Stimulus Plans for Chinese Auto Industry

Chinese automakers' prayer for help was answered this week, as the government released a series of stimulus policies to boost demand and help fund research. Purchase taxes will be cut to 5% from 10% for cars under 1.6 liters, which should help Chinese car makers, because compact cars account for a significant chunk of their total revenue. The government also promises to improve the auto financing system, so that more consumers can afford a car with easily accessible credits. Currently, more than 90% of the cars in China are bought with cash.

On the research funding front, China will set up a $1.4 billion special fund to support auto technology innovation, with a focus on energy efficiency and the development of hybrid and electric cars. In fact, Chinese car maker BYD has already made strides in the hybrid car area, with the December debut of its first hybrid car that can run on electricity for up to 60 miles. BYD plans to sell its hybrid cars in the United States and Europe in 2011.

Market Recap
The stock market was boosted by incentive programs for the auto and steel industries. For the week, the Shanghai Composite Index rose by 3.4% to 1,954 from 1,889, while the Shenzhen stock index increased by 3% to 6,917 from 6,719.

Macroeconomic
Chinese Exports and Imports Slid in December
Customs data indicate a 2.8% year-over-year decline in exports for December, after a 2.2% drop in November, which was the first in seven years. Imports fell at a faster pace, down by 21% compared with the year-ago period.

Financials
RBS Sold Entire Stake in Bank of China
 Royal Bank of Scotland (RBS) this week sold its 4.3% stake in Bank of China, raising over $2 billion to improve its own balance sheet. Initial filings indicate that about 30% of the shares in the RBS deal were bought by a fund run by Chinese banking rainmaker Fang Fenglei, who helped  Goldman Sachs (GS) build its China operations.

Technology & Internet
China Reports 300 Million Internet Users
The number of Chinese Internet users rose by 42% in 2008, which pushed the Internet penetration rate to 22.6%, according to a report from the China Internet Network Information Center (CNNIC). Interestingly, about 90% of Internet users in China are using broadband Internet access, as such services have become more affordable in recent years. For 2008, mobile Internet users more than doubled to 117 million, and growth will likely accelerate in 2009 with the commercial launch of 3G services.

Huawei Expects $30 Billion in Contract Sales for 2009
The telecom equipment maker reported $23.3 billion in contract sales in 2008, up 46% from the prior year. In 2009, Huawei stands to benefit from large-scale telecom infrastructure buildout after China's three major telecom operators obtained 3G licenses in January. Huawei recently denied rumors of an acquisition of Nortel.

Retail
Mickey Mouse Heading to Shanghai
 Disney (DIS) confirmed that it submitted a proposal to the Chinese government for a theme park in Shanghai. According to media reports, the theme park will cost $3.6 billion and is expected to open its doors to visitors in 2014.

Starbucks Launches Chinese Brand Coffee
 Starbucks' (SBUX) first Chinese brand coffee, named "South of the Clouds," is already available on the Chinese mainland, Singapore, and Malaysia, and management expects this brand to reach all Asian markets in 2010. Ten years after entering China, Starbucks now has more than 350 stores in 26 cities, including 40 stores opened in 2008.

Contributions from Lun Lu, Iris Tan, Peter Liu, and Feliz Li.