BIZ BRIEFS

GENERAL

China: Iran's top trade partner?

China could replace Germany as the top exporter to Iran this year. The forecast was made by Western diplomats and Iranian businessmen. Germany has been Iran's top import provider for 30 years, supplying goods totalling US$5.08 billion ( €3.66 billion) last year. China is currently ranked third, after the United Arab Emirates, and exported US$4.48 billion to Iran last year. However, German exports dropped 19.8 percent in the first five months of this year while Chinese exports are growing. Iran is trying to rely more on Chinese goods in preparation for possible sanctions over its nuclear programme.

Inflation hits 10-year high

China's inflation rate hit 6.5 percent in August, its highest level in more than a decade, the National Bureau of Statistics announced. Consumer price growth was driven by an 18.2 percent year-on-year rise in food prices, with meat, eggs and vegetable prices up by 49.2 percent, 23.6 percent and 22.5 percent respectively. Non-food prices rose only 0.9 percent. A situation that began with a pig disease and was made worse by crop damage from recent floods now sees Beijing under pressure to increase interest rates for a fifth time this year. One-year deposit rates stand at 3.6 percent.

Price controls tighten

Six national ministries and administrations, including the National Development and Reform Commission, released a circular urging local governments to strictly control price increases by the end of this year. The price of goods and service set by local governments, such as utilities, are not to go up for the rest of the year, according to the circular. Local governments were also told to implement price-monitoring and reporting systems to alert them to any abnormal price changes and improve emergency reaction plans to ensure market supply and price stability. China's consumer price index in August rose 6.5 percent year-on-year, an 11-year high.

China tops Korea in shipbuilding

China overtook South Korea as the world's largest shipbuilder in terms of deadweight tonnage (dwt), the total carrying capacity of a ship. China's orders for the first half of the year grew 165 percent from the previous year to total 49.9 million, outstripping South Korea at 42.8 million. South Korea remains the world leader in other measures, including compensated growth tonnage (which includes a measure of added value) and market share, with 40 percent. The China State Shipbuilding Corporation has already delivered the country's first domestically made large container ship designed and built in China, a category until now only produced in South Korea, Japan and Denmark.

Beijing pledges to clean up rivers

The Chinese government announced it will spend billions of dollars over the next five years to secure clean supplies of clean drinking water and rehabilitate contaminated water sources. The exact budget was not disclosed, though it was estimated to be at least US$130 billion ( €93.7 billion), half of which will go to cleanup efforts on the Huai, Hai and Liao rivers and Tai, Chao and Dianchi lakes, which provide half the mainland's water supply. Zheng said recent studies suggest that more than 450 drinking water sources in key national environmental protection cities, a number six times higher than the official figure, could not meet the standards. Hunan, Anhui, Jiangsu and Shanxi provinces had the worst water safety standards.

COMMODITIES

SOEs in Australian deal

Five large state-owned enterprises, including Sinosteel Group, China Railway Materials, China Railway Engineering Corporation, China Communication Construction and Angang Steel, signed an agreement with Australia's Yilgarn Infrastructure to invest in construction projects on West Australia's railway network and at the port of Oakajee. The US$2.5 billion ( €1.8 billion) project is aimed at improving transportation and shipping for Western Australia's iron ore industry. The project is scheduled to begin in 2008 and be completed in 2011. A large amount of mineral products from this region will be shipped to China.

Sinosteel extends mining JV

China's Sinosteel Corporation signed a framework agreement to prolong the operation of a mining joint venture in Western Australia with Rio Tinto, Australia's leading iron-ore provider. Channar iron ore mine, which is located in Paraburdoo, has an annual output of 10 million tonnes. In the past 20 years, the joint venture has supplied a large amount of iron ore to China's major steel manufacturers such as Baosteel, Wuhan Iron and Steel Corporation (WISC) through Sinosteel's trading company. Sinosteel has also amended a 1987 sales contract with Rio Tinto.

Corn exports to be cut

China's largest grain trader said grain exports may be cut by as much as 80 percent from 5 million tonnes to 1 million due to reduced crop yields from droughts. Export cuts will likely mean increases in the cost of livestock feed, complicating government efforts to curb food-driven inflation which reached a 10-year high in August. "The government decides whether to allow exports, but given the rising food prices, I see little if any volume of exports this year," said Jiang Jianhua, vice chairman of Jilin Grain Group Co, one of China's two authorised corn exporters.

Gold futures to be listed

China Securities Regulatory Commission gave its approval for the Shanghai Futures Exchange (SFE) to trade gold futures. This will be the fourth new futures product approved by CSRC after zinc, colza oil (a type of vegetable oil) and polyethylene in 2007. SFE has finished basic preparation and will soon start trading.

Price collusion for noodles

Members of the China branch of the International Ramen Association (IRMA) were found to have colluded on prices following an investigation by the National Development and Reform Commission (NDRC). IRMA has had three meetings since the end of last year to discuss, plan and coordinate the schedule and range of the price rise. In July, IRMA, also known as the Instant Noodle Association, announced a series of dramatic price increases, contributing to the recent food-price-driven inflation that reached 5.6 percent in July, a 10-year high.

ENERGY

PetroChina seals gas deal

PetroChina signed an initial agreement to buy up to US$37.3 billion ( €26.9 billion) of liquefied natural gas (LNG) from Australian firm Woodside Petroleum. The deal, to be spread over 15 years, with the Chinese buying 2-3 million tonnes of gas per year, is set to be Australia's biggest ever export contract. Through the agreement, PetroChina, which is the overseas-listed subsidiary of China National Petroleum Corp, will become a foundation customer for Woodside's proposed Browse project in Western Australia. The contract marks a return to the global LNG market by China following several years of inactivity.

More strategic oil reserves

China will need to increase its strategic oil reserves by 10 million tonnes over the next three years to reach its goal of 12 million tonnes in 2010, said Chen Deming, vice director of the National Development and Reform Commission. China is in the second phase of construction of its four oil reserve bases, which began initial construction in 2003. The bases are located in Zhenhai and Zhoushan in Zhejiang province, Huangdao in Shandong and Dalian in Liaoning, and have a total designed capacity of 14 million tonnes.

Sinopec to import gas

China Petroleum and Chemical Corporation (Sinopec) has announced plans to import 60,000 tonnes of gasoline in September to ease an oil-product shortage. The move will cost Sinopec an extra US$4 million ( €3 million), as imported gasoline, including insurance and freight, costs US$66 more than domestic gas per tonne. China has faced a domestic gasoline supply crunch this summer. China National Petroleum Corporation, another major oil suppler, said it will import 30,000 tonnes of diesel oil to meet demand in the east China market. Analysts expect demand will continue to rise during the harvest season and the coming "golden week' holiday in early October.

Coal to get more expensive

Government policies may cause the price of coal to increase slightly in the next year, said Guo Yuntao, director of the Development and Research Centre of China Coal Industry. The growth of fixed-asset investment in the coal sector has decreased by 13.5 percent in the first five months of the year, following central government efforts to curb the overheated sector. The approval of exploration rights for new mineral blocks was also suspended since February. An upcoming resource tax and inflationary pressures will also push the price up.

Yanzhou, Huadian set up JV

Yanzhou Coal Mining has announced it will establish a joint venture with Huadian Power International and the asset managing company of Zou City, Shandong province. The move marks the first foray of Yanzhou into the relatively new area of cooperation between mining and power companies. The partnership will extend the mining company's business to the downstream industrial chain, in a bid to shelter it from the risk of decreases in the price of coal. Yanzhou Coal Mining will invest US$120 million ( €86.5 million) in the venture, accounting for 30 percent of the registered capital. Huadian Power International is one of Yanzhou's largest clients.

FINANCE

Overseas equity fund launched

Investment management company China Southern Fund Management raised US$6.6 billion ( €4.8 billion) for an overseas equity fund, becoming the country's first fund to invest in overseas equities. The fund is part of government plans for Chinese investors to put money into international markets. Analysts predict individual overseas investments for mainland Chinese could total in the hundreds of billions of US dollars over the next decade. The fund will invest in Hong Kong and US markets. "This is the first real sign of Chinese retail demand for foreign assets. But there will be much, much more to come," said Peter Alexander at Z-Ben Advisors, a fund management consultancy in Shanghai.

Brokerages get PE approval

Two Chinese brokerages were given the go-ahead to make direct equity investments, marking the end of a ban on local brokerages making private equity-style investments. China International Capital Corp (CICC) and CITIC Securities are the two firms that have received approval from the China Securities Regulatory Commission to make investments. CITIC Securities said in a stock exchange filing that its direct equity stakes will be made through a wholly-owned company backed by US$110.52 billion ( €79.65 billion) of the brokerage's funds.

VC funds in Tianjin

China is set to approve as many as 10 domestic venture capital funds in Tianjin's Binhai New Area. The funds, led by the Yindao Fund, which will have US$260 million ( €187 million) to invest in innovative Chinese companies. The funds, together worth US$2.6 billion, are intended to boost the development of the new development zone as well as advance a domestic venture capital industry in hopes of rivalling foreign funds.

Overseas investment up

The Ministry of Commerce, the National Bureau of Statistics and the State Administration of Foreign Exchanged jointly released China's direct outbound investment report for 2006. According to the report, China's direct investment in overseas markets in 2006 rose to US$21.16 billion (€15.26 billion), with US$17.63 billion from non-financial sectors, an increase of 43.8 percent over the previous year. Mergers and acquisitions accounted for 40 percent (US$8.25 billion) of total outbound investment. The mining, business service and financial sectors were three of the main areas invested in. During the year US$8.45 billion was invested in oil, natural gas exploration and ferrous metal mining.

Corporate bonds now available

Listed Chinese firms were approved to issue corporate bonds on a trial basis. The long-awaited move by the China Securities Regulatory Commission allows companies listed in Shanghai, Shenzhen or overseas to apply to sell bonds with maturities of more than one year. The bank guarantees that were mandatory for corporate bond issues in China when the system was run by the National Development and Reform Commission are no longer required. The proceeds can now be used for any general purpose approved by a company's board rather than only designated fixed-asset projects.

PetroChina, Shell ink gas deal

PetroChina signed a 20-year liquefied natural gas (LNG) supply agreement with Royal Dutch Shell over in Perth. The multibillion dollar deal, whose details were not disclosed, will secure LNG from the Gorgon project off Western Australia, subject to a final investment decision from partners including Chevron and ExxonMobil. China signed its first long-term LNG deal with Australia five years ago, which it cancelled due to the high price on the world gas market. Pressure to reduce greenhouse gas emissions and the country's rising energy demands has pressured China into securing long-term gas supplies.

TECH/TELECOM

Shenzhen co buys Philips brand

Shenzhen Sangfei, a subsidiary of China Electronics Corporation Group (CEC), acquired Philips' mobile phone brand as well as its supply and distribution channels, and will soon launch eight new products on the global market using the Dutch company's trademark. Sangfei has been an original equipment manufacturer for Philips since 1996. Sangfei said it not only gets the authority of a first-class international brand with the transaction, but also a high-level managerial group and sales channels to complement its existing resources.

ZTE to provide phones to Kenya

Chinese telecommunications equipment maker ZTE Corp signed a contract with Kenya's leading mobile operator Safaricom to provide a batch of low-price handsets. According to the contract, ZTE will initially produce 200,000 low-cost mobile phones. The products are cheaper because they are less complex than typical models, but will still be able to perform basic functions like text messaging, said ZTE. The Kenya mobile phone operator has recently introduced a low-price policy to attract more customers.

Blackstone buys chemical firm

Blackstone Group agreed to buy 20 percent of China National BlueStar, a state-owned chemical maker, for US$600 million ( €433 million). This is the private equity firm's first investment in China since Beijing took a US$3 billion stake in it in May. The deal is by far the largest private equity investment in China this year; total private equity investment in China in 2007 so far has amounted to US$752.2 million. The deal is also subject to regulatory approval, and Blackstone's minority stake means its level of control in the investment will be limited.