China Reports Weak Trade Numbers

Sharply lower trade numbers released this week indicate that China's recovery is not just around the corner. January exports were down 17.5% year over year, the sharpest in a decade. What's even more worrying is that imports slumped at a much faster pace, down 43% from the year-ago period. We believe a significant chunk of the imports are for eventual exports after assembly, so the noted weakness in imports will likely lead to lower export numbers later this year.

The Consumer Price Index (CPI) and Producer Price Index (PPI) released this week paint a similar economic picture. January CPI was up only 1%, compared with 1.2% in December, which means that the price level increase has been slowing for the ninth consecutive month. Meanwhile, the PPI dropped by 3.3%, after a 1.1% loss in December, indicating further deterioration in the manufacturing sector.

Market Recap
The Chinese stock market has rallied for the past two weeks, as a series of new stimulus packages and statistics showing rapid liquidity increases boosted investors' confidence. Year to date, the Chinese market has been the top performer, up 27%. In the past week, the Shanghai Composite Index rose by 6.37% to 2,320 after a 9.6% increase in the prior week, while the Shenzhen Composite Index grew by over 11% to 8,648.

Technology & Internet
2008 Handset Sales Totaled 180 Million
Statistics from researcher iSuppli show that 56% of the handsets are from foreign brands ( Nokia  (NOK) held the lead with 37% share of total units sold). ISuppli estimated that 3G handset demand will reach 8 million in 2009.

China's Paid-Search Market to Grow 39% in 2009
According to iResearch, China's paid-search market will grow to CNY 7.2 billion ($1.06 billion) this year. The research firm also found that market leader  Baidu (BIDU) expanded its share to 73.2%.

Online Job Postings Decline
The number of job postings on 51job, China's largest online job site, decreased 30% year over year during the first week after Chinese New Year. Historically, this period has been the peak season for the job market. Openings in the real estate, semiconductor, financial, software, and auto industries dropped more than 50% from 2007.

Agriculture
China Faces the Worst Drought in 50 Years
The dry spell has affected vast areas of wheat fields in northern and eastern parts of China, which produce 40% of the wheat. While the drought will not disrupt near-term wheat supplies as harvests in the past five years allowed China to build sufficient reserves, officials from the agricultural ministry said the drought has certainly pushed up the costs of wheat productions due to additional irrigation needs.

Industrial
Aluminum Corp of China Raises Stakes in Rio Tinto
In a cash deal valued at $19.5 billion, the Chinese firm has agreed to invest in aluminum, copper, and iron ore joint ventures with Rio Tinto and to buy subordinated convertible bonds, which, upon conversion, will increase its stakes in Rio Tinto to 18% from the current 9%. The transaction is subject to shareholder approval and regulatory scrutiny in Australia.

Power Consumption Growth Slowed in 2008
Power consumption grew by only 5.23% in 2008, sharply down from 14.8% in 2007. The chemical, building materials, and metals industries saw the slowest electricity consumption growth in years, according to a report from China Electricity Council. Meanwhile, power generating capacity continued to expand, up 10% over the past year. The council forecasts power consumption to increase by 5% in 2009.

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