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China Orders Boost in Household Consumption

The Chinese Academy of Social Sciences (CASS) recently issued the Blue Book on the Chinese economy, which highlighted the low consumption rate as an issue of concern. On the heels of the publication, the official media reported that Beijing has given orders to “improve the consumption system and mechanisms, and further stimulate the residents’ consumption potential.”

The Central Committee of the Chinese Communist Party and the State Council jointly handed out the “Opinion on improving the consumption mechanisms and further stimulating the consumption potential of residents.” It states that there are prominent institutional obstacles that restrict the expansion and upgrading of household consumption.

The opinion points out that key areas of the Chinese consumer market cannot meet the diversified demand from urban and rural residents effectively. The regulation authority has not adapted to the rapid development of the new modes of consumption. The quality standard system lags behind the need for escalated consumption quality and quantity. If the credit system and the consumer rights protection mechanisms do not play effective roles, the set of consumption policies cannot effectively support the rise in the residents’ consumption power.

As the CASS Blue Book reveals, China’s domestic consumption remains weak. The real growth rate of the per capita disposable income of the national residents in the first quarter of 2018 was 6.6 percent, far below the gross domestic product (GDP) growth rate. The urban and rural consumption expenditures as a percentage of disposable income hover at a low level of 63 percent.

Source: Central News Agency, September 20, 2018

One Third of U.S. Companies in China Postponing or Cancelling Investment Plans

Well-known online Chinese news site Sina recently reported on a study report that the American Chamber of Commerce in China just published. The report shows that the tariff war between China and the United States has impacted two thirds of the U.S. companies in China. The next wave affecting US$200 billion in tariffs on Chinese imports will bring the impact scope to above 70 percent. Most of the impacted areas involve cost increases (47.1 percent) and reduced demand (41.8 percent). Around one third of those surveyed U.S. companies plan to postpone or cancel investment plans. Also, around one third of the companies will adjust supply chains. The most popular countries for the new suppliers are Southeast Asian counties and Indian subcontinent countries. The survey was conducted around the beginning of September. Over 430 Chamber member companies responded. Around 61 percent of these companies are in the manufacturing industry.

Source: Sina, September 13, 2018

Outbreak of Foot-and-mouth Disease in Cattle in China

Since August, a total of 7 provinces in China discovered that they had pigs suffering from African Swine Flu, which continues to spread across the country. According to a September 14 report from the Chinese Ministry of Agriculture and Rural Affairs, the O-type foot-and-mouth disease epidemic occurred in a herd of cattle that was transferred from Gansu Province to Xinjiang.

The official website acknowledged that on September 6, an inspection station in Xinjiang found that a total of eight cattle were suspected of having symptoms of foot-and-mouth disease when they were moved there from Gaotai county of Gansu Province.

On September 7, Xinjiang’s Animal Disease Prevention and Control Center gave a diagnosis of positive for the foot-and-mouth disease virus nucleic acid. The Chinese National Foot-and-Mouth Disease Laboratory confirmed on the 14th that the epidemic was an O-type foot-and-mouth disease epidemic.

The announcement said that, after the outbreak, 47 cattle that exhibited symptoms and others in the same herd were culled and treated. Gansu province has initiated a comprehensive investigation and emergency monitoring.

Source: Central News Agency, September 15, 2018

Beijing News: Half a Trillion Spent on Urban Railways in 2017; Four Cities Break Even; 30 Run at a Loss

Beijing News recently reported that, according to a report that the Chinese Urban Rail Transit Association just released, China spent RMB half a trillion (around US$73.2 billion) in 2017 alone to build urban rail transit systems. By the end of 2017, a total of 34 cities completed their systems, with an operational railway length of 5,033 kilometers. At the same time, there are another 56 city systems still under construction, with a planned total length of 6,246 kilometers. With the massive expansion of urban rail projects, more and more issues and risks have started to occur and the government has called off some projects. These city rail transit systems imposed a major burden on the local budget of the cities. At the same time, the systems are largely under-utilized. Among the completed 34 rail transit systems, only Beijing, Guangzhou, Shenzhen and Wuhan broke even financially. All of the other 30 cities run their systems at a loss.

Source: Beijing News, September 6, 2018

Private Enterprises in China Face Difficult Business Environment

On September 4, China’s central bank the People’s Bank of China, and the All-China Federation of Industry and Commerce, which is the chamber of commerce for the private sector, held a meeting to discuss how to improve the financing status for private enterprises and small and micro enterprises.

With the ongoing US-China trade war, more uncertainties have been added to the economic situation. Banks are reluctant to lend to private enterprises. Difficulties in financing will hit private investments and affect China’s economy in the second half of the year. China’s state banks have always preferred lending to state-owned enterprises, but small and micro businesses represent the vitality of the national economy. Yi Gang, president of the People’s Bank of China, once said that they contributed to 80 percent of China’s employment, about 70 percent of patent rights, more than 60 percent of gross domestic product (GDP), and more than 50 percent of taxes.

Starting on January 1, 2019, tax authorities will replace the social security bureaus in collecting a number of items now under social security. Since the tax bureaus also collect the salary information, the move will add to the burden on the private sector, as most of the enterprises currently declare their social security obligations at the minimum wage standard.

Additionally, China’s Ministry of Ecology and Environment recently issued a directive that prohibits local governments from shutting down businesses across-the-board or from suspending operations using the excuse of protecting the ecological environment until they have conducted investigations. Local government authorities, when dealing with inspections from environmental protection units, usually place unreasonable restrictions on enterprises, especially private and small businesses.

Source: Central News Agency, September 6, 2018

Changjiang Times: Real Estate Development Companies Had Hiring Freezes or Laid Off Employees to Deal with Mounting Debit

Since 2018, many real estate development companies have been under tremendous pressure when trying to deal with the tightening of the financing channel, as well as serious cash flow and debt issues. According to an article that Changjiang Times published, a number of large publicly traded real estate companies have either initiated hiring freezes, closed down unprofitable projects and departments, or laid off employees. The list of companies includes Greenland Holdings, CK Asset Holdings Limited, Vanke, R&F Properties, and Agile Properties. The article also quoted statistics which revealed that, in the first six months of 2018, the total debt among 136 publicly traded real estate companies reached 10 trillion yuan (US$1.46 trillion) and their average debit ratio was at 79.1 percent, which was the highest since 2005 and up 33.33 percent from 2016. In the first seven months of 2018, forty real estate companies borrowed 410.5 billion yuan (US$60.08 billion), which is equivalent to the total amount borrowed in the second half of 2017. At the same time, many real estate companies were stopped from issuing bonds in order to raise cash and fewer and fewer financing options were available for them. The article stated that, since the average financing term of a real estate debit is three years, these real estate companies will have to deal with paying off heavy debts that are due in 2018 to 2019.

Source: Changjiang Times, September 3, 2018

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