10 China Economic Review • November 2009

Getting better?New data show trade is less worse

ECOnOmiCS

Data released in October seemed to indicate some respite

from the year’s dismal trade news. September exports fell 15.2% year-on-year, the slow-est decrease in nine months. Imports fell by 3.5%. While still negative, economists said the data suggested the export environment might be grow-ing less hostile.

“In exports, the worst is over. It has started to improve at the margin sequentially,” said Wang Tao, chief China economist at UBS.

Some analysts cautioned against reading too much into the figures, however. A lack of seasonal adjustment makes focusing on a single monthly number problem-atic; one-off factors such as holiday timing can have a material affect on data. Merrill Lynch economists Lu Ting, T.J. Bond and Zhi Xiaojia wrote in a recent note that, adjusted for an extra two working days this September, export and import growth in September came in at -20.1% and -11.4%, respectively.

After a shorter October, November’s monthly trade figures are also likely to be distorted due to the very low

base against which they will be measured. In November 2008, exports slowed 2.2% year-on-year, from 19.2% growth the month before.Still, third-quarter export growth was higher than in the previous quarter, support-ing the idea that exports are warming, said Wang.

Gradual improvements have been helped along by Beijing’s intervention in currency valua-tions, which has seen the renminbi weaken alongside the US dollar against the euro. However, economists say currency fluctuations take some time to trickle through, and are less im-portant than fundamen-tal demand. A real re-covery in exports will therefore require a recovery in global markets.

Encourag-ingly on this front, China’s shipments to the US were up a seasonally adjusted 12.6% in the third quarter, while shipments to the EU rose 22.1%.

mOnTH in REViEW

China’s efforts to alleviate shortcom-ings in its capital

distribution will be brought to bear with the launch of the long-awaited Growth Enterprise Market (GEM) in Shenzhen.

The NASDAQ-style board is geared to allow small- and medium-sized enterprises (SMEs) to tap the country’s capital mar-kets. Many of these firms have traditionally struggled to fulfill their potential as banks prefer to lend to state-owned enterprises.

However, concerns have

been raised that the new market will draw funds away from the main boards. Market watchers believe these fears are premature.

“Some people are wor-ried over the GEM’s influ-ence on the cash distribu-tion in China’s initial public offering (IPO) market,” said Yu Xuhui , an analyst at brokerage Shenyin & Wanguo. “But we don’t believe the new board will have any wider effect, as the transaction volumes will still be very small compared to the main bourses.”

As Jing Ulrich, chair-

A GEM for SMEsShenzhen’s small-cap board opens amid a tiring IPo market

bAnking & finAnCE

Speeding upTax breaks are still driving auto sales

AuTOS

Car sales in China are on a roll. A total of 1.33 million units were cleared in Septem-ber, making it seven months in a row that

sales have topped 1.1 million. China is now comfortably the number

one car market world-wide. Sales for the

first nine

gEELy: Wants to buy Volvo

CHinESE ExPORTS: Decline is slowing

Imag

inec

hina

11 China Economic Review • November 2009

months of the year reached 9.66 million vehicles, compared with 7.8 million in the US, the world number two.

Analysts say the sales are being driv-en by Beijing’s subsidy plan that halved taxes on cars with engine displacements of 1.6 liters or less – these small cars made up 70% of September sales. The program is scheduled to end on De-cember 31 and there has been no official news on whether it will be extended.

“As long as the government doesn’t make a clear indication, I think lots of consumers are going to rush to buy small cars by the end of year,” said John Zeng, senior market analyst for Asia automo-tive research at IHS Global Insight.

Even cars with displacements larger than 1.6 liters are seeing strong sales thanks to a rise in consumer confidence. However, success this year will have a downside – Zeng expects 2010 sales to be weak, with a growth rate of just 5%.

Nevertheless, Goldman Sachs has sufficient faith in the long-term strength of the market to invest US$250 million in local manufacturer Geely Automobile. Geely plans to use the money, which came via a Goldman-affiliated private

equity fund, to expand its production facilities and to build up its brands.

Geely is also eyeing General Motors’ Volvo unit. Klaus Paur, director of auto-motive research at TNS China, thinks a deal will happen once Geely has found the right fit for it in its portfolio.

Analysts are skeptical of another deal that was agreed to in October: Sichuan Tengzhong Heavy Industrial Machin-ery’s US$150 million purchase of GM’s Hummer brand. “It’s not a surprise that they would see this as an opportunity, but Tengzhong as an organization is not experienced,” said Bill Russo, manag-ing director of Synergistics Limited, a consultancy. “It’s going to be a very difficult task for them to step in and turn Hummer around.”

man of China equities at J.P. Morgan, noted, the first 10 companies approved to list on the GEM board aim to raise a combined US$1.01 billion – a fraction of China’s average monthly IPO fund-raising in the third quarter of 2009.

However, despite a summer of sizzling IPOs, recent listings have been given a cooler reception, both domesti-cally and in Hong Kong. Metallurgi-cal Corp of China (MCC), the first company approved for a dual listing in

10 months, saw its A-share price rise by 28% as it debuted on September 25 compared with an average first-day gain of 68% for the some 22 other companies that listed in China since June. A day earlier, MCC’s H-share debut also fell flat, with the stock price falling 13% from its opening level.

Investor confidence may be evaporating as expectation mounts that the central bank will rein in lending. Yet according to the People’s Bank of China, new loans issued in September stood at US$75.6 billion, up from US$60 billion in August.

Although Ulrich believes Beijing has shifted from an “ultra-easy” credit policy to “accommodative policies aimed at achieving more sustainable growth,” she still says concerns about policy tightening are “overdone.”

Time will tell whether investors will maintain strong interest in new offerings on Shenzhen’s GEM. Any cooling in sentiment should be seen in relative terms: IPOs in China and Hong Kong have amounted to US$25 billion so far this year, representing half the total funds raised globally.

Source: China Association of Automobiles Manufacturers

China’s monthly auto sales

World leader

1.5

1.2

0.9

0.6

0.3

0

Millio

n unit

s

Jan 09 Mar 09 Apr 09 May 09 Jun 08 Jul 09 Aug 09 Sep 09

%

Feb 09Sales (million units) YoY growth (%)

100

75

50

25

0

-25

STiLL kEEn? IPO demand is weakening

Pho

tote

x