China business news digest

China's dairy industry faces crisis as breeding stock quality declines and transport infrastructure spending is up 15.6 per cent.

Your daily digest of the biggest business news in China, translated and summarized every day.

Chinese central bank to meddle less in forex market

The deputy governor of the Chinese central bank has said Beijing has largely withdrawn from regular intervention in foreign exchange, allowing for more flexibility in the foreign exchange market.

“The central bank has significantly reduced its direct intervention in the foreign exchange market,“ Hu Xiaolian said at the Caijing Conference in Beijing.

PBOC widened the trading band of its currency from one per cent to two per cent in March as part of its long-term plan to liberalise exchange rates.

(Caixin)

China needs to focus on quality of growth: senior official

One of China’s leading economic policy makers has urged the government to focus more on the quality of economic growth rather than the speed.

Liu Shijin, the deputy head of Development and Research Centre of the State Council, the Chinese Cabinet, says it is more important to maintain employment, improve people’s livelihoods and enable companies to stay profitable than it is to maintain a certain pace of economic development.

However, Liu also argues that the government should not shy away from stimulus measures if the economy slows down too much.

(Caixin)

Chinese railway freight slows

Chinese railway freight volumes dropped 6.6 per cent in October, according to data from the Ministry of Transport.

Railway freight is regarded as an important gauge of Chinese economic activity. It is part of the so-called Li Keqiang Index, which is used to estimate the true speed of China’s economic growth.

During the first ten months of the year, the transport sector grew 7.3 per cent. Railway freight volume increased 2.9 per cent, road and water transport increased 8.8 per cent and 6.7 per cent respectively.

(Caijing)

Transport infrastructure spending up 15.6 per cent

Beijing invested over 1.9 trillion yuan in transport infrastructure projects during the first ten months of 2014, according to data from the Ministry of Transport.

Investment in the railway sector increased 25.2 per cent during the same period. Beijing has been ramping up its investment in this sector to stabilise the slowing economy.

(Caijing)

Chinese dairy industry faces crisis as breeding stock quality declines

China’s dairy industry faces a crisis as the quality of its breeding stock deteriorates, according to the Economic Observer.

Premium quality milk cows only make up 20 per cent of total stock in China and their annual milk production is only 50 per cent lower than American herds.  Chinese dairy farmers are complaining about the bad quality of Chinese breeding stock and how they destroy the quality of imported Australian cows.

The deterioration in the quality has resulted in a large increase in the price of Australian breeding stock from $600 per head to $2,500 per head.

The industry also faces the problem of a skills shortage as university graduates don’t want to move to countryside to work at dairy farms. 40 per cent of dairy businesses in China are reportedly losing money.

(Caijing)

Ministry of Finance defends itself against ‘end of year spending spree’ accusations

By the end of October, Chinese government (both provincial and central) outlays has reached 11.35 trillion yuan. While this might sound like an impressive figure, it means that if the government wants to meet the spending target outlined in this year’s budget, it will need to spend close to 4 trillion yuan (or 26 per cent of the full year budget) in the remaining two months of the year.

Yesterday the official Xinhua News Agency published an article seeking an explanation from officials for why this ‘end of year spending spree’ was occurring and how the government planned to spend 4 trillion yuan in the remaining two months of the year.

In response, an official from the Ministry of Finance denied that this year’s situation qualified as an ‘end of year spending spree’ and said that any unchecked spending aimed at blindly reaching an outlay target would be investigated.

A sharp increase in government spending at the end of the fiscal year has long been a characteristic of China’s budgets. The Ministry of Finance has made efforts in recent years to crackdown on the practice. 

From 2009 to 2013, total government spending at the end of October as a proportion of the total spending outlined in the budget was, 65 per cent, 72 per cent, 77 per cent, 75 per cent and 74 per cent respectively.

(Beijing Times)

Provincial pension reform exposes huge disparities

Three Chinese provinces have released detailed plans to merge their separate urban and rural pension systems into one provincial-level network in November. A total of 27 of China’s 31 provincial-level governments have now announced such plans and some provinces have already started implementing the policy. 

The moves are part of a broader plan to unify the pension system across the whole country by 2020 which was announced by the State Council in April 2014.

However, it will be a long time before a unified and fair pension system emerges as there are huge differences in the amount pensioners are paid -- both across and within individual provinces.

For example, pensioners in provinces like Jilin, Hebei and Anhui still receive the government mandated minimum of 55 yuan a month, an amount that hasn’t changed in five years. In contrast, official residents of Shanghai receive 550 yuan a month. The national average is about 90 yuan a month.

These disparities also exist within individual provinces, with residents of provincial capitals sometimes receiving more than double what other residents of the province are paid. These huge differentials continue to expand as the government contribution that matches an individual’s payments varies across locality, with governments in more developed regions of the country able to contribute more to pension funds.

(Economic Information Daily)

Cleaning up China’s Steel Industry

As part of a plan to eliminate overcapacity along with inefficient and heavily-polluting steel mills, China’s Ministry of Industry of Information Technology (MIIT) has not only released ‘black lists’ of companies that need to close down out-dated mills, but also ‘white lists’ of production facilities that meet the ministry’s requirements.

Earlier this month MIIT published an update to the third edition of this ‘white list’, which was originally published in August. The revised list names 147 steel companies that have been approved as steel producers. This takes the total number of companies that MIIT has included on its approved list since 2012 to 305 companies.

An unnamed analyst is quoted as telling the reporter the list likely represents 85 per cent of the final approved producers list and that it markedly increases the likelihood that companies not on the list will be forced to exit.

Over the past decade, the official process for approving new steel mills has lagged well behind the actual expansion in productive capacity.

Since 2005, China approved less than 100 million tonnes of productive capacity, but during that time, production capacity increased to more than 700 million tonnes.

Effectively, a very large proportion of steel capacity was developed outside of official regulatory control and efforts to force unregulated producers to exit resulted in a vicious circle of ever-increasing productive capacity.

It wasn’t until market forces began to kick in that some producers were forced to exit the market.

By some estimates, China produces 200 million more steel than the market needs. Between January to October this year, China produced 685 million tonnes of crude steel and increase of 2.1 per cent on the same period in 2013. This represents a 6.2 percentage point fall in the rate of increase from the previous year.

(National Business Daily)