Economy
The PRC economy grew an astonishing 11 percent in the first half of 2006, driven by fixed-asset investment growth of nearly 30 percent. Some analysts insist that China's strong growth rate is not as worrisome as the official numbers suggest, but others have warned of tough times ahead in light of the government's failure to curb overcapacity in key sectors like construction.
Other economic indicators for the first half were also up. Output leapt 18 percent, and retail sales rose 13 percent. Overall inflation, as reflected in the consumer price index, was moderate, but purchase prices of raw materials jumped 6.1 percent while producer prices crept up 2.7 percent.
To rein in bank lending, the People's Bank of China (PBOC) raised the reserve requirements for PRC banks from 8.0 to 8.5 percent on August 15. And to further cool investment, the National Development and Reform Commission and four other central-level ministries ordered local authorities to shut down new industrial projects of more than ¥100 million ($12.6 million) that do not comply with national industrial and environmental protection policies.
Internet
Internet China had 123 million Internet users by the end of June, 77 million of whom had broadband Internet access, according to a China Internet Network Information Center report released in late July. The number of Chinese Internet users in June 2006 rose nearly 20 percent over June 2005.
The PRC Ministry of Information Industry (MII) in late July issued a notice that requires Internet companies in China to own the domain names and trademarks that they use in providing their services. This may force foreign-invested Internet companies that operate in China to restructure their operations. Currently, foreign companies often license their intellectual property to affiliates in China to avoid violating MII's tight restrictions on foreign investment in the sector.
Labor
The Bush administration rejected in late July a petition by US labor unions to impose tariffs on imports from China because of PRC labor policies. The AFL-CIO had argued that China's labor policies constitute an unfair trade advantage that lowers manufacturing costs by 12 to 77 percent.
Following the formation of trade unions in several of its stores in late July and early August, Wal-Mart Stores, Inc. announced that it would work with the All- China Federation of Trade Unions (ACFTU) to establish unions at all of its stores in China. Though PRC law currently does not require foreign-invested enterprises (FIEs) to establish trade unions, ACFTU has been encouraging the formation of unions at FIEs.
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Trade
China's exports grew 25.2 percent during the first half, a figure that is 7.5 percentage points lower than the first half of 2005. Rising 21.3 percent, imports grew more slowly than exports, but 7.3 percentage points higher than the same period last year. China's resulting global trade surplus hit $61.5 billion, up more than 50 percent over the first half of 2005.
Fifty-seven countries, including Brazil, Russia, and South Korea, have recognized China as a market economy, announced the PRC Ministry of Commerce in late July. Of the 31 countries that have launched antidumping investigations against China, 21 have granted the country market economy status.
The PRC General Administration of Customs postponed until 2008 the implementation of new tariff rates on auto parts that the United States, European Union, and Canada claim violate World Trade Organization (WTO) prohibitions against local content requirements. As the CBR went to press, consultations at the WTO had failed to resolve the dispute, but US, EU, and Canadian trade officials had yet to request the formation of a dispute settlement panel.
Banking & Finance
The PRC State Administration of Foreign Exchange in late July and early August granted the first qualified domestic institutional investor (QDII) quotas to commercial banks. The total allotment of $8.3 billion included $300 million for the Bank of East Asia, the first foreign-invested commercial bank to receive a QDII quota.
New rules that took effect September 1 have raised the requirements for foreign insurance companies to set up representative offices in China. Foreign insurance companies with insurance operations must have at least 20 years of experience in insurance; applicants that do not have insurance operations must have been in business for at least 20 years.
Olympics
The Beijing Organizing Committee for the Games of the XXIX Olympiad announced in early August that it plans to sell more than 7 million tickets for the 2008 Summer Olympics, starting in the first half of next year. Ticket prices for most events are expected to be low enough to allow ordi- nary Chinese to attend the games.
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Real Estate
The PRC government has taken several steps to cool the real estate market, which is widely seen to have been responsible for the high fixed-asset investment growth in the first half. In July, six government agencies jointly issued an opinion aimed at slowing foreign investment in real estate.
On August 1, the government also began to impose a 20 percent capital gains tax on property sales. Real estate agencies in Beijing and other cities reported a rush of home deals in late July, as owners sought to avoid the new tax.
Environmental Protection
The State Environmental Protection Administration (SEPA) said in late July that it will set up 11 branch offices to independently investigate serious pollution cases, supervise law enforcement in national reserves and parks, and monitor safety at nuclear facilities. These offices will report directly to SEPA and will be completely independent from local governments.
China emitted roughly 25.5 million tons of sulfur dioxide in 2005, up 27 percent from 2000, SEPA officials said at a news conference in early August. The figures indicate that China has failed to meet the government's goal, set in 2000, of cutting annual emissions to 18 million tons by 2005. SEPA officials noted that coal consumption, the primary source of sulfur dioxide, rose 800 million tons from 2000 to 2005.
The Supreme People's Court in late July issued a judicial interpretation that makes it easier to convict officials in environmental cases. Under the interpretation, officials responsible for environmental incidents that kill at least three people face a prison term of three to seven years.
Political Reform
The PRC National Audit Office announced in late July that more than 250 government employees stole, wasted, or misused ¥30 million ($3.8 million) in the first half of this year.
To reduce nepotism, the Chinese Communist Party issued in early August regulations that prohibit family members in the same government or party organ from working for the same supervisor or for each other. The regulations also prohibit officials from working in an agency that oversees an industry in which their family members have business.
Consumer Safety
In a national investigation during the first half of 2006, the PRC Administration of Quality Supervision, Inspection, and Quarantine (AQSIQ) found that more than 20 percent of sampled manufactured and food products failed national standards. AQSIQ officials said that counterfeit and shoddy goods remain a concern despite crackdowns and increased national surveillance.
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