have sent my wife across there because she understands the language," Murdoch told the Financial Times. He said the Chinese version of MySpace would likely have local partners with a share of around 50%.

TRADE

Second-largest trade surplus
China posted its second largest trade surplus on record in September. The US$15.3 billion surplus reported by the General Administration of Customs represents a reduction from the US$18.8 billion surplus in August but was still sufficient to take China's nine-month surplus to US$110 billion, past the full-year total for 2005 of US$102 billion. Exports in September totaled US$91.64 billion, up 30.6% from 2005, while imports amounted to US$76.34 billion, an increase of 22% year-on-year.

China-S Korea trade jumps
Trade between China and South Korea may hit US$115 billion this year amid onging talks for a bilateral free trade agreement. Imports and exports jumped 17.8% in the first six months of the year to US$61.8 billion, according to Ministry of Commerce figures. Overall trade between the two countries last year hit US$111.9 billion, with China running a US$41.7 billion trade deficit with its neighbor.

US tariff bill scrapped
US Senators Charles Schumer and Lindsey Graham abandoned legislation threatening China with a 27.5% punitive tariff if it failed to revalue its currency. The two senators said in late September that they had accomplished their goal of focusing more attention on China's strict exchange rate controls, which they believe gives Chinese companies an unfair trade advantage. They are working on a new bill that doesn't focus solely on China's currency, to be put forward next year.

China gets more say at IMF
China, South Korea, Mexico and Turkey were granted greater voting rights by the International Monetary Fund in September. It is part of a two-year effort to redistribute votes among African nations and fast-growing countries. China's vote share will increase to 3.7%. The US has 17%.

AUTO

Toyota shows massive growth
Toyota more than doubled its car sales in China between January and September, shifting 203,000 vehicles and covering nearly three quarters of its 2006 full year sales target of 278,000 units. Toyota is on course to unseat GM as China's number one foreign auto seller by 2008.

Daimler in talks to sell Chery cars
DaimlerChrysler is in talks to sell cars made by Chinese manufacturer Chery in Europe and the US, the Financial Times reported. Negotiations are focused on marketing sub-compact vehicles under the Dodge brand as DaimlerChrysler is looking for a low-cost production based for small cars, having ruled out the US as being too expensive.

Auto imports up 72% to August
China imported 147,000 motor vehicles in the first eight months of the year, up 71.8% year-on-year, according to the China General Administration of Customs. Worth a total of US$4.84 billion, the EU, South Korea and the US were the source of 88.2% of China's imports.

MACROECONOMICS

Think tank forecasts 10.5% growth
The Chinese Academy of Social Sciences, the government's main think tank, said China's economy was likely to grow 10.5% this year and 10.1% in 2007, far outstripping the government's 8% target made public early this year. "The macro economy is basically running well. The chances of crossing from 'a bit too fast' to 'overheating' are dwindling," the report said, but warned that macro control policies must be retained in 2007.

NSSF selects custodians
The National Social Security Fund (NSSF) selected Citigroup and Northern Trust as its custodian banks for overseas investment. The NSSF, which was established to fund living and medical expenses for the elderly and the poor, secured approval in May to invest up to US$5.8 billion dollars, or 20% of the US$29 billion it has under management, in offshore equities.

ENERGY

Oil imports break record
Oil imports surged 24% year-on-year to a record 13.5 million metric tons, or 3.3 million barrels a day, in September, preliminary customs figures showed, beating the previous record of 13.2 million metric tons set in January. Imports totalled 765 million barrels for the first nine months of 2006, up 16.3% over the same period of 2005. The surge came after China began filling a storage facility in Zhenhai, a city south of Shanghai, in August, the first of four such strategic oil reserves planned.

Coal threshold raised
The National Development and Reform Commission (NDRC) said it will not approve the opening of new coal mines that have an annual production capacity of less than 300,000 tons. Construction of previously approved coal mines that produce less than the threshold will be halted, unless they can be consolidated with other mines. Thresholds for approval previously varied between regions.

BANKING & FINANCE

Decision on GDB expected soon
The committee tasked with judging the bids for control of Guangdong Development Bank (GDB) passed its views on to Beijing at the end of September for final approval. As CHINA ECONOMIC REVIEW went to press, no decision had been made as to which of three consortia – led by Citigroup, Societe Generale and Ping An Insurance respectively – would be selected. However, sources told Reuters on October 12 that a decision was expected shortly.

Cautious approach to futures
China's first financial futures product, a contract based on the index of the 300 largest Shanghai and Shenzhen-listed A-share companies, will operate under tight restrictions when the market begins formal trading late this year or early next year. The contract will be limited to a 10% daily fluctuation restriction – to which the underlying stocks are also tied – apart from on its last trading day. Contracts will be suspended during the day if they move more than 6% from the previous day's price.

Morgan Stanley buys local bank
Morgan Stanley announced that it had acquired Nan Tung Bank, thereby giving it access to a Chinese domestic banking license. The purchase of the tiny bank enables Morgan Stanley to go around standard procedure and apply to offer yuan-denominated products right away. Overseas banks normally have to retain a presence on the mainland for at least five years – and meet demanding regulatory requirements – before being allowed to apply for a commercial banking license in China.

Moody's forms rating JV
Moody's Corporation has taken a 49% stake in a joint venture with domestic player China Cheng Xin Credit Management. The move is the first foray into the Chinese market by the New York-based ratings firm. Fitch Ratings' previously had a partnership with Cheng Xin but the project failed. Raymond McDaniel, Moody's global chairman, said he expected the venture to be a long-term project but warned that "ratings agencies are never going to be able to identify and prevent scandal and fraud. We cannot act as a fraud police."