China Provides Loans in Exchange for Oil

Two "loan for oil" agreements that China signed with Russia and Brazil in the past week again put China's appetite for oil in the limelight. On Tuesday, China signed a $25 billion agreement to provide loans to Russian oil company Rosneft and pipeline operator Transneft, in exchange for 300,000 barrels of daily oil supply for the next 20 years. A similar deal was clinched again on Thursday, when China agreed to provide an estimated $10 billion in bank loans to Brazilian oil producer  Petrobras (PBR). In return, Brazil will supply between 100,000 and 160,000 barrels of oil on a daily basis to state-owned China National Petroleum Corp. (parent company of  PetroChina ) and  Sinopec .

The recent flurry of deals coming out of China seems to indicate a shift in the government's allocation strategy of its vast reserve. While U.S. Treasuries will remain a focus for obvious strategic and investment reasons, we believe China also wants to diversify its exposure and is keen to secure long-term supplies of oil and basic materials while the commodity prices are low. We won't be surprised to see more such transactions in the future.

Market Recap
After a strong run for the past several weeks, the Chinese stock market took a break this week, as investors questioned the real benefit of the liquidity increase seen in January. The Shanghai Composite Index dropped by 2.6% to 2,261 this week, while the Shenzhen Composite Index declined by 2.4% to 8,424.

Financial
Steel Futures to Trade in Shanghai
Final approval has been given to the Shanghai Futures Exchange to launch the futures contracts of steel wire and deformed steel bars, according to the China Securities Regulatory Commission's Web site. No timeline is given by the regulatory body, but some industry analysts expect the trading to start as early as March.

Technology
China's Mobile Internet Users Reached 118 Million in 2008
Official statistics show that subscribers in their 20s and early 30s are most enthusiastic, accounting for 71% of total mobile Internet users. Nearly 40% of subscribers use the mobile newspaper services, but less than 16% watch TV on their mobile phones.

China to Terminate PHS Services by 2011
The service shutdown is required by the government to avoid interference with the home-grown TD-SCDMA (3G) network, which will use the adjacent frequency band. By the end of 2008, almost 70 million Chinese subscribers used PHS services, which were launched by fixed-line carriers as a cheaper alternative to mobile services.

Retail
Best Buy Adds 161 Stores in China through Acquisition
The U.S. consumer electronics retail chain has completed the acquisition of Jiangsu Five Star Appliance Co., China's third-largest home appliance retailer. Best Buy entered China in 2003 and operated six stores in Shanghai before the acquisition.

Basic Materials
Chinese Firm Offers $1.7 Billion to Buy Australian Miner OZ Minerals
The deal was confirmed this week by Beijing-based China Minmetals Non-ferrous Metals, but it was subject to regulatory approval. According to media reports, OZ Mineral is Australia's third-largest mining company and the world's second-largest zinc producer, with operations in copper, lead, zinc, and nickel.

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