This southern coastal city said it is looking to turn its bonded logistics zone into a free port, despite reports that authorities were calling to suspend the approval of such ports.

"We are actively preparing the materials and plan to submit them to the provincial authority soon, with the final decision in the hands of the central government," said Li Zongjie, spokesman of the Shenzhen Administration Bureau of Bonded Zone.

Shenzhen is launching the plan despite media reports that a number of top authorities suggested suspending the approval of new free ports in a bid to ensure the healthy development of existing bonded logistics zones.

"It makes no sense that the country would stop approving new free ports as long as the conditions are ripe, new free ports are possible," said Zhou Tianlin, director of the Shenzhen Port & Shipping Administration Department, a division of the Shenzhen Port Administration.

If the application is approved, Yantian would be the fourth free port on the mainland. The current three are Yangshan free port of East China's Shanghai, Dongjiang free port of North China's Tianjin and the newly approved Dayao Bay free port of Northeast China's Dalian.

Yantian port, the mainland's No 1 single container terminal, handled about 6 million TEUs (twenty-foot equivalent units) in the first nine months of this year, accounting for 44.7 per cent of total container throughput of Shenzhen ports.

Compared with the country's three free ports, all of which are quite new, Yantian has a strong position in the country, Zhou said.

It was among the second group of seven pilot bonded zones on the Chinese mainland, following Waigaoqiao of Shanghai, to get permission to carry out "port-zone interaction," the first step to becoming a free port, in mid-2004.

A free port would mean earlier rebates for exporters, Zhou said.

Another advantage would be a reduction in costs for shipping companies thanks to easier container loading.

Industrial experts said Shenzhen is qualified to become a free port, but they doubted whether the upgrade could have a real impact on the growth of the ports.

"It will make no difference if you go from the previous port-zone interaction to a free port if the latter can't launch free currency exchanges and opener financial arrangements," said Wang Guowen, a senior researcher with China Development Institute, a leading policy consultancy company.

If Shenzhen could have a real free port, such as Hong Kong, it could work together with Hong Kong to compete with other Asian ports, including Pusan of South Korean and Singapore, Wang noted.

Both Zhou and Wang forecast cargo and container throughput handled by Shenzhen ports will rise thanks to booming foreign trade in the Pearl River Delta.

"Shenzhen ports will keep growing, though growth rates will slow given the bigger base," Zhou said. "Meanwhile, the value of every container is expected to rise since more costly products such as electronics components are replacing goods with low added value such as shoes and toys."

Wang said Shenzhen ports will remain very busy in the next two to three years.

But with the operation of new ports and new berths, bottlenecks may be reduced in a decade, he said.

In 2006, the Chinese passenger car market, including sedans, SUVs and MPVs, is expected to grow to around 4.1 million units, nearly a 25 per cent jump over 2005. This volume puts China third in the world behind Japan in the passenger car segment. China's total vehicle sales volume (including all trucks & buses) in 2006 is expected to reach 6.9 million units and overtake Japan as the world's No. 2 in market size.

Demand in 2006, especially in the first half of the year, was very strong. The market grew more than 50 per cent month-over-month. Jetta, Excelle and Xiali remain the top three models. All segments grew in 2006 and the C-segment accelerated again this year.
Although a weak first half in 2005 can be attributed as a reason for 2006's crazy half-year boom, there are other factors behind the quick growth.

It is believed that two fundamental reasons are more convincing than the other factors: one is rising income and the other is quickly decreasing car prices in the past two years. These two factors quickly enlarged the customer base, especially in the second-tier cities in some large provinces, such as Shandong, Hebei and Liaoning.

The car market did not grow quickly in the A-segment, which further proved that Chinese do not like mini cars, even after the discriminative traffic control policies were lifted earlier this year.

Volkswagen has two joint ventures in China with the nation's two largest automotive producers First Automotive Works Corp and Shanghai Automotive Industry Corp.
In the first three quarters of this year, Volkswagen's sales in China grew by 28.7 per cent to 524,558 units.

China's car market is poised for rapid growth over the next few years, boosted by enormous consumer demand and a growing replacement and second-hand car segment, according to recent surveys conducted by US market research firm ACNielsen.

An ACNielsen telephone survey of 1,500 respondents in Beijing, Shanghai and Guangzhou conducted in May and June revealed an increase in car ownership and purchase intentions.
The survey found that 28 per cent of Beijingers own a car, followed by 18 per cent of people in Guangzhou and 11 percent of people in Shanghai.

This represents major growth since 2004, when car ownership in these three key cities stood at 11, 5 and 4 per cent.

According to the survey, 13 per cent of respondents claimed they planned to buy a car within the next 12 months, which is nearly twice the amount of 2004.

Another ACNielsen Internet survey, which polled 1,800 Chinese netizens in July and August, showed that more than 10 per cent of car owners had purchased a second-hand vehicle, and nearly a quarter of prospective buyers were planning to buy a second-hand car.

Despite the immense market potential, big challenges lie on the horizon for automakers in China.

Brand competition will escalate in China's car market since a majority of potential buyers will be attracted to newly launched vehicles. This will have a powerful impact on long-established brands and models, said Philippe Coquelle, director of ACNielsen China Automotive Research.

"The remerging replacement and second car market are signs of the maturing of China's car market. At the same time, car consumers are now equipped with greater knowledge about cars and are getting pickier," Coquelle said.

"Product innovation and cultivating brand loyalty will be a greater-than-ever challenge."
Boosted by brisk sales and manufacturers' cost-cutting efforts, the auto sector in China has regained sales growth this year after tumbles over the past two years.

The sector, including vehicles, spare parts and motorcycles, earned 54.47 billion yuan (US$6.89 billion) in the first three quarters of this year a jump of 48.87 per cent from a year earlier, according to data from the China Association of Automobile Manufacturers.

"We are considering further increasing our tax rate on some high-end luxury goods," Wang Li, deputy head of State Administration of Taxation, told a fiscal and tax policy forum on Tuesday.

"China will continue to improve its consumption tax system to let it play a bigger role in poverty alleviation," the tax official told the forum.

"In that process, we are striving to improve our personal income, property tax and consumption tax regime," Wang was quoted as saying by the Shanghai-based China Business News.

But Wang did not reveal specifics on when the adjustment would take place.

"It should be more appropriate to say that we are going to adjust the tax codes for luxury items, instead of saying we are simply to raise tax for luxury goods," a senior official from Law and Regulation Department at the State Administration said yesterday.

"The tax code for the luxury goods will be adjusted from time to time," said the official, who requested anonymity and declined to elaborate.

China made sweeping changes to its consumption tax regime in April, slapping a consumption tax on disposable wooden chopsticks and luxury items such as yachts and golf clubs.

This was the largest adjustment to the consumption tax regime since its introduction in 1994.

Increasing the consumption tax rate on some luxury goods is well warranted," said Yi Xianrong, a researcher at the Chinese Academy of Social Sciences.

A recent survey conducted by Horizon Research Consulting, a Beijing-based market research firm, showed that 40 per cent of those polled think that consumption tax should be imposed on more luxury goods and services such as jewellery and VIP club memberships.

"Luxury items are not easily defined. For instance, some luxury electronic products such as sound equipment are not taxed as luxury items because they are so quickly updated and may become common goods very quickly," said Tang Gongliang, a fiscal policy expert at the Central University of Finance and Economics.

Some items once considered luxuries have become common and are no longer regarded as luxury items any more," the expert said.

"So the tax regime should be adjusted accordingly from time to time," he said.

The nation collected a total of 163.4 billion yuan (US$20.7 billion) in consumption tax last year, according to figures from the State Administration of Taxation.

Consumption tax revenue totalled 142.8 billion yuan (US$18.1 billion) in the first three quarters of this year, about 87 per cent of last year's total.

However, it only accounted for 5 per cent of the total tax revenue at the same time, figures showed

The figure was lower than the 1.6 percent forecast of economists polled by Reuters and followed a surprisingly steep fall on Friday in factory-gate inflation to 2.9 percent in October from 3.5 percent in September.

"This really takes away any worries at all about inflation in China," said Tim Condon, head of Asian financial market research at Dutch bank ING in Singapore.

A slower rise in the price of food, which makes up a third of the consumer basket, pushed the overall rate of inflation lower.

The National Bureau of Statistics said food cost 2.2 percent more in October than a year earlier, compared with a 2.4 percent rise in September. Vegetable prices dropped at an annual pace of 5.7 percent last month, possibly due to unseasonably mild weather.

Goldman Sachs responded to the weaker-than-expected readings by lowering its inflation forecasts for 2006 and 2007.

With global commodity prices softening and Chinese money growth easing, the bank said it now expected year-average consumer price inflation of 1.4 percent in 2006 and 2.2 percent in 2007. It had previously forecast 1.8 percent and 2.8 percent, respectively.

Clothes, cars, tuition and telecommunications recorded outright price falls in October from a year earlier, but Condon said fears China could relapse into deflation were far-fetched.

China suffered falling prices in 2002, 1999 and 1998, but Condon said those episodes were associated with recession in the United States and the aftermath of the Asian financial crisis.

"The global backdrop is much more supportive today than in either of those episodes. I think we'll see low inflation, rather than deflation," he said.

Qian Wang at JPMorgan Chase agreed that fears of deflation should recede as investment growth slowed, banishing the specter of supply gluts driving down prices for a wide range of manufactured consumer goods.

A cyclical slowdown in the economy would hold down costs, but the gradual liberalization of administered prices for energy and other resources should put a floor under prices, he added.

"Overall, we expect the inflationary environment to remain stable, with moderate upward pressure on headline CPI inflation persisting into 2007," he said in a note to clients.

Ben Simpfendorfer with Royal Bank of Scotland in Hong Kong said benign inflation gave policy makers the luxury of being able to concentrate on reducing China's bulging external surpluses.

These are bloating the money supply and funding an investment binge that threatens to destabilize an economy that is growing at a double-digit pace for the fourth year in a row.

"There are few implications for policy," he said of the inflation report. "This provides them little bit of leeway, so they have room to focus on the trade surplus."