BIZ BRIEFS

GENERAL

SMEs allowed in key industries

Chinese small and medium-sized of enterprises (SMEs) have been allowed to enter the mineral resource exploration and military defence technology sectors. The news comes from a summit on the fourth China International Small and Medium Enterprise Fair in Guangzhou. Since the implementation of new regulations on encouraging and promoting SMEs' development, the government has gradually opened its monopolistic sectors to SMEs, said Zhong Youping, vice director of State Administration of Industry and Commerce. Ou Xinqian, vice director of the National Development and Reform Commission, said the government will further clarify market-entry standards and revise relevant rules to expand the business range for SMEs in the future.

Forbes announces wealth rankings

The 26-year-old daughter of one of China's largest property developers topped the annual Forbes survey of the country's rich, the results of which were announced in early October. Yang Huiyan is worth US$16.2 billion (€11.4 billion) thanks to her father, the low-profile chairman of Country Gardens, who transferred his shares to his daughter in 2005. The company listed in Hong Kong in April and its stock price as soared since then. Yang is worth nearly seven times the US$2.3 billion that put Gome CEO Huang Guangyu (pictured) in top spot last year.

Development moving north

There has been a trend in recent years of the most dynamic economic growth in China shifting away from the south of the country and toward the north, said Zhang Junkuo, dean of development strategy and regional economy research at the Development Research Centre of the State Council, at a forum on regional innovation and development held in Hangzhou. The momentum of northern development has been strong, said Zhang, citing the fact that Inner Mongolia has had the country's highest local gross production growth for the last five years. Zhang attributed changes in the country's geographical economic structure to the government's western development strategy and the rise of central China. Meanwhile, he said, growth in the eastern coastal areas has slowed down due to higher overall costs.

Outbound investment soars

China's direct investment in overseas markets in 2006 reached US$21.2 billion (€14.9 billion), according to a report jointly released by the Ministry of Commerce, the National Bureau of Statistics and the State Administration of Foreign Exchange. Of the total investment figure, US$17.6 billion came from non-financial sectors, an increase of 43.8 percent over 2005. Mergers and acquisitions accounted for 40 percent 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.

ENERGY

Shenhua looks abroad

Coal company China Shenhua is considering acquisitions in Indonesia and Australia, according to chairman Chen Biting (pictured, right). Chen said overseas mines could be used to supply the south China market because of rising costs attached to transporting coal from the country's northwest. "If we transport from the west to the east and then to the south, the distance will be a little bit longer than that from Indonesia to Guangdong," he said. Shenhua accounts for 10 percent of China's coal output, generating 200 million tonnes per year from its 54 mines. It is also developing coal-to-liquid and coal-to-chemical projects. China became a net coal importer for the first time during the first half of 2007, largely due to rising coal prices and transport costs.

Gas firms open to foreign deals

Chinese gas companies will be allowed to sign more global cooperation deals with foreign partners in a bid to help channel funds and technology into China's gas sector. The State Council, China's cabinet, revised regulations on joint onshore oil exploration to allow more "state-designated" companies to set up ventures with foreign partners to explore methane sources trapped in coal seams. China United Coal-bed Methane Corp (CUCMC) was previously the only company allowed to enter into such ventures, raising complaints from competitors. China joins fusion reactor project China ratified an international agreement on the International Thermonuclear Experimental Reactor (ITER), a project to build the world's first fusion reactor. The UN organisation is overseeing the project, which is estimated to go into operation in France in 2018. The participating countries will share the technology and intellectual property of the reactor. So far, China, the European Union, India, Japan, South Korea, Russia and the United States have signed on to the project.

BANKING & FINANCE

Brokerages open to foreigners

China is preparing a pilot program that will allow foreign investment banks to buy stakes in local securities firms by the end of the year. If implemented, The program would let a small number of firms buy up to 20 percent in existing Chinese brokerages. Foreign investment banks would also be allowed to own up to 33 percent of new securities industry joint ventures with local partners. The new rules would end a two-year moratorium on foreign investment in the securities industry that was supposed to help local firms prepare for increased competition. Foreign investment banks are currently shut out of underwriting and trading mainland stocks, mainly operating in joint ventures in which they have no management control.

Bank of Beijing makes strong debut

Bank of Beijing (BOB) saw its share price rise 81 percent as it made its trading debut on the Shanghai Stock Exchange. BOB, China's largest city commercial bank, earlier generated US$2 billion (€1.41 billion) from the sale of 1.3 billion new A-shares. The gains came on a comparatively slow day for the market, the Shanghai Composite Index closing down 0.6 percent after a bout of profit-taking. According to analysts, BOB was trading at the time at around 5.4 times its estimated 2007 book value, compared to 3.8 times for Bank of Nanjing and 7.6 times for Bank of Ningbo. BOB has access to an elite clientele in the capital but, like most city commercial banks, it has limited reach beyond its home city. The bank posted net profits of US$285 million in 2006, up 27 percent year-on-year.

Minsheng to buy into US bank

China Minsheng Bank said it will buy a 9.9 percent stake in the parent company of United Commercial Bank, the first strategic investment in a US bank by a Chinese lender. Minsheng's US$200 million-plus (€141 million) investment in UCBH Holdings, which also owns US companies that do business in China, Hong Kong and Taiwan, is subject to approval from both US and Chinese banking regulators. The first stage of the transaction will see UCBH issue 5.4 million new shares, or 4.9 percent of its enlarged share capital, to Minsheng at US$17.79 (€12.54) per share. The Chinese bank will increase its stake to 9.9 percent next year and has the right to go to 20 percent by June 2009, although getting approval for anything over 10 percent may be difficult.

China leads world in IPOs

Mainland Chinese companies have raised more through initial public offerings so far this year than any other country in the world, according to Thomson Financial. Beijing-based Sino-Ocean Land's US$1.5 billion (€1.1 billion) offering in September helped China pass the US, with US$30 billion raised from 132 deals, up 56.6 percent on last year. US-based companies have raised US$29.78 billion from 129 deals, which represents a 16.2 percent share of the global IPO market to China's 19.3. The Chinese figures do not include A-share offerings by China Construction Bank, China Shenhua Energy and PetroChina. The mainland is said to have a further 54 deals in the pipeline for 2007, which could generate as much as US$26.7 billion.

Sino-US financial firm debuts

HuaMei Capital Company, the first US financial services firm to be partly owned by Chinese interests, was unveiled in early October. The Beijing- and Chicago-based joint venture will offer risk management and private equity investment services for investors, including Chinese companies with the authority to invest offshore under the qualified domestic institutional investor scheme. The founders include former Illinois senator Adlai Stevenson, former chairman of Chicago Mercantile Exchange Leo Melamed and China Merchants Securities Holdings. A second office will be set up in Purchase, New York.

Interest rate forwards on the way

The People's Bank of China (PBOC) is to introduce the trading of interest rate forwards, seen as an important step in allowing market forces to determine the cost of capital. According to the PBOC statement made on Monday, interest rate forwards trading will begin on November 1. In this kind of forward contract, investors and borrowers agree on the interest rate on a loan in advance for a specified period. The rates set by the two parties must be based on benchmark rates set by the central bank or the benchmark rate used on the inter-bank market. The PBOC said the introduction of market-based rates could "help ward off risks in short-term loans." Analysts said the move signals Beijing's intention to fully liberalise borrowing costs and that full deregulation was not far off. Derivative products already available on the mainland include bond forwards and interest-rate swaps.

HK investment quota imposed

A quota will be imposed on mainland investments in the Hong Kong stock market with no limits on individuals but tight controls on the total amount, said China Banking Regulatory Commission chairman Liu Mingkang. The limit is to remain in place until the State Administration of Foreign Exchange reassesses market activity, he said. Liu did not disclose what the quota will be, but it is now believed that the total amount that will be invested in the Hong Kong stock market will be significantly lower than the original estimate of US$100 billion (€70.5 billion) over the next year. The so-called "through train" scheme, allowing mainland residents to trade on Hong Kong's market through accounts at Bank of China in Tianjin, was announced on August 20 but has seen delays over disagreements among different regulatory agencies. The government is considering restricting the plan to residents of the big cities of Tianjin, Shanghai, Beijing and Shenzhen, said JPMorgan China equities chief Jing Ulrich.

TRANSPORTATION

Ford opens car plant in Nanjing

Ford opened a 160,000-unit car plant in Nanjing through a joint venture between Chang'an Motor and Mazda, which Ford owns. The factory has begun making the Mazda 2 subcompact car, and will start making a small-sized Ford model next year. The move comes five months after the three companies opened a 350,000-unit engine plant in Nanjing for domestic car production. Alan Mulally, Ford's president and CEO, said annual production capacity at the new plant could be increased to 300,000 units to meet increasing demand in China. Total investment in the plant will reach US$510 million (€360 billion) .

Beijing blocks China Eastern bid

Cathay Pacific and Air China aborted their joint attempt to block Singapore Airlines from buying a stake in China Eastern following political opposition from Beijing. The attempt was blocked by the State-owned Assets Supervision and Administration Commission, which had already given its approval to the US$930 million (€660 million) Singaporean bid for a stake in China Eastern. Beijing's intervention in a Hong Kong stock exchange transaction may raise uncertainties for investors hoping to cash in on the consolidation trend among major mainland airlines.

TRADE

European steel claims dumping

The European steel industry association Eurofer is acquiring information to prove that China is exporting steel at prices below production costs to Europe, and may file an antidumping complaint against China with the European Commission by the end October. If the Commission is convinced of Eurofer's antidumping claims, it would then notify the World Trade Organisation, which could impose measures such as protective import tariffs. China is expected to export 10 million tonnes of steel to the EU this year, twice the amount sent last year.

China threatens WTO action

Beijing threatened to take action against the US through WTO channels in response to the anti-dumping subsidy Washington imposed on Chinese paper exports. It would be only the second time China has taken a complaint to the WTO since joining the organisation in 2001. The US introduced the countervailing duties in May, breaking a 23-year-old policy of not taking such action against countries it considers to be non-market economies. Officials claimed that China was not only dumping goods on the US, but also receiving tax breaks and low-cost loans from Beijing. The US will now enter into consultations with China and either withdraw the duties or move on to the WTO's dispute settlement panel. Separately, the US requested that a WTO dispute panel examine its claim that China is failing to enforce intellectual property rights.

New China-Africa forum begins

Foreign ministers from China and several African countries recently began their first annual talks. The foreign ministers' meeting is the first since a China-Africa leaders' summit was held in Beijing in November 2006, where President Hu Jintao announced a China-Africa Development Fund to encourage Chinese investment in Africa. China is Africa's second-largest trading partner after the European Union. Sino-African trade hit US$39.3 billion (€27.7 billion) for the first half of this year, up nearly 30 percent year-on-year. Chinese Foreign Minister Yang Jiechi said Beijing would write off debts, offer tax exemptions and step up development in Africa to encourage trade links.

CONSUMER

Beijing affirms safety stance

China reiterated its commitment to resolving toy safety concerns after yet more recalls of Chinese-made products in the US over high lead content in children's lawn furniture and toy trains. Ministry of Commerce spokesman Wang Xinpei said every effort would be made to resolve the problems "according to the facts," which was seen by some as an allusion to China's belief that it was unfairly scapegoated in the product safety crisis. US toy giant Mattel apologised for its recent spate of recalls saying that they were largely due to design flaws for which it was responsible.

Holiday boosts HK retail sales

Hong Kong's retail sales saw a sharp increase the week following the mainland's weeklong National Day holiday. Retail sales during the "golden week" holiday increased 10 percent over last year. Jewellery sales for the week were double the level reached over the Labour Day holiday in May, with the average tourist spending US$1,289 (€908.9) on jewellery alone. Mainland visitors reached 430,000 up to October 4, 25 percent more than during last year's holiday.

China to track food suppliers

China announced the creation of a new national tracking network for unlicensed food suppliers. Authorities will require all grocery and convenience stores and roadside stalls to keep records, including invoices from suppliers, so that food products can be traced. State Administration for Industry and Commerce director Zhou Bohua said inspectors shut down 9,098 unlicensed food manufacturers and other vendors in the first seven months of the year. Zhou said nearly US$30 million (€21 million) worth of fake, dangerous or shoddy products had been found since last June, and 187,000 food and product safety inspectors were checking businesses and markets. The tracking network is part of Beijing's attempt to regain consumer confidence in domestically made products following a summer of global recalls of China-made goods, most notably of toys by US firm Mattel.