China to Spend out of Recession

The Chinese government this week announced a record CNY 950 billion ($140 billion) fiscal budget deficit for 2009, as government spending will likely surge in the future months to stem the sharp economic slowdown that started in 2008. The deficit includes CNY 750 billion for the central government, and CNY 200 billion for the local governments, which will issue bonds through the Ministry of Finance. In China, local governments are not authorized to issue bonds themselves.

The total budget deficit will be the highest in almost six decades, nearly 3 times the second-largest budget deficit of CNY 320 billion, which was reported in 2003. Apparently, the Chinese government is ready to tap into its deep pockets and defend the country's economic growth track record. In our opinion, China is in an enviable financial position to do so, thanks to conservative fiscal policies and robust tax revenue growth in the recent economic boom years. Therefore, the government should be able to keep deficit spending under control. After all, official figures show that China's total outstanding public debt now accounts for only about 20% of its GDP.

Market Recap
Details of stimulus plans unveiled at this week's annual National People's Congress meetings boosted investors' confidence and sent stocks up on both Shanghai and Shenzhen stock exchanges. The Shanghai Composite Index increased by 5.3% to 2,193, while the Shenzhen Composite Index surged 8.4% to 8,250.

Technology
China Unicom in Talks with Apple on 3G iPhone
China Unicom's CEO recently confirmed that the firm is negotiating with Apple to introduce 3G iPhone in China this year. Apple was rumored to prefer to partner with China Mobile, which holds dominant share in China's mobile service market, but media reports indicate that the two firms failed to agree on the phone subsidies.

China Spent CNY 295 Billion on Telecom Infrastructure in 2008
Such investments grew by 30% over 2007, according to the Ministry of Industry and Information Technology. Over the next three years, China's launch of 3G services will likely drive another CNY 400 billion in infrastructure investment.

Consumer
Barbie to Charm Chinese Consumers in New Shanghai Home
Mattel will soon open a six-floor Barbie flagship store in Shanghai, its first in China. The store will sell everything under the Barbie brand, from dolls and apparel to stationery and electronics.

Industrial
China's Air Traffic Grew in January and February
According to China's aviation regulator, domestic passenger traffic posted 20% and 13.5% year-over-year growth in January and February. For 2009, the regulator now expects more than 10% growth in domestic passenger traffic, but a sharp decline in international traffic. In 2008, Chinese airlines together lost more than $4 billion.

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