BRIEFS

GENERAL

CCCG plans IPO

China Communications Construction Group (CCCG) is planning a US$1 billion IPO in Hong Kong at the end of this year or beginning of next. The state construction and engineering conglomerate has assets of US$8.7 billion and 70,000 members of staff. The newspaper said Merrill Lynch and UBS had been appointed to see the IPO through. CCCG, with estimated sales of US$10 billion, was established in December when state groups China Harbor Engineering Corp and China Road & Bridge Corp merged. Its main shareholder is the State-Owned Assets Supervision and Administration Commission.

Developer accelerates land purchase

China Vanke aims to nearly double acquisition of land this year as the property developer strives for 30 percent profit growth. The Shenzhen-listed firm wants to buy 10 million square meters of land for US$1.49 billion, compared to the 6.5 million square meters it purchased last year for US$1 billion, chairman Wang Shi said. Vanke had a land bank of 10.52 million square meters at the end of last year and plans to enter joint ventures as it snaps up more acreage. Wang said the company would eventually like to list in Hong Kong, but that the opportunity had not yet arisen.

Players reject online games law

Online gamers have criticised plans to introduce an anti-addiction law that would limit time spent in virtual role-playing games, forcing the government into a rethink. Officials told the Financial Times that seven months after it was announced, the law is only at a limited trial stage, covering only some servers of leading companies. China's press administration has already decided the rules limiting playtime should apply only to under-18s. This is one example of the difficulties Beijing is facing as it tries to exert control over the rapidly expanding Internet sector. Chinese online gaming companies listed in the Untied States may not be as badly affected as thought, if the eventual law is watered down.

Sino-US deals precede Hu

A delegation of Chinese companies, led by Vice Premier Wu Yi, signed purchase orders worth US$16.2 billion with the US in the build up to President Hu Jintao's visit last month. In addition to a US$4.6 billion plane deal with Boeing, US$1.7 billion was spent on US computer software and US$500 million on Motorola products. Flextronics, which develops electronics products in a number of sectors, secured a US$1 billion contract, and GE energy won a US$350 million contract for power generation equipment. Deals were also made with GM, Ford and DaimlerChrysler worth US$306 million, US$110 million and US$80 million respectively.

Employment law raises concern

Plans to introduce a new law regulating employment contracts have been criticised by overseas companies, which believe it will hand more control to the government-supported trade union, the South China Morning Post reported. A draft of the Labour Contract Law states the trade union would have to be notified of large job cuts, and have a say in deciding rules for employees. Some firms believe this will remove flexibility in hiring and firing, and represent a step backwards for economic reforms. The union, essentially the only one on the mainland, would be able to negotiate for workers through collective bargaining. The draft was published by the National People's Congress and opened for public consultation.

Retail move from Warner

Warner Bros is to open at least 200 stores in China over the next few years, the firm's consumer products partner Hutchison Harbour Ring has announced. The first store opened in Shanghai in late March and will soon be joined by other Warner outlets in the city, as well as in Beijing, Guangzhou and Shenzhen. Rival group Disney already has 2,600 retail outlets across the country and plans to boost this number to 6,000 by 2009. Warner Bros, the studio division of Time Warner, is chasing a slice of the US$12.5 billion that Chinese consumers are expected to spend on toys by 2010. Driving this spending is a pool of 300 million children aged below 14. However, retail efforts are likely to be hampered by the widespread availability of fake products.

Property investment heats up

GE Real Estate, one of the world's biggest property investors, is to pump US$20 million into a fund for mainland projects with two Chinese partners. The American company announced it would be the sole strategic investor in Citic Capital Vanke Property Development Fund, partnered by China Vanke and Citic Capital, which will put in up to US$150 million. GE Real Estate is one of many overseas companies rushing to invest in what is expected to be one of the most promising property markets over the next five years. The Cayman Islands-based fund will invest between US$100-150 million in residential developments in the Pearl River Delta, the Yangtze River Delta, the Gulf of Bohai and some inland cities.

China overtakes Japan in forex holdings

China has overtaken Japan as the world's largest holder of foreign exchange reserves, the Financial Times reported. Reserves reached US$853.7 billion at the end of February, compared to Japan's US$850.1 billion. The increase in the first two months of this year of about US$35 billion is partially accounted for by the trade surplus of US$12 billion and another US$5 billion-plus in foreign investment. People's Bank of China Governor Zhou Xiaochuan rejected US pressure for a rapid appreciation of China's currency to reduce the bilateral trade deficit and called for Washington to also make structural adjustments. "While China has been trying to relieve the problems, complaints are heard that the US has been slow in taking concrete measures to reduce its twin deficits and improve its savings rate," he said. Zhou added that "if measured by per capita level, China's foreign reserves are not high".

Investments must be limited

The State Council believes China should limit fixed-asset investments because of overcapacity in industries such as aluminium, automobiles, coke and steel. The government should tighten its grip on land use and credit supply in an effort to control fixed-asset investment growth, the cabinet said. China's fixed-asset investment grew by 26.6 percent in the first two months of this year to US$65.9 billion, while overall growth for 2005 was 27.2 percent. The total loans issued by financial institutions in China increased by 13.4 percent to US$2.66 trillion by the end of February, according to the Central Bank.

Business sentiment positive

Chinese business conditions and sentiment have leapt ahead after three quarters of relatively flat conditions, results of the latest Xinhua Finance/MNI China Business Sentiment Survey suggest. Many of the survey indexes assessing current conditions for the first quarter of this year came close to or topped the results of the survey from the first quarter last year, the first and to date most positive result. The index for overall current business conditions was at 73.91, up from 67.41 in the fourth quarter of last year, but down from 78.03 in the first quarter last year. The survey was completed March 6-21 with 140 listed companies responding. A result greater than 50 implies growth or improving conditions.

PBOC sees slower growth

Economic growth will slow to 8.9 percent this year, the People's Bank of China has predicted. The bank has released projected GDP growth figures of 9.2 percent, 9 percent, 8.9 percent and 8.7 percent for the four quarters of 2006. This follows growth of 9.9 percent in 2005 and 10.1 percent in 2004. Consumer prices (CPI) are expected to increase 2 percent during 2006, broken down into rises of 1.5 percent, 2.1 percent, 2.1 percent and 2 percent across the four quarters. CPI grew 1.8 percent in 2005 and 3.9 percent in 2004. The bank said its projections were based on global economic growth of 4.3 percent in 2006 and consistent interest rates. The one-year yuan deposit rate is currently 2.25 percent, while the one-year lending rate is 5.58 percent.

Volvo to launch domestic China production

Ford Motor's Volvo Cars unit is to manufacture cars in China for the first time. The carmaker is to start producing the S40 sport sedan between June and August with partner Changan in Chongqing. After an initial start-up phase, annual production will be 10,000 units - nearly double the sales of imported Volvos in China last year. Volvo intends to localise production of popular models despite concern about overcapacity in the highly competitive industry. The S40 will have to compete with models from manufacturers that have already established production in China, including DaimlerChrysler's Mercedes-Benz, Volkswagen's Audi and BMW.

Nissan JV completes new technical centre

Dongfeng Motor, a JV between Japan's Nissan Motor and China's Dongfeng Automotive Investment, completed a US$41.1 million technical centre to conduct research and development on passenger cars in Guangzhou, Guangdong province, according to Kyodo News. The new lab, named Dongfeng Nissan Technical Centre, will replace an existing centre to develop parts and work on cost reduction in partnership with local vendors.

Sales rise in first quarter

Government reforms to boost the use of small cars saw vehicle sales rise 36.85% in the first quarter, compared to the first three months of last year. Sales reached a record high of 1.73 million units during the period, largely thanks to a surge in passenger car sales which were up 66.97% year-on-year to 855,300 units. China Association of Automobile Manufacturers spokesman Zhu Yiping said a central government notice urging local authorities to remove restrictions on low-emission cars such as the ban on access to city centre roads. The reduction in the price of steel and a rush to buy larger vehicles, ahead of the luxury car tax that took effect on April 1st, also boosted sales.

ABC poised to get bailout

China is weighing up a capital injection for Agricultural Bank of China (ABC), the central bank governor has confirmed. Zhou Xiaochuan told reporters at the National People's Congress, "We are studying the issue." The state-owned bank is the only one of the Big Four not to have received a government bailout package. ABC was saddled with US$91.73 billion in non-performing loans at the end of 2005 - a ratio of 26.31 percent, compared to 26.73 percent a year earlier. Zhou also reaffirmed that China would not be rushed into allowing the yuan to appreciate further by pressure from the United States. He said current fluctuations are appropriate, and that he will discuss bilateral issues with the US at a World Bank and International Monetary Fund meeting in April.

UBS brokerage deal close

A deal which will see UBS take a 20% stake in troubled brokerage Beijing Securities for US$112 million appeared to be inching closer towards final approval last month. A Financial Times report claiming the deal had been given the go ahead was refuted by the China Securities Regulatory Commission, but further media reports quoted sources close to the deal as saying it was making good progress. Despite only having a minority stake - the Beijing city government, three state companies and the World Bank's private sector arm share the remaining 80% - UBS is set to be granted the right to control the management of the venture. The Swiss bank was on course to be the first overseas investment firm to buy directly into one of China's ailing brokerage firms.

Deutsche in, Goldman out of ICBC party

Industrial and Commercial Bank of China (ICBC) has added Deutsche Bank to its list of book-runners for its planned US$15 billion Hong Kong IPO, but former frontrunner Goldman Sachs has controversially been excluded. The nation's largest lender said in a bank statement in mid-March it had also given mandates to Merrill Lynch, Morgan Stanley's mainland joint venture China International Capital Corp, Credit Suisse and ICEA, its own Hong Kong investment-banking unit. In a bitter twist for Goldman Sachs, rival Morgan Stanley was awarded an as yet unknown role. Beijing directed ICBC to exclude Goldman, which recently invested $2.6 billion for a 7 percent stake in the lender, amid concerns of conflict of interest and confidentiality risks.

Citigroup opens first China private banking office in mainland China

Citigroup opened its first private banking office on the Chinese mainland in Shanghai, state media reported. The US financial group will initially have about 20 employees in the new office, providing sophisticated products and financial advice to high net worth clients. "We want to play an active role in the growth and development of China's wealth management sector," said Todd Thomson, chairman and CEO of Citigroup Global Wealth Management. Citigroup also plans to expand its first private banking operations to other Chinese cities upon regulatory approval.

Social security fund gets BoC stake

Bank of China (BoC) said in mid-March it had sold a 4 to 5 percent stake to the State Welfare Fund for US$1.2 billion. The sale to the country's social security fund is part of a series of steps required before an initial public offering expected this year in Hong Kong. The bank named Goldman Sachs, UBS and Bank of China International as its financial advisors and lead underwriters for the IPO last August. Last December, the bank said it had signed strategic investment agreements with the Royal Bank of Scotland Group, UBS, Singapore-headquartered Temasek and the Asian Development Bank. The four strategic investors will receive a combined 16.9 percent stake.

HSBC to open new branch in Hangzhou

HSBC announced that it has received regulatory approval to open a new branch in Hangzhou, Zhejiang province. The UK-based bank will offer a full range of foreign currency services, including deposits, loans, bills and drafts discounting, letters of credit and guarantees and foreign exchange services at its 13th branch in mainland China.

Shell to buy bitumen producer

Shell is to buy Hong Kong-based bitumen producer Koch Materials China in a move that will make it one of the key suppliers in the country's rural road construction project. The acquisition of the company, for an undisclosed sum, will boost Shell's bitumen capacity in China by 175 percent as it assumes control of six plants producing 4,200 tonnes of the material per day. It already has five plants with a combined output of 2,400 tonnes a day. The road-building scheme is expected to support an annual growth in bitumen demand of at least 7 percent over the next few years. Shell has invested US$3.5 billion in China, US$500 million of that coming during 2005. Its largest operation is a US$4.3 billion petrochemical plant joint venture with China National Offshore Oil Corp in Daya Bay.

Tour yields uranium deal

Premier Wen Jiabao signed off on a uranium deal during his Pacific tour in April that will see China have access to key components for generating nuclear power. The agreement was a bilateral nuclear-safeguards treaty guaranteeing that Beijing would not use uranium imports for nuclear weapons. Australia accounted for 20% of the world's uranium output in 2005 although significant exports to China are unlikely to start until 2008. Beijing wants to build at least 30 nuclear reactors to increase nuclear capacity fivefold by 2020 as part of a move away from reliance on coal-fired power stations. Nuclear power currently contributes just 3% of the country's total energy output. There is no shortage of foreign firms offering to build the nuclear facilities with Toshiba's Westinghouse Electric and Areva SA of France both among the competitors for contracts.

PetroChina boosts investment

PetroChina announced a planned increase in capital expenditure to fund exploration after posting a record annual profit of US$16.6 billion. The firm has proposed a capital expenditure budget of US$18.6 billion this year, up 19.39 percent on 2005. Investment last year was 28 percent higher than forecast a year ago, and 21.16 percent more than estimated in a June filing with the Securities and Exchange Commission in the United States. The company wants to increase oil and gas output by 5.19 percent to one billion barrels of oil equivalent this year. Gas output is to increase by 26 percent, while oil production will rise by a modest 0.4 percent.

Oil giants team up

Sinopec and PetroChina are to build their first joint refinery in the southwest of China at a cost of US$1.5 billion, Reuters reported. The state oil firms have shelved plans to run refineries in competition, preferring instead to operate jointly, officials said. The refinery, which will have a capacity of about 200,000 barrels a day, should be completed in 2010. Both Sinopec and PetroChina had intended to open refineries producing 160,000 barrels a day in Guangxi province, but this was overruled by the National Reform and Development Commission.

Oil sector mergers hit $6bn last year

Mergers and acquisitions by Chinese oil and natural gas companies grew six-fold to US$6 billion in 2005 as oil and gas industry M&A activity tripled in value to US$160 billion, the Financial Times reported. A new report, released in late March by Harrison Lovegrove, the UK-based corporate advisers, and John S Herold, the US research firm, showed the highest level of M&A activity since 1998. More than 240 deals were struck worldwide in 2005, up 40 percent from 2004, as oil industry executives and government leaders went on a frantic global buying spree under rising pressure to secure the oil and gas needed to fuel economic expansion.

Heng An Standard Life begins operation in Beijing

Heng An Standard Life Insurance, a 50:50 JV between UK-based Standard Life Assurance and China's TEDA (Tianjin Economic Technological Development Area) Investment Holding, opened a branch in Beijing in late March. The Tianjin-based JV insurer also has a branch in Qingdao, Shandong province. The company plans to open three to five branches within the year, probably in Dalian, Chengdu and Chongqing.

Allianz China Life opens Hangzhou branch

German insurer Allianz's joint venture, Allianz China Life, announced the opening of a new branch in Hangzhou, Zhejiang province. It is the first branch to be opened since CITIC Trust and Investment became Allianz's new joint venture partner in late 2005 and the company's renaming from Allianz Dazhong to Allianz China Life. "The opening of the Zhejiang branch is testament to our commitment to developing our presence in this market and offering our customers peace of mind through excellent products and service," commented Bruce Bowers, CEO of Allianz Asia and Director of Allianz China Life.

Homegrown wireless standard gets backing

An alliance of leading Chinese computer and telecommunications companies - including Lenovo and Huawei Technologies - has been set up to promote a homegrown encryption standard for wireless communications. The government created a storm last year when it suggested that its own standard, Wireless Authentication and Privacy Infrastructure (WAPI), should be adopted by all companies operating in China. The plan was shelved after foreign companies said it would restrict their access to Chinese markets. Control of WAPI technology, which Beijing says is more secure than current wireless standards, is limited to 11 government-selected companies.

Microsoft to set up mobile R&D centre in Beijing

Microsoft China Research & Development Group announced the establishment of the Mobile Technology Centre (MTC) in Beijing. The MTC, to be created under Microsoft's Advanced Technology Centre (ATC), will focus on mobile multimedia, 3G wireless and seamless device connection and communication technologies and innovations. The centre will also provide technology and development support to mobile operators and OEMs in China.

Motorola opens R&D centre in Hangzhou

Motorola announced the opening of its new R&D centre in Hangzhou, Zhejiang province. The new centre, the company's 17th R&D facility in China, will support Motorola Networks' technologies and products, helping to develop, test and launch software and hardware for final integration into commercialised product offerings for customers. It will also develop next generation technologies. The Hangzhou centre will increase Motorola's China R&D staff by 10 percent, and more engineers are expected to be hired in the next two years.

China Mobile boosts expenditure

China Mobile has increased capital expenditure by 60 percent for this year to upgrade its 2G network while it continues to wait for state approval on 3G. The telecoms giant will increase spending to US$10.4 billion for this year, while in 2007 the rise will be 76 percent from the original allocation to US$9.7 billion. The company recorded better-than-expected net profits of US$6.66 billion last - a rise of 28.3 percent - after taking market share from China Unicom. The extra funds will pay for expanding capacity for voice services, as well as preparing software for the introduction of 3G. China Mobile expects strong growth from its customer base of more than 250 million subscribers. Licenses for 3G operations are expected to be granted in the second half of this year.

Air China adds routes

Air China will launch flights to New Delhi and Mumbai in October to tap into rising demand for direct links with India. The mainland's leading carrier will fly from Beijing to New Delhi four times a week, using Boeing 767s, the General Administration of Civil Aviation of China announced. In April last year, India and China agreed to increase air travel between the two nations. Air traffic between the countries is expected to rise by 10 percent this year, according to the International Air Transport Association. China Eastern already operates flights from Shanghai to New Delhi, while Air India flies from Mumbai and New Delhi to Shanghai.

New Boeing order in pipeline

Boeing announced it had reached a preliminary agreement with China over the sale of 80 narrow-body 737 airplanes. The deal, worth a total of US$4.6 billion at list prices but likely to involve a sizeable bulk buy discount, is expected to be finalized with individual Chinese airlines over the next few weeks. The order comes in addition to 70 planes China said it would buy from the US manufacturer in November. In December, it said it would purchase 150 Airbus SAS jets in a deal worth more than US$9 billion at list prices.

Shanghai Airlines, United Airlines sign codeshare agreement

United Airlines and Shanghai Airlines signed a codeshare agreement to expand international destination options and frequent flyer opportunities for customers of both carriers. The 11 codeshare flights covered by the agreement are expected to begin on May 15th. United Airlines' routes listed under the agreement include Shanghai to Chicago and San Francisco; San Francisco to Los Angeles, Newark and New York (John F. Kennedy International Airport); and Chicago to Newark and New York (LaGuardia International Airport). Shanghai Airlines' flights included in the agreement depart from Pudong International Airport in Shanghai to Shenyang, Chengdu, Dalian and Qingdao.

Brazil's Varig flies to China

Brazil's national airline Varig started codeshare flights with Air China, becoming the first South American airline to serve the Chinese market. Under the codeshare agreement, Air China will operate flights from Beijing and Shanghai to Frankfurt, where Varig will take passengers on to Rio de Janeiro and Sao Paulo. The total journey time will be reduced to 27 hours from the previous 30 hours.

State limits on iron ore import prices

The government has placed a cap on what domestic steel producers are allowed to pay for iron ore imported from Brazil and Australia in what is being seen as an attempt to influence spot prices for the commodity. Imports from Australia cannot exceed US$54 a tonne, including shipping costs, while the Brazil limit is US$68 a tonne. The development also expresses Beijing's frustration at being left out of the ongoing iron ore contract price negotiations taking place between the world's largest miners and steel producers. China is the largest importer of the commodity and was unhappy when the miners secured a price increase of 71.5 percent last year. An iron ore price increase of 10-20 percent is expected this year.

Anben to focus on high-end products

The country's second-largest steel producer, Anben Iron and Steel Group, will focus on high-end products used in cars and computer chips as it boosts crude steel production capacity by 65 percent over the next five years. The move represents a repositioning of Anben's output as it works to conform to government requirements for the closure of heavy polluting and high energy consuming facilities producing low-end construction steel. While crude steel capacity increases to 30 million tonnes by 2010, the company will shut down 7.27 million tonnes of outdated iron-producing capacity and 4.85 million tonnes of crude steel capacity over the same period. Beijing wants to reduce energy consumption per unit of GDP by 20 percent, major pollutants by 10 percent and water consumption per unit of industrial value addition by 30 percent over the next five years.

Iron imports cut

China is reducing iron ore imports as suppliers raise prices - which is harming long-term co-operation, according to the Ministry of Commerce. Steelmakers such as Baosteel Group are in annual talks with suppliers over prices after last year's record high ate into profits. Demand for the commodity is soaring in China, producer of a third of the world's steel. China imports 44 percent of world seaborne iron ore shipments, but prices rocketed 71.5 percent last year because of rising demand. Mining firms including Companhia Vale do Rio Doce, BHP Billiton and Rio Tinto Group want prices to rise even further this year.

Brewer rules out big buys

SABMiller, the world's second-largest brewer by market value, is looking to take over small-scale breweries in an ongoing bid to increase its market share in China. Andre Parker, the company's Africa and Asia managing director, said there were no plans to invest in Beijing-based giant Yanjing beer. "Our objective is not to dominate the Chinese brewery market," he said. "There's no pride in being the biggest player in China. Making the product profitable is more attractive." SABMiller is targeting brewers with production costs of US$25-30 per hectolitre and expects consolidation in the Chinese beer market to boost profitability. Through its 49 percent stake in China Resources Breweries, which produces Snow beer, SABMiller controls 14 percent of the market. Tsingtao leads the way with 16 percent.

Pepsi establishes research centre in Shanghai

Pepsi has set up a research and development centre in Shanghai to develop new drinks and leisure food catering to local customers, state media reported. This is Pepsi's first R&D centre outside the US and considered a sign of the company's commitment to long-term investment in China. Pepsi so far has more than 40 joint ventures and wholly owned subsidiaries in the country.

New sales taxes levied

The Chinese government imposed new sales taxes, effective as of April 1st, on goods ranging from chopsticks to luxuries in an effort to curb pollution and close the widening income gap. Yachts, golf balls and golf clubs will be taxed for the first time at a rate of 10 percent, and luxury watches will be taxed at 20 percent. The levy on autos with an engine capacity of more than 2 litres increased from 8 percent to 20 percent. Tax on cars with engines between 1 litre and 1.5 litres was cut from 5 percent to 3 percent. A 5 percent tax will be levied on both disposable wooden chopsticks and wooden floor panels to help protect the environment. The previous taxes on skin care and hair care products were cancelled as they are now viewed as daily necessities rather than luxuries.

Oil prices rise

Domestic oil product prices were increased in late March for the first time in eight months to reduce losses for refiners who were unable to pass on the full cost of crude oil to consumers. The National Development and Reform Commission said refinery petrol prices would rise by US$37 per tonne and diesel prices by US$31 per tonne. Consumers will be spared the full impact of the increase with pump prices for petrol and diesel going up US$31 a tonne and US$19 a tonne, respectively. Subsidies were promised for disadvantaged groups and public service sectors, such as fishermen, farmers, state-owned forestry enterprises and urban public transportation firms. The price hike is expected to bring domestic oil prices closer to international levels and help to ease the pressure on China's refining industry which posted a US$3.7 billion loss in 2005. Sinopec, the country's largest oil refiner, received a one-off payment of nearly US$1.2 billion to compensate for its refining losses. Premier Wen Jiabao pledged to tackle pollution and increase energy efficiency at the end of this year's session of the National People's Congress.