China's troubled dairy producer Sanlu Group went into bankruptcy on December 24 under a court order. The court stipulated that a receiver to take over Sanlu’s management to monitor the sale of assets and payment of creditors within six months. Sanlu has reached an agreement with distributors to refund 60 percent of their 600 million yuan by January 10, and the rest within six months. The company also said that it borrowed 900 million yuan on December 19 to compensate children sickened by tainted milk powder. On December 25, Beijing-based Sanyuan Food Group, which has been negotiating with Sanlu on the possible asset acquisition since September, said it will soon hold a board meeting to study and adjust the acquisition plan. Caijing learned that Tian Wenhua, former general manager of Sanlu whose was detained in September due to the scandal, will begin on December 31. Tian faces up to ten years in prison and fines for alleged crimes of producing and selling inferior products.

China's leading internet portal operator Sina Corp. said on December 22 that it will acquire China's largest digital advertising company Focus Media for $1.4 billion in stock. Under the deal, Sina will acquire a large part of Focus Media’s outdoor digital advertising business, getting access to the business of outdoor and in-store advertising on liquid crystal monitors. At the same time, analysts believe that the deal will also bring Jiang Nanchun, chairman of Focus Media, onto Sina's board as an influential shareholder, which will help Sina to improve its dispersed shareholding structure. On December 23, another company Fosun International Ltd. also announced it will acquire 17 million American Depositary Shares of Focus Media at Nasdaq open market with US$ 150 million, which is equivalent to a 13.33 percent stake in Focus Media.

The National Development and Reform Commission (NDRC) and the Civil Aviation Administration of China have announced they will cut fuel surcharges on domestic flights, starting from December 25. The fuel charge on flight routes of more than 800 kilometers will decline to 40 yuan from 150 yuan per passenger.  The surcharge for shorter routes will fall to 20 yuan from 80 yuan per passenger. The news came after China's recent decision to lower jet fuel prices.

HNA Group, which operates Hainan Airlines Co, received a 500 million yuan capital injection from the Tianjin municipal government, becoming the third Chinese airline group to receive government aid during this economic slowdown. According to the company, 200 million yuan of the money will go to HNA’s Grand China Express, a regional carrier based in the northern Chinese city of Tianjin, while 300 million yuan will go to its leasing unit. Later, China Eastern, which received 3 billion yuan government bailout weeks ago, said that it may receive another 4 billion yuan capital injection from the government.

The State Council, China’s Cabinet, unveiled seven measures to help distressed exporters, citing an aim of “maintaining stable growth of foreign trade”.

The measures range from tax relief to trade and industry policies. Exports of certain machinery and electronic products will enjoy greater tax rebate, the fourth of similar moves since September.

Finance & Economy

Beijing cut interest rates for the fifth time this year, completely erasing the tight monetary policy steps of the past two years. Room for further cuts is diminishing. The People’s Bank of China lowered the benchmark one-year lending and deposit rates by 27 basis points to 5.31 percent and 2.25 percent, respectively. This marks the lowest interest rate for loans since the Asian financial crisis of 1997 and brings an end to Beijing’s tightened monetary policy.

Lower interest rates can help lighten the burden of borrowers so that companies do not have to cut their investment and spending. The loosened monetary policy is most likely to benefit capital-intensive industries such as real estate. Falling prices have also allowed further rates-cuts to stave off potential deflation. But as rates approach a historic low, the diminishing monetary policy leeway means the government needs to think of a better way to stimulate demands.

China tests allowing yuan in foreign trade settlement. The RMB took a step toward becoming an international currency. Beijing announced on December 24 that it will allow companies in the Pearl River and the Yangtze deltas to pay and get paid for foreign trade in yuan. Currently, foreign traders denominate sales in foreign currencies, such as the dollar and the euro, and have to go through the State Administration of Foreign Exchange to change currency. This brings added risk from fluctuations in foreign exchange rates.

Policy-makers propose law to crack down on illegal trading. A proposed law would crack down on “rat trading,” “underground banks” and “illegal public fund-raising.” The National People’s Congress Standing Committee is reviewing the proposed amendment to the Criminal Code. The draft focuses on “rat trading,” or insider trading behaviors under the scope of criminal punishment, and suggests higher penalties for behaviors such as “illegally absorbing public funds.”

A Shanghai financial recruitment team was well-received overseas. A team of headhunters from Shanghai finished a weeklong talent search in London, Chicago, and New York. More than 2,000 overseas candidates, 12 percent of whom were non-Chinese citizens, competed for 170 positions. Nearly 840 candidates have reached preliminary agreements with recruiters. Annual salaries vary from 200 thousand yuan to 1.5 million yuan, with positions ranging from risk manager, chief economist, investment strategist, to IT and sales manger, of both private and public sectors.

Politics & Law

China might fail to achieve its goal set three years ago of being more environmentally friendly and better structured, according to the report by the National Development and Reform Commission (NDRC), China’s top economic planner, submitted to the People’s Congress, the country’s Parliament.

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