Economy

　　Free Trade Account

　　China’s central bank launched a free trade account for the country’s first free trade zone (FTZ) in Shanghai on June 18， as part of efforts to test bolder financial reforms in a risk-controlled environment.

　　The Shanghai Head Office of the People’s Bank of China (PBC) said that five banks have met the requirements to open the account. Companies registered in the FTZ—a 29-square-km area to pilot economic reforms—will be able to use the account for financing， investment and other cross-border transactions.

　　So far， firms in the zone can borrow offshore funds， deploy working capital between subsidiaries both in and out of China and enjoy greater flexibility in managing foreign exchanges.

　　The move comes two weeks after the PBC issued operating details on the free trade accounting unit， an arrangement that separates cross-border transactions in the FTZ from other onshore transactions.

　　Industry Overhaul

　　Chinese authorities on June 13 released a work plan to encourage merging and corporate reorganization among domestic baby-formula producers to ensure the sound development of the industry.

　　The quality and safety of infant-formula milk powder is a key issue concerning people’s quality of life， as well as a major economic and social issue， according to the document.

　　The plan says that companies will be encouraged to reorganize through mergers and acquisitions. By 2015， China aims to have formed around 10 baby-formula conglomerates， each with an annual sales revenue of more than 2 billion yuan ($321 million).

　　By that time， the top 10 domestic brands of baby formula are expected to account for a total market share of at least 65 percent.

　　The plan also sets a further goal of forming three to five baby-formula heavyweights with annual sales revenue exceeding 5 billion yuan ($803 million) each by 2018. The top 10 domestic industry players are then expected to nab more than 80 percent of the entire market.

　　Declining Housing Price

　　China’s property sector continued to cool in May， as new home prices in half of 70 major cities showed month-on-month drops， the National Bureau of Statistics (NBS) said on June 18.

　　Only 15 cities saw month-on-month increases， substantially down from 44 in April.

　　The average home price in the 70 cities slipped 0.15 percent from the previous month， marking the first drop in more than a year， according to the NBS.

　　Of all the 70 cities， prices in Hangzhou of east China’s Zhejiang Province dropped the most， down by 1.4 percent.

　　For existing homes， prices also declined in 35 cities month on month in May， up from 22 cities in April.

　　Liu Jianwei， senior statistician for the NBS， said home buyers have started to adopt a wait-and-see attitude amid uncertain market prospects， prompting developers to cut prices to alleviate pressures from piling inventories.

　　Bond Ratings

　　Credit ratings will be introduced into a local government bond-issuance pilot， in a move to enhance risk prevention， the Ministry of Finance announced on June 13.

　　The ratings will come in nine levels， which are AAA， AA， A， BBB， BB， B， CCC， CC and C. The AAA rating indicates an extremely low default risk， with C suggesting inability to repay debts， according to a document released by the ministry.

　　A total of 10 local governments have been authorized for independent bond issuance and repayment. Bond-issuance by local governments was initiated in October 2011.

　　Local governments are required to publicize credit ratings for their bonds， local economic development， fiscal income and expenditures， as well as liabilities.

　　All of the aforementioned information must be made public at least five working days prior to the new bonds issuance， according to the rule.

　　The local governments involved in the pilot program are also required， on an annual basis， to conduct comprehensive credit ratings on their bonds issued with different maturity terms， including five years， seven years and 10 years， the document said.

　　Commodity Website

　　Yiwubuy， the website of the world’s largest consumer goods market， has launched a Hungary operation (hu.yiwubuy.com)， General Manager Wang Jianjun announced in Yiwu on June 16.

　　Yiwubuy belongs to Zhejiang China Commodity City Group， which manages the Yiwu Small Commodity Wholesale Market， the largest of its kind in the world， in east China’s Zhejiang Province.

　　Wang said that the Hungary website， which uses three languages—Hungarian， English and Chinese， will try to find local partners and provide convenience for foreign buyers of China-made consumer goods.

　　Wang explained that the new website would enable orders placed by local buyers to be handled by Yiwubuy’s local partners， including confirmation， payment， inspection， and customs clearance. Moreover， a credit transaction guarantee system will be put in place.

　　Yiwubuy has e-stores for all 70，000 shops in the Yiwu Small Commodity Wholesale Market on its website， with a unique 360-degree panoramic display that simulates the experience of physical shopping for visitors.

　　Forex Purchase

　　China’s central bank and financial institutions spent 38.7 billion yuan ($6.21 billion) on foreign exchange purchases in May， a sharp retreat from the 116.9 billion yuan ($18.76 billion) in April， official data showed on June 16.

　　While the pace has slowed， the figure also marked the 10th consecutive month of net increases.

　　As of the end of May， Chinese financial institutions’ total yuan funds outstanding for foreign exchange amounted to 29.54 trillion yuan ($4.74 trillion)， according to the People’s Bank of China.

　　As the Chinese currency is not freely convertible under the capital account， the central bank has to purchase foreign currencies generated by China’s trade surplus and foreign investment into the country from commercial banks， adding funds to the money market.

　　As an important part of China’s basic money supply， the data serves as a guide to the central bank’s policy moves to adjust liquidity in the market.

　　The central bank announced earlier this month that it will cut the reserve requirement ratio by 0.5 percentage points for banks engaged in proportionate lending to agricultural and small firms.

　　Service Outsourcing

　　Service outsourcing has become a major growth industry in China， with its value reaching 1.7 trillion yuan (about $273 billion) in 2013， said a report released on June 15.

　　The figure represented about 2.97 percent of the country’s gross domestic product last year and contributed 0.8 percent of China’s economic growth， said the 2014 Development Report of China’s Outsourcing Brand Development.

　　The industry provides the country with direct and indirect employment of 5.36 million and 17.8 million respectively， said the report.

　　Last year， it created 1.06 million new jobs， accounting for 8.1 percent of all new jobs in urban China.

　　The report said that information technology outsourcing dominates China’s service outsourcing industry， which also saw rapid growth in knowledge process outsourcing.

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