BIZ BRIEFS

GENERAL

Beijing holds on to dollars

Beijing reiterated its commitment to US dollar holdings on August 12, when the official Xinhua News Agency carried an interview with an unnamed central bank official. The official said that US dollars and government bonds are "an important part of China's foreign reserve investments". The restating of support for US dollar assets was designed to reduce speculation that it will dump its dollar holdings in a trade war with the US. China has the world's largest foreign exchange reserves, composed mainly of its US dollar assets worth US$1.3 trillion (€950 billion).

Zhou supports carbon trading

A move by Beijing to use financial incentives to deliver pollution cuts could see the introduction of a system of carbon emissions quotas and a carbon-trading exchange. Writing in a magazine supervised by the State Environmental Protection Agency, central bank governor Zhou Xiaochuan said China had much to learn from international carbon-trading mechanisms. He also suggested a degree of price liberation for commodities such as coal, oil products, natural gas, water and electricity. The government maintains prices at below market value in order to ensure social stability. Critics argue that this merely encourages waste. It is thought that a cap-and-trade system, under which enterprises buy and sell carbon credits to meet individual emissions quotas, is still a long way off.

PBOC vows to stop overheating

China's central bank said that preventing the national economy from overheating would be its top priority. The central bank said in its second-quarter monetary policy report that it would continue to implement "prudent" monetary policy in the second half and would use macroeconomic control measures to maintain China's economic stability. It also pledged to take measures to control inflation and maintain price stability. The bank said it would continue to address excessive liquidity with open market operations and the reserve requirement ratio, along with the creation of more hedging instruments.

EU to lift tariff on light bulbs

The European Union announced it would remove a 66 percent antidumping duty on Chinese-made low-power light bulbs, citing ongoing efforts to reduce energy use and carbon dioxide emissions. German company Osram protested the move, saying below-cost light bulbs hurt European manufacturers, as eco-friendly bulbs made in China can cost as little as a third of what European-made bulbs cost. EU spokesman Peter Power dismissed Osram's complaints as biased and not representative of the industry at large, since a removal of the tariff would stand to benefit other companies like competitor Philips, which makes more light bulbs in China than Osram.

Moody's raises China rating

Moody's raised its debt rating for the mainland from A2 to A1, its fifth-highest, joining Standard & Poor's, the Asian Development Bank (ADB) and the International Monetary Fund (IMF) in optimistic projections for the Chinese economy. The ratings agency said the government's and state-owned banks' low external debts, especially compared with its US$1.3 trillion (€950 billion) in foreign exchange reserves, enabled the economy to resist external shocks and concentrate on structural reform.

Mine spill threatens water supply

Runoff from a major leak in a lead-zinc mine spilled into the Zi River in Hunan province in July, cutting off water supplies to 200,000 residents downriver. State media reported that 29,000 cubic metres of lead-zinc residue flooded into the river after a drain-pipe ruptured at the nearby Zhongtai Mining Corporation. The spill marks the second time that pollution on the Zi River has disrupted water supplies, and the latest of several recent such accidents. An explosion at a chemical plant in Jilin province in 2005 dumped toxic chemicals into the Songhua River, cutting water supplies to millions of Chinese.

ENERGY

Power shortages widespread

Power shortages are becoming more widespread across China, according to a new national-level report. The China Electricity Council report found that power shortages had spread beyond the south of China, with 12 provinces and regions affected in the first half of the year. These included Beijing, Shanghai, Tianjin and Sichuan province. Power consumption in the first six months of the year was up 15.56 percent, to 1.5 trillion kilowatt-hours from the same period in 2006. Industry accounted for about three-quarters of consumption, rising 17 percent. Inner Mongolia, Yunnan and Ningxia had the highest increases in consumption.

Westinghouse signs nuclear plant deal

Westinghouse, a subsidiary of Toshiba Corp, inked a multibillion-dollar contract with China to build four nuclear power plants in 2009, to be completed and operable from 2013-2015. The details of the contract were not disclosed, but the agreement specified the use of Westinghouse's reactor technology. China currently has 11 nuclear reactors in operation, and is expected to build as many as 32 nuclear power plants by 2020 in an effort reduce its reliance on imported oil.

Call for energy price hike

Five major electricity generation groups, constituting the bulk of China's power industry, reportedly wrote a formal letter to the central government calling for a further electricity price increase. The five companies are China Datang Corporation, China Huaneng Group, China Huadian Corporation, China Power Investment Corporation and China Guodian Corporation. This is the third time this year that China's main power producers have jointly lodged price-increase applications to the National Development and Reform Commission (NDRC) under the State Council in response to an increase in the price of coal, increasing government calls for nationwide reductions in pollution and rising power consumption.

CNOOC, SPC sign production sharing contract

China National Offshore Oil Company Limited (CNOOC Ltd) announced that its parent China National Offshore Oil Corporation (CNOOC) has signed a production sharing contract with Singapore Petroleum Company Ltd (SPC) for a block in the South China Sea. Under the terms of the contract, all costs incurred during the exploration period will be borne by SPC and CNOOC Ltd is entitled to take an interest of up to 51 percent in any viable discoveries in the block.

Chevron in Sichuan gas field

US energy firm Chevron won a bid to help develop a PetroChina natural gas field in Sichuan province. The company had been competing with Royal Dutch Shell, Total and Statoil for development rights. The collaboration will tap the Luojiazhai gas fields, which carry 57 billion cubic metres of natural gas reserves. Luojiazhai will be the third natural gas field PetroChina has jointly developed with a foreign company, highlighting a trend towards allowing foreign companies to cooperate on refining and petrochemical projects in the country's tightly held energy sector.

China buys stake in UK gas company

People's Bank of China (PBOC), China's central bank, purchased a 0.46 percent interest in UK gas giant BG Group. According to exchange records, PBOC bought the stake, worth an estimated US$254 million (€187 million) at the current share price, between June 13 and July 15. PBOC representatives declined to comment on the purchase, saying only that the bank did not engage in investment activities. Wall Street analysts speculate that PBOC purchased the stake on behalf of China's new sovereign investment fund, the China Investment Corporation (CIC). SIC manages US$200 billion of the PBOC's US dollar reserves. Its investments are intended to further Beijing's goals of technological development and resource security.

COMMODITIES

Steel firms consolidate

Wuhan Iron & Steel announced it will acquire Kunming Iron & Steel in a move that pushes forward the consolidation of China's fragmented steel sector. The government is keen to remove small and inefficient operators by closure or merger with a view to creating two or three leading steel companies by 2010, each boasting a production capacity of 30 million tonnes per year. China's largest steel firm, Shanghai Baosteel, produced 11.9 million tonnes in the first half of the year.

Second petroleum exchange opens

The mainland's second petroleum exchange started trading July 25 in Dalian, Liaoning province. The Dalian Petroleum Exchange would mainly deal with spot transactions of fuel oil, bitumen and petrochemical products, said Zhou Peiliang, general manager of the exchange. Zhou said the exchange would build itself into a "trading, pricing and information centre". The first exchange for the trade of oil products on the Chinese mainland, the Shanghai Petroleum Exchange, opened on August 18, 2006.

Steel exports down

Chinese crude steel exports may fall by as much as 60 percent in the second half of 2007. According to a report by the China Iron and Steel Association, crude steel exports are expected to fall from 30.6 to 12.24 million tonnes in the second half of the year. The report cited government policies designed to rein in the domestic steel industry and cool the overall domestic economy. Chinese officials lifted export rebates on more than 80 steel products and doubled the export tax this year in an attempt to cool the sector. The industry report called for steelmakers to reduce planned production and cancel expansion projects to avoid price instability caused by domestic oversupply.

FINANCE

New property PE funds

Singaporean property developer Ascendas launched two China-focused private equity funds totalling US$924 million (€679 million) to invest in the country's industrial and commercial property market. The US$528 million Ascendas China Commercial Fund will target high-end commercial properties in first-tier cities, while the company's industrial and business parks fund will mainly invest in light industrial and logistics facilities like warehouses, distribution centres and suburban business offices. The commercial fund's seed assets include Ascendas Ocean Tower, an office building in Shanghai.

CDB to go commercial

China Development Bank (CDB), the country's largest policy-oriented lender, has worked out a plan to transform itself into a full-fledged commercial bank. As part of the proposed plan now being reviewed by the State Council, CDB hopes to receive a capital injection of at least US$20 billion (€15 billion) from Central Huijin Investment Corp to help the reform process. CDB and Central Huijin have yet to finalise the terms of their agreement, as they are still in talks.

Insurance investment cap

Draft regulations were issued placing a 25 percent cap on foreign investment in China's insurance companies. The proposed rules, which are similar to those already effective in the banking sector, indicate Beijing's wish to attract foreign strategic investors and overseas expertise while retaining overall control. Foreign investors must hold their stakes in domestic insurers for at least three years, with no single foreign investor permitted to own more than 20 percent of a local firm, except for approved insurance holding companies and firms. HSBC has a 17 percent stake in Ping An Insurance while a consortium led by Carlyle Group and Prudential Financial owns 19.9 percent of China Pacific Insurance.

China AMC plans QDII fund

China Asset Management Co (China AMC) announced plans to launch its first fund under the qualified domestic institutional investor (QDII) scheme to raise US$1.06-1.32 billion (€780-970 million) in September. China AMC is the country's largest mutual fund company, and one of the four state-approved funding houses to invest domestic clients' money in markets overseas. Although the QDII program is intentionally set up to broaden investment alternatives for local investors, few analysts expect heavy investments into QDII funds as long as the domestic stock market remains bullish and the country's currency further appreciates.

Sino Life to invest in HK stocks

Sino Life Insurance has received approval to invest on the Hong Kong stock market, becoming the first mainland insurer to do so. The firm received approval from the China Insurance Regulatory Commission (CIRC) to invest in stocks abroad under new rules. Sino Life had total assets of US$1.32 billion (€0.969 billion) in May. The CIRC announced in July that domestic insurers could invest 15 percent of their assets abroad, up from 5 percent previously, under the wide-ranging Qualified Domestic Institutional Investor (QDII) scheme, which includes banks and other financial institutions. Ping An Insurance, the country's second-largest insurer by premiums after China Life, announced plans in June to invest US$9.7 billion overseas.

TRANSPORTATION

GM set to break 1 million mark

US automaker General Motors (GM) is on course this year to sell more than 1 million vehicles in China for the first time ever. The company's chief financial officer, Fritz Henderson, said that demand for new vehicles in China is up 21 percent, putting total auto sales in the country at 8.4 million units this year. This represents a fourfold increase on the 2 million autos sold in 2001. Earnings from GM's Chinese joint ventures, which include partnerships with Shanghai Automotive and Wuling Automotive, are set to hit US$230 million (€170 million), up from US$157 million in 2006. With US sales falling 18.5 percent in July, GM is increasingly looking towards emerging markets such as China, India, Russia and South Africa for growth opportunities.

SAIC, Nanjing Auto to merge

Shanghai Automotive Industry Corporation (SAIC) and Nanjing Auto announced a "strategic alliance" as a first step toward an eventual "complete union" of the two Chinese automakers. The steps toward an eventual merger represent part of a coordinated effort by Beijing to develop the Yangtze River Delta region and consolidate major national industries. Beijing has supported increasing consolidation in strategic industries as a method to enhance global competitiveness and create national brands. An eventual merger would increase the size of SAIC, already the country's largest automaker, by an additional 200,000 units a year.