Finance

On June 2, China's central bank, or the People's Bank of China, published on its web-site rules governing trials for settling trade in China’s currency yuan, kicking off a program proposed earlier this year. The move signaled a step towards the yuan's internationalization. The program will link qualified firms in five mainland cities -- Shanghai, Guangzhou, Shenzhen, Zhuhai and Dongguan— to Hong Kong and Macau. PBOC, in conjunction with the Hong Kong and Macau monetary authorities, have designated the Bank of China's Hong Kong-listed unit as the clearing bank for the two special administrative regions.

According to data Caijing obtained from banking officials, China's four largest state-owned commercial banks lent out a total of 497 billion yuan in June, nearly twice the amount of credit extended in May. The Bank of China and the Agricultural Bank of China each lent 177 billion yuan in June, followed by China Construction Bank with 79 billion yuan and Industrial and Commercial Bank with 64 billion. China's new lending exceeded 1 trillion yuan in each of the first three months, before slowing to 591.8 billion yuan in April and 664.5 billion in May.

In what would be the latest move in signaling stricter regulation and monitoring of the banking business, the China Banking Regulatory Commission is likely to compel banks to carry funds raised for wealth management on their balance sheets. The balance sheet stipulation is expected to result in banks holding more capital in reserve, restricting their ability to expand. According to the latest data published by CBRC, 479 wealth management products in China - 12 percent of the total – recorded book-value losses at the end of the first quarter of 2009.

Industry

China's power output rose 3.8 percent year-on-year in the month of June. According to data from the State Grid Distribution Center, this is the first power rise in 2009, since China's power consumption in the first five months fell around 4 percent from the year before. Analysts attributed the growth mainly to increased power use driven by unusually high early summer temperatures. The increased consumption also appears to be driven by sustained economic recovery. Prior to this, the China Electricity Council had forecast demand to rebound in the second half with consumption rising 5 percent for the full year.

China's State Electricity Regulatory Commission has released details of a pilot program featuring an expansion in direct power supply. This is intended to break the country's current electricity transmission duopoly. 15 electrolytic aluminum plants sold power at a direct power trial sale in March, and now this right to sell will be expanded to power companies with input voltages of no less than 110 kilovolts and power plants which began operation after 2004. Final electricity prices in the pilot program will be determined by three components: first, the ex-generator prices paid to power plants which are negotiated directly between end-users and power plants; second, fees paid to the government via taxes; and finally, transmission fees charged by grid companies.

On June 2, one of China's top metal producers, Chinalco, announced that it has fully taken up its allocation of Australian miner Rio Tinto Plc.'s US$ 15.2 billion rights issue and will remain the company's biggest single shareholder. Earlier this month, debt-ridden Rio Tinto withdrew from a proposed tie-up with Chinalco in favor of a rights issue priced at A$ 28.29 per share in Australia and 14 pounds in London, with 21 new shares offered for every 40 shares held. Based on the current share price, Chinalco needs to invest more than US$ 1.4 billion in order to maintain its 12 percent stake in the London-listed Rio Tinto stock, according to Caijing calculations.

Effective June 30, China raised gasoline and diesel prices by around 9 percent to reflect rising crude oil prices on the international market. The National Development and Reform Commission announced its intention to raise domestic prices for both gasoline and diesel by 600 yuan per ton. This was the second hike this month after the commission moved to raise gasoline and diesel prices by 6.13 percent and 6.9 percent, respectively, on June 1.

Politics & Law

On June 30, Taiwan opened its doors to Chinese mainland investment, with 100 categories of businesses in manufacturing, service and infrastructure industries on the list of investment. Since the mainland permitted investment from Taiwan in 1991, as much as US$ 77.1 billion of capital has flown across the strait, an imbalance Taiwanese authorities have said they would like to correct in order to boost the island's economy. China's Ministry of Commerce has called upon Taiwan to open even more sectors to mainland investment, an official from the ministry said after Taiwan's announcement. The official added that the ministry will soon lead groups of mainland entrepreneurs from eight sectors – including textile, construction and electronic engineering – to visit Taiwan. However, an economic official in Taiwan admitted the list does not include all categories mainland investors are interested in because Taiwan authorities must keep local businesses and markets in mind first.

Shanghai authorities attributed the June 27 collapse of a 13-story apartment building at Shanghai's "Lotus Riverside" apartment complex, which killed one worker, to the large amount of soil excavated for the construction of an underground garage. The trench left by the excavation affected the balance of forces at the base of the building, an investigator said, adding that the weight of soil piled on the opposite side may have intensified the destabilizing effect. Local Meilong government officials were said to be involved in company management for the developer of this project, Shanghai Meilong Real Estate, which used to be a state-owned enterprise.

Following this collapse, the Ministry of Housing and Urban-Rural Development called for a comprehensive quality inspection of habitation buildings under construction across the country, mainly focusing on the foundation and framework of a building.

Two passenger trains collided on June 29 at the Chenzhou station in Hunan Province, killing three people and injuring more than 60. The pre-dawn crash, which derailed train cars, occurred between a train going from the provincial capital Changsha to the southern city of Shenzhen and another Shenzhen-bound train. The railway minister traveled to Chenzhou to oversee rescue operations.