BRIEFS

GENERAL

Google edges out Baidu

A survey of Chinese net surfers showed that Google is well ahead of local rival Baidu. com, reports The Wall Street Journal. The survey is the first in China to measure and analyze user responses to help companies improve their websites. The survey evaluated the responses of 1,200 participants across China, each of whom tested one of the country's leading search sites: Baidu, Google, Sohu.com's Sogou site, and Yahoo's Chinese site, which is run by its Chinese af- filiate, Alibaba.com, and found that users rated Google highest.

Foot-and-mouth outbreaks reported China confirmed in mid-January the outbreaks of foot-and-mouth disease in northwest China's Ningxia region and east China's Jiangsu province, state media reported.

The Ministry of Agriculture said 89 cattle and 110 sheep were culled in Xuanhe Town, Zhongwei City in Ningxia, after two cattle were confirmed with the Asia I strain of foot-and-mouth. In Xuzhou, Jiangsu, 100 cattle were killed after 20 cows were con- firmed to have contracted the same strain.

The ministry said the outbreaks had been brought under control, and the surrounding areas sealed off and disinfected.

Home Depot seeks 49 percent of Orient Home

US-based Home Depot, the world's biggest do-it-yourself (DIY) group, has entered talks to acquire a 49 percent stake in Orient Home, one of China's leading DIY chains, the Financial Times reported, citing sources close to the deal. If successful, Home Depot will compete with B&Q, owned by UK-based Kingfisher, in China's US$50 billion home improvement market. B&Q has 22 stores in China with estimated sales of US$350 million, having bought 13 outlets from its German rival OBI. This will be Home Depot's first Asian venture.

MNCs target second-tier cities

Multinationals are eyeing China's secondtier cities as expansion destinations for the next two years, according to a Jones Lang LaSalle survey released in mid-January.

The survey showed that companies that set up offshore manufacturing and other outsourcing services in China's big three cities - Beijing, Shanghai and Guangzhou ¨C have expanded their operations in secondary and tertiary locations, lured by competitive costs and business opportunities.

Chengdu, capital of Southwest China's Sichuan province, Northeast Chi na's Dalian and East China's Hangzhou ranked as the top second-tier destinations.

"We expect first-mover companies, such as those in IT or telecommunications, manufacturing, as well as transport and logistics sectors, to strengthen their investments in the second-tier locations and begin eyeing expansions to potential tertiary-tier cities," said Anna Kalifa, head of research at Jones Lang LaSalle's Beijing Branch.

Large SOEs post record profits

China's biggest state-owned enterprises posted record profits of more than US$74.4 billion in 2005, partly based on soaring raw material prices, the South China Morning Post reported. Li Rongrong, chairman of the State-owned Assets Supervision and Administration Commission, said profits for the 169 SOEs were up 27.9 percent on 2004, with asset value rising 15 percent to US$1.3 billion.

Analysts ascribed the profit performance to the SOEs' control of infrastructure, telecommunications and power generation on the mainland.

M&A activity surpasses US$46.6 billion Mergers and acquisitions generated US$46.6 billion in 2005, a 34 percent rise on 2004, the South China Morning Post reported.

However, PricewaterhouseCoopers noted this figure was dominated by a number of large deals, such as foreign investments in China's Big Four banks, and argued that 2006 would see M&A activity enter a mature phase. New measures allowing foreign investors to make strategic acquisitions in newly listed A-share companies or companies that have gone through the shareholding reform program are seen as being the key trigger for this development.

Heavy losses suffered by securities firms

Securities companies lost more than US$120 million last year thanks to poor stock market performances, falling turnover and the suspension of initial public offerings, the South China Morning Post reported.

According to unaudited results from 43 brokerages, 22 made a loss - double the figure from a year earlier - while combined income fell to US$1.28 billion from US$1.4 billion. The total turnover on shares, funds and warrants from the Shanghai and Shenzhen markets was US$424 billion, a 20 percent fall on 2004, with the suspension of IPOs being one of the major factors.

There were only 21 transactions including 15 IPOs, four additional share issues and two rights issues, compared to 98 IPOs in 2004, 12 additional share issues and 21 rights issues.

Internet users number 111 million

The number of Chinese using the Internet grew by 17 million year on year, reported AP, citing figures released by the official China Internet Network Information Center. The center said the number of people with broadband access rose by more than 50 percent to 64 million over the past year. Statistics showed a wide gap between Internet use in China's cities and rural areas, the reports said. They said only 2.6 percent in the countryside were online, compared with 17 percent in town.

Hong Kong sees a rise in mainland listings

Mainland companies raised more than US$18.9 billion on the Hong Kong Stock Exchange last year, up 141 percent on 2004, the China Securities and Regulatory Commission announced. The increase in money raised from both new and secondary shares is partly due to Beijing suspending offerings in Shanghai and Shenzhen in June while it converted non-tradable state-owned shares into tradable ones.

Between January and May 2005, mainland markets raised US$4.3 billion on the yuan-denominated A-share market, down from US$10.4 billion in 2004.

Domestic share sales set to return

The ban on domestic share sales could be lifted in three to four months, Shanghai Stock Exchange Executive Vice President Zhou Qinye said in an interview with Bloomberg. New listings on the Shanghai and Shenzhen exchanges were halted in May 2005 as the government launched a scheme to convert US$200 billion of state-held non-tradable shares into tradable ones. The share conversion scheme was intended to boost China's underperforming capital markets. Zhou said that allowing companies like Petro- China, which is already listed in Hong Kong and New York, to sell shares domestically could propel China markets to third in Asia by the end of 2007, up from seventh place.

FedEx buys JV partner

US company FedEx has expanded its China presence with a US$400 million buyout of its domestic joint venture partner DTW Group, the Wall Street Journal reported. The buyout will double FedEx's China work force to 6,000 and put it in control of the venture's facilities in 89 locations. FedEx said China is the world's second-largest domestic air-cargo market, and it expects the industry to expand more than 10 percent a year through 2023.

US$1.9 billion pledged to fight bird flu

One hundred and twenty countries pledged a total of US$1.9 billion to fight bird flu at a two-day Beijing meeting in mid-January as news surfaced that a 35- year-old woman from Sichuan had last week become China's sixth human fatality, the South China Morning Post reported.

European Health Commissioner Markos Kyprianou said US$1 billion will be in the form of grants, with a large proportion going to poor countries in South- east Asia and Africa, and the remaining US$900 million made available as loans.

China will contribute US$10 million to the fund.

Trust-Mart for sale

China's largest foreign-owned retail chain, Trust-Mart, has put itself on the market in a deal that could raise about US$2 billion and attract the interest of international groups such as Wal-Mart, Carrefour and Tesco, the Financial Times reported. UBS is thought to have been appointed to advise on the sale. UBS declined to comment, but people close to the situation told FT that strong foreign interest was expected. Trust-Mart, which has 100 stores in 20 Chinese provinces, is believed to have annual sales of more than US$1 billion.

ECONOMY

Farmers' net income up 6.2 percent Li Deshui, director of the National Bureau of Statistics (NBS) announced in late January that the per capita net income of rural residents totaled US$403.7 in 2005, a real growth of 6.2 percent excluding the price inflation factors. Meanwhile, the per capital disposable income of urban residents amounted to US$1301.5, a real growth of 9.6 percent, said Li at a press conference held by the Information Office of the State Council. Li said Chinese residents' savings deposits reached US1.7 trillion, up US$0.26 trillion from the beginning of 2005.

Forex reserves pass US$800 billion

China is on course to surpass Japan as the world's largest foreign currency holder after forex reserves increased US$50 billion in the last three months of 2005 to reach US$819 billion. The central bank revealed that reserves rose US$209 billion during 2005, an improvement on 2004's US$207 billion increase, largely due to China's ballooning trade surplus. The bulk of these forex holdings are in US dollars, and there has been speculation that Beijing will adjust the balance and diversify into other currencies.

AUTOMOTIVE

Chery to debut in US by 2008

US sales of China's Chery cars would likely begin at the end of 2007, Reuters reported, citing Malcolm Bricklin, the founder and president of importer Visionary Vehicles. In making the announcement he moved back the sales date for a second time, having first set it for January 2007, then later re-setting it for midyear. Visionary hoped to sell 250,000 Chery cars in the US in the first year through 250 dealerships. Bricklin ex- pected 100 dealers to be signed up by the end of next month and all 250 sites ready and financed by March.

China second-biggest auto market

China has moved past Japan to become the world's second-largest auto market after domestic sales of China-made vehicles rose 14 percent in 2005 to 5.8 million units, state media reported, citing China Association of Automobile Manufacturers figures. China also imported 160,000 cars.

Sales are expected to grow 10-15 percent this year to between 6.4 and 6.6 million units. Meanwhile, Ford Motor Co said its sales of Ford brand autos in China grew 46 percent to 82,225 units in 2005, the Wall Street Journal reported. By the end of 2005, the number of Ford brand dealers totaled 150, up 50 percent from a year earlier.

Audi expects sales growth in China Audi AG, the luxury car unit of Volkswagen AG, said it expects double-digit sales growth in China through the rest of 2006.

The company sold 58,878 cars in China in 2005, an increase of 9.6 percent year on year. In January this year, 6,384 cars were sold in China, including Hong Kong, compared with 1,850 cars in 2004. Audi plans to introduce its Q7 and A4 Cabriolet models to the Chinese market later this year.

BANKING

Shanghai to get futures bourse



China will set up a new exchange in Shanghai to trade financial futures, state media reported, citing an industry insider. The insider said Fan Fuchun, vice-chairman of the China Securities Regulatory Commission, gave the bourse the go-ahead at a national work conference on securities and futures regulations last week. Market watchers say the new exchange will not be established until the end of this year or early next year.

Hu Jian, director of the China Center for Finance Research at Peking University, said the touted exchange would be a "milestone in China's finance reform and a boost to Shanghai's ambition to become a world fi- nancial hub."

Rural credit agency reform plans

Foreign and domestic operators are to be allowed to invest in rural credit agencies as part of a bid to develop community agricultural banks, the China Banking Regulatory Commission has announced. The country's 30,000 rural credit cooperatives, often blighted by poor risk management and a lack of corporate governance, are to be asked to meet the same standards as China's state banks. From the beginning of next year, they will have to introduce a proper system for grading loan quality while capital adequacy ratios will be more closely scrutinized. The rural credit cooperatives accounted for US$4.6 billion worth of assets in 2005, 10 percent of the banking sector. Australia and New Zealand Banking Group plans to buy 19.9 percent of Shanghai Rural Credit Cooperatives Union, which has been renamed Shanghai Country Commercial Bank.

ICBC in profit after 2005 bailout

Industrial & Commercial Bank of China saw operating profit rise in 2005 while the number of bad loans decreased, following a government bailout last year, the Wall Street Journal reported. The country's largest lender by assets reported its unaudited 2005 operating profit before bad-loan provisions at US$11.2 billion, up 21 percent from 2004. After setting aside provisions, ICBC said it would register an operating profit of US$3.47 billion for 2005. The government injected US$15 billion into ICBC from its foreignexchange reserves in 2005 and stripped US$87 billion of bad assets off the bank's books at face value, reducing the banks nonperforming-loan ratio from 18.99 percent to 4.43 percent.

ABC needs US$90 billion bailout

Agricultural Bank of China is looking to receive massive government capital injections this year to wipe US$90 billion of bad debts off its books, Reuters reported. Vice Chairman Han Zhongqi said the bank had still to be informed of any impending bailout, despite the fact that ABC is expected to finish restructuring by the end of 2006. With the bank reporting that one in four of its loans were sour at the end of last year, any state support is likely to dwarf the US$60 billion spent on removing bad debts held by the other three of the Big Four banks. ABC is keen to find foreign strategic investors once restructuring is complete, with France's Credit Agricole widely touted as a possible partner. Meanwhile, Dalian City Commercial Bank has announced that it is in talks with several foreign investors interested in purchasing strategic stakes.

First foreign family bank enters China

The Edmond De Rothschild Banque opened a representative office in Shanghai in late January, state media reported.

The France-based family bank will initially focus on private banking service targeting China's newly rich. The bank's CEO Michele Cicurel said that the bank is very confident of China's booming financial market.

Rabobank close to Hangzhou bank deal Dutch banking group Rabobank is close to finalizing a deal to take a 14.9 percent stake in Hangzhou Cooperative Bank, the Wall Street Journal reported. A Rabobank spokesman said the acquisition was planned for early 2006 but a price had not been determined. A deal has been under discussion since at least late 2004, when the Dutch bank said it and the World Bank's International Finance Corp planned to acquire a combined 24.9 percent holding in the Chinese lender, which was then known as Hangzhou Rural Credit Cooperative Union, with IFC taking a 10 percent stake.

ENERGY

PetroChina gets pipeline approval

PetroChina, the nation's biggest oil producer, obtained the government's final approval to build two pipelines to pump refined oil from northeastern and northwestern areas to central China, state media reported. The two pipelines will start at Lanzhou, in northwest China's Gansu province, and Jinzhou, in northeast China's Liaoning province, and converge in Zhengzhou, in the central province of Henan. A further extension will reach Changsha, the capital city of Hunan province, south of Henan. The pipelines are scheduled for operation in 2007 or 2008 and will cost about US$1.5 billion.

GE secures West-East pipeline deal

General Electric has on a US$196 million contract to help build China's West-East Gas Pipeline, state media reported. The US-based company signed an agreement with the West-East Gas Pipeline Company to provide gas turbines, compressors, installation and testing services to 12 newly built compressor stations along the pipeline. The equipment will be installed between 2006 and 2009. The pipeline is expected to bring natural gas to Shanghai from the Tarim Basin in Northwest China's Xinjiang Autonomous Region as well as providing an opportunity for a link-up with energy providers in Russia or Kazakhstan.

Saudi Arabia signs energy accord

China has signed a memorandum of understanding with Saudi Arabia calling for greater cooperation and investment in oil, natural gas and minerals, the Wall Street Journal reported. President Hu Jintao and King Abdullah signed the pact and four other accords during the monarch's first official visit to China. The other agreements focused on nurturing economic, trade and technical cooperation, avoiding dual taxation and preventing tax evasion, cooperating on vocational training and extending a Saudi Arabian Development Bank loan to the predominantly Muslim city of Aksu in western China.

CNOOC eyes Kazakh oil bid

CNOOC, China's big offshore oil producer, is considering a US$2 billion bid to buy Canada-based Nations Energy, whose main holding is a large Kazakhstan oil field. This follows CNOOC's US$2.3 billion bid for a stake in a Nigerian oil field. Citigroup, which assisted China National Petroleum Corp in its US$4.18 billion acquisition of PetroKazakhstan last year, is advising CNOOC, while Credit Suisse First Boston is advising Nations Energy.

Neighbors seal energy deal

China and India have signed an agreement on working together to secure the global energy assets required to satisfy their fast-growing economies. It was signed in Beijing by Indian Oil Minister Mani Shankar Aiyar and Ma Kai, head of economic planning with China's National Development and Reform Commission.

Under the agreement, a joint committee will be set up as a channel of communication and means of sharing information. "We don't think it is necessary for either India or China to purchase its energy security at the expense of the other," Aiyar said.

INSURANCE

Aegon-CNOOC received license for life insurance operations in Shandong Aegon-CNOOC, the 50:50 joint venture between Dutch insurer Aegon NV and China National Offshore Oil Corp (CNOOC), announced that it received a license to start life insurance activities in Shandong province.

Aegon-CNOOC will be an early foreign entrant in the province when it opens its first office in Jinan, the provincial capital of Shandong, in the coming months. Headquartered in Shanghai, the Sino-Dutch insurer currently has branches in Beijing, Wuxi and Nanjing.

AXA plans asset management JV

French insurer AXA signed a memorandum of understanding with China's Shanghai Pudong Development Bank and Shanghai Dragon Investment Fund to set up an asset management joint venture, Reuters reported.

AXA Investment Managers Chief Executive Nicolas Moreau said the company expected the deal to be finalized in February.

AXA already has an insurance joint venture in China with Minmetal, with operations in Shanghai, Guangzhou and Beijing.

TELECOMS

Telecommunications revenue up 11.3 percent

China's communications industry, including postal and telecommunications services, posted revenues of US$79 billion in 2005, a year-on-year increase of 11.3 percent, the Ministry of Information Industry (MII) said in a statement in late January.

Telecom revenues reached US$71.3 billion last year, up 11.7 percent year-on-year. China's fixed line users increased by 38.68 million to 350.43 million and mobile phone users rose from 334.83 million to 393.43 million in 2005. The MII also said 304.65 billion messages were sent last year, rising 39.9 percent year-on-year. Some US$25.2 billion was invested in the telecom sector last year, down 4.8 percent year-on-year.

Green Packet partners Zhejiang Telecom

Green Packet Shanghai, a wholly owned subsidiary of Malaysia's Green Packet, signed a partnership agreement with Zhejiang Telecom Company to collaboratively promote "Wireless E-communication" in Zhejiang province, Xinhua Finance reported. Under the agreement, Zhejiang Telecom will leverage on Green Packet's Unified Mobility Solution to integrate the personal handyphone system wireless data and wireless local area networks for the deployment of broadband wireless networks throughout the province. Green Packet also has collaborative agreements with notebook manufacturers to launch a notebook bundling program.

3G trials set for expansion

Trial networks based on China's homegrown TD-SCDMA 3G standard are to be expanded to three more cities in Hebei, Fujian and Shandong provinces, the South China Morning Post reported. The expansion, which will see further collaboration between China Telecom, China Mobile and China Netcom and equipment sellers and handset makers, is seen as a further step towards the issue of full 3G licenses. The trials, due to be completed by August, are expected to focus on the effectiveness of new 3G handsets with different manufacturers supplying each of the three cities. High-tech firms Huawei and ZTE have formed partnerships with foreign operators Siemens and Ericsson, respectively, to produce TD-SCDMA network equipment.

AVIATION

Tiger Airways to fly to Southern China Budget carrier Tiger Airways announced that it received approval from Chinese aviation authorities to fly to a number of cities in Southern China, Xinhua Finance reported. Flights will start in April after the carrier takes delivery of two more Airbus A320 aircraft.

Taiwan's China Air buys stake in mainland carrier

Taiwan's China Airlines acquired a 25 percent stake in Yangtze River Express Airlines, the freight unit of Hainan Airlines, Reuters reported. On completion of the US$68.8 million deal, China Airlines became the largest overseas shareholder of the mainland air cargo carrier. Besides China Airlines, Taiwan-based Yang Ming Marine purchased a 12 percent stake in Yangtze, with Wan Hai Lines and China Container Express Lines each taking 6 percent.

FOOD AND BEVERAGE

Inbev to take over Fujian Sedrin

Belgian-Brazilian brewer Inbev announced plans to acquire Fujian Sedrin for US$750.86 million. Inbev will first buy a 39.48 percent stake from the state and then acquire the remaining 60.52 percent from other shareholders by the end of 2007. On completion of the deal, Inbev will have a production capacity of 35 million hectoliters in China. The Chinese brewer has operations in Putian and Sanming in Fujian province and in Nanchang, Jiangxi provice, with a total capacity of 9 million hectoliters. Inbev chief executive Carlos Brito said in a statement that the Sedrin beer brand would become one of Inbev's top selling beers by volume.

METALS

Copper scandal agency reigned-in

State Reserves Bureau traders have been banned from buying derivatives after trader Liu Qibing took a dubious short position on copper futures on the London Metals Exchange late last year, driving up prices and potentially exposing China to in excess of US$100 million in losses. The Bureau, which stockpiles commodities on behalf of the government, posted a statement on its website that it would no longer invest in futures, stocks, corporate bonds, all types of investment funds or other financial derivatives.

Steelmaker eyes US$1 billion in HK listing

Xingtai Precision Steel Wire Rod Group, the mainland's largest producer of highend steel wire rods, plans to raise at least US$1 billion through an initial public offering in Hong Kong in the second half of this year, reported the South China Morning Post. The Hebei-based steelmaker was restructured in 2004 when Business Network International transformed the state-owned enterprise into a Chinese-foreign venture. BNI has taken a 26 percent stake in Xingtai worth US$150 million. Sources said Xingtai had mandated Macquarie Securities and Somerley as joint sponsors for the flotation. The former will also act as global bookrunner and lead manager.

Steel cap imminent

China intends to cap total iron and steel production at around 400 million tonnes and cut back on production by substandard steelmakers, the National Development and Reform Commission (NDRC) said. China's main planning agency aims to eliminate 100 million tonnes of iron capacity and 55 million tonnes of steel capacity over the next five years. China is the world's biggest producer and consumer of steel. Its crude steel output rose 25 percent last year to 385 million tonnes, according to the Brussels-based International Iron & Steel Institute, or about 30 percent of global output. The NDRC estimated total steel output at 350 million tonnes last year.