Looking at the news channels of various websites, after a brief recovery following a fleeting appearance, the European and American markets have fallen back into all kinds of concerns. The market is speculating: which of the two countries - Portugal or Spain - will be the next to receive aid. After the financial crisis, all global economies are undergoing self-rescue and reconstruction. However, can relying solely on the virtual economy save the market, or will it drag it deeper into the mire?
Emerging economies have also been drawn in and may use interest rate hikes to ease the impact brought about by developed countries over-issuing currency. According to predictions, among 23 emerging economy countries, 17 countries will raise interest rates or continue raising them in 2011, with China naturally included.
[Domestic Aspects]
1. The tax reform思路 during the "12th Five-Year Plan" has become clear, and the introduction of an environmental tax has become a certainty.
The Ministry of Finance's latest statement regarding the environmental tax no longer lingers at the "research" or "accelerated advancement" level but directly states "levying an environmental protection tax." From the national finance conference held on the 27th to 28th, we learned that the four major taxes that have been closely watched throughout the year—value-added tax, individual income tax, environmental tax, property tax—are also the key focuses of tax reform during the "12th Five-Year Plan."
Brief Comment: The introduction of the environmental tax next year has become a certainty. Initially, it may first impose taxes on sulfur dioxide and wastewater. Energy conservation and emissions reduction will become one of the key tasks during the "12th Five-Year Plan." Although relevant departments have indicated that the initial environmental tax will be equivalent to the current sewage discharge fee level and will not significantly impact enterprise production, this undoubtedly adds another constraint for high-pollution industries such as steel mills. Any possible increase in costs will inevitably bring linked effects to the entire industrial chain.
2. Estimated peak for December credit increment is 460 billion yuan
According to the financial data released by the central bank on December 10, the newly added RMB loans in November were 564 billion yuan. Thus, the credit increment for the first 11 months of this year has already reached 7.45 trillion yuan, leaving less than 50 billion yuan remaining out of the full-year target of 7.5 trillion yuan for new credit increments.
3. Next year, China’s fiscal deficit may shrink by 150 billion yuan; managing inflation expectations placed at the forefront
Next year's central fiscal deficit budget may decrease from this year's 850 billion yuan to 700 billion yuan, while the scale of central agency local government bond issuance remains unchanged at 200 billion yuan. Regarding fiscal revenue growth targets, the Ministry of Finance still conventionally sets it at 8%.
Brief Comment: The continuous rise in prices makes it difficult for macro policies to continue expanding. Therefore, next year's finance department will mainly focus on handling the relationship between maintaining steady and relatively fast economic development, adjusting the economic structure, and managing inflation expectations. To stabilize overall price levels and social harmony and stability, next year's regulatory policies will be more "steady."
4. Foreign Exchange Bureau: Q3 current account surplus grew by 100% year-on-year
The revised data published yesterday by the State Administration of Foreign Exchange shows that in the third quarter of 2010, China's international balance of payments continued to show a "double surplus" in both the current account and capital and financial accounts, with international reserve assets continuing to grow.
Brief Comment: With overseas steel demand improving somewhat and frequent recent price increases by European and American steel mills, China's steel export environment will improve somewhat. However, considering that the steel market in Southeast Asia, China's main steel export region, continues to be sluggish, the pattern of weak market demand has not changed, making it unlikely for China's steel exports to see significant growth. Next year, the trade deficit will further narrow.
5. Li Keqiang: Maintain stable prices and adhere unwaveringly to real estate market regulation
According to reports from China National Voice's National News Broadcast, Vice Premier Li Keqiang attended the national fiscal work symposium on December 27 and delivered a speech. He emphasized the need to seriously implement the decisions and plans of the Central Committee of the Communist Party of China and the State Council, play a good role of finance in macroeconomic regulation, prioritize ensuring and improving people's livelihoods as the direction for public finance, maintain long-term steady and relatively fast economic development, and continuously improve people's living standards and quality.
Brief Comment: In addition to policy adjustments, next year there will be an addition of 10 million units of affordable housing nationwide. It remains to be seen whether this measure can cool down the hot real estate market? Additionally, how will the funding issue for these 10 million units be resolved? Will the plan be implemented effectively? For steel trading enterprises, this might be a lucrative opportunity, but it may not be as palatable as expected.
Land reserve system reforms: Newly added construction land cannot enter reserves
On December 28, with the sale of two residential plots in Beijing, Beijing's land transfer revenue for 2010 exceeded 160 billion yuan. At this point, there are only four days left until the arrival of New Year's Day in 2011. A person close to the Ministry of Land and Resources revealed that the constant breaking of land price records and rising land transfer revenues have made urgent demands for land reserve system reforms by local governments.
Institutional Report: This year's national land transfer revenue could exceed 2 trillion yuan
According to the data published by Centaline Research Group, as of December 16, Guangzhou's land transfer revenue for this year was 34.7 billion yuan. Rough estimates suggest that Guangzhou's total land transfer revenue for the whole year would be around 40 billion yuan. Meanwhile, the land transfer revenue of 12 cities across the country exceeded 698.6 billion yuan this year, up 28% compared to last year. Media forecasts indicate that this year's national land transfer revenue could break through 2 trillion yuan. Some industry insiders expressed that the continuous rise in land transfer revenue in recent years has become the main driver behind the increase in housing prices.
Brief Comment: Despite ongoing real estate market regulation, housing prices have not shown any truly significant declines. Apart from excessive liquidity, enhanced inflation expectations, and other factors, "land finance" is the chief culprit behind high housing prices. On the basis of high land prices, housing prices naturally follow suit. It is expected that next year's regulatory policies will come even stronger.
6. This year, central SOEs' profits are expected to exceed 1 trillion yuan, doubling compared to last year
Deputy Director Huang Shuhé of the State-owned Assets Supervision and Administration Commission said at the meeting on performance evaluation of central enterprise executives held yesterday that the full-year profit of central SOEs is expected to exceed 1 trillion yuan. Preliminary estimates suggest that central SOEs achieved an economic value-added of around 300 billion yuan in 2010, doubling compared to last year, successfully completing the performance evaluation goals set at the beginning of the year.
Brief Comment: To guide enterprises to improve capital usage efficiency, next year, central SOEs will further enhance the quality of structural adjustments and resource integration, accelerate the development of strategic emerging industries, speed up the "going out" pace, and simultaneously increase efforts to adjust existing resources around strengthening their core businesses. The pace of mergers and acquisitions for large state-owned steel enterprises may accelerate, and the intensity of overseas resource acquisitions will increase. However, based on past experiences, the cost-performance ratio of overseas resources acquired through state-owned asset purchases has generally been low. In the increasingly competitive environment for resources like iron ore, how much money will we need to spend to complete our "going out" mission?
7. MIIT: Industrial growth target during the "12th Five-Year Plan" adjusted down to 10%
At the National Industry and Information Technology Work Conference held on December 25-26, it was determined that the industrial growth target for enterprises above designated size during the "12th Five-Year Plan" period would be set at 10%, lower than the 12% in 2009 and 11% in 2010. Industry insiders expect that this means the GDP (gross domestic product) growth target for the entire nation during the "12th Five-Year Plan" period may be reduced to 7%.
Brief Comment: In the "12th Five-Year Plan" currently being expedited by the MIIT, a total control plan has been proposed for each industry, especially those with excess capacity. For steel enterprises, strict control over rapid output growth will continue, eliminating backward and low-level capacities, and improving the energy efficiency utilization rate across the industry. During the "12th Five-Year Plan" period, steel output will maintain a low-speed growth.
8. Multiple factors drive RMB "six consecutive rises"
According to data published by the China Foreign Exchange Center, on December 28, the RMB midpoint rate was fixed at 6.6252 yuan per US dollar. Notably, this is the sixth consecutive trading day that the RMB midpoint rate against the US dollar has risen. Under the impetus of heightened RMB appreciation expectations and widening interest rate differentials between China and abroad, global hot money will continue to eye China intently.
Brief Comment: The continuous weakening of the international dollar provides an international backdrop for RMB appreciation against the dollar from the perspective of maintaining a stable effective exchange rate. From the perspective of domestic policy needs, the increased need to combat inflation is also an important reason for the continuous appreciation of the RMB against the dollar. RMB appreciation will directly lead to a reduction in the growth rate of exports, while potentially triggering a flood of global hot money into China.
9. Interest rate hikes fail to curb commodity price enthusiasm
The interest rate hike by China's central bank seems to have reassured commodity bulls: In the past few days, not only has New York crude oil stabilized above $90 per barrel, but Chicago agricultural futures have also risen to phase-high points; and on December 28, agricultural products represented by soybean oil, palm oil, and rapeseed oil futures surged strongly, with multiple contracts hitting new highs since the 2008 financial crisis.
Some analysts believe that interest rate hikes were already anticipated by the market, and one or two interest rate hikes will not change market trends. Only after continuous interest rate hikes until the phenomenon of negative interest rates disappears will the market environment fundamentally change.
Brief Comment: This interest rate hike primarily targets price controls, as deposit rate increases overall exceed loan rate increases. However, it fails to curb the enthusiasm for commodity price increases. The editor believes that the rise in housing prices is the true culprit behind the rise in CPI, and price increases are just the final link in the price increase chain. Only by raising loan rates to curb investment growth can inflation be fundamentally solved and prices controlled.
10. China's oil import dependence this year is approximately 55%
The National Development and Reform Commission reported on December 28 that from January to November, China had cumulatively imported 218 million tons of crude oil, an increase of 19.8% year-on-year, with the annual oil import dependence expected to reach about 55%.
Russia to raise oil export tax starting January 1 next year
Russian government newspaper Rossiyskaya Gazeta reported on December 28 that Russian Prime Minister Putin signed an order to raise Russia's oil export tax from the current $303.8 per ton to $317.5 per ton starting January 1, 2011.
Brief Comment: Excessive external dependence on energy will directly lead to instability in energy usage. Recently, the lack of discourse power over rare resources has caught the government's attention on energy security issues. Besides accelerating the acquisition of overseas resources, improving resource usage efficiency and genuinely reducing consumption may be better methods.
First batch of rare earth quotas for next year decreases by 11.4% year-on-year
The 2011 rare earth quota, which has been debated since the beginning of the year, predictably saw a reduction. The Ministry of Commerce announced on December 28 that the first batch of rare earth export quotas for 2011 was 14,446 tons, a decrease of 11.4% compared to the first batch of 16,305 tons in 2010.
President Xu Xu of the China Chamber of Commerce of Metals, Minerals & Chemicals Import and Export stated on December 28 that due to excessive mining and disorderly competition in recent years, China's rare earth resource reserves have significantly decreased, causing enormous ecological damage. The Chinese government's strengthened management of raw materials including rare earths to achieve sustainable development is entirely correct.
Brief Comment: Similarly concerning rare resources. While we reduce rare earth exports, we should also consider this issue: Currently, all countries globally have realized the preciousness of rare resources and have imposed export restrictions. Therefore, in the future, importing rare resources will become a challenge. Solutions have been outlined in the aforementioned news.
11. Coal-electricity negotiations for this year approaching conclusion; price limit order unable to mask price conflicts
In the second year after the cancellation of the coal production, transportation, and demand connection meetings, a paper "price limit order" issued by the National Development and Reform Commission seems unable to eliminate the differences between coal and electricity companies. In response to the resistance caused by coal companies due to the price limit, yesterday the China Coal Marketing Association issued a "red-headed document" to local coal management departments and coal companies, requiring "uncooperative" coal companies to participate in the "2011 Coal Contract Summary Meeting" to be held in Nanning, Guangxi from January 5 to 9 next year.
Brief Comment: From the perspective of free market trade, coal price increases are an inevitable trend. However, to control prices, relevant departments use administrative measures to require restrictions on coal price increases, which undoubtedly leads to potential confrontation between enterprises and the government. The editor believes that controlling prices through a single price limit order is akin to controlling production capacity through power cuts, which can only be effective in the short term. In the long run, it disrupts the market's autonomous price adjustment.
Safety fees increase; coal companies may pass on higher costs
Xishan Coal Electricity announced today that according to requirements from relevant national departments, the company needs to increase safety fees, i.e., an increase of 27.5 yuan per ton. Analysts believe that given the current strong coal demand, coal companies may be able to pass on this portion of the cost this year.
Brief Comment: Not increasing coal prices but increasing safety fees, ensuring safety is indeed important, but is it necessary to pass on this part of the cost to the market?
12. Steel industry consolidation accelerates, but still awaits true leaders
It is well known that the domestic steel industry has accumulated many problems due to long-term extensive development, where low industrial concentration and unreasonable layout can be considered major chronic problems. In 2010, facing crazy iron ore prices and weak market demand, Chinese steel enterprises seem to have no choice but to unite for mutual support.
Brief Comment: To increase industrial concentration, 2010 became the year of mergers and acquisitions for the steel industry, but such a consolidation speed is far from curing the industry's scattered and disordered ailments. Without a true leader, when faced with challenges like iron ore negotiations, the industry often appears fragmented. Therefore, China's steel industry is just beginning its journey towards becoming stronger and larger. Forming an aircraft carrier-type enterprise is imminent to escape the stranglehold of the three major mines.
Steel market supply-demand contradictions may become sharp again; trends of various varieties have diverged
The "energy-saving emission reduction sprint" in some regions domestically has gradually come to an end, and steel production is returning to normal. Future market arrivals will gradually increase, possibly making the steel market's supply-demand contradictions "sharp" again. According to the latest market report provided by the well-known domestic steel information institution "My Steel," the market expectations for flat steel are still acceptable, but the weakness in the long steel market has already emerged.
[Various Views]
13. Ye Tan: Difficult market, but don't be overly pessimistic
Main Viewpoint: This is a difficult period for the market. First, old debts must be repaid, second, future gains are being overdrawn, and third, economic structural transformation requires financing from the private sector, which gives the recent market an increasingly heavy tinge of money-raising.
Brief Comment: China's current economic situation is as follows: ten years of GDP growth have relied on real estate, and the pressure for economic transformation is immense. In a difficult market, what does China's economic structural transformation need to discard? What does it need to learn from? What is the future direction? These questions are worth deep reflection. The steel industry, benefiting from the golden decade of real estate, has also enjoyed its time in the spotlight, but now seems to face the pain of reform. Where it goes from here requires serious thought from all members of the steel industry.
14. Liu Xianyun: Green credit should be a hard benchmark
Main Viewpoint: Compared to developed countries, the proportion of direct financing through financial instruments such as stocks and bonds in China's current financing channels is small, while the proportion of indirect financing through bank credit is large. The direction of bank credit largely determines the flow and allocation of funds and other production factors. Therefore, optimizing the credit structure to promote the optimization of investment structure is one of the important means for China to promote energy saving and emissions reduction.
Brief Comment: "Green credit" strengthens energy saving and emissions reduction and responds to climate change, further leveraging market roles to enhance the internal motivation of enterprises and society for energy saving and emissions reduction. Especially in the highly polluting steel industry, vigorously promoting green credit can effectively inhibit excess capacity, eliminate backward capacity, accelerate the merger and reorganization of steel enterprises, and make domestic steel enterprises stronger and larger.
15. Four uncertain factors in next year's macro fundamentals
Main Viewpoint: The entanglement in four aspects - the situation in Asia, the performance of the dollar, the direction of prices, and the market status - will have complex impacts on next year's economic fundamentals. To deal with this situation, one needs not only quick reflexes and agility but also sufficient wisdom and moral courage.
Brief Comment: Challenges and opportunities always coexist at any time.
16. Member of the State Council's Office says large-scale construction of low-rent housing has hidden dangers
Sina Finance News on December 28 reported that Chen Quansheng, a member of the State Council's Office, stated in Beijing today that emphasis should be placed on "having a place to live" rather than "owning a house," and encouraging leasing is a feasible method. Large-scale construction of low-rent housing has hidden dangers, placing a heavy burden on the government. He criticized the practice of including middle- and low-income families in the housing security system as regressive.
[Downstream Dynamics]
17. China's expressway mileage may surpass the United States in the next two years
By the end of this year, China's total road network mileage will reach 3.984 million kilometers, with an increase of 639,000 kilometers over the past five years. Among them, the mileage of expressways has grown from 41,000 kilometers at the end of the "Tenth Five-Year Plan" to 74,000 kilometers, still ranking second in the world.
Harbin-Dalian High-Speed Railway fully laid, expected to begin operations by the end of 2011
The Harbin-Dalian high-speed railway was fully laid in Shenyang on the morning of December 28. This marks the entry into the final stage of the Harbin-Dalian high-speed railway construction project, with operations expected to begin by the end of 2011. After the Harbin-Dalian high-speed railway begins operation, it will shorten the spatial distance between the main cities in Northeast China while separating passenger and freight transport on the existing Harbin-Dalian railway, effectively releasing existing line transport capacity, adding 50 to 60 million tons of freight capacity annually.
Brief Comment: In addition to promoting the use of steel in the spot market, railway construction is also good news for the future transportation of steel materials.
Guangxi is about to enter the high-speed rail era
According to reports from China Radio Network, based on the existing railway scale from the "Eleventh Five-Year Plan," from now until 2012, Guangxi's railway department will add seven high-speed railways with speeds of 200 to 250 kilometers per hour and gradually form a "123-hour city economic circle," ultimately entering the "high-speed rail era."
Brief Comment: Recently, news about high-speed rail can be described as "flooding in." Each province and city has started a wave of high-speed rail construction. However, after seeing the word "first," the editor suddenly remembered some experts' concerns about the potential consequences of too rapid high-speed rail construction. Is this kind of "moderate advance" really necessary?
18. Next year, 170 billion yuan will be invested in Henan's infrastructure construction
On December 27, reporters learned from the provincial development and reform meeting that next year, Henan Province will, around the overall goal of building "five networks and one system" during the "Twelfth Five-Year Plan," accelerate key infrastructure projects. Total investments in comprehensive transportation systems, energy bases, water conservancy facilities, and information networks will reach 170 billion yuan. Among them, investments in comprehensive transportation system construction will reach 73 billion yuan, an increase of 13 billion yuan compared to this year.
Brief Comment: Next year is the opening year of the "Twelfth Five-Year Plan." The country will vigorously develop infrastructure construction, stimulating demand for steel. China's steel enterprises will continue to shift from scale-oriented development to value-oriented development.
19. Land reserve system reforms: Newly added construction land cannot enter reserves
"Future reserves will be limited to scope, only allowing old urban renewal and major project land to be reserved, and newly added construction land will not be included in the reserve scope." An informed person said that the land reserve center, as a tool for local governments to monopolize and control the land market, has exceeded the original defined range of land supply guarantees and has become a tool to push up land prices and infinitely expand local land finance.
Brief Comment: Whether the reform of the land reserve system can effectively suppress the constantly rising housing prices remains to be seen.
20. Four trends in shipbuilding equipment attract attention
China's shipbuilding industry is developing rapidly, but the supporting industry has not kept up, severely constraining the overall coordinated development of the domestic shipbuilding industry. In response, industry insiders emphasize that China's shipbuilding supporting industry must develop rapidly in unconventional ways and pay high attention to the development trends of the world's shipbuilding supporting industry. Regarding development directions, Zhu Rujing from the China Shipbuilding Industry Economic Research Center recently pointed out that there are four trends in the current development of the world's shipbuilding supporting industry that deserve attention from domestic supporting enterprises.
Brief Comment: The development of the shipbuilding industry has a boosting effect on the steel industry, accelerating research on high technologies, promoting the implementation of energy saving and emissions reduction, enhancing enterprises' risk resistance capabilities, and improving market competitiveness.
21. Beijing's traffic congestion treatment triggers car-buying rush; dealers worry about next year's car market
On December 23, Beijing officially announced the "Opinions on Further Promoting the Scientific Development of Capital Transportation and Strengthening Measures to Alleviate Traffic Congestion" (hereinafter referred to as the "Opinion").
Among the 28 clauses, the most heart-stopping one is "starting next year, Beijing will allocate vehicle indicators through a lottery system." This means that to ensure smooth traffic in Beijing, the Beijing automobile market will undergo a "revolutionary" change starting next year.
Brief Comment: The purchase restriction policy is a considerable blow to automobile dealers, with at least half of the brands suffering catastrophic damage, and some weaker automobile brand dealers and newer entrants among stronger brands likely to be eliminated in this process. For steel trading enterprises mainly dealing in automotive steel, next year will also be a tough time, so they should pay attention to developments in the automotive industry.
Energy-saving and new energy vehicle planning will be released soon
Yesterday, Shanghai Securities News learned from the China Society of Automotive Engineers Electric Vehicle Branch and other organizations that the much-anticipated "Energy-Saving and New Energy Vehicle Industry Planning" has completed the opinion solicitation stage and will be released soon.
"The 'Energy-Saving and New Energy Vehicle Development Planning' from 2011 to 2020 may soon be officially promulgated," Professor Chen Quanshi, director of the China Society of Automotive Engineers Electric Vehicle Branch and head of Tsinghua University's Automobile Research Institute, told reporters.
Brief Comment: The new direction of the automotive industry deserves close attention from relevant steel trading