1Slower Economic Growth
China’s economy grew 9.1 percent in the third quarter of this year, tapering off from 9.7 percent in the first quarter and 9.5 in the second. The slowdown is a result of voluntary quality-oriented growth moderation and came along with the ease of inflation pressures. The consumer price index (CPI) fell to 5.5 percent in November, from July’s peak of 6.5 percent.
Exports, which used to be the growth engine, continued losing steam. In November, exports totaled $174.46, with a year-on-year increase of 13.8 percent, the slowest growth since February.
2Tenth Anniversary of WTO Entry
December 11, 2011 marked the 10th anniversary of China’s entry to the World Trade Organization (WTO). China became the WTO’s 143rd member on December 11, 2001.
China’s total volume of exports and imports ranked second in the world in 2010, up from sixth in 2001, becoming the world’s second largest importer and the biggest exporter.
Total tariff levels decreased from 15.3 percent to 9.8 percent during the past decade, reaching and exceeding the WTO’s requirement for developing countries.
China opened 100 service trade departments, close to the level of developed countries.
It has also amended its laws and regulations in accordance with its WTO commitments. The Central Government has cleared more than 2,300 laws and regulations as well as department rules. Local governments have cleared more than 190,000 local rules and regulations.
3Lower Income Tax
The amended individual income tax law, effective on September 1, raised the monthly tax exemption threshold from 2,000 yuan ($313) to 3,500 yuan ($547). It also lowered the minimum tax rate from 5 percent to 3 percent for people whose monthly taxable incomes are between 3,500 yuan and 4,500 yuan ($703).
Under the new amendment, about 7.7 percent of wage earners will have to pay taxes, down from the previous 28 percent. The number of income tax payers will be reduced from 84 million to 24 million.
By readjusting the income tax rate structure, the government will alleviate tax burdens for the medium and low-income population and increase taxes on high-income individuals, also in compensation to the rising cost of living caused by inflation. 4Local Bonds Issued
In October, the Ministry of Finance started a pilot program allowing local governments in Shanghai and Shenzhen and Zhejiang and Guangdong provinces to issue bonds. It is the first time that local governments have been allowed to issue bonds.
The Central Government ordered that bonds of the four local governments should not exceed 22.9 billion yuan ($3.61 billion) in 2011.
This move is expected to ease their financial strains and curb fast-spreading risks of local government debt. According to the National Audit Office, local government debt totaled about 10.7 trillion yuan ($1.69 trillion) at the end of 2010, accounting for 27 percent of the GDP in 2010.
5Yuan Going Global
This year China has been stepping up its efforts to globalize its currency, called the renminbi or yuan.
On January 14 the central bank’s No.1 document of the year was devoted to allowing the country’s qualified businesses and banks to settle their overseas direct investment in the yuan. This is considered a move that expands the Chinese currency’s global reach from international trade settlement to investment settlement.
On October 12 the People’s Bank of China, the central bank, issued regulations about foreign direct investment (FDI) settled in the yuan, another move aiming at promoting cross-border use of the yuan. Within two months, China has approved 16.5 billion worth yuan-denominated FDI.
On December 16 the China Securities Regulatory Commission, the People’s Bank of China and the State Administration of Foreign Exchange jointly issued rules for pilot programs of RMB Qualified Foreign Institutional Investors, formally giving the green light to investment of overseas renminbi funds at mainland securities markets.
Hong Kong subsidiaries of fund management companies and securities firms can use renminbi funds raised in Hong Kong to invest in mainland securities within a permitted quota, according to the rules.
Meanwhile, the yuan exchange rate has been increasingly driven by market demand. As of November 4, when the yuan strengthened to 6.3165 against the U.S. dollar, the yuan had appreciated 4.6 percent against the U.S. dollar this year. But from November 30 the yuan had weakened for 12 consecutive trading days. The fluctuations indicate that the exchange rate of the yuan is responsive to market demand and is not being manipulated by the government.
6Home Purchase Limit
On January 26, the State Council announced the toughest-ever measures to tame the sizzling housing market. Besides setting property price-control targets, increasing the supply of affordable housing and public rental housing, increasing land supply and stricter tax measures, the toughest measure was home purchase limits in large cities or cities where housing prices are high or rise very fast.
On July 12 the State Council required cities that had already implemented home purchase limits to continue to carry out related policies, while second- and third-tier cities whose home prices increased rapidly must carry out necessary policies to limit home purchases.
As 2011 comes to a close, purchase limits are taking effect, as the housing market has been rife with mounting inventory, plummeting prices and sluggish sales. According to the National Bureau of Statistics, 49 cities out of 70 major cities saw month-on-month drops in new home prices in November, compared with 34 cities in October.
Premier Wen Jiabao said in November the property market control measures will remain in force to let the property prices fall to a reasonable level.
Many cities including Beijing and Shanghai have announced that the home purchase limit will continue in 2012.
7Supporting SMEs
Small and medium-sized enterprises (SMEs) are not faring well this year. Because of tightened bank lending to deal with inflation, many SMEs faced the risk of cash flow collapse. For those SMEs that borrowed from private lenders with higher interest rates the weakened overseas demand and sluggish market became unbearable. From the middle of the year a massive collapse of SMEs was reported in export-oriented southeast coastal regions.
A number of SME bosses in Wenzhou, Zhejiang Province ran away to avoid debt. According to the Xinhua News Agency, from April to the end of September, at least 90 company owners in Wenzhou fled, causing their companies to close. Twenty six of those incidents occurred in September alone.
To provide support to these burgeoning businesses China revised its standards for SMEs in July. One of the most important breakthroughs of the revision is the inclusion of a new category of SMEs: micro enterprises. Formulating new division standards for SMEs aims at facilitating research and the implementation of supporting policies for SMEs, strengthening differentiated guidance and promoting SME development.
On October 12 the State Council pledged stronger financial and fiscal support to small and micro enterprises. The State Council required commercial banks to strengthen lending to small and micro enterprises, especially those whose credit limits are below 5 million yuan ($785,000).
The Ministry of Finance announced on December 9 that it will cut corporate income tax by half for micro and small enterprises from January 1, 2012 to December 31, 2015.
8Anti-monopoly Investigation
November 9 will be a memorable day in China’s anti-monopoly history. The National Development and Reform Commission (NDRC) began probing China Telecom and China Unicom for allegedly taking advantage of their dominant positions regarding broadband access to suppress competition from rivals and charging high fees, CCTV reported that day.
This is the first case involving large state-owned enterprises. The two telecom giants, which control two thirds of the country’s broadband business, will face penalties of up to 10 percent of annual revenues if found guilty.
Despite having the world’s largest Internet population of 485 million, China’s average broadband speed only ranks 71st in the world, while average costs are three to four times those of developed countries.
Although the investigation is still in progress, the move may clear the way for the government to broaden the scope of its antimonopoly law. Public opinion has been critical of perceived monopolistic practices among large companies. But anti-monopoly cases have mainly involved foreign companies’ mergers and acquisitions of domestic counterparts since the implementation of the anti-monopoly law in 2008.

9Joys and Woes of High-Speed Rails
On June 30 the Beijing-Shanghai High-Speed Railway, with a total investment of 220.9 billion yuan ($34.8 billion), started operations on its 1,318-km-long line. The railway cut the travel time between the two biggest cities from 12 hours to five.
The Beijing-Shanghai High-Speed Railway can also accelerate the integration of the Bohai Sea Rim and the Yangtze River Delta economic zones and promote balanced, sustainable development of urbanization and the economy.
But tragedy stuck on July 23 when two high-speed trains collided on an elevated track near Wenzhou, Zhejiang Province, leaving 40 people dead and 191 injured, causing China to reassess its high-speed rail development.
After the accident the Ministry of Railways launched a nationwide safety check on its high-speed railways to eliminate risks and lowered the speed of its high-speed railway service. Other lines also joined the speed reduction. From August 28 the top speed of the Shanghai-Hangzhou bullet train dropped to 300 km per hour from 350 km per hour.
In August and September inspections of 49 projects and 6,000 km of high-speed rail lines were conducted.
On August 12, China’s state-owned train maker, China CNR Corp.(CNR), recalled 54 trains it supplied for the high-speed rail link between Beijing and Shanghai to be investigated for equipment failure. 10New Financial Regulators
On October 29 China changed the top positions at its three financial regulatory bodies: the China Banking Regulatory Commission (CBRC), China Securities Regulatory Commission(CSRC) and China Insurance Regulatory Commission (CIRC).
Shang Fulin, former CSRC Chairman, was appointed CBRC Chairman; Guo Shuqing, former Board Chairman of China Construction Bank, was appointed CSRC Chairman; and Xiang Junbo, former Board Chairman of Agricultural Bank of China, was appointed CIRC Chairman. Liu Mingkang, former CBRC Chairman, and Wu Dingfu, former CIRC Chairman, retired from their former positions.
The three new chairmen face various challenges such as maintaining stability of the financial system, the yuan’s appreciation, local government debt and IPO reform. Moreover, with the domestic real estate market headed in a downward trajectory, maintaining financial stability will play an active role in stabilizing the economy.