China Sets Up Economic Zone for More Trade with Taiwan

China this week announced plans to set up a new economic zone in the coastal Fujian Province, which is closest to Taiwan across the straits. This is a strong indication of the government's intent to promote economic and investment ties with Taiwan, following  China Mobile's  investment in Taiwanese operator Far Eastone last week, the first from a major Chinese firm in decades. Previous economic zones set up in Shenzhen and Shanghai Pudong helped shape the hub status of the two cities in the country's manufacturing and financial sectors, thanks to preferential policies and infrastructure investment. We have little doubt that with similar support from the government, the new economic zone will grow to assume a key role in cross-strait exchange of capital, technology, and management talent.

We think the economies of China and Taiwan are complementary in many ways. Taiwan has capital, advanced technology, and managerial skills that China needs, while China has a huge market, low-cost manufacturing capacity, and good infrastructure that Taiwan covets. Traditionally Taiwanese firms have taken a lead in capitalizing the advantages from both sides, given policies from the Chinese government to encourage such investments. Most well-known success stories include electronics contract manufacturing giant Foxconn and food producers Uni-President and Want Want. The new economic zone should serve to help Chinese firms to invest and benefit from the cross-strait exchanges as well.

Market Recap
Optimism about China's economic recovery and warmer ties with Taiwan pushed up the stock indexes this week. The Shanghai Composite Index increased 6% to 2,626 from 2,478, while the Shenzhen Composite Index increased 7% to 10,183 from 9,503.

Consumer
Major Clothing and Toy Vendor Li & Fung Seeks Capital for Growth
Hong Kong-based Li & Fung, one of the world's largest clothing and toy vendor to major supermarket chains, plans to raise $350 million by new stock sales to fund acquisitions. The firm said it will buy cheap assets in the U.S. and in Japan.

Industrial
April Vehicle Sales Hit New Record
Chinese vehicle sales rose by 25% year over year to 1.15 million units in April, as more consumers take advantage of the tax cuts included in the government's stimulus plan for the auto industry. In the first four months of 2009, vehicle sales reached almost 4 million units, representing a 9.4% increase over the same period last year.

April Power Generation Down 3.6% Year over Year
This is according to statistics released this week by the State Grid Corporation of China. Year over year power generation growth has been negative since last October, as manufacturing activities slowed during the global demand slump. In March, power generation fell by 0.7% from a year ago.

Iris Tan and Peter Liu contributed to this article.