BRIEFS

GENERAL

Growth forecast raised

The World Bank raised its forecast for China's economic growth this year from 9.6 percent to 10.4 percent, indicating the country's GDP expanded 11.1 percent from a year earlier. The bank also expects the country's exports to rise 20.6 percent this year, lower than last year's 23.6 percent export growth. The projection for China's current-account surplus was also raised to US$340 billion (€255 billion), or 10.8 percent of GDP, from an 8.3 percent share of GDP in the previous forecast. The World Bank advocated tightening monetary policy and higher interest rates to address the country's massive trade surplus.

Pork causes inflationary fear

The death of millions of pigs due to rare "blue ear" swine disease and an outbreak of foot-and-mouth disease, drove pork prices up 30 percent. According to the Ministry of Agriculture, wholesale prices for pigs have gone up even more, rising 71.3 percent since April. "The surge in pork prices will likely push the year-on-year CPI (consumer price index) inflation to above 4 percent very soon," Hong Liang of Goldman Sachs in Hong Kong told the Financial Times. In addition, the price pressures on meat, which makes up about 7 percent of the CPI basket, could spread to eggs, fish and other food products.

Chalco wins mining deal

The Aluminium Corporation of China, or Chalco, the world's second-largest producer of aluminium, signed a US$2.4 billion (€1.8 billion) bauxite mining deal with indigenous groups in Queensland's northern Arukun region. In one of China's most significant mining investments abroad, the company won a tender to develop the bauxite site while Queensland committed to spending US$246 million to develop the region's transport infrastructure and add a bauxite loading facility. The mine is expected to yield about 6.4 million tons annually. Chalco made headlines again when it bought Canadian mining firm Peru Copper in June for US$792 million in June.

FINANCE

Beijing welcomes foreign buyouts

Beijing is prepared to accept foreign equity groups, following a new law that came into effect which established a legal framework for private equity and venture capital funds in China. The law encourages dom-estic and foreign private equity groups to use a Cayman Islands-registered offshore structure, and removed a rule that imposed taxes on partnerships and their individual part-ners, allowing large investors in investment funds to enjoy limited liability. Private equity investment in mainland companies has been down from 2006 levels since a law introduced last fall blocked an offshore structure.

Fund JVs consider risks

JPMorgan's firing of senior portfolio manager Tang Jiang amid allegations of illegal trading practices prompted foreign fund managers to reassess investment strategies in China. Government policy requires foreign groups to operate by acquiring a minority stake of up to 49 percent in a local joint venture, and according to McKinsey, 26 of 58 domestic mutual fund managers have minority foreign shareholders, whereas Sino-US ventures make up 40 percent of total assets under management. Chinese-managed assets, including pension funds, will jump to US$1.4 trillion (€1.1 trillion) by 2016, with leading fund industry profits of US$3 billion a year within a decade.

CITIC Securities plans IPO

China's largest brokerage by net profit, CITIC Securities, confirmed that its board approved a plan to sell up to 350 million new A-shares. The proceeds from the sale have been earmarked for increasing the firm's capital and expanding business operations. If the full number of shares is issued, it would represent 10.6 percent of the firm's expanded capital. The offering would be worth around US$2.67 billion (€2 billion). The brokerage also said its board had approved plans to pay up to US$52.3 million for a 35.7 percent stake in fund management company China Asset Management.

Ping An to buy foreign equities

Following a regulatory move that would allow insurance companies to invest in New York and London-listed stocks, Ping An Insurance said it would invest up to US$9.7 billion (€7.3 billion) into overseas equities. The China Insurance Regulatory Commission said that it plans to allow insurance companies to invest in the New York Stock Exchange and the London Stock Exchange while raising the cap for overseas investment to 15 percent of an insurer's assets from the current 5 percent. Ping An, the country's second-largest insurer by premiums after China Life, currently has US$2 billion invested abroad, but could raise that to 15 percent of its US$64.6 billion in assets when the new regulations take effect.

CIRC to take stake in New China

China's insurance regulator will set a precedent by using an industry protection fund to control the country's fourth-largest insurance company, which has been marred by a scandal. The China Insurance Regulatory Commission said it would take a 22.53 percent stake in New China Life Insurance from three shareholders - Longcin Group, Hainan Gelindao Investment and Orient Group Industry - which allegedly borrowed US$209 million (€157 million) from the insurance company illegally under former chairman Guan Guoliang. Guan was removed from his post last December for allegedly using US$1.7 billion to speculate in the Beijing property market.

Gold-exchange plan approved

The People's Bank of China approved the Shanghai Gold Exchange to allow foreign banks as members to begin trading as early as September. Market participants said the introduction of foreign banks may help the exchange boost trade and would pave the way for the launch of more derivatives products. China is the world's third-largest gold consumer, and the Shanghai Gold Exchange is the only exchange that trades gold in China, currently trading 99.95 percent and 99.99 percent of spot gold and spot-deferred gold as well as platinum and silver.

More overseas M&A

Over 90 percent of Chinese respondents surveyed by the Economist Intelligence Unit (EIU) and Norton Rose law firm said they were looking to conduct a merger or acquisition over the next 12 months. The EIU found that intra-Asian mergers and acquisitions climbed over the past five years from 1,102 cross-border acquisitions valued at US$30 billion (€23 billion) to 2,073 deals valued at US$52 billion, as buyouts by Asian companies in Europe and North America rose from US$2.6 billion in 2002 to US$15 billion in 2006. Bankers advising mainland companies predict that the country's strongest telecommunications and financial services companies will lead the acquisitions charge. ENERGY

Sinopec, CNOOC join forces

State-owned rivals China Petrochemical Corp, or Sinopec, and the China National Offshore Oil Corp (CNOOC) are working together for the first time to secure supplies of natural gas. The agreement focuses on natural gas supplies, reserves and construction of natural gas pipelines. The two companies may use their advantages to form an alliance in domestic and overseas investment in natural gas distribution, infrastructure and acquisition of overseas assets. Sinopec made a big gas find last year and is building a natural gas pipeline from the southwest to Shanghai. CNOOC supplies gas from the East China Sea to Shanghai.

Sinopec to expand refineries

China Petroleum & Chemical Corp, also known as Sinopec, the world's third-largest oil refiner by capacity, announced plans to expand five refineries along the Yangtze River. The company plans to expand its facilities in Anqing, Anhui province, Wuhan and Jingmen in Hubei province and Changling and Baling in Hunan province. A US$46 million (€35 million) pipeline would move imported crude from Nanjing to Changling, with a designed annual capacity of 21 million tons, expandable to 24 million tons. TRADE

Trade surplus swells

China's trade surplus will likely swell to between US$250 billion (€188 billion) and US$300 billion this year, while the surplus for the first four months of 2007 totalled US$63.3 billion, up 88 percent from the same period last year. In an effort to trim the surplus, Beijing cut export-tax rebates and raised export taxes for high-polluting, energy-intensive products. However, the National Development and Reform Commission said neither a stronger yuan nor cuts in export-tax rebates would shift export orders away from China, as the world's fourth-largest economy enjoys pricing power in the global market.

Trade talks pressure airlines

Agreements from bilateral trade talks in Washington in June more than doubled the number of flights between the US and China. However, state-run carriers face new pressures from commercial independence and the flexibility of their American rivals. A representative from the Centre for Asia Pacific Aviation believes the threat of intensifying competition will pressure Chinese airlines to squeeze operating costs and improve service. The big winners of the trade agreements are express delivery services, which are expanding by an average of 28 percent a year with a market that is set to grow to US$5.8 billion (€4.4 billion) this year.

TELECOM & MEDIA

Online publishing growing

In 2006, the total revenue of China's digital publishing industry exceeded RMB20 billion (€2 billion). Chang Sunshou, vice superintendent of the General Administration of Press and Publication, praised the sector's growth as an indication that the application and expansion of digitalization has become a driver of growth, for the Chinese news publishing industry. According to incomplete statistics, of the industry's total revenue, custom tones, games, and animations for mobile phones account for US$1 billion (€750 million); internet games US$850 million; network advertisement US$640 million; internet periodicals US$65 million; and electronic books US$20 million.

Tender for 3G handsets

China Mobile Communications will call for bidders in October to provide third-generation mobile handsets based on the Chinese-developed TD-SCDMA standard. An industry group said the company will award contracts worth between US$500-800 million (€375-600 million) for up to 3 million handsets that offer high-speed wireless services. The handsets should be delivered early in 2008. "It's our understanding that all the major handset producers in China will be involved," said Chen Haofei, secretary general of the TD-SCDMA Forum. China Mobile is the world's largest mobile carrier by users, with 321.4 million subscribers as of April. It was announced that Shanghai's 3G mobile phone services launch, originally scheduled for October, will be delayed until the first quarter of 2008.

Lenovo turns business around

Lenovo reported a full-year profit increase of 625 percent to US$161 million (€121 million) for 2006, compared with US$22 million the previous year. The strong results suggest that the Chinese computer maker has begun to turn round the PC unit it acquired from IBM two years ago. The big turnaround was the Americas, where Lenovo recorded losses of US$116 million in 2005, but surprised financial analysts with a strong final quarter this year, booking profits of US$60 million. Taiwan's Acer outgrew Lenovo and is now tied with it as the world's third-largest computer company, after HP and Dell.

SMG starts mobile broadcasting

Shanghai Media Group, China's second-largest media group by revenue, is expected to launch the country's first TV service broadcast directly to mobile phones next week. SMG won nationwide mobile TV permits from regulators, and Dragon New Media, a unit of SMG, has formed partnerships with China Mobile Group and China Unicom Group to focus on mobile TV services. Original programming carrying around 10 traditional TV channels is planned, and subscribers will be charged US$1.30 (€1) per month. Mobile TV will be accessible via existing second-generation GPRS wireless services.

TRANSPORTATION

Changan to boost its brand

Changan Automobile will invest US$1.6 billion (€1.2 billion) in research and development over the next five years with a view to producing 30 self-branded car models and 13 engines. The move would help the company reach total production capacity of 2 million units by 2010, 60 percent of which will be own-brand cars. The announcement comes after a number of Changan's domestic rivals have unveiled plans to develop higher-quality own-brand cars. Shanghai Automotive will spend US$1.18 billion on expansion this year, with priority placed on R&D. Chery Automobile has earmarked US$1 billion for R&D over the next decade out of a total expansion budget of US$3.9 billion.

Air passengers increase

China's airlines may carry 185 million passengers in 2007, up from 160 million in 2006. China Southern Airlines, the country's largest air carrier, may fly 16 percent more passengers this year, and other airlines look to experience similar growth due to the country's rapid economic growth and rising inbound tourism. The number of airline passengers rose by 16 percent last year, and it is predicted that cheaper airfare will encourage travellers to fill the capacity of 1.5 billion domestic flights projected for 2007.

SIA pursue China Eastern stake

As this magazine went to press, Singapore Airlines (SIA) was close to buying a stake in China Eastern Airlines. Talks between SIA and China Eastern have been continuing for more than a year. The Singapore carrier was considering a stake of up to 25 percent, which would both give it access to the Shanghai air transport market and help restructure the heavily indebted CEA. Since news of the negotiations emerged, shares in the Chinese airline have subsequently risen by more than 320 percent in Shanghai and 240 percent in Hong Kong. Based on the current share price, analysts say a 25 percent stake in CEA would cost as much as US$1 billion (€750 million).