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Contents 1

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Industry

Finance

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Automobile

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Agriculture

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Real Estate

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Construction

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Science & Technology

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Industry

China enhances exports of mechanical, electrical products

BEIJING -- China increased the value of its exports of mechanical and electronic products to $1.18 trillion in 2012, taking up a greater share of the global market, according to new data. Vice Commerce Minister Jiang Yaoping has said that the 8.7-percent year-on-year growth brought the global share achieved by products from China to 16.1 percent in the first 11 months of last 02

year, up 0.9 percentage points from 2011. The combined import and export volume of the products rose 6.7 percent year on year to $1.96 trillion, he said. Exports of mechanical and electronic products, accounting for 57.6 percent of China's total exports, reached more than 230 countries and regions in the world and grabbed 29.1 percent of market share in emerging economies,

Jiang added. He advised enterprises to strengthen efforts in research and development and improve market diversification to fend off rising protectionism amid a sluggish global economic recovery. 2012 was the 18th consecutive year in which the mechanical and electronic sector has been China's number-one exporter in trade volume.(XINHUA)


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Industry

Shanghai urged to focus on traditional industry

CED Monitoring SHANGHAI-Leading business figures from Shanghai have warned of the dangers of ignoring the city's traditional manufacturing industries, in favor of more modern sectors, as the city strives to become one of the world's leading finance centers. Shanghai's traditional industries include foodstuffs, clothing and industrial manufacturing. 04

However, in recent years its development as a financial and services center has become increasingly important. But its transformation into a high value economy should not come at the expense of those traditional sectors. "The majority of multinational corporations that have established footholds in China are in the traditional food and beverage sectors, as well as the automobile sector,"

said Ge Junjie, the vice-president of Bright Food Group Co, the country's second-largest food vendor. According to Ge, some domestic companies have lost ground to foreign competitors in these areas, at a time when domestic consumption has become a priority for the government. Bright Food is a Shanghai manufacturing giant, which has been attracting global attention in recent years. It bought a controlling stake in British cereal maker Weetabix last year. But according to the latest data from the Shanghai Municipal Bureau of Statistics, last year the city's industrial sector dropped to less than 40 percent of its total economic output for the first time. Industrial input accounted for less than a quarter of fixed-asset investment last year, further suggesting the dwindling role that traditional manufacturing is playing in the economic powerhouse. However, Ge argued that traditional manufacturers still claim a lion's share, or 77 percent, of the city's overall industrial output, citing official figures. His views on keeping a closer eye on the city's traditional industries are shared by Ma Xulun, the president of China Eastern Airlines Co Ltd, a major State-backed airline based in the city. "I think a revival in the traditional sector is essential because it shapes and strengthens the backbone of the economy," said Ma. He quoted President Xi Jinping as saying in a recent speech to lawmakers from Shanghai that China should be mindful not to 03


abandon its traditional industries as it moves up the value chain, because the sector matters to people's livelihood as well as employment. Ma warned that as global interdependence deepens, the country's economy will become vulnerable to global uncertainties if traditional industries lose their competitive edge. He cited the recent wave of relocations by US manufacturers of their outsourced facilities as an example. "Western policymakers have started to reckon it is time that their countries return to manufacturing to create jobs and prevent more manufacturing skills from being exported," he said. "Shanghai should take note." Zhang Yan, a professor at China Europe International Business School in Shanghai, said traditional industries still play a key role

in creating jobs. "People should be more aware that job losses in the traditional sectors cannot easily be offset by adding headcounts in the service sector," she said. On the contrary, manufacturing posts help create additional employment opportunities in related industries and in the service sector, she added. Ge said that some sections of the city's industrial sector are already beginning to wane amid soaring labor costs and outdated business models, and that work needs to be done by many businesses to raise their brand awareness as part of a manufacturing renaissance. Shi Chao, the president of Shanghai Tabacco Group Co Ltd, warned that some of the city's traditional products were in danger of becoming "obsolete". "Brands need to stay vigorous,

and high-end technology companies need innovation to maintain their brand reputation," he said. "Made in Shanghai" used to be considered a strong endorsement of top quality, said Shi, but the glory days of some of its most famous brands - such as pens from The Shanghai Hero Pen Company, watches from Shanghai Watch Factory or bicycles from Shanghai Forever Co - have started to fade. Ge noted that to increase the number of global Chinese equivalents of Coco Cola, McDonald's or Walmart requires not only financial resources, but executives experienced in international operations, and the latest high technology and branding. He Wenbo, chairman of Baoshan Iron and Steel Co Ltd, China's biggest steelmaker, emphasized that to compete with emerging industries, investment in advanced technology is crucial. 05


Industry

CHINA'S ECONOMY SET TO STRONG REBOUND

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07


Industry

CED Monitoring BEIJING-China's economy "hit bottom" by late September, but a rebound by the end of this year isn't out of the question, economist Stephen Roach said. The former non-executive chairman of Morgan Stanley in Asia also said he expects China to maintain an annual economic growth rate of about 8 percent half a percentage point above the 2013 target set by former premier Wen Jiabao last week. "The economy seems to have hit bottom in the third quarter (of 2012), and I expect progressive strengthening over the course of the year - especially if the external climate starts to improve on the

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heels of a gradual pickup in global growth," Roach told media. China's economy expanded 7.4 percent between July 1 and Sept 30, the seventh straight quarter in which the pace of growth was slower than the preceding three months, according to the National Bureau of Statistics. In the fourth quarter, China's GDP growth accelerated to 7.9 percent, slightly beating expectations and beginning what some observers see as a return to the high rates of past years. Over the next five years, GDP growth in China should slow "toward 7 percent to 8 percent", as the nation transitions to a more services- and consumer-oriented economy, said Roach, a trained

economist who left Morgan Stanley in February to take a position as a senior fellow at Yale University. "A better-balanced Chinese economy," Roach said, "will be able to sustain slower underlying growth in trend GDP - especially if it draws support from labor-intensive services and thereby delivers more jobs per unit of GDP." Whether China would be better off engineering slower GDP growth was heavily debated during the just-concluded annual session of the National People's Congress in Beijing. A GDP-rate slowdown is a sensitive topic in the country, which equates growth with success, as defined by the ability to compete with mature economies of coun-


tries including the United States. For all of last year, China's GDP growth was 7.8 percent - the slowest annual pace since 1999. In 2011, the rate was 9.3 percent. According to Roach, China has experienced a "soft landing" despite his fears that the country was headed for a severe economic shock. In an essay posted on the Project Syndicate website in January, the former Hong Kong-based executive urged Chinese leaders to move swiftly to accelerate their nation's transition to a more consumer-driven economy, to avoid a "hard landing". Economists generally define a "hard landing" as a severe slowdown in growth that could push a

country into economic recession, often as the undesired result of a government's efforts to curtail inflation by tightening the money supply. A "soft landing" describes a rate of GDP growth that's fast enough to avoid recession but slow enough to prevent damagingly high inflation. "The debate is over: China has now set its strategy on the shift to a consumer-led growth model," Roach said in an e-mail. The challenge "now goes from strategy to implementation", he said, calling consumer-led growth "the only antidote" to Wen's concerns. Wen lamented China's reliance on an "unstable, unbalanced, uncoordinated and unsustainable economy".

"It will be up to the new leadership to implement the reforms required to pull it off," Roach said. To maintain "stable economicgrowth performance" for several years, China's new leaders, he said, need to lay out plans for "development of the services sector, funding the social safety net, liberalizing an antiquated residential permit system, reforming Stateowned enterprises and lifting artificially low interest rates on savings". Roach also said he hoped the new government would take aim at China's "endemic corruption problem". Implementing tough new disclosure requirements for asset holdings of senior officials "would be an important step in that direction", Roach said.

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Finance

Tourism boost for "Tourists from Russia has outnumbered any other European or American countries in the last two years." said Cheng Jie, deputy general manager of European businesses in China Travel Service.

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r Russia and China

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CED Monitoring Report BEIJING: The Kremlin in Moscow has witnessed the launch of "Tourism Year of China" 2013, which will look to help boost the travel industry for both China and Russia. Visiting Chinese President Xi Jinping and his Russian counterpart, Vladimir Putin, attended the opening ceremony. Analysts say the attendance of the two countries' presidents will hopefully provide a boost for the tourism business. Xi said tourism is the best way to enhance the sense of neighborhood and Putin warmly introduced China to all Russians. This year's campaign will involve 382 activities, 235 hosted by China and the rest by Russia. "Only travelers can tell how the bilateral relationship is going," said Xing Guangcheng, an expert on Russia research with the Chinese Academy of Social Sciences. According to Russian tourism official data, 343,000 trips were made from China to Russia in 2012, up 47 percent year on year. Diao Shuang, manager of European businesses with China Youth Travel Service, said younger tourists are also heading to Russia. "In 2011, 70 percent of tourists to Rus12

sia were elderly," Diao said, "but this year 40 percent are younger than 45." Meanwhile, the number of Russian tourists to China is the third largest in the world and has been since 1997. Some 2.43 million trips were made in 2012 and another 172,700 trips from Russia to China in January, up 27 percent year on year. "Tourists from Russia has outnumbered any other European or American countries in the last two years." said Cheng Jie, deputy general manager of European businesses in China Travel Service. In border cities in northeast China, shops and stall holders carry out business making deals in Russian and many Russian tourists visit local Chinese people, living peacefully and happily. Renowned as "Twin Cities," Heihe of China's northeast Heilongjiang Province neighbors Russia's Blagoveshchensk. More than 7,000 Russians each day go shopping in Heihe during the busy season. Zhang Guangqiang, Far East Travel Service executive general manager in Russia's neighboring Jilin Province, said traditional Chinese medicine like acupuncture as

well as beautiful scenery attracts many Russians. "Many Russians have mistaken Chinese people as wearing grey or blue suits," an experienced Russian guide Nikolay Amurov said, "but they have found China to be such an attractive country." He said China's coastal cities like Beidaihe of north Hebei Province and Sanya of south Hainan Province fascinate Russians besides cities such as Beijing and Shanghai. In 2011, Hainan Province accommodated 220,000 trips from Russia, up 51.9 percent year on year, according to the China National Tourism Administration. Zhu Shanzhong, deputy director of the administration, said the country aims to attract more Russians to southwest Yunnan and Sichuan provinces. "Surging costs become the biggest problem in developing tourism between the two countries," Cheng Jie said, "airline, hotel and catering all face price increases which hinder tourists." The lack of experienced and professional tour guides posed another challenge for Chinese enterprises to explore the Russian tourism market, which long for opportunities created by the "Tourism Year" to tackle this plight. Meanwhile the China Tourism Association has expressed concerns over the safety of Chinese tourists visiting France. An association official has urged the French authorities to strengthen the protection of Chinese tourists. More than one million Chinese people visit the European country every year, according to official figure. The concerns come after a Chinese tour group with 23 members were robbed at 7:45 p.m. Wednesday local time after having dinner in Paris. Their passports, passenger tickets and cash were looted and the group leader was hurt. The association called for the arrest of those responsible and proper handling of the case as quickly as possible.


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Investment bank report ridiculed as market bulls up

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CED Monitoring Report BEIJING: When Chinese investors celebrated a bullish market, they did not forget to mock a recent market report by JPMorgan Chase & Co. Chinese bourses made a u-turn after shedding 8 percent in a month's time. The benchmark Shanghai Composite Index went up 2.66 percent, or 59.94 points, to end at 2,317.37, while the Shenzhen Component Index gained 3.14 percent, or 283.93 points, to 9,317.97. On March 18, JPMorgan released a report advising cutting Chinese stock holdings and betting against the nation's biggest four commercial banks. It downgraded China and recommended bearish drivatives tied to the four banks. The report became a hot topic

among Chinese netizens on Wednesday, especially among investors who use microblogs to discuss investment tactics. "It's a slap in the face of JPMorgan," microblogger "huayra" wrote on Sina Weibo, a Chinese Twitterlike microblogging platform. Microblogger "zhongguoshiIPO" wrote "It may not be a plot, but it proves that foreigners really do not know China." Many microbloggers said it was not the first time for a foreign institution to misjudge the direction of the Chinese market. In August 2012, when Minsheng Bank published its mid-year report, a number of international investment banks, including JPMorgan, Credit Suisse, Citibank and Fitch, released reports advising shorting Minsheng Bank or downgrading its rating. Minsheng Bank subsequently led

Chinese shares in an overall market rise of more than 20 percent, with the bank doubling the price of its shares. Discrepancies between the statements made by international investment banks and the actions they have taken have made Chinese investors distrustful of the institutions. Most investment banks are actually buying in while publishing bearish reports, according to a report in Wednesday's China Business News. In contrast, many Chinese investors believe that big banks are still undervalued, including Luo Yi, chief analyst at China Merchants Securities. Luo said it is likely that the larger banks' share prices will double in the future, adding that banking shares will have excess earnings of over 20 percent this year.

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Suntech bankruptcy hurts new energy drive

CED Monitoring Report BEIJING: The bankruptcy of solar panel giant Wuxi Suntech made front page news, with many reports looking to the factors that caused the bankruptcy, as well as the bankruptcy's future impact. Suntech's problems are undoubtedly a heavy blow to the industry and the country's drive to promote new energy. Hopes that were pinned on the sector's rise have been dashed. On Wednesday, the Wuxi City Intermediate People's Court ap16

proved Wuxi Suntech's bankruptcy following a joint application issued by the company's nine creditor banks on Monday. Suntech is not the first solar energy company to find itself trapped in a debt crisis. Chaori Solar, another leading player in the solar energy industry, ran into debt last December. On Thursday, Chaori reminded its investors that its losses in 2012 may be as huge as 1.3 billion yuan (209 million U.S. dollars). Generally speaking, none of the companies operating in the solar industry have been in a com-

fortable position in recent years. It's not a problem that is specific to any one company -- the whole industry is in danger. Some have criticized Suntech and some other companies for misjudging the market and expanding without measure. But the real reasons behind the crisis lie in the sector's lack of cost-efficiency. For many years, solar energy companies have had to rely on government subsidies to make profits. However, these subsidies have generally fallen short of the industry's expectations.


Externally, the global economic crisis had a fatal impact on the solar energy industry, especially leading companies that sell most of their products in the international market. Since 2008, major solar markets, including Europe and the U.S., have shrunk dramatically, while anti-dumping and antisubsidy moves targeting solar energy products have made things even worse. As a result, solar energy companies have had to rely on the domestic market. In January, the government said solar facilities capable of generating a combined

10 gigawatts of power would be installed this year. However, analysts believe that if subsidies, grid connection policies and financing channels are not improved, it will be hard to reach the target. China has been making great efforts to encourage renewable energy development to provide power for its fast economic growth while preventing the environment from worsening. For many years, China's economy has been powered mainly by coal, which accounts for over 60 percent of the nation's total energy consumption. In its 12th Five-Year Plan (2011-

2015), the government paid special attention to new energy industries, including solar energy, wind power, hydropower, nuclear power and biomass energy. The government has shown determination to solve China's pollution problems. But achieving this goal will require the government to adjust its policies in pace with the development of the solar industry. Globally speaking, new energy is closely related to the welfare of mankind. China has already become a leader in new energy development and will contribute

even more in the future. To that end, it would be prudent for all the

world's countries to refrain from engaging in trade wars and protec-

tionism targeting products.

new

energy

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Apple pursuit lures 20,000 students into "usury"

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CED Monitoring Report WUHAN: Over 20,000 college students have taken high-interest loans to buy fancy electronic products, mostly Apple devices, in central China's Wuhan City. From the start of Jan. 2012 to the end of Feb. 2013, the students have applied for loans with a total value of 160 million yuan (about 25.76 million U.S. dollars) from Home Credit China (HC China), a subsidiary of international investment business PPF Group. "We have lost touch with about 100 of them, getting no response to calls or letters reminding them about delayed payments," said Liu Mingwei, Wuhan regional manager with HC China, on Wednesday. With around 1 million students in Wuhan, it means about one in 50 of them are shouldering HC China's heavy annual interest rates of up to 47.12 percent on a 12month-term loan. About 90 percent of the credit was used to buy Apple products, such as iPhones and iPads, and other high-end electronic products, said Li. Home Credit China provides credit loans in nine, 12 and 15month terms for college and university students, providing they can present an ID card, bank card and student ID card. Loan amounts range from 540 to 10,000 yuan. "Quite different from the loan approval process in a bank, HC China passes the credit loan application in as little as dozens of minutes," according to Zhang Zheng, a HC China salesman in Wuhan. Then, students can take away goods after paying a down payment in HC China's partner stores. The down payments range from 10 to 30 percent of the marked price for each item. In Wuhan, HC China's list of partner stores cover major electronic products centers and chain stores such as Gome and Sunning. And

the easy loans stimulate their sales volume. In spite of this, some stores have refused such cooperation. "I counted the loan rate and refused such unscrupulous usury," said a store boss who did not wish to be named. The loans have encouraged young students to embrace the craze for Apple devices. "Apple products are a common topic or a particular community in campus. I used to feel isolated while they were discussing and playing with iPhones or iPads," said a student of Wuhan University of Science and Technology surnamed Yu. About half of her classmates and roommates have an iPhone. "I felt embarrassed even to take a look when they were in a heated discussion about a new application," Yu said. She bought an iPhone with credit loan "in the heat of the moment during a marketing campaign by a salesman of HC China, but felt regret afterward." The girl finally paid the credit with the help of her parents. Similar to Yu, Wang Yong, studying at the China University of Geosciences, failed to pay back the loan in March due to overspending at the beginning of the spring

semester. At that point, he started to work part-time in KFC. "The HC China salesman continuously called to warn me about the possible poor credit record, which would have a bad effect in the future. I was so afraid," Wang said, explaining that he had to ask his parents for help. HC China will report the bad credit of the "vanished" college students who have failed to pay back their loan, according to the firm's Wuhan branch. Though college students are adults, their consumption view is not yet mature, said Qiu Baochang, leader of the lawyer team with the China Consumer Association. Consumer finance companies like HC China offer loans to them with quite loose examinations, which is an incentive to the young people's irrational consumption, said Qiu. The lawyer called for a rational consumption guide to educate college students, and suggested the government strengthen supervision on consumer finance companies in lending. In 2009, the People's Bank of China issued a regulation stopping banks from issuing lines of credit above 1,000 yuan to students.

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Automobile

China becomes biggest recipient of Auto investment 20


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Automobile

CED Monitoring SHANGHAI-Nearly 60 percent of global automobile-plant investments in 2012 went to China, and the trend should continue for the foreseeable future, a Canadian research report said. China - the world's largest producer and buyer of automobiles received C$9.62 billion last year from new-capacity investments, or 59.6 percent of the global total. The figure over the past four years was C$40 billion ($38.9 billion), or 57 percent of the world total, according to the Office of

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Automotive and Vehicle Research, Odette School of Business, University of Windsor. The report, which studies major automotive-assembler investment announcements, said China has been the world leader in attracting investments since 2002, and received more than half of all such spending in each of the past three years. The large amount of investment to China is a result of the nation's growing consumer power, said Ma Chunxia, an industrial analyst with Zheshang Securities. In the first two months of this

year, 3.4 million vehicles were sold in China, an increase of 14.72 percent year-on-year, the China Association of Automobile Manufacturers said. Although China has made great progress in developing urban public transportation, car ownership continues to rise across the country because it's often regarded as a token of social status. Zhang Hai, a 33-year-old IT engineer in Shanghai, said having a car would provide more shopping options. "If I want to buy some clothes in a discount outlet in suburban


Qingpu district, I have fewer choices with public transportation. If I have a car, the problem will be solved," she said. China will be the world's biggest auto market for the foreseeable future as the country strengthens its position, said Tony Faria, author of the report. "Saleswise, nobody is going to touch (China), period," Faria was quoted as saying by Automotive News, a Detroit-based weekly newspaper that reports on the automotive industry. "Productionwise, the same is true given the current level of capacity to build in China - plus, new capacity is still piling in." Almost all of the world's major automotive assemblers made investment announcements in China, according to the report. Ford made two new-capacity announcements in China in 2012, and the 500,000 additional units of capacity a year will cost $1.36 billion. Honda is considering a new plant in Wuhan of Hubei province with its joint venture partner, Dongfeng Motor Group. And Nissan

made three new capacity announcements in 2012 with a total value of $1.46 billion. South Korea's Kia Motors announced a new joint venture assembly plant for Jiangsu province with Dongfeng Motor Corp and Jiangsu Yueda Investment Co. The plant is expected to open in 2014 with a capacity of 300,000 vehicles. Daimler AG made two new announcements of two plants near Beijing. Jaguar Land Rover, owned by Tata Motors Ltd of India, announced a $1 billion joint venture plant with Chery Automobile Co for a new plant in Changshu of Jiangsu province. The plant will have an assembly capacity of 130,000 units and will assemble both Jaguar and Land Rover vehicles. However, some analysts expressed concern about the huge influx of investment. China's vehicle inventory alert index reached 57.17 percent in February, an increase of 11.91 percent month-on-month, according to figures from China Automobile Dealers Association. 23


Automobile

Quality key to overseas push, says JAC Chairman

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CED Monitoring BEIJING-The chairman of Jianghuai Automobile Co Ltd has vowed to continue to raise the quality of its models as it targets more overseas buyers. An Jin, a deputy to the National People's Congress, said Chinese vehicle companies can no longer compete on low prices and

labor costs, and his company is making efforts to ensure quality standards are raised, while prices still remain affordable. Jianghuai's products are sold in more than 100 countries and regions in the world. Three models of its light truck HFC range were all awarded "export inspection-free" certification in December last year by the State

General Administration of Quality Supervision, Inspection and Quarantine, the country's quality watchdog. An said the company sells about 450,000 vehicles overseas annually, which account for 15 percent of its entire revenue. JAC aims to achieve a sales target of 1.6 million units with revenue of 100 billion Yuan ($16 billion) by the end of 2015, and An said he hopes exports will account for one-quarter of the entire revenue. JAC has the largest market share in Brazil and Chile. The company exported 500 light trucks to Brazil in October, marking China's single largest vehicle contract to the South American nation. The company is also the second-largest commercial vehicle brand in Egypt, with more than 3,000 vehicles on its roads. JAC first entered Africa when it delivered a batch of light-duty trucks to Algeria in 2001. Since then, it has sold vehicles to more than 30 countries and regions, including Egypt, Morocco, South Africa and Ghana. Its product portfolio in Africa has also been expanded to cover light, mid-sized and heavy-duty trucks as well as passenger vehicles. In addition to improving quality, An said the company has been setting up more service outlets overseas. "We will not rush to export to any country without a maintenance network in the country," An said. According to company statements, the focus of its customer service is solving problems rapidly and effectively. In Angola, for instance, some users once complained about the loss of power in their heavy-duty trucks. JAC engineers discovered that the problem stemmed from a lack of regular maintenance. They then offered maintenance services on site and trained drivers on how to take care of the vehicles. 25


Automobile

Willing to pay a premium 26


CED Monitoring SHANGHAI-China is expected to become the world's largest premium car market, overtaking the United States on its way to selling more than 2.3 million high-end cars by 2016, according to a McKinsey & Co report. According to a recent report, the market for premium cars in China grew 36 percent a year over the past decade. During the same period, the Chinese passenger vehicle market expanded 26 percent annually. Sales of premium cars in China reached 1.25 million vehicles last year, making it the world's second biggest market after the US. With Chinese consumers purchasing more high-end cars, many automakers from around the world, especially from Europe, are expanding their premium car markets to China. Europe has especially been hit hard by the global economic recession. Only 12 millions cars were

sold in Europe last year, the lowest since 1995. The rate of cars sold in Europe has been dropping annually by 8.2 percent. "Our main focus will be to expand exports to booming markets such as China, which currently has a high demand for high-end cars," James Muir, CEO of Seat, a Spanish automobile manufacturer said at the 83th Geneva Auto Show. Seat plans to introduce and develop its Leon series in China, a line of small family cars, with culture-specific designs to impress the Chinese market. In its report, McKinsey highlighted 23 brands as premium. Among them are Acura, Aston Martin, Audi, Bentley and BMW. Its report predicts China's premium car market will grow 12 percent a year and sell 3 million premium cars a year by 2020. One-quarter of the 1,200 premium car buyers in China who took part in McKinsey's survey says they are willing to spend more on a car because they were confi-

dent in their careers and business prospects. "The number of premium car buyers in China who are optimistic about their future is increasing rapidly," says Sha Sha, a partner at McKinsey's division in Shanghai and co-author of the report. Eighty percent of China's premium car owners are considered "affluent", according to the report. They are defined as those with annual disposable household income of more than 200,000 Yuan ($32,100; 24,680 Euros). By 2020, there will be 23 million affluent urban households. The number of affluent urban families will grow at a rate of 16 percent in China and make up 7 percent of the country's population-roughly equal to the total number of households in Britain today-by that time. Thirty percent of the respondents say how a car reflected their social status was the main reason to upgrade to a premium car, while 27 percent cited "self-indulgence". 27


“

Automobile

“

Most young buyers of branded cars like me are keen to get the best possible performance, and the good looks and modern style of the vehicles are also very important.

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There was also a new wrinkle to the trend of buying high-end cars. The report says a new entrylevel group of potential premium car consumers, called the "new mainstream", has emerged. The new demographic consists of households with annual disposable income of 100,000 Yuan to 200,000 Yuan. "The new mainstream households care more about style, brand and outward appearance than more affluent consumers, who tend to value technology and vehicle performance," Sha says. Zheng Shengtao, chairman of the printing and packaging company Zhejiang Sunlead Group Ltd in Wenzhou, owns a stable of luxury cars, including a Rolls-Royce and a Bentley. "Owning a car like Rolls-Royce is a symbol of wealth and reputation for most businessmen," says Zheng, who added that his cars

are as important as his clothes and accessories. Yu Kan, 27, who works in his family business in Shanghai, says he bought his BMW two years ago because of the engine's power. "Most young buyers of branded cars like me are keen to get the best possible performance, and the good looks and modern style of the vehicles are also very important," Yu says. The report says 300 cities would have consumers with sufficient household incomes to buy premium cars by 2020, up from about 100 cities today. To meet the growing demand for quality brands, European auto manufacturers are introducing personalized products to the premium car market in China. "The market for Citroen outside Europe is expected to be 50 percent of the global market, with a larger growth of consumers in

developing countries, such as China and Brazil, by 2015, " said Philippe Varin, PSA Peugeot Citroen CEO, at the Geneva Auto Show. Citroen plans to sell cars made to meet the demands of Chinese consumers. Varin added that new factories in China would be opened to expand production lines under a cooperation deal with two Chinese partners, Chang'an Automobile Group and Dongfeng Motor Group. Paul Gao, another partner at McKinsey's division in Shanghai and co-author of the report, says that "as consumer preferences continue to diversify, premium automakers may need to further localize vehicle specifications, and even nurture indigenous Chinese premium brands with their joint venture partners to offer Chinaspecific car models at appropriate prices".

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Automobile

China's Auto sales post strong

14.7% rise

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CED Monitoring SHANGHAI-China's combined January and February auto sales grew by double digits despite a blip caused by the Lunar New Year holiday last month. Deliveries of passenger cars and commercial vehicles rose 14.7 percent year on year in the past two months to 3.39 million units - a huge turnaround from the sales decline of the same period of last year, the China Association of Automobile Manufacturers said yesterday. Passenger car sales, which include cars, multipurpose vehicles and sport-utility vehicles, surged 19.5 percent to 2.84 million units in January and February, posting the biggest increase since 2010. The market's strong performance so far was largely based on the sales spurt in January as February posted a dramatic decline during the weeklong holiday when most showrooms nationwide were shut. China's total vehicle sales fell 13.6 percent in February from a year earlier while those for passenger cars shed 8.34 percent. Meanwhile, sales of Japanese brands fell 17.1 percent year on year in the past two months as tensions between China and Japan over the Diaoyu Islands intensified at the start of the year. A government forecast in January said total vehicle sales should rise to 20.8 million this year, up from 19.3 million last year. 31


Construction

Sansha to have

satellite TV, daily newspaper

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CED Monitoring SANSHA-The Hainan government said it will establish the South China Sea Satellite TV and Sansha Daily newspaper this year. According to reports Monday, the South China Sea Satellite TV will meet the needs of residents and soldiers in Sansha, covering economic development and marine environment protection issues in

the province. The Sansha Daily will be jointly established by Sansha to report on the city's construction, economic development and environmental protection progress, chinaxwcb.com, a website under the China Press and Publishing Media Group, reported on Monday. Established in July, Sansha is China’s youngest city and is seeing

rapid development with a series of infrastructure projects, such as roads and garbage treatment stations. A China Marine Surveillance detachment was stationed in the city on March 9 to carry out routine patrols in the waters off Sansha. The city administers Xisha, Zhongsha and Nansha islands and surrounding waters in the South China Sea.

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Construction

Railway line leads

new trading dawn

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CED Monitoring BEIJING-Pomegranate grower Ma Shan was pleased to see the train arriving at Mengzi, the capital city of the Honghe Hani and Yi autonomous prefecture in southern Yunnan province. On Feb 23, a train pulled out of Kunming, passed through the city of Yuxi and proceeded to the southern Yunnan city for the first time. Its successful arrival marked the launch of the new Yuxi-Mengzi Railway. In the near future, the train is expected to travel south from Mengzi, pass through nearby estuary ports and on to the Pacific Ocean, completing its historic journey in the island nation of Singapore. As such it will form the main transportation artery between China and the Association of Southeast Asian Nations, a geopolitical and economic organization of 10 countries located in Southeast Asia, comprising Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, Myanmar, Cambodia, Laos and Vietnam. The operation of the YuxiMengzi Railway "shortens the route by more than two hours from my town to the provincial capital of Kunming", Ma said. "It will not only save me time but also cost less in shipping, which is more important for the fruit. We expect our income to increase this year," he said. The Yuxi-Mengzi Railway, which opened at the end of last month, was considered a significant move by the Yunnan provincial government to facilitate local industries such as fruit-growing. As part of a bigger picture, the railway constitutes what will become an indispensable part of the eastern line of Pan-Asia Railways, a crucial connection between Southwest China and the economies of Southeast Asia. At the fifth ASEAN summit in December 1995, former Malaysian prime minister Mahathir Mohamad proposed building a Pan-Asia Rail-

way through the Malay Peninsula, visiting Singapore, Malaysia, Thailand, Vietnam, Myanmar, Cambodia and eventually reaching Kunming in China. The initiative immediately received recognition from the summit attendees and the Chinese government. In September 2006, the ASEAN countries reached a consensus to speed up the construction of the Pan-Asia Railway that will be completed in 2015. The plan was to have three lines - in the east, the middle and the west. The east line would operate between Kunming, Kuala Lumpur in Malaysia, Bangkok in Thailand, Phnom Penh in Cambodia, Ho Chi Minh City and Hanoi in Vietnam and Singapore. When the last part in China is completed, between Mengzi and Hekou County in Honghe, faster trains will head south all the way to Singapore, through the biggest free-trade zone in the world. Experts say the Yuxi-Mengzi railway will help strengthen Yunnan's status as a frontier region open to the ASEAN economies. As early as April 12, 1910, one loud but lingering whistle pierced the air over Kunming, declaring the operation of the Vietnam Railway. Export cargos from Yunnan were carried on the trains to as far as Hai Phong in Vietnam and then shipped to France. The prosperous export trade brought Kunming the first customs and the first post office in Yunnan. The provincial capital then ascended to become one of the most influential cities in China. However, people had to endure trains that "were slower than cars". Things changed fundamentally in February this year when a fresh long beep resounded through Honghe declaring the official operation of the modern Yuxi-Mengzi Railway. Now, as the railway starts operations and the Mengzi-Hekou link is under construction, Yunnan will have another historic opportunity to deepen exchanges with its neighbors. 35


Construction

Liu Baisheng, general director of the Kunming Railway Bureau, said locals would be the beneficiaries from this new railway. Liu, who attended the National People's Congress session as a deputy in Beijing last week, told China Daily that the Yuxi-Mengzi railway starts from Yuxi, traversing Honghe Hani and Yi autonomous prefecture to cover an area of 48,200 square kilometers with a population of more than 6 million. The area is the major habitation of ethnic groups such as the Hani, Yi and Dai. "With Kunming-Yuxi, YuxiMengzi railway lines in operation, we have another option for transporting huge cargos long distances across Yunnan province. The new line will ensure faster speed and safer trips that sharply reduce the cost of transportation and increase profits," an entrepreneur in Honghe, who preferred to remain anonymous, said excitedly. The tracks, mostly bridges and tunnels, were regarded as a soaring steel dragon by residents along the railway, who are optimistic about selling more local agricultural and sideline products and confident of developing the tourism industry. The Yuxi-Mengzi Railway goes through the central Yunnan Plateau, with its mountains and canyons and some of the most intense areas of crustal tectonic movement. Started in September 2005, the new line took seven years to build, said Liu from the Kunming Railway Bureau "The same length of 141 km would only take two or three years in less rugged areas," he said. Because of the special geographical conditions, Yuxi-Mengzi line builders were confronted with many challenges. More than half of the railway, 77 km, was built on bridges and tunnels. The Xiushan tunnel, 10,302 meters in length, is the longest railway tunnel in Yunnan province and runs through multiple faults and caves. It is famous for complex geological con36

ditions and frequent changes in surrounding rock types. The tunnel experienced at least 150,000 cubic meters of water leakage during construction every day. The volume increased to 230,000 cubic meters in the rainy season. "The tunnel builders had to endure suffocating humidity, hot days in summer and dust from the digging. Sometimes the collapse of sandstone and mudslides also threatened their lives," said Liu. After seven years of hard work, they finally completed this Southern Yunnan "mountain road", marking an historic achievement. Guo Huiming, head of the southern Yunnan railway construction project, was filled with emotion. "The completion of the railway was not easy," he remarked in a very understated fashion. Guo said the engineering geology of the entire line was extremely complex, with many mountains and deep valleys. "We had poor construction conditions and the work was difficult. There were 173 intersections. The amount of stone ballast totaled 447,626 cubic meters. And there were the bridges and tunnels." The Yuxi-Mengzi line, according to the former ministry of railways, was a high-risk project because it involved, among many geological challenges, karst highpressure, water-rich complex geology, tectonic movements, rock-crushing, lots of groundwater in caves, flooding and sudden landslides. The former ministry will be incorporated into the Ministry of Transport according to the just concluded session of the National People's Congress. The former ministry and Yunnan provincial government attached great importance to the railway. "They came to the construction site several times to conduct research and to organize meetings to study and deploy technical solutions during construction," Guo said. "So we ultimately completed the Yuxi-Mengzi

line thanks to their support." On the map of Yunnan, the Yuxi-Mengzi Railway directly connects Honghe with Kunming, along with the existing Kunming-Yuxi Railway. Those areas are rich in mineral, biological, cultural and tourism resources. The most immediate effect of the railway's operation is to further enhance Kunming-Yuxi rail transport capabilities. "More importantly, it runs through several cities in central and southern Yunnan so economic factors can flow into each other more smoothly," said Duan Gang, president of the Yunnan Institute of Economic Research. According to Liu from the Kunming Railway Bureau, Yunnan will become a big economic center, of which cores will be the central Yunnan Industrial District, the Kunming-Yuxi green industrial economy and Kunming-Yuxi leisure tourism economy. There will be two wings — the four cities of Kunming, Qujing, Yuxi and Chuxiong, with Kunming at the center. The central Yunnan economic circle will be the economic, political, cultural and transportation center. The area will function as the core driving force to promote the integration of the province's economic resources and factors of production, Duan said. Efforts have been made to promote the construction of central Yunnan Industrial District, focusing on high-end vehicle and equipment manufacturing, electronic information, biology, new materials, textile appliances and a modern services industry cluster area, according to the provincial government. The Yuxi-Mengzi Railway and the Kunming-Bangkok Highway, along with the construction of the Pan-Asia Railway, will link the southern Yunnan economic circle with cities including Gejiu, Kaiyuan, Mengzi and Jianshui with Mohan and other important ports. Rich natural and human resources in the area give it a huge advantage on top of the new


communication links. The southern Yunnan economic circle is also part of the Kun-River Economic Corridor and there are also the central Yunnan economic connections to the Indian and Pacific Oceans east line and midline arteries. The manufacturing capacity formed by the central Yunnan economic circle will steadily go to the southern Yunnan economic circle, targeted at the ASEAN market and other major importers around the world. The Yuxi-Mengzi Railway will also take on northward transport tasks from the southern Yunnan economic circle and also ASEAN regional resources in order to meet the central Yunnan economic circle requirement for industrial development. Gejiu city contributes more

than 90 percent of the country's output of refined tin. Xiaolongtan coal mine is Yunnan's largest opencut brown coal mine, located in Kaiyuan. In addition, the southern Yunnan region is also rich in iron, lead, gold and other mineral resources. These are indispensable for the development of the central Yunnan economic circle. The Pan-Asia Railway will be the third Asia-Europe continental bridge linking China and ASEAN economies. As an important part of the east line of the Pan-Asia Railway, the Yuxi-Mengzi Railway will carry even more far-reaching significance. In 2011, China's State Council announced its support to Yunnan province to accelerate the construction of an important frontier

for Southwest China to open up, creating a historic opportunity for Yunnan. The Yuxi-Mengzi Railway will act as a highly significant link between China and Southeast Asian markets, further strengthening cooperation and exchanges between the countries, especially Vietnam, said Duan. "For Yunnan, the railway has the positive significance of improving the province's railway network layout as well as the state of the railway business, promoting safe production and optimizing the railway industry structure. In the future, Yunnan will rely on the Pan-Asia Railway East Line to speed up the pace of opening-up and economic development and accelerate its integration into the global market," Liu Baisheng said. 37


Construction

38


Infrastructure construction under way in Sansha

39


Construction

CED Monitoring SANSHA-Located on Yongxing Island in the South China Sea, Sansha City of Hainan Province administers the three island groups of Xisha, Zhongsha and Nansha and their surrounding waters. Officially set up last July, the city has been working on the infrastructure construction since then, especially in the field of transportation. Mayor Xiao Jie explains. "We've increased the number of trip of sealift vessels. For example, the Xiongsha No.3. Before it was one or two trips per month between the mainland and Yongxing Island and now we can guarantee one trip per week. The improved transportation has raised the supply capacity of the Xisha Islands. And now we are building a bigger sealift vessel, Sansha No.1. It is expected to be put into use in 2014." Xiao Jie says other basic infrastructure to improve people's daily lives, such as desalination plants, solar power facilities and houses for public use, have also been built on Yongxing Island. Hainan Governor Jiang Dingzhi points out that Sansha can help the province develop its marine industry. "The establishment of Sansha city is key to the development of Hainan Province. We'll use the opportunity to further develop the marine industry. For example, to build more trawlers with larger tonnages to continue our work in the field of marine reserve. And probably, we'll engage in oil and gas exploitation in the area." Thanks to its geographical location, Sansha at the southernmost point of China is expected to play a critical role in the exploration of the country's South China Sea. NPC deputy and economist Xiang Xiaomei is an expert in the marine industry. In her opinion, the economic value of oceanic territory should be well utilized. And Sansha provides a support base for 40


the country to explore the deep sea. "Take a deep-sea fishery as an example. If you sail far in the deep sea and there is no such support base, then you need a larger ship to carry all the fishery equipment and living supplies, which costs a lot of money. Well, Sansha now plays the role of the logistic supply base between the mainland and the deep sea in the exploitation. It

is the extension of the land." Xiang also says that with Sansha as a base in the deep sea, China will learn more hydrological information about the South China Sea. It will also be another impetus for the already flourishing tourism industry in Hainan. Mayor Xiao Jie says tourism will be the signature industry of Sansha. The first travel program it expects to launch this year is a cruise

tour of the Xisha area. "Now the preparation work is going smoothly. We've finished the construction work on the cruise ship. We've mapped out the ship route and the tourist attractions along the tour. Safety controls are also being discussed. It won't be too long before it opens to the public." Xiao says the cruise tour might be a two- or three-day route.

41


Investment in China's Railways rises

Construction

42


CED Monitoring BEIJING-Fixed asset investment in China's railways rose 25.7 percent yearon-year to 37.63 billion Yuan ($6 billion) in the first two months of the year, the railways authority has said Thursday. The investment is a part of the ministry's 650 billion Yuan fixed-asset investment package this year, slightly higher than last year's 631 billion Yuan. But compared with the 70.9 percent rise in January, the 25.7 percent growth in the first two months suggested a substantial dip in February's investment. During the same period, infrastructure investment, the largest part of fixed-asset investment, rose 20.9 percent to 25.14 billion Yuan, slowing from the 62.3 percent growth in January. Li Daxiao, director of Yingda Securities Research, said fluctuation between months is normal. Zhao Jian, a professor at School of Economics and Management under Beijing Jiaotong University, said though the first two months' investment only accounts for 5.79 percent of the annual target, investment could accelerate in the coming months. Whether the annual target is met will be decided by the central government's attitude, which is shadowed with some uncertainty after the announcement that the ministry will be dismantled and the commercial part will run independently, Zhao said. In a bid to reduce bureaucracy, the latest administrative reform unveiled at the ongoing National People's Congress said the original Ministry of Railways will split into two entities, with the policymaking part taken over by Ministry of Transport, and the commercial operation taken over by the newly established China Railway Corp. In 2011, the railway construction boom unexpectedly slowed after former minister Liu Zhijun was investigated for corruption and a deadly high-speed train crash occurred in July. Since the third quarter of 2012, railway investment has gained momentum again as the nation has tried to stimulate the decelerated economic growth. Records show the ministry increased its planned investment amount three times in the middle of 2012. As a result, fixed-asset investment last year hit 631 billion Yuan, compared with

586.3 billion Yuan in 2011. In line with the investment expansion, the rail ministry also increased its bond issuing size. Last year, the ministry sold a record 164 billion Yuan in bonds, helping it settle unpaid bills. China's rail network is set to reach 120,000 kilometers under the five-year plan ending in 2015. By the end of 2012, China had 98,000 km of rail network. This means that a total of 22,000 km of new rail will be built during the 20132015 period. And investment in railways infrastructure could reach 1.33 trillion Yuan during the period, Shanghai Securities Daily reported. The split of the ministry is unlikely to affect investment in railways and will help the industry better meet market demand, Railway Minister Sheng Guangzu told reporters at the NPC this week. "We view the reform positively. We expect it will be easier for China Railway Corp to restructure its assets and debt as an incorporated company rather than the Ministry of Railways, providing increased flexibility to the funding of railway projects," Barclays Plc analysts led by Patrick Xu said in a note to clients. The previous speculation that the authority would be merged with the transportation ministry also helped to dent the interest rate of the railway bonds, which hit a seven-month low at end of February. Li Daxiao said bonds issued by the railway ministry are very popular in the market, which potentially could be even expanded, though the 2.66 trillion Yuan liability has put the ministry's debtto-asset ratio at 61.81 percent at the end of September. "China's bond market is big enough. Financing is not a problem. The problem is if the ministry and the central government have enough willingness to scale up the investment," Li said. China's railway transportation capacity, both in freight and passengers, is still lagging far behind the economy's demand, Li said. Expanding its capacity would greatly ease the tension between supply and demand and reduce the cost of logistics, as the cost of train freight is merely one-third of that of the road freight, Li added. 43


Real Estate

Commercial property

sales spike in capital CED Monitoring BEIJING-Beijing's commercial property and office building sales surged 320.5 percent in the first 10 days of March, as more investors shifted their focus in response to the government's new measures to cool down the residential sector. Real estate brokerage company Century 21st has said that 759 units of commercial properties were sold and registered online from March 1 to 10, accounting for 6.3 percent of all transactions recorded during the period. The surge in commercialproperty transactions followed the latest moves by the State Council to control the property market. It said on March 1 that homeowners who sell their homes will be levied an income tax of 20 percent on the profit they make on a transaction. Before the new rules, the income tax was 1 to 2 percent of the sale price. "It is obvious that investment-oriented purchases of residential housing will be further restrained, and the government intends to weaken the investment characteristics of home buying," said Kou Hailong, general manager of Century 21st Beijing. "So it is natural that more 44

investors are turning their eyes to commercial properties when other investment channels are limited," he added. The commercial sector of Jin Mao Palace, a project close to Beijing's CBD area, is scheduled to put up 154 units for sale around the end of March at an average price of 49,800 Yuan ($8,008) per square meters. However, there are so many potential buyers that the registration for purchases was closed within one day. "Even for those who have registered their names to buy the units, they have to draw lots to decide who can get the unit they want," a manager at the sales department said. Commercial projects due to be launched on the market in the following months are expected to raise their prices. In fact, following the government's stricter controls on residential property in 2010 and 2011, many Chinese investors have been exploring commercial property to continue to benefit from rising land values. In Beijing, the market where restrictions on residential real estate purchases were most closely regulated, commercial real estate grew

23 percent in value in 2012, according to a report by real estate advisory company Knight Frank. Knight Frank expects these cities, especially Beijing, to continue to improve in value in the near future. Knight Frank's research also shows high potential for growth in lower-tier cities as many developments are launched in these markets. In the wake of infrastructure and economic pushes undertaken by local governments, many lower-tier cities are developing potentially lucrative commercial property projects. More mixed-use developments are also expected to come onto the market in the near term. "Beijing's growth in this sector has been phenomenal, and we expect this to persist as long as restrictions on residential real estate continue," said Nick Cao, Knight Frank China manager, head of investments and capital markets. "As for lower-tier cities, retail is a good option to consider as demand from local consumers is quite strong while some cities will focus on manufacturing and the industrial sector, which will push down the value of office and hotel space."


45


Real Estate

Pre-owned house sales continue to soar

46


CED Monitoring BEIJING-Pre-owned home sales almost tripled in Beijing last week, following the latest moves by the State Council to control the property market. Figures released by the Beijing Municipal Commission of Housing and Urban-Rural Development showed a total of 9,400 apartments were sold and signed online last week, a 279.5 percent rise on the same period last year. The central government issued rules to further tighten controls on the property market on March 1. It said that homeowners who sell their homes will be levied an income tax as high as 20 percent on the profit they make on a transaction. Prior to the new rules, the income tax levied was 1 to 2 percent of the sale price. Experts said the new rules have sparked frenzied activity in the pre-owned market, as both buyers and sellers worry about the soaring transaction costs as a result. "First-home purchasers, as well as those buyers looking to improve their living conditions are the two major types affected by the new policies," said Hu Jinghui, vice-president of 5i5j, a major property brokerage firm based in the capital city. A survey by SouFun Holdings Ltd, a leading real estate Internet portal, showed that about onethird of potential homebuyers had changed their home-purchase plans as a result of the tougher policies. Chen Li, a company executive living in Beijing's Tiantongyuan area, said: "I did not plan to sell my apartment before the launch of the 20 percent taxation policy. "But considering I may have to pay around 200,000 Yuan ($32,100) tax once the policy is in place, I'd better make a deal right now," he said. According to the SouFun survey, homebuyers in first-tier cities such as Beijing and Shanghai were concerned about the new policies, with 28.81 percent of respondents saying they will quicken their

buying process as a result. In second-tier cities, the figure was 10.25 percent. In Beijing, 80 percent of potential buyers said they planned to snap up an apartment in 2013, with first-home buyers expected to dominate the market. More than 40 percent of Shanghai respondents said they would like to complete their transaction sometime between April and June, while 23 percent said they aimed to buy a property before the end of this month. More than half of all potential homebuyers said they believed that prices will pick up further, of which 11 percent expected them to soar. Though most industry analysts expect the new policies to benefit the new-home market, some large-scale property developers suggested they have no plans to change their pricing strategies as a result. "We still need time to see how the cabinet's policies change the market," said a manager at Greentown China Ltd, who declined to be named. "So far, we don't have any plans to increase the prices of our projects, but we will not cut prices either, given the market recovery." China's real estate investment

sector has strengthened amid an overall property recovery. The the first two months of 2013, property sales growth increased from 11 percent year-onyear in the fourth quarter of 2012 to about 50 percent year-on-year, according to recent statistics by the investment arm of Royal Bank of Scotland PLC. China sales at Longfor, a Hong Kong-listed property developer, for instance, reached 6.03 billion Yuan in the first two months of this year, up 82.2 percent yearon-year. A marketing manager at Sunac China Holdings, also a Hong Kong-listed property developer, said its pricing strategy had not changed, and the pace of releasing units to the market would remain as before. Louis Kuijs, an economist with RBS, said: "We think the strength of property sales may not last, especially in light of the recent calls by the State Council to reinforce tight property policies. "Nonetheless, we expect that with enough underlying demand for property, given robust income growth and urbanization, the strong financial expansion in the past six months should help support property construction in 2013."

47


Agriculture

Consequences of long drought devastating CED Monitoring BEIJING-Every day, Zhu Chunquan walks 16 kilometers through the mountains of Southwest China to fetch water for his family. His village, Ziniu, in Yunnan province, has not seen a drop of rain since February. "No one knows when the drought will end," the 48year-old farmer said, as he looked at the dry soil. Apart from the sale of dry apricots from his 1 hectare orchard, he has made no money this year. Some of his neighbors have gone to Kunming, the provincial capital, to find temporary work. The drought that has crippled southwestern regions since last year has shown little sign of abating, affecting the water supplies of millions of people. According to the China Meteorological Administration, no rainfall is expected in parched areas, including Yunnan and Sichuan provinces, for at least nine days. Li Xiaoquan, a meteorologist for the administration, said the drought may ease when the rainy season begins in May. This is the fourth year

48

Yunnan has suffered a severe drought, said Kong Chuizhu, vice-chairman of the standing committee of the Yunnan people’s congress, and the problem is expected to continue. Climate models show rainfall patterns are changing, and the National Climate Center predicts a possible decrease in precipitation in the south over the next 20 years. Although farmer Zhu said he does not believe "rainy Yunnan" will one day be dry, he has still sold all his sheep and cows since the severe drought of 2010. As of March 7, 2.3 million hectares of land in Yunnan and Sichuan had been affected by the drought, with more than 1.5 million people and 880,000 animals facing water shortages. About 417,800 people in Guizhou province have seen temporary shortfalls in drinking water, Xinhua News Agency reported on Monday. It added that authorities are taking measures to guarantee supplies. In drought-hit Neijiang in Sichuan, the city weather bureau engaged in cloud seeding on Monday to induce rain.

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