┣━Finance━┫

China could further expand the Qualified Domestic Institutional Investor program this year following the two latest quota grants totaling US$ 1.5 billion, industry sources told Caijing on Monday. E Fund Management Co. was granted US$ 1 billion and China Merchants Fund granted US$ 500 million in quotas on Oct. 23 by the State Administration of Foreign Exchange, the two firms said in separate statements e-mailed to Caijing. Chinese citizens can invest a limited quota in foreign stocks and bonds only through the QDII program due to foreign exchange restrictions. China stopped granting new QDII quotas from May 2008 due to the global financial crisis, causing heavy losses for Chinese investors.

Financial restrictions should be eased to encourage domestic acquisitions and mergers, especially for private, small-and medium-sized enterprises, Zhang Wenkui, a deputy division chief of the Development Research Center of the State Council, said in Shanghai on Oct. 24. Industrial consolidation should also allow room for smaller, innovative companies, he said at a financial forum. Last year, the China Banking Regulatory Commission issued a new rule allowing commercial banks to extend loans for mergers and acquisitions. However, the rule contradicts the Lending General Provisions issued by the central bank in 1996, which prohibits borrowers from using bank loans for equity investment.

The China Banking Regulatory Commission has warned urban commercial banks not to "expand blindly," urging them instead to seek a steady rate of return on assets, according to a statement posted on the regulator's website on Wednesday. “Urban commercial banks should not blindly pursue scale, speed and ranking,” CBRC chairman Liu Mingkang said at a banking conference in Shanghai on Tuesday. The warning is likely to lead to a slowdown in overall new lending, as the big four state-owned banks have reined in loan growth and joint-stock commercial banks are restrained by declining capital adequacy ratios.

┣━Industry━┫

Over the past week, China's major airlines released their third quarter results. The top three carriers booked encouraging profit growth during the third quarter, boosted by government refunds and fuel hedging gains. However, analysts warned that the weak performance of core businesses may cast a shadow on their fourth quarter results. The flag carrier Air China said on Oct. 27 that it made an 885.3 million yuan (US$ 130 million) profit in the third quarter, compared with a 1.97 billion yuan loss last year. On the same day, China Southern Airlines, the largest carrier by fleet size, reported a profit of 284 million yuan. The carrier booked an 810 million yuan loss the same period last year. Finally, China Eastern Airlines also registered a third-quarter profit of 23.2 million yuan, a great improvement compared to last year’s 2.3 billion yuan loss.

A  Ministry of Commerce official said Chinese exports will return to growth in 2010, despite the possibility that growth rates could be weaker than those achieved in the last export boom. The official expected that it will take at least two or three years for Chinese imports and exports to return to the peak of US$ 2.5 trillion in 2008. The revival is showing signs at the ongoing China Import and Export Fair (Canton Fair). The ministry official said Chinese exporters have benefited from the government's efforts to adjust export structure and related policies. But with the improving market, concern is rising that the government may lessen support for pro-export policies. However, a former government adviser said China has no "exit strategy" for its export-support policies.

┣━Politics and Law━┫

The National People's Congress (NPC) discussed granting equal representation in the People's Congress structure for rural and urban residents on Oct. 27, with the intent to amend the Electoral Law. “Both rural and urban areas will adopt the same ratio of deputies to the represented population in the elections of people’s congress deputies,” said the draft amendment. The amendment will for the first time ensure that voters in the countryside will have as much influence as voters in cities while under the existing law, each rural deputy represents a population four times than that of an urban deputy.

Visiting Vice Chairman of China's Central Military Commission Xu Caihou and U.S. Secretary of Defense Robert Gates agreed to further bilateral military cooperation in a meeting at the Pentagon on Oct. 27. Gates told Xu that the two sides should break the “on-again, off-again” cycle in their military relationship, calling for lasting dialogue with China's military. Xu is the highest-ranking Chinese military official to visit the United States in three years. China had cut military exchanges with the United States in 2007 due to a US$ 6.5 billion American arms package to Taiwan but resumed military exchanges in April, when Chinese President Hu Jintao met U.S. President Barack Obama in London.

Disciplinary authorities of the ruling Kuomintang (KMT) in Taiwan suspended the rights of eight newly-elected members in the Central Standing Committee (CSC) election on Oct. 27 for three months amid recent vote-buying allegations. The suspended party members are not allowed to participate in the CSC by-election on Nov. 14, which was called after 32 of the newly-elected members had submitted their resignations by Oct. 26 in protest of electoral misconduct.

China's State Council warned on Oct. 28 that the country's battle against A/H1N1 flu is "extremely grim" after the Oct. 27 flu-related death of a Beijing student and the rapid increase of infection cases in certain areas. 35,664 A/H1N1 cases have been reported so far in China. The unnamed student from the Beijing University of Aeronautics and Astronautics marked the fourth fatality in China, with 28 other students in the same program testing positive for A/H1N1. Deaths have been reported in the Xinjiang Uygur Autonomous Region, the Tibetan Autonomous Region and Qinghai Province.