What Is the Difficulty with China's 2008 Economy?  

The governmental leaders who are elected by the highest conferences began their five-year terms March 18th. Without any hesitation, Hu Jintao continued his position - President of the People's Republic of China. Xi Jinping, born in 1953, was elected as the Vice President of the People's Republic of China. Xi graduated from the chemical engineering department of Tsinghua University.   
   Wen Jiabao, who was reappointed Premier, says of the 2008 economy that he really understands the difficulty. This year may be the most difficult year in managing China's economy. Setting direction is a great challenge because of many uncertainties at home and abroad. China must prevent its economic development from overheating so that some problems in economic operations can be better resolved, while the government is under great pressure to assure employment for the 1.3 billion population.   
   Li Yizhong, a former president of Sinopec Group (1998-2003), was appointed minister of the new Ministry of Industry and Information, just approved by both the National People's Congress and the National Committee of the Chinese People's Political Consultative Conference. From February 2005 to March 2008, Li was the director of the State Administration of Work Safety. His new ministry will be in charge of drafting and executing the schedules, policies and standards for industrial sectors, supervising the operation of industrial sectors, promoting the development and innovation of important technologies and equipment, and managing the communications sector.
   Sinopec Corp. (SH: 600028) announced it had gained from its parent company a financial subsidy of RMB12.3 billion for its refining business. Of this, RMB4.9 billion is counted for the fiscal 2007, and RMB7.4 billion for the first quarter of 2008. The prices of oil products are controlled by the government, and all domestic refineries suffer losses.
   CNPC, another large refining firm in China, recently applied to increase the selling price of oil products because the global price of crude oil reached US$109 per barrel. "Under the current business mix, CNPC's refining business sector will operate at a loss, if the price of crude oil exceeds US$67 per barrel," said Jiang Jiemin, president of CNPC. "We also hope the government will exempt tariffs on imported oil products in order to guarantee the supply when a domestic refinery is being overhauled."  
    In February, the CPI was reported to be 8.7% higher than in the same period of 2007, the highest growth for 12 years. The Peoples Bank of China (PBC) announced on March 18th another increase of the deposit reserve requirement for commercial banks, this time going up 0.5% to 15.5%, effective March 25th - the second such increase since the year began. Li Huiyong, senior economic analyst of Shenyin & Wanguo Securities Co., Ltd., comments that PBC will probably keep raising the deposit reserve requirement, pushing it up to 18% this year.
    According to the 2007 International Financial Market Report by PBC, China is considering whether to allow foreign funded firms and foreign firms to issue shares in the Shanghai or Shenzhen stock markets. The report predicts that the exchange rate of US dollars with respect to RMB will bottom out and rebound at the end of 2008.

Zhong Weike
March 21st, 2008