BRIEFS

GENERAL

Teenagers show traditional values

Teenagers in China are happy to buy brand-name products, but a strong adherence to traditional values sets them apart from peers across the Asia-Pacific region. A recent survey by McKinsey & Company says urban teenagers between 12 and 17 years of age spend US$36 billion every year. Most of them said they value name brands and fashion but they are traditional about family and saving money, the Financial Times reported. Among respondents, 96 percent expected to support their parents in old age, while only 79 percent of parents expected the support. At the same time, more teens than adults saw saving a significant amount of money as a "virtue".

Chemical clean-up in Shanxi

Efforts are being made to clean up 60 tons of toxic coal tar spilled into a river that feeds a reservoir serving 10 million people, state media reported. A truck carrying the coal tar fell into the Dasha River in Shanxi province in late June. By the next day, the pollution had already reached Hebei's Fuping County, where 50,000 people rely on the river for drinking water. The principal danger is the spill reaching the Wangkuai Reservoir, which supplies Baoding, a city with a population of 10 million. Around 24 makeshift dams have been set up along the river using cotton batting, sponge, straw and activated carbon to absorb the coal tar. There have been at least 76 water pollution accidents since the chemical spill in the Songhua River in northeast China last November, which deprived millions of people of water.

Blasts set stage for Three Gorges Dam

More than 191 tons of dynamite, detonated in less than 12 seconds, blew up the cofferdam protecting the Three Gorges Dam, which will now begin to control floods along the Yangtze River. The "world's greatest blast" created giant waves and hid the main dam in a cloud of mist and smoke. State media reported the amount of dynamite used was enough to blow up 400 10-storey buildings. The temporary dam was 580 metres long and 140 metres high. Flood season usually starts this month. Demolition of the cofferdam, built in 2003 to hold back water and generate power, raised the water level along the main dam by four metres to 139 metres.

Survey: Business climate positive

Efforts to cool down the economy may not be working as well as the government expected. A survey by China's National Bureau of Statistics shows the business climate index rose to 135.9 in the second quarter of 2006, up from 131.5 in the first three months. Construction businesses showed the largest gain, rising 11 points in Q2 from Q1. The bureau surveyed 19,500 firms. The index works on a scale of 0 to 200 with anything over 100 showing improving business conditions. Survey results are in line with recent economic data. China's gross domestic product jumped 10.3 percent during Q1.

China now fourth-largest economy

China surpassed Britain to become the fourth-largest economy in the world, according to a World Bank report. The report pegged China's economic output at US$2.26 trillion, US$94 million or 0.004 percent more than Britain's. Although China overtook Britain last year based on gross domestic product converted in US dollars, the World Bank makes the conversion based on a three-year average, which smoothes out currency fluctuations. The US, Japan and Germany maintain first, second and third places. The World Bank posted the ratings on its website over the weekend. Still, economists said there remains a large gap between China and Britain's economy in terms of quality.

Piracy costs moviemakers US$2.7 billion

Mainland piracy cost the movie industry US$2.7 billion last year, according to a study commissioned by the US-based Motion Picture Association. The US film industry incurred more than half of the losses, with the rest evenly split between association members and companies from Hong Kong and other Asian and European countries. The association called on the mainland to improve market access for films, claiming that pirates fill the gap when films are blocked from Chinese cinemas. The mainland only allows about 20 imported foreign films on a full revenue-sharing basis each year, but pirated DVDs of most films are widely available for about US$1. The study found 93 percent of discs on the mainland were counterfeit, down slightly from 95 percent in 2004.

Pollution wipes 10 percent from GDP

Environmental pollution costs China an estimated 10 percent of GDP every year, according to a white paper released by the State Council Information Office to mark World Environment Day. Launching the white paper, Zhu Guangyao, deputy director of the State Environmental Protection Administration, the country's top environmental watchdog, said the estimate was two percentage points higher than an estimate made in the mid-1990s. Zhu said the central government had focused on tackling environmental problems and had a detailed clean-up plan for the next five years. He added that the environment was playing an increasingly important role in the government's attempts to cool the economy.

Economist predicts Q3 slowdown

Extremely high economic growth in the first five months of the year should slow down in coming months, the South China Morning Post reported. Inflationary pressures in the US and Japan will likely slow down the country's runaway economy, Morgan Stanley's chief Asia Pacific economist told the newspaper. However, People's Bank of China Governor Zhou Xiaochuan, told the Wall Street Journal the economy will expand at least 10 percent in the second quarter and throughout 2006. Despite measures to slow down growth, China's economy is steaming ahead, the newspaper said, with investments in factories and other fixed assets in the first five months of 2006 up 30.3 percent from a year before. Officials expect growth of 10.3 percent in the first half of the year and a more moderate 10 percent for all of 2006.

Auditor finds irregularities at ABC

China's National Audit Office has alleged criminal conduct at the Agricultural Bank of China involving US$1.1 billion. The irregularities, which relate to its 2004 financial statements, were discovered in an examination of the troubled bank's books. The chief auditor said the criminal conduct involved 51 different cases and 157 individuals. Irregularities in deposits worth US$1.79 billion and illegalities in the bank's lending business, including loans for cars and poverty reduction, worth US$3.45 billion, were also uncovered. ABC has traditionally been the weakest of China's big state banks and has a non-performing loan ratio of almost 25 percent, much higher than the 8 percent average across the sector at the end of March.

SPDB branch fined over dodgy loans

The country's banking regulator suspended mortgage operations at a branch of Shanghai Pudong Development Bank, the Wall Street Journal reported. The regulator found faked collateral on bank loans and fined the branch US$62,400, temporarily suspended mortgage operations and gave it six months to rectify the problem. The regulator also said the head of the Lujiazui branch will no longer be able to hold any position that requires its approval and that bankers directly involved in fraudulent loans will not be permitted to work in the banking industry again. Shanghai Pudong Development Bank said in October it had discovered faked collateral on 32 mortgage loans valued at US$15.7 million.

China may liberalise banks

Beijing may soon raise the cap on foreign investment in smaller banks, the Wall Street Journal reported. Former US Commerce Secretary Don Evans told newspapers it was his belief that restrictions could be eased in coming months. Evans was in Beijing as head of the Financial Services Forum, which represents the CEOs of the world's biggest financial institutions. The cap for a single investor in a Chinese bank is now 20 percent, while maximum overall foreign investment in any single bank is 25 percent. Evans said caps on smaller banks are likely to be raised before any changes are made to the Big Four state banks. It has been difficult for foreign companies to work out management arrangements while controlling only 20 percent of shares. Evans did not offer a timetable for the changes or any new thresholds.

China to cut auto import tariff to 25 percent

China will cut its auto import tariff again from the current 28 percent to 25 percent, the official Xinhua news agency reported. In January, China had reduced the tariff from 30 percent to 28 percent. The new policy, which also applies to imported passenger cars, will take effect from July 1, the report said. The report added that it would be the last time the government cuts the tariff on imported autos.

Toyota to boost retail efforts

Toyota will open 1,000 dealers in China by 2010 as part of an effort to capture a 10 percent slice of the country's auto market, the Wall Street Journal reported, citing executive vice president Yoshi Inaba. Inaba said he wants each of Toyota's 1,000 dealers to sell 1,000 vehicles a year to boost Toyota sales to one million vehicles annually, up from 183,000 last year. He expects demand in the Chinese passenger-vehicle market to grow to roughly 10 million vehicles a year by 2010. Toyota operates nearly 220 dealers in a joint venture with China's First Auto Works Group and will add 110 more later this month when its second joint venture in China, with Guangzhou Automotive Group, launches its retail business.

GM exec joins SAIC

The former head of General Motors China, Phil Murtaugh, was named the new executive vice-president for international operations at Shanghai Automotive Industry Corp (SAIC), GM's joint venture partner. The move placed the 51-year-old executive at the centre of SAIC's overseas push. The company announced plans to sell SAIC-brand cars in the UK by 2007 and across Europe by 2009. It also said it plans to produce luxury cars based on designs it acquired from MG Rover, as well as a range of family sedans and smaller cars. Murtaugh is a 32-year veteran of GM who was instrumental in making the company's China operations an important source of profit.

Air China to list at home

State-run carrier Air China is awaiting approval for a US$1 billion domestic share offering, Shanghai Securities News reported, citing Zheng Baoan, board secretary of the company. The airline had earlier said it planned to issue as many as 2.7 billion A-shares, priced no lower than 90 percent of the average price of its Hong Kong shares, during an unspecified "consultation period". No timetable was given for the IPO. The airline's shares fell 1.7 percent to US$0.37 on Hong Kong's stock exchange on the day of the announcement.

Cross-strait flights to rise

Mainland China and Taiwan announced an increase in the number of direct charter flights across the Taiwan Strait. Holiday passenger, cargo, medical and humanitarian charters could possibly start within weeks of the announcement, with regular, full charter services to be launched within four to five months. Negotiations between the Taipei Airlines Association and the Cross-Strait Aviation Transport Exchange Council - two groups entrusted by Taipei and Beijing to deal with the issue - still need to be completed. Charter flights will still need to fly over Hong Kong airspace.

Cathay, Air China cement relationship

Cathay Pacific's long-anticipated takeover of Dragonair to unite Hong Kong's two leading airlines has been announced. As part of the deal, Air China - Dragonair's largest shareholder - will get a reciprocal stake in Cathay, complementing Cathay's existing 10 percent stake in Air China. This should give Cathay and Air China an edge over state-owned rivals China Southern and China Eastern in Greater China's aviation market. Cathay will absorb China National Aviation (CNAC) and Beijing-backed CITIC Pacific's controlling 71.8 percent interest in a transaction reportedly worth US$1.3 billion.

Coal-to-oil deal may cut imports

A deal between Chinese and South African companies that includes cooperation on coal-to-oil technology may help reduce China's dependency on imports. The agreement was signed during a visit by Premier Wen Jiabao, who was in South Africa as part of a seven-nation tour of the continent. The technology was developed by the world's largest producer of synthetic fuel from coal, Sasol. A consortium led by China's Shenhua Corp signed the agreement. The deal includes the second part of a study for the construction of a coal liquefaction plant in Shaanxi. If it becomes operational, the plant could produce up to 80,000 barrels of oil per day from coal. A similar deal was signed a day earlier for another project in China's Ningxia region.

Oil and coal profits up

The oil processing and coking industry reported losses of US$2.7 billion. Other industries fared better. Oil and natural gas explorations soared with growth of 52.3 percent and the electric power sector saw profit growth of 43 percent. Coal sector profits went up 9.3 percent. Of the industries reported, it was the non-ferrous metal smelting and processing that saw the highest profit growth, with a jump of 106.9 percent in the first five months of the year.

Sinopec to explore Iran oil block

Oil giant Sinopec signed a deal worth between US$20 million and US$59 million with Iran for the exploration and potential development of its onshore Garmsar oil block, Chinese state media reported, citing Iranian state radio. Garmsar is one of 16 oil blocks Iran put out to tender in 2003. The exploration deal covers a four-year period, and the block will be awarded to Sinopec if it is found to be viable. The deal came after Iranian President Mahmoud Ahmadinejad's visit last week to China for a meeting of the Shanghai Cooperation Organization, a regional cooperation grouping in which it is an observer. Shanghai Securities News said Sinopec has also bid on three other onshore blocks in Iran - Khorramabad, Kuhdasht and Saveh.

Oil imports up 19 percent

Crude oil imports rose sharply in May due to increasing demand from refiners and a low base in the corresponding month last year, customs figures show. China imported 12.39 million tons of crude last month, or 2.93 million barrels per day, up 19 percent on May 2005. In April, imports fell 1.8 percent from a year earlier to 12 million tons. Part of the huge May increase can be blamed on low May 2005 imports, but analysts said the government's move to raise gasoline and fuel prices may have played a part. The figures come as a Development Research Center report called for more cooperation with China's energy-trading partners and acknowledged China's "interdependence" with international oil markets. The government agency report said energy security depends on closer integration.

China considers ethanol targets: trader

China may be considering a new energy policy that would encourage use of ethanol in an effort to clean up increasingly poor air quality, the Financial Times reported. Fabrizio Zichichi, head of ethanol at commodities trader Noble Group, said he was told by Beijing policy-makers that the country could set a target by the end of the year to boost the share of ethanol in the country's energy mix. The move could signal important political support for investment in biofuel. Ethanol is a clean fuel made from agricultural products. China is the third-largest ethanol producer in the world behind the US and Brazil, and uses mainly corn, cassava and sweet-potatoes to make it. Eight provinces have made E10 fuel, a mixture of 10 percent ethanol and petroleum, mandatory in gas stations.

Big Macs set for gas stations

McDonald's and China Petrochemical, also known as Sinopec, announced plans to build drive-through outlets of the fast food restaurant at gas stations. In a move to capitalise on growing car ownership in China, the two companies will convert 30,000 gas stations across the country into restaurants. McDonald's already has 760 restaurants in China and opened its first drive-through outlet in Dongguan, Guangdong province, last December. Two more have since opened in Foshan and Shanghai, and the company plans to develop half of the more than 240 outlets slated for opening before 2008 along the lines of the drive-through model. Sinopec said the deal would enable it to differentiate its brand in the face of competition from China National Petroleum Corp.

Suntory buy ends Foster's run

Japanese brewer Suntory is to buy Foster's brewery in Shanghai, together with its local brands, in a deal analysts believe could be worth US$17.4 million, the Financial Times reported. This would see Suntory overtake Asahi as the leading Japanese beer maker in China, with an annual output of 800,000 kilolitres to its rival's 770,000 kilolitres. It would also allow the company to consolidate its position at the head of Shanghai's beer market, taking its local market share from 54 percent to 60 percent. Japanese brewers are keen to enter China due to a decline in their domestic market. For Foster's, it marks the end of a China experience that began in 1994 and is believed to have incurred losses of up to US$110 million.

CIRC to issue new health insurance rules

The China Insurance Regulatory Commission (CIRC) said it approved "in principle" new regulations governing the management of health insurance. The health insurance rules, which define the basic regulatory system for health insurance, are the first of their kind in China, said the regulator in a statement on its official website. The CIRC said it had also approved separate draft bills on the qualification requirements for board directors and senior executives of insurance companies, and the management of foreign insurance institutions' representative offices in China. The regulator did not provide a timetable for the implementation of the regulations.

Ping An sets up asset management unit in HK

Ping An Insurance (Group) Company of China Ltd completed registration of an asset management firm in Hong Kong. The asset management unit is fully owned by Hong-Kong listed Ping An Insurance, with registered capital of HK$5 million (US$641,000) and will take charge of overseas investment for its parent company. Since the registration and operating location is Hong Kong, it will be able to legally invest in all kinds of financial tools like derivatives, equities, and real estate, and will be able to issue funds.

Cathay Life Hangzhou branch approved

Cathay Financial Holdings' wholly owned subsidiary, Cathay Life Insurance Co Ltd, secured regulatory approval to set up a branch in Hangzhou. Executive vice president Lee Chang-ken was quoted as saying the branch in eastern Zhejiang province is scheduled to open by the end of this year. The insurance company has offices in Shanghai and Jiangsu. Cathay Financial chairman HT Tsai said each branch in China should break even within four to seven years.

Ten China insurers win third-party licenses

Ten Chinese insurance companies won licenses to offer compulsory third-party motor insurance, the China Insurance Regulatory Commission (CIRC) said in a statement on its website. The 10 insurers are People's Insurance Co of China (PICC), China Pacific Insurance, Ping An Insurance, China Continent Property & Casualty Insurance, Dazhong Insurance, Huatai Insurance, Yong An Insurance, Alltrust Insurance, Sunshine Property & Casualty Insurance and Sunshine Mutual Insurance Co. The CIRC said it will soon select qualified insurers from 11 other firms that have applied for similar licenses. China released new insurance rules in March requiring all motor vehicle drivers in China to have third-party liability coverage. The new rules, which took effect from July 1, bar foreign insurers from the third-party liability market.

CITIC Pacific to buy 65 percent of Shijiazhuang Steel

CITIC Pacific received regulatory approval to acquire a 65 percent stake in Shijiazhuang Iron & Steel in Hebei province. The Hong Kong-based conglomerate will pay about US$160 million for the deal. This is the fourth mainland steelmaker acquired by CITIC Pacific in addition to Hubei Xin Yegang, Hubei Daye Special Steel and Jiangyin Xingcheng Steel.

Almatis opens facility in China

Germany-based Almatis officially opened its expanded tabular alumina facility in Qingdao, China. After the US$18 million investment in the expansion, which includes two new tabular converters and a completely new tabular CD processing line, the facility now possesses a fully integrated production line for the manufacture of tabular alumina. Also in Qingdao, China, Almatis is now planning to build an additional calcined alumina facility by 2007 to meet the increased demand for calcined alumina products used in refractory and technical ceramic applications.

Deal reached on iron ore prices

China's steelmakers ended months of speculation by agreeing on a 19 percent increase in the price of ore with major mining companies. BHP Billiton is so far the only mining company to confirm a deal, but state media said confirmation of agreements with CVRD and Rio Tinto would follow shortly. The three companies control 75 percent of the global iron ore supply, but Beijing thought it could use its clout as the world's largest consumer of the commodity to restrict the price rise following a massive increase of 71.5 percent last year. To this end, domestic steelmaker Baosteel was allowed to take the lead in negotiations instead of Japanese and European buyers. However, a long stand-off in negotiations saw the other steelmakers capitulate to the mining companies' demands, and in the end China was forced to follow suit and agree to a 19 percent increase.

Clash over PCCW telecoms sale

Hong Kong's largest telco, PCCW, raised the ire of mainland telco China Netcom, its second-biggest shareholder, with plans for the sale of core telecommunication and media assets worth around US$7 billion. A consortium led by Australia's Macquarie Group and US buyout fund TPG-Newbridge, a unit of Texas Pacific Group, are both bidding for the assets. Rupert Murdoch's Star Group had discussions with Macquarie about joining its US$7 billion, possibly representing a second attempt by the Australian media mogul to gain a stake in PCCW after his News Corp, in partnership with Singapore Telecommunications, lost a takeover battle for Cable & Wireless HKT to PCCW in 2000. China Netcom bought a 20 percent stake in PCCW early last year, earning three seats on PCCW's 17-member board and the right to reject the sale of shares in the company's fixed-line phone and broadband businesses. However, the contract did not give the mainland telco the right to reject the sale of the assets themselves, according to a PCCW statement. The bidders await regulatory approval from Beijing, which is wary of seeing telecom assets fall under foreign control and could still block the sale.

Nokia sues over IP theft

Nokia, the world's largest mobile handset maker, filed suit against two Shenzhen-based phone manufacturers, Shenzhen Telsda Mobile Communication Industry Developing Co and Song Xun Da Zhong Ke Electronic Co, alleging they copied the design of its popular Nokia 7260 handset. The Finnish company said it is asking a Beijing court to force the manufacturers to stop making and selling the phones. Last year, China superseded the US as Nokia's largest market, with sales growing 28 percent to US$4 billion.

China Mobile flies with Phoenix

Telecom operator China Mobile bought a 19.9 percent stake in Phoenix Satellite Television for an undisclosed sum from Rupert Murdoch's News Corp. News Corp has a 38 percent stake in Hong Kong-based Phoenix, China's most successful television broadcaster. China Mobile said the tie-up would enhance the services it could offer across its 3G platform. However, the issuing of 3G licences is expected to be delayed well into 2006 or even 2007.

SK Telecom buys into China Unicom

South Korea's largest mobile phone operator, SK Telecom Co, announced plans to buy as much as US$1 billion in bonds from China Unicom, which can be converted into a 6.7 percent stake in the company, Bloomberg reported. The Korean group said it wanted to generate overseas earnings to make up for a slowdown in subscriber growth in its domestic market, following a similar strategy to that of Singapore Telecommunications. The investment will enable China Unicom to upgrade its networks ahead of the long-awaited implementation of 3G services. China Unicom is currently vying with larger rival China Mobile and fixed-line operators China Telecom and China Netcom for 3G licenses. SK Telecom and China Unicom already have a US$6 million joint venture offering wireless content such as games and ringtones, which was set up in 2004.

Clash over PCCW telecoms sale

Hong Kong's largest telco, PCCW, raised the ire of mainland telco China Netcom, its second-biggest shareholder, with plans for the sale of core telecommunication and media assets worth around US$7 billion. A consortium led by Australia's Macquarie Group and US buyout fund TPG-Newbridge, a unit of Texas Pacific Group, are both bidding for the assets. Rupert Murdoch's Star Group had discussions with Macquarie about joining its US$7 billion, possibly representing a second attempt by the Australian media mogul to gain a stake in PCCW after his News Corp, in partnership with Singapore Telecommunications, lost a takeover battle for Cable & Wireless HKT to PCCW in 2000. China Netcom bought a 20 percent stake in PCCW early last year, earning three seats on PCCW's 17-member board and the right to reject the sale of shares in the company's fixed-line phone and broadband businesses. However, the contract did not give the mainland telco the right to reject the sale of the assets themselves, according to a PCCW statement. The bidders await regulatory approval from Beijing, which is wary of seeing telecom assets fall under foreign control and could still block the sale.

Big plans for CITIC

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$9.725 billion in Hong Kong after pricing shares slightly below the top of the range. The bank sold 25.57 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 oversubscribed by over 1,700 times, a record in the territory.