Tight Macro Policy Under Question
China has entered a new economic phase of slower growth and high inflation while facing weaker export demand, soaring international commodity prices, rising labor costs and land shortages. Industrial profits are down and enterprises are loan-starved. Unemployment rates may rise as companies in labor-intensive sectors idle operations.

Now it's believed China will shift its top priority from combating inflation to stimulating growth by relaxing credit controls and raising export tax rebates. But other strategists want to end overcapacity in manufacturing due to excess investment. Both profits and structural economic transformation will depend on the next manufacturing reshuffle. Inflation is still a major concern. Although statistics show consumer prices are growing at a slower pace, government price controls for energy and resources continue to distort producer costs and income distribution.
 
Former Morgan Stanley Exec Faces Charges
A former managing director for Morgan Stanley, Du Jun, has been charged by Hong Kong authorities with nine counts of criminal insider trading. Prosecutors allege Du obtained confidential information about Citic Resources when Morgan Stanley underwrote the company's issuance of US＄ 1 billion in bonds. Du bought Citic stock nine times between February and April 2007 before the company issued an upbeat financial statement to the public in early May that sent its share price up as much as 13.86 percent in one day. In an interview with Caijing, Du defended himself and claimed he did not participate in the underwriting. But a source said Du, as a director, attended high-level meetings where significant transactions were discussed. After an internal investigation, Morgan Stanley fired Du in May 2007.
 
Property Market Slowing Down in China
The first half of the year was a tough period for real estate developers as China's overheated property sector showed signs of cooling. In May, average property prices in the nation's 70 largest cities grew 9.2 percent year-on-year, below the April growth rate. At the same time, nationwide property sales have been shrinking. The sluggish performance has raised concerns about the future direction of the market. Although it is widely believed the government will not relax credit controls on the property market in the near term, the fact that developers recently got permission to issue bonds was seen as a signal that the government is loosening controls on developer financing. Most developers expect to see a market rebound. But it's unclear whether the market will first experience a downturn.
 
Spot Trader Investigated for Investor Fraud
A small commodities exchange that handles steel and agricultural products is the focus of a criminal investigation into a scheme that may have defrauded thousands of investors. As part of the investigation, police in the city of Hohhot froze July 9 the bank account of Huaxia Spot Commodity Exchange founder Guo Yuanfeng, who fled to the U.S on the same day. But the account apparently had been emptied, further angering investors.

Cracks in China's regulatory system may have contributed to the alleged fraud. Small spot trades such as the type handled by Huaxia are supervised by the Ministry of Commerce not the China Securities Regulatory Commission, which oversees major exchanges. Moreover, banking oversight is limited. Huaxia traders were required to deposit money into Guo's personal account at a bank which then executed transactions between the exchange and clients.
 
Directors, But No Direction, for Central Huijin
Policy investor Central Huijin announced its new board of directors, naming Lou Jiwei as the chairman and Li Jiange from the State Council's think tank National Development Center to the post of vice chairman. The board now has five members, including two independent directors: former central bank deputy governor Wu Xiaoling, and former head of the Ministry of Finance discipline department Jin Lianshu.

Despite the appointments, confusion over Huijing continues. Last year, the agency became a subsidiary of sovereign wealth fund China Investment Corp. Now Huijin is in a gray area between private institution and policy bank. It was founded to help state-owned banks restructure and deal with bad debt. Its quasi-government status might cast shadows on CIC's overseas ambitions.