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China Briefings

Reports on China issued by Samsung Economic Research Institute

China Business Intelligence No. 7

China Business Intelligence No. 7

Samsung Economic Research Institute Beijing Office

Nov. 10, 2006

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Highlights

I. China's Foreign Exchange Reserves Approaching US$1 Trillion

  1. China is close to reaching US$1 trillion in foreign exchange reserves, the first ever for a single nation in history. According to the Chinese State Administration of Foreign Exchange (SAFE), the reserves at the end of September 2006 were $987.9 billion, only 12.1 billion short of the trillion mark.
  2. China's ballooning foreign exchange reserves can be attributed to several factors: Inflow of foreign direct investment, mounting trade surplus, and the surge in "hot money" eyeing for short-term profit from Yuan currency volatility.
  3. High reserve levels are mixed blessing for the country, for excessively high reserves may hamper a more efficient use of foreign currency and have adverse effect on the economy's growth potential.
  4. It is imperative for the Chinese government to realize that effective management is as important as suppressing the reserve levels, such as changing the reserve mix in favor of the euro away from the dollar and buying up more gold to preserve the value of the reserves in the event of revaluation.

II. Changing Competitive Landscape for China's Color-TV Market

  1. Major foreign brands in China have achieved a measure of success by lowering prices during the critical October 1 National Day holidays. Sony and Samsung initiated price cuts on the day shortly followed by Toshiba, Philips, and LG, weakening substantially the price advantage held by local brands.
  2. Meanwhile, local TV makers are forming an alliance as part of an effort to compete head-on with the foreign brands, while establishing a joint venture for IPR research and commercialization of new technologies.
  3. Under these circumstances, foreign brands should be able to maintain the upscale image of superior quality while being aware of the adverse effects of the discount strategy they employed in early October.
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