BRIEFS

GENERAL

New law lowers tax burden on poor

In an attempt to address the widening wealth gap, China.s top legislature passed new rules in late October, thus easing the tax burden on the country.s poor, the AP reported. The new law cuts all income tax on those making less than RMB1,600 (US$198) a month (the previous cut-off point had been RMB800 a month). Also passed were new securities and company laws designed to reduce the minimum registered capi-tal required for setting up a company, improve corporate governance and strengthen investor protection, the Wall Street Journal reported, cit-ing an of.cial on the committee, An Jian. The new laws were expected to be adopted and will go into effect on January 1, 2006.

DBS to take stake in China manufacturer

Singapore.s largest banking group, DBS Bank, will take an indirect stake of up to 8.87 percent in China Infrastructure Machinery Holdings (CIMH), China.s third-largest wheel-loader manufacturer, in CIMH.s upcoming Hong Kong IPO, the Standard of Hong Kong reported. CIMH plans to price its IPO shares between US$0.19 and US$0.25 each in order to raise up to US$75 million for expanding production, upgrading research, increasing marketing and sales, and repaying debt.

ECONOMY

Economy sees 9.4 percent growth

Investment and net exports helped China.s economy grow at an annualized rate of 9.4 per-cent from July to September, the ninth successive quarter in which output has risen by more than 9 percent, the Financial Times reported. The sus-tained growth shown in the latest .gures released by the government suggests that expectations of a slowdown in the Chinese economy are evapo-rating. Fixed asset investment increased by 26.1 percent in the .rst three quarters, a slight fall from the 27.7 percent recorded for the same period last year, in spite of a campaign to squeeze lending to some sectors including real estate and steel.

Fall in 2005 FDI

China.s FDI fell 2.1 percent in the .rst nine months of the year to US$43.3 million, while con-tracted investment rose 22 percent to US$130.3 billion, according to of.cial statistics released in mid October. A 2004 UN report rated China.s total FDI as second only to the US. Despite the slight dip in FDI in 2005, .xed-asset investment increased 27.4 percent in the .rst eight months of the year. International banks and investment funds agreed to the purchase of more than US$10 billion in stakes in Chinese lenders such as Bank of China and China Construction Bank, the In-ternational Herald Tribune reported.

Trade surplus up nine fold

China.s trade surplus increased nine fold to US$67.3 billion in the .rst half from US$7.5 billion year on year, according to the State Administration of Foreign Exchange, the AP reported. The news comes after US Trade Sec-retary John Snow visited China to discuss trade imbalances and Beijing.s refusal to .oat the yuan to market levels. Economists cited by the Wall Street Journal doubted the news would increase upward pressure on the yuan.

AUTOMOTIVE

Shanghai Automotive pro.ts fall

Shanghai Automotive Industry Corp (SAIC) announced a drop in third quarter pro.ts of 9.1 percent, attributing the dip to increasing com-petition, the rising cost of raw materials and the falling price of auto parts, the Wall Street Journal reported. Net pro.t fell from US$46.38 million in 2004 to US$42.2 million this year. Pro.ts hit their lowest point in the .rst half of 2005, falling 67.6 percent compared to the same period in 2004, but have recovered somewhat since, averaging a fall of only 55 percent for the .rst nine months of 2005, as against the same period last year.

Car trade surplus hits new high

China.s trade surplus in cars and components hit a record US$3.57 billion in the .rst eight months of the year, despite the removal of tariffs on cars imported into the country in accordance with WTO rules, the South China Morning Post reported. According to .gures issued by the China Auto Industry Association, exports for the period were worth US$12.62 billion, a rise of 56 percent over the same period last year, while imports fell 17 percent to US$9.05 billion. The association expects vehicle imports for the year to be 130,000 units, down 27 percent from 2004, in what would be the country.s .rst ever year-on-year fall in auto imports.

AVIATION

Hainan Airlines to seek HK listing

Hainan Airlines will form a new company, Grand China Air, and list its enlarged aviation assets in Hong Kong next year to raise funds for a fur-ther expansion of its .eet and service network, Bloomberg reported. The carrier is in the process of merging with three smaller groups, Xinhua Airlines, Changsha Airlines and Shanxi Airlines. American .nancier George Soros was one of the .rst to back the restructuring efforts, having agreed to double his investment in the airline to US$50 million in return for a 4 percent stake in Grand Air China.

BANKING

No change to investment rules

China will not relax the current caps on foreign investment in its banks in the near term, after raising hopes in September by saying that a relaxation was being considered, the South China Morning Post reported. Yan Qingmin, a department director-general at the China Bank-ing Regulatory Commission, said that foreign investors. combined holdings in a mainland bank will remain capped at 25 percent, with owner-ship by any single foreign investor staying at 20 percent.

GE to take stake in China bank

General Electric (GE) agreed to pay US$100 mil-lion for a 7 percent stake in Shenzhen Develop-ment Bank, pending approval from Chinese regu-latory authorities and the Chinese bank.s share-holders, the Wall Street Journal reported, citing a statement from both companies. If approved, GE will become Shenzhen Development.s second largest shareholder after US private equity firm Newbridge Capital. GE will pay about US$0.65 per share for newly issued shares, diluting the stakes of current shareholders.

ENERGY

Oil group to buy backlisted units

PetroChina will spend at least US$760 million to buy out minority stakes in its three listed units to help streamline its structure, Reuters reported. Shares will be bought in Jilin Chemi-cal Industrial, Jinzhou Petrochemical and Liaohe Jinma Oil.eld to take the units private. The move comes after PetroChina agreed to form a 50:50 joint venture with its parent, China National Pe-troleum Corp to manage most of their overseas oil and gas assets.

CNPC gets approval for PetroKazakh takeover

In China.s biggest foreign acquisition yet, a Canadian court has approved the US$4.2 billion takeover bid for PetroKazakhstan Inc by China National Petroleum Corp, ending attempts by Lu-koil, Russia.s largest private energy company, to block the deal, according to media reports. Petro-Kazakhstan is a Canadian company, all of whose operations are in the Central Asian republic of Kazakhstan. The sale, which would give China an additional 518 million barrels of proven and probable reserves, comes as oil companies make a grab for reserves in Central Asia, one of the last great untapped oil regions in the world.

Plans for power grid listing

China is preparing a multibillion-dollar listing of China Southern Power Grid Corporation, its state-run distribution arm in the South, to help fund a planned US$2.5 trillion, 30-year power expansion program for the region, the Financial Times reported. Bankers said they had been approached by Beijing to help restructure the .nances and operations of the grid ahead of the possible listing of 25 percent of the grid, valued at about US$24.7 billion. The south-ern grid.s 15,000 kilometer network includes the manufacturing hub of Guangdong, where power demand rose by more than 80 percent last year.

INSURANCE

CITIC to buy stake in Allianz JV

CITIC Trust and Investment, a government-backed investment arm, will buy Dazhong Insurance.s 49 percent stake in life insurance joint venture Allianz Dazhong Insurance, while Allianz, Europe.s biggest insurer, will continue to hold the other 51 percent, the Standard of Hong Kong reported. Dazhong said it was disposing of the stake in Allianz Dazhong, which has been losing money since its 1998 inception, to focus on property and casualty insurance.

JV insurer approved to open Beijing branch

Standard Life Assurance.s China joint venture, Heng An Standard Life, received approval to launch its Beijing branch in early 2006, China Daily reported. The Tianjin-based UK-Chinese insurance joint venture currently has a branch in Qingdao and will target branches in Dalian, Chengdu and Chongqing. The firm plans to open three branches every year and occupy all major cities by the end of 2007.

TELECOMS

China Telecom and China Netcom expand IPTV pilot program

China Telecom and China Netcom, the country.s two biggest telecommunications operators, have expanded their Internet Protocol TV (IPTV) tests, in cooperation with Shanghai Media Group (SMG), Beijing Morning Post reported. China Telecom has expanded its IPTV pilot cities from 17 to 23 in cooperation with SMG, the country.s only licensed operator for IPTV. Following the successful test in Harbin, Helongjiang province, China Netcom has also expanded its pilot cities for IPTV to 20.

Nokia, Putian form 3G JV

Nokia signed a joint venture agreement with China Putian in mid-October to develop and market 3G (third-generation) mobile telecommunication tech-nology, China Daily reported. Putian will take a 51 percent stake in the joint venture, and Nokia will take 49 percent, with total investment amounting to US$111 million. Based on the European-initi-ated WCDMA standard and the Chinese home-grown TD-SCDMA standard, the venture will focus on research, development, manufacturing and marketing of 3G equipment, and is expected to launch commercial products next year.

METALS

New plans to restructure copper industry

In an effort to restructure China.s over-invested copper industry, Beijing will raise barriers of entry and close down outdated copper plants, the South China Morning Post (SCMP) reported. The National Development and Reform Com-mission plans are reminiscent of the recent restructuring of China.s steel industry, in which large companies were bolstered while the posi-tion of smaller firms was weakened. A similar policy is being drafted for the aluminum and smelting industry, according to sources cited by the SCMP.

Baoshan pro.ts up despite price fall

Baoshan Iron and Steel has reported a 41 percent surge in quarterly earnings despite plunging product prices and domestic oversupply, The Standard of Hong Kong reported. Listed Bao-steel posted net earnings of US$410 million in the third quarter, up from US$290 million a year ago. Metal prices peaked at a decade high level in March, but government efforts to rein in the overheating construction and property sectors have seen prices fall. Baosteel took over its par-ent company.s biggest mills in April to boost output and help its bottom line.

Airlines raise fuel surcharges

Major Chinese airlines .led a proposal in late October to the General Administration of Civil Aviation of China (CAAC) to boost fuel surcharges on domestic routes, Shanghai Daily reported. The three carriers, Air China, China Southern Airlines and China Eastern Airlines, hope to double the fuel surcharge and prolong the charging period for another year to offset the impact of surging oil prices, the report said. As of August 1, airlines are allowed to charge RMB20 to RMB80 per passenger on domestic .ights for each way, depending on the .ight distance, but airlines said this hike is not enough to cover the growing loss.

Earlier in October, CAAC granted permis-sion to raise fuel surcharges on international .ights by 104 to 114 percent starting from Oc-tober 15, Shanghai Daily said. The fee increased to US$25 from the previous US$12 on .ights between China and other Asian countries, and the surcharges doubled to US$40 on .ights be-tween China and destinations in Europe, North America, Australia and the Middle East.

Most Chinese airline companies were deep in the red during the .rst half of the year due to rising costs resulting from soaring crude oil prices, which rose to RMB5,220 per ton in October, compared with RMB4,190 per ton at the beginning of the year.

Banks busy with IPOs

China Construction Bank (CCB), the country's third largest lender, launched its US$8 billion IPO in Hong Kong on October 27. The world's larg-est IPO in four years was greeted with lukewarm response in the .rst days after its debut, follow-ing concerns of CCB's management risk and bad debts. However, the move is considered a major step in China's campaign to clean up its debt-rid-den .nancial system, heralding the beginning of a listing spree of Chinese banks.

Industrial and Commercial Bank of China (ICBC), the country's biggest commercial lender, is positioning itself to be the next to take a piece of the IPO pie. In late October, the bank formed a joint-stock bank, named ICBC Stock Co, Ltd, with the Ministry of Finance and Central Huijin Investment Co in preparation for its overseas listing. Meanwhile, ICBC president Yang Kaisheng said that the bank would hold a pre-IPO sale for strategic foreign investors at some point in 2006. Earlier in October, the lender appointed former Goldman Sachs presi-dent John Thornton and ex-Hong Kong .nancial secretary Antony Leung Kam-chung as its inde-pendent directors to help with the IPO.

Following the ambitious moves of two of the “big four" state-owned lenders, China Mer-chants Bank also announced in early November that it will raise US$1.2 billion to enhance its capital base and expansion plans in a Hong Kong IPO in the second half of 2006. The bank, China's largest domestically listed lender, said the IPO will take place once the bank coverts its non-tradable shares into marketable stock.