China is Mulling Rural Land Reform

In the recent weeks, there has been much talk about China's rural land reform. At the center of this reform is the plan to allow farmers to trade the land use rights, although the land should still belong to the state. Rural residents may also obtain bank loans by mortgaging their land use rights or their residential property.

This is a bold initiative as China is trying to revitalize the stagnant rural economy and accelerate the urbanization process, in an effort to narrow the income gap between rural and urban residents. At this point, details are sketchy, and there are concerns about corruption and numerous implementation risks. That's probably why China's decision-makers did not officially endorse the rural land reform at an important meeting held recently to set directions for the country. We expect to hear more about the rural land reform in the following weeks and months.

Market Recap
Thanks to a series of market-friendly regulations from the government, China's stock market has been relatively stable for the past week. For the past five days, the Shanghai Composite Index retreated 3.5% to 1,930, while the Shenzhen Composite Index dropped 2.8% to 6,209.

Macroeconomy
Trade Surplus Rose in September, but Declined for First Nine Months
The surplus rose 22.6% year over year to $29.3 billion in September, following gains in August and July. The expansion is mainly attributed to slower growth in the total value of imports as commodities and shipping services became cheaper. However, the total trade surplus number for the first nine months, at $181 billion, represented a year-over-year decline of 2.6%.

China Sees Extensive Shutdown of Toy Factories
According to the General Administration of Customs, the rising yuan along with escalating production costs drove half of China's toy exporters out of the market in the first seven months of this year. More than 3,600 toy exporters (52.7% of total) have shut down so far. They are mainly small toy producers with less than $100,000 in export revenue. 

Financials
Hong Kong Banks to Buy Back Impaired Bond Guaranteed by Bankrupt Lehman
 HSBC (HBC), Bank of China, and other members of the Hong Kong Association of Banks agreed to buy back at market prices the so-called minibonds, which require as little as $5,000 of investment from individual investors. More than 40,000 people in Hong Kong purchased the minibonds arranged by or linked to Lehman, with a total value of HKD 12.6 billion.

China Will Soon Allow Margin Trading and Short Selling
The China Securities Regulatory Commission (CSRC) made the announcement recently, as the authorities try to lure investors back into the stock market, which has slumped by more than 60% year to date. Four Chinese brokerage firms are rumored to participate in a pilot project in November.

Industrial
 China Eastern Airlines   Considers Acquiring Smaller Competitor
China Eastern Airlines may buy a 60% stake of its smaller rival Shanghai Airlines Co, after getting a capital injection from the government to fund the purchase. The transaction will likely consolidate the operations of these two Shanghai-based airlines to improve efficiency.

Iris Tan, Peter Liu, and Feliz Li contributed to this article.