BRIEFS

GENERAL

New US security rules on exports

The US announced that it will put forward new controls on high-tech exports to China. The proposed controls would affect goods that can have both civilian and military uses. The tightening restrictions may be counterbalanced by a reduction in licensing requirements for legitimate Chinese buyers. David McCormick, US undersecretary of commerce for industry and security, told the Wall Street Journal the new restrictions would be enacted "as targeted as possible" and affect Chinese military, not civilian, purchasers. Chinese officials said they would buy more US technology, if allowed.

Wage hike in Pearl River Delta

Major export centres of the Pearl River Delta will raise the minimum wage by between 17 percent and 42 percent from July 1, state media reported, citing a recent meeting of labour officials in Shenzhen. The Guangdong provincial government is targeting a wage rise of 23 percent to US$106.20 per month in Shenzhen and a 17 percent increase in Guangzhou to US$100. Four other cities will raise the monthly minimum wage to US$87.50, a 22 percent increase for Dongguan, Zhuhai and Foshan and a 42 percent rise for Huizhou. The move is an effort to defuse labour shortages that have plagued pockets of the manufacturing sector since 2004, when rising rural incomes began keeping many would-be migrant workers back on the farm. Local companies are expected to be hit hardest, as the majority of Hong Kong and foreign-invested factories already pay more than the minimum wage.

Internet pirates face large fines

Internet distributors of illegally copied music, movies and other protected material may face fines of up to US$12,500, according to a new law. The move would up the pressure on search engines - like Baidu.com - while Internet service providers would have to give the authorities information on sites that distribute pirated material. Baidu, the most popular search engine in China, offers a service that allows users to find MP3 files. Last year, several international music companies sued Baidu for allowing free downloads. Now the Beijing-based company may have to cooperate with authorities. The government fines apply to individuals and companies that sell equipment or technology to make illegal copies.



Trade in carbon credits soaring

China may become the biggest supplier of greenhouse gas emission rights in the world over the next six years. The country is poised to generate 16.61 million carbon emission reduction units every year up to 2012, the United Nations Framework on Climate Change said. This amounts to 30.67 percent of the world's total with one unit equal to a tonne of carbon dioxide emissions. These rights are transferable and investors throughout the world may be willing to buy the credits in China rather than spend a lot more to reduce emissions in their home countries. To date, China has only seven registered projects, amounting to 3.83 percent of the world's total, but another 46 have been approved, including power generation and recycling projects.

World Bank to lend China US$1.5bn

The World Bank may lend China up to US$1.5 billion a year until 2010 as part of a program to combat poverty, improve the environment and promote sustainable development, state media reported. The bank also hopes to help China strengthen its financial sector and improve public and market institutions. The deal falls under a new Country Partnership Strategy that would make China the bank's largest recipient. About 70 percent of the funds would go to projects in inland provinces. The bank said China remains a developing country, with per capita GDP at about US$1,740 and more than 135 million people living on less than US$1 a day. The bank's private sector arm, the International Finance Corporation (IFC), expects new investments in China to surpass US$500 million per year.

China plans to open up futures market

Domestic futures markets may be opened to financial institutions and foreign investors according to state media. At the same time, Beijing would also make it easier for domestic firms to invest in overseas futures markets. To date, trading in Chinese futures is limited to domestic brokerages and some limited avenues for foreign firms. Banks, insurance companies and other domestic institutions do not have access. Zhou Zhenqing, deputy director of the financial and economic committee of the National People's Congress, said the government intends to open futures markets "step by step", with the top priority still being controlling risk. Under the new regulations, banks would be allowed to issue loans for futures trading.

ProLogis plans to expand

Global distribution specialist ProLogis is to enlarge its China operations by around 50 percent with plans for a US$90 million investment in 280,000 square metres of property at six coastal locations. The company, which provides distribution facilities to the likes of Adidas, Nokia and Samsung Electronics, currently has 380,000 square metres of facilities and a further 230,000 square metres under development. Rising demand for logistics services in China has seen some of the world's largest providers, such as UPS, FedEx and Deutsche Post, ramp up their investments in the country.

First quarter ad spending jumps

Advertisers spent US$10.3 billion in the Chinese media market in the first quarter of 2006, up 25 percent from a year earlier, citing a report to be published by Nielsen Media Research. The figures are based on published rate cards, which do not account for common discounts of as much as 50 percent, and do not include spending on Internet and outdoor ads. The Winter Olympic Games boosted spending in February, but the report also says a large increase in buying overall TV air time suggests the market may be poised for a return to high-flying growth after a relatively soft 2005. Last year, ad spending in China grew 18 percent from 2004, when it was up 22 percent from the previous year. In 2003 it grew 39 percent from the year before. The biggest growth categories included wedding products, baby products, cars, credit cards and mobile phone services. China is estimated to be the world's third-biggest ad market after the United States and Japan.

Urban investment soars 29.6 percent

Fixed-asset investment in urban areas grew 29.6 percent year-on-year in the first four months to US$224.8 billion, the National Bureau of Statistics said in a monthly report. The figures, which are well above the government's 18 percent projection, increase the likelihood of more belt-tightening measures from the central bank. January-April investment by the central government grew 18.8 percent year-on-year to US$23.78 billion, while local government investment climbed 31.1 percent to US$201 billion. Fixed-asset investment growth varied across different sectors - property grew 21.3 percent; transport 85.7 percent; coal 58.2 percent; oil and gas 3.7 percent; power and heating production and supply sectors 15.6 percent; and the steel, metal mining and processing industries 13.1 percent. With a 40 percent increase in new construction start-ups in the first quarter, the rate is not expected to slow.

April retail sales up 13.6 percent

China's retail sales were up 13.6 percent in April from a year earlier to US$72.15 billion, after gaining 13.5 percent in March, according to National Bureau of Statistics figures. It is the fastest growth rate in a year after peaking at 17.8 percent in May 2004 before cooling in line with government-introduced curbs on lending and investment. Since then, Premier Wen Jiabao has cut taxes and raised minimum wages in a bid to encourage consumer spending and make economic growth less tilted toward investment and exports. Per capita disposable income in towns and cities increased by 10.8 percent in the first quarter, and rural income by 11.5 percent. January to April retail sales rose 13 percent from a year earlier to US$302 billion. Gome, China's largest home appliance retailer, last week said sales jumped 68 percent.

Bills issued to slow lending

The central bank has sold US$12.5 billion in one-year bills in what is being seen as a move to reduce liquidity and bring bank lending under control. Coming on top of the standard sale of US$6.8 billion in bills on Tuesday, a total of US$2.7 billion has been drained from the market so far this week, all things considered. New loans came to US$39.6 billion in April, up US$29.6 billion on the same period last year. This does not reflect the impact of a 0.27 percentage point rise in the benchmark one-year lending rate which took place at the end of the month, itself a ploy to bring down loan growth and consequently clip the wings of China's runaway investment-led growth. Economists expect further tightening measures in coming weeks.

China Life joins GDB bid

A new player in the Citigroup-led bid for an 85 percent stake in the Guangdong Development Bank (GDB) may face some regulatory hurdles. China Life Insurance has joined the bid and may help deal with Beijing's refusal to raise caps on foreign investment on domestic banks. However, the insurance group's participation may face regulatory problems, as the market is not yet used to the idea of financial firms playing more than one role. China Life, the leading life insurer in China, may use its parent firm to invest. The bid from the Citigroup-led group totalled more than US$3 billion for the stake in the 11th-largest commercial lender.

CITIC to name IPO participants

Citigroup, Lehman Brothers and HSBC have been tipped to participate in a US$1 billion initial public offering by China CITIC Bank, the seventh-largest commercial lender on the mainland. A host of other competitors, which included a who's who of the world's top international banks and financial houses, dropped off one by one or were dropped after perceived conflicts of interest. CITIC is expected to make the announcement this week, although last minute changes are still possible. The company's Beijing-based CITIC Securities and China International Capital Corporation, Morgan Stanley's mainland joint venture, will also participate in the IPO.

No plans to break up ABC

The country's fourth-largest lender, Agricultural Bank of China (ABC), will not be broken up despite earlier reports, Central Bank Governor Zhou Xiaochuan told Bloomberg. Although the bank has the worst asset quality of the big four state banks, Beijing does not intend to dismantle the bank and transfer branches to provincial or urban governments, as state media had reported. And, while the government has not yet agreed on a plan to reorganize the lender, it is looking for ways to restructure ABC and help it shed US$93 billion in non-performing loans. ABC accounts for 12 percent of China's US$4.7 trillion in banking assets.

IFC goes west

The International Finance Corporation is to review its investment strategy to include banks and rural cooperatives in the west of China. Executive Vice-President Lars Thunell also said the private arm of the World Bank would launch a second yuan-denominated "Panda" bond. The IFC has pumped funds into six Chinese banks located in coastal areas, but now plans to use the same turnaround techniques in less developed regions. "The desire for better governance and risk control is there," Thunell said. "Some banks have loss ratios of below 2 percent. Even if you double that and say the auditors are off by half, they are pretty good numbers."

NPL ratio ceiling to lower

The country's five largest lenders will have to keep their non-performing loan (NPL) ratios below 5 percent and their capital adequacy ratios above 8 percent according to new requirements released by the China Banking Regulatory Commission. The rules were originally only tied to Bank of China and China Construction Bank as part of their restructuring processes but will now be extended to encompass Bank of Communications, Industrial and Commercial Bank of China and Agricultural Bank of China. The move comes shortly after international accountancy firm Ernst & Young withdrew a report which claimed that China's NPLs totalled US$911 billion, far in excess of official figures. The report offered information which conflicted with that filed by E&Y in its audit of ICBC. The company is now revising the report and has launched an internal inquiry into how the situation came about.

Rabobank scales back Hangzhou play

Rabobank NV, the Dutch banking group, pared back its plans to acquire 24.9 percent of Hangzhou Cooperative Bank of China in partnership with the World Bank's International Finance Corporation, and intends to secure a combined 14.9 percent stake. Orlando Wang, Rabobank's general manager for China, said the adjustment followed discussions with the bank and banking regulators and was not because of any problems found during the due-diligence review of Hangzhou's books. "We are interested in increasing our stake if there is an opportunity later," he said. Wang declined to confirm how much Rabobank and IFC had agreed to pay for their stake, but Hangzhou Cooperative Bank's website showed its assets totalled about US$4 billion at the end of 2005.

New Camry rolls out

Toyota rolled out the first mainland-made Camry model in a push to catch up to the leading auto sellers in the mainland. The Japanese auto maker, on track to become the largest in the world ahead of GM, lags far behind in China with 3.5 percent of the market last year and sales of 179,000 vehicles. GM, with 11 percent, sold 665,390 in 2005. VW ranked second. With China poised to surpass Japan as the world's second-largest auto market, the stakes are high for Toyota, whose cars have traditionally been seen as expensive imports. The Camry is manufactured in Toyota's factory in Nansha, near Guangzhou. The company plans to sell 1 million units by 2010.

China April auto sales rise over 25 percent

Vehicle sales in China rose 25.42 percent year-on-year in April to 672,900 units. The association said in a statement that April passenger car sales surged 39.1 percent from a year earlier to 468,400 units, while sales of commercial vehicles were up 2.36 percent at 204,500 units. Total vehicle output last month increased 25.2 percent year-on-year to 686,100 units with passenger car output rising 36.51 percent to 483,100 units and commercial vehicles up 4.6 percent at 203,100 units. In the first four months, total auto sales were up 33.48 percent year-on-year to 2.4 million units, with passenger car sales surging 49.79 percent to 1.72 million units.

Soci¨¦t¨¦ G¨¦n¨¦rale opens subsidiary

Soci¨¦t¨¦ G¨¦n¨¦rale said it has launched a new auto leasing and equipment and vendor finance company in Shanghai. The new company, Soci¨¦t¨¦ G¨¦n¨¦rale Leasing and Renting Corp, will run two businesses - ALD Automotive and SG Equipment Finance. ALD Automotive will focus on vehicle leasing and fleet management, while SG Equipment Finance will focus on equipment and vendor financing. Soci¨¦t¨¦ G¨¦n¨¦rale Leasing and Renting Corp will also open an office in Beijing in the coming weeks.

Resource concern fuels stockpiling

The Ministry of Land and Resources announced that China will build up mineral reserves in an effort to ensure a supply of natural resources. Minerals such as aluminium, copper, manganese and uranium will be stockpiled over the next four years as part of the ministry's five-year plan. Beijing previously said strategic crude oil reserves would be filled as soon as this year. Such commodity reserves may be used by the military or to help minimize the economic impact of supply disruptions. The State Reserve Bureau made huge losses last year when trading copper in London, leading to a governmental pledge to better manage commodities. The Land Resources ministry intends to establish up to 10 metal reserves holding 20 million tonnes of copper and 200 million tonnes of bauxite - used to make aluminium.

Gasoline, diesel prices up

Gasoline and diesel prices rose by a larger-than-expected 10-11 percent. The hike increased the retail and ex-refinery prices of gasoline and diesel in the mainland by US$63.32 per tonne, an industry official told The Standard of Hong Kong. Shares in Sinopec, the mainland's largest refiner, rose 4.9 percent on Tuesday to US$0.61 while PetroChina went up 1.8 percent to US$1.08. Analysts said the move may help refiners mitigate losses and regain the margins they enjoyed in the first quarter. There was some debate, however, over how the rise will affect demand, with some observers claiming the impact will be limited. The last oil price increase was in March, when China hiked up prices between 3-5 percent for the first time in eight months.

Shenhua and Peabody Energy in alliance

Peabody Energy, the largest private coal company in the world announced that it has agreed to pursue business opportunities of mutual interest with Shenhua Group Corp, China's largest coal producer. "This is a very positive first step in advancing a strategic alliance between the world's largest coal company and the leading coal-based energy company in China," Peabody President Gregory H Boyce said in the statement. The memorandum demonstrates the two companies intent to earmark specific projects for mutual development, including potential local and global coal projects, and calls for the sharing of methodology. Shenhua Group Corp is the state-owned parent of Hong Kong-listed China Shenhua Energy Company Limited.

Jan-April premium income 204.54 bn yuan

Premium income by China's insurers during the first four months of the year totalled RMB204.54 billion, up 10.7 percent from RMB184.84 billion posted a year earlier, the China Insurance Regulatory Commission said. At the end of April, total assets of China's insurers stood at RMB1.63 trillion, up from RMB1.32 trillion a year earlier. Property premium income grew 8.4 percent to RMB49.55 billion during the period, from RMB45.69 billion a year earlier, while premium income from life insurance policies was up 10.7 percent at RMB124.69 billion, it said.

AIU receives approvals for Guangdong and Jiangsu

American International Group announced that its life and general insurance subsidiaries in China, American International Assurance Company Ltd and AIU Insurance Company Inc, respectively, have received approvals from the China Insurance Regulatory Commission for expansion throughout Guangdong province. Approval has also been received for its life insurance subsidiary for expansion throughout Jiangsu province. The approvals enable branches of the two AIG subsidiaries to expand in Guangdong and Jiangsu.

Anti-dumping measures on Japan, South Korea

The Ministry of Commerce imposed anti-dumping measures on three disodium food additive imports from Japan and South Korea. The ministry said the three additives are disodium inosinate, disodium guanylate and disodium ribonucleotide. The new anti-dumping measures came into force today and will last for five years, the ministry added. The maximum tariff has been set at 119 percent. No further details were provided. Disodium food additives are flavour enhancers and are used to make MSG and sauces.

Asahi to build fifth beer plant in China

Asahi Breweries Ltd announced plans to build a beer plant in China's Zhejiang province, its fifth such factory in the country. The new facility, in which the company will invest about US$36.4 million, will have an annual output capacity of 100,000 kilolitres. The addition will raise Asahi's total beer production capacity in China to 670,000 kilolitres annually, making it the largest Japanese brewer in the country. Asahi will soon establish a company in China to operate the new plant, which is expected to start production for sale in the local market in May 2007. The firm is capitalized at about US$19.66 million, 25 percent of which will be provided by ABIH, a local joint venture between Asahi and Itochu, and 75 percent by an ABIH subsidiary. The plant will make mainly low-priced beer that will sell for the equivalent of about US$0.36 per container.

Wine not safe from counterfeiters

Wine makers have taken significant steps to battle widespread trade in fakes in China. Some top brands have taken heavy hits after being targeted by counterfeiters, reported AFP, particularly the most famous vintages. Companies have taken steps ranging from monitoring partners to marking bottles using special engraving moulds, holograms or computer chips that guarantee authenticity and traceability. Still, the battle to combat the production and distribution of fake wines in China is an uphill one, producers said during the Vinexpo conference in Hong Kong, although some expect China's WTO entry will force the government to take more decisive steps.

Ire over ore

A showdown between Chinese steelmakers and global iron ore producers is looming after a second of the world's big three iron-ore mining companies disclosed agreements with international steelmakers to raise the price of ore by more than China is willing to pay. Anglo-Australian Rio Tinto said it had secured a 19 percent increase in the price of iron ore it sells to Japanese steel mills, following similar statements from Brazil's Companhia Vale do Rio Doce SA, which settled terms with German, Japanese, Italian and South Korean steelmakers this week. China had yet to agree terms, but the deals cut with other steelmakers are likely to undermine its position, particularly given Beijing's failure to strike an early deal. It had previously been reported that other steelmakers were prepared to leave the negotiating floor open to China, the world's biggest iron-ore customer and largest steel producer by output, after iron-ore prices rose 72 percent in 2005. Along with Australia-based BHP Billiton Ltd, the three companies control roughly 75 percent of the world's exports of iron ore.

Inco to build new plant

Inco announced plans to build a new plant for the production of utility nickel in Dalian, Liaoning province, according to media reports. The Canada-based mining and metals company will make nickel products for the growing local market in the new plant, which will begin construction in the third quarter of 2006 and start production in the first half of 2008. The US$63m plant will be built, owned and operated by Inco New Nickel Materials (Dalian), a JV in which Inco indirectly holds a 97 percent equity interest while Ningbo Sunhu Chemical Products holds the remaining 3 percent.

China Mobile expands reach

China Mobile is poised to expand into emerging markets around the world through the US$5 billion acquisition of Millicom International Cellular of Luxembourg. The parent company of China Mobile (Hong Kong) is finalizing details of the deal with Millicom's shareholders. Sources said China Mobile's offer ranged between US$48-50 per share, representing a premium of up to 14.2 percent. State-owned China Mobile is racing against large mobile operators to establish itself in emerging markets like Africa where penetration rates are low and opportunities high. The company's bid appeared likely to beat out a competing one from Mobile Telecommunications Co (MTC) of Kuwait, although no official statements have been forthcoming. The deal would be the largest overseas acquisition by any Chinese company.

France Telecom joins China's 3G standard alliance

France Telecom joined an industry alliance promoting China's homegrown 3G mobile technology standard TD-SCDMA, making it the first foreign telecom operator to join the group. Wang Jing, Secretary General of the TD-SCDMA forum, was quoted as saying that the addition of France Telecom Beijing R&D Co to the alliance will further promote the commercialization of the TD-SCDMA standard. France Telecom's subsidiary Orange formed a partnership with Chinese handset manufacturer Amoi aimed at developing low-cost 3G smartphones, with the first such phone to be launched commercially by the end of this year or early next year.

ATR plans rep office

The France-based regional aircraft manufacturer ATR announced plans to set up a representative office in Beijing to expand further into the Chinese aircraft market. Avions de Transport Regional, the world leader in the 50- to 70-seater turboprop aircraft, planned to strengthen its cooperation with Chinese airlines and have a permanent presence in this important market. "In the coming 15 years, the commercial aviation market will expand significantly in China," Bagnato said. "ATR will supply state-of-the-art aircraft with jet-like comfort." chief executive officer Bagnato said. The revival of the turboprop is due to the soaring price of crude oil, the growth in regional air traffic and pressure on airlines to reduce costs.

Great Wall Airlines gets operation approval

Great Wall Airlines, in which Singapore Airlines Cargo holds a 25 percent stake, received a licence from China's aviation regulator. The Shanghai-based airliner Great Wall becomes first Sino-foreign joint venture to obtain such approval and will operate three cargo flights from Shanghai to Amsterdam, Singapore and Bombay/Chennai. State-owned aerospace technology company China Great Wall Industry Corporation and Singapore private equity company Ascendas Land PTE Ltd own 51 percent and 24 percent of the firm, respectively.

China raises oil prices for aviation

China raised the price of gasoline, diesel and kerosene for aviation by more than US$60 a tonne. Prices for the processed oil rose by US$62.4 a tonne. The hike was necessary because China's prices were well below others on the international markets, a commission official said, adding that China's oil suppliers had been asked to boost supplies to meet demand. High fuel prices had already been blamed for big losses reported by Chinese airlines, despite the booming air travel market in China. Chinese airlines posted total losses of RMB2.14 billion in the first quarter of 2006. At the end of the first quarter China owned 883 planes, and it is forecast to nearly double its fleet by 2010.

Big-time China IPOs in Hong Kong

Industrial and Commercial Bank of China (ICBC) announced it will sell shares to the public this year following the successful IPOs of China Construction Bank and Bank of China (BOC). ICBC is the country's largest bank, with 18,000 outlets and 100 million customers. ICBC became a joint stock company between the Ministry of Finance and Central Huijin Investment, the investment arm of the central government, last year. Goldman Sachs, American Express and Allianz Group later paid US$3.78 billion for an 8.89 percent stake. BOC had earlier raised US$11.2 billion in Hong Kong after pricing shares slightly below the top of the range. The bank sold 29.5 billion shares priced at US$0.38, near the top of the US$0.32-0.39 range. Institutional investors applied for 20 times the amount of shares offered while retail investors subscribed to 77 times the amount available. Saudi Prince Alwaleed bin Talal's Al Azizia Commercial Investment Company paid US$2 billion for a 2.7 percent stake in the bank. Meanwhile, Royal Bank of Scotland, which bought a 5 percent stake prior to the IPO, has seen the value of its investment double. BOC's IPO became the world's sixth-largest IPO, bucking a recent downward trend in regional stock markets, including Hong Kong's benchmark Hang Seng Index. Tianjin Port Development elicited a similarly favourable response as its shares rose 26.33 percent in its Hong Kong debut, although not as high as the 30-40 percent gain expected. Retail investment in its IPO in May was over 1,700 times oversubscribed, a record in the territory.