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China Briefings

Reports on China issued by Samsung Economic Research Institute

China Business Intelligence No. 127

China Business Intelligence No. 127

Samsung Economic Research Institute Beijing Office

July 29, 2009

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I. Economy

As a result of the government's monetary easing policy to counter the global financial crisis, the scale of new loans expanded by another 1.5 trillion yuan in June 2009 following a continued increase totaling 5.8 trillion yuan from January to May. However, whether the expansion will be able to continue is under scrutiny as the policy has had a limited effect on the real-economy. The free capital in the market has already been saturated resulting in the overheating of the financial and real estate markets as well as overproduction and the development of a financial bubble. A re-adjustment of the current policy is needed because an excessive expansion of loans in a short period of time can only fuel the continued uncertainty of an economic recovery and industrial reconstruction.

II. Industry

In January 2009, Nortel, a major player in the telecommunication equipment market, filed for bankruptcy protection and later sold its CDMA unit to Nokia Siemens Networks in June 2009. Nortel's bankruptcy can be attributed to the increase in debt resulting from excessive customer financing, plus sluggish demand amid the global financial crisis. Nortel's withdrawal from the telecommunication equipment market could mean a major shakeup in competition. As late-comers such as Huawei and ZTE threaten the front-runners with their low price strategy, the overall profitability of the telecommunication equipment industry will go downhill.

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