THIS WEEK IN CHINA

China Takes Substantial Measures To Adjust Economic Structure

China’s State Council has recently called for further mergers and consolidation in commoditized industries to eliminate outdated capacity and improve efficiency.

This echoed the announcement released by Ministry of Industry & Information Technology (MIIT) in early August that outdated capacity in more than 2,000 energy-intensive and polluting factories will be eliminated. The MIIT set the end of September as the deadline for these 2,087 factories from 18 industries such as cement, paper-making, iron alloys, dyeing, steel production, construction materials, light industry and textile industry sectors.

Companies that fail to comply with the instruction will be barred from obtaining loans. They will not get government approval for new investments, will not get access to additional land and will face the withdrawal of their production license and pollution permit.

Of those 2,087 enterprises, 762 are in cement industry, 279 are in the paper-making industry, 201 are in the printing & dyeing industry, 192 are in the coking-coal industry, 175 are in steel industry, 143 are in metallurgy industry, and 84 are in the leather-making industry.

The top five areas with the most affected factories are Henan province (230 companies), Shanxi province (226 companies), Zhejiang province (180 companies), Hebei province (165 companies), and Yunnan province (also 165 companies).

In total, China will cut around 30 million tons of annual production capacity in the steel industry, 8.25 million tons in the iron industry, 107 million tons in the cement industry and 4.32 million tons in the paper-making industry.

Premier Wen has stated directly that transforming China’s economic structure and growth pattern will be a top priority for the nation. China will seek to shift its economy more toward domestic consumption and to change the structure of its commoditized industries from consisting of a throng of fragmented, smaller companies with little supplier power to being more concentrated in large entities with both increased supplier power and enhanced cost efficiency.

According to the NDRC, key details of this economic adjustment will be formulated in the Twelfth Five-Year-Plan.

To ultimately achieve its economic goals for sustainable development, China is actively working to further promote domestic consumption. China’s healthy employment profile and recent social safety net reforms play important roles in boosting domestic demand. There is also great potential to expand domestic demand through China’s ongoing urbanization process which serves to increase disposable incomes.

China’s economic restructuring will bring the country greater independence within the global economy as it will allow the country to increase its bargaining power for imported commodities and allow for further decoupling from the weakened traditional export markets in North America and Europe.

Adam Roseman
Founder & Managing Director
ARC China

China Vows To Boost Imports, Help World Recovery

A Chinese official defended the country’s trade record as a top economic adviser to President Barack Obama visited Beijing amid renewed pressure by American lawmakers over Chinese currency controls.

China’s deputy trade envoy, Chong Quan, rejected complaints that Beijing intentionally boosts its trade surplus by promoting exports while holding down imports. Speaking at a trade forum, Chong repeated promises to boost imports of resources and high-tech equipment and to ease costs for importers but announced no new initiatives.

“This criticism is unfounded,” Chong said. “China, in its own actions, makes its due contribution to the world’s economic development.”

Chong spoke as U.S. National Economic Council Director Larry Summers was in Beijing to meet China’s top trade official, Vice Premier Wang Qishan. Their talks were likely to include U.S. complaints that a weak yuan gives Chinese exporters an unfair price advantage.

China’s trade surplus widened in July to an 18-month high of $28.7 billion as imports weakened. That helped to fuel complaints by some American lawmakers who want Beijing to allow the yuan to rise or face possible trade sanctions.

American lawmakers set aside criticism of China’s trade policy while the two governments worked together to end the global crisis. But pressure has resumed as the crisis fades and American leaders face pressure to create jobs.

In June, Beijing ended an 18-month-old link between the yuan and the dollar and said it would allow a more flexible exchange rate, but the Chinese currency has risen by only 0.6 percent since then.

“We hope that all countries can work together to fight trade protectionism,” said Chong.

Source: Financial Times

Get Ready for More Chinese Tech Acquisitions In the U.S.

So far this year, many of China’s biggest overseas acquisitions and investments have involved government-controlled companies putting money into resources. For instance, ConocoPhillips sold a 9% stake in Synacrude to Sinopec of China for $4.7 billion.

News that Alibaba.com, the Chinese e-commerce company led by billionaire Jack Ma, would acquire Chico, CA-based Auctiva, a third-party developer of tools for eBay sellers, bears a different message for investors: Chinese acquisitions of U.S. Internet-related companies may be poised to rise, and they won’t necessarily involve government-owned companies.

No doubt, many Chinese internet leaders have the resources. Hong Kong-listed Tencent, China’s Internet leader when it comes to market capitalization was worth $32 billion, more than eBay’s $30 billion and Yahoo’s $18 billion. They can line up capital from sources that less than two decades were not so warm to Chinese private-sector companies, including Chinese and foreign banks as well as global private equity companies. China will likely rank no. 1 in the world in IPOs this year, an indicator of the welcome capital markets are giving China businesses this year.

The relatively high valuations for China’s biggest internet companies – Tencent ’s price-earnings ratio is around 30 versus 18 for Google, for instance – are backed up by earnings and user growth. China has 420 million Internet users, tops in the world. Yet that only covers about a third of total population, so there’s plenty of room to expand. China’s economy has been growing at around 10% this year.

Source: Zero2IPO

E-Commerce Sites Have Chinese Consumers Tossing the Catalog

China’s 21st century shoppers are trading in their catalogs for web sites as new and specialized e-commerce companies come of age and raise venture capital to meet the demands of the country’s growing consumer class.

In the first half of 2010, six venture-backed e-commerce companies in China raised at least $180 million to reach out to buyers increasingly comfortable with shopping online, according to reporting in VentureWire and local Chinese media outlets.

It’s a sign that investors have recovered from any concerns associated with the global financial crisis’ impact on China’s domestic merchants. In 2009, during the throes of the economic downturn, Chinese venture capitalists invested at least $57.3 million in eight reported deals, according to data from the industry tracker Zero2IPO.

Recipients of the new money range from specialized sites selling shoes, handbags, lingerie or non-perishable teas, wines, and spices to wholesalers and retailers of multiple products and online clothing stores, investors said.

“China’s Internet infrastructure is ready for e-commerce,” said Lin Dongliang, a partner with IDG Capital.

More people in China have credit cards now and for those that don’t most logistics and delivery services take cash on delivery, he said. And the credit card market is growing as well. A September 2009 study from consulting firm McKinsey & Co. predicted that the total number of credit card holders in China would reach 300 million by 2013 – nearly the entire current population of the U.S.

Furthermore, a June 2010 report from the research arm of financial services firm Li & Fung Group said that there were 404 million “netizens” in China, and that retailers were adapting a clicks and mortar model to try and reach out to them.

China’s top retailers are only just starting to get in on the action, with only 31 of the top 1000 retailers launching online businesses. Most of those companies only moved online in 2009 or 2010, which means the retailing market is wide open for online-only competitors, investors say.

Source: Zero2IPO

Chinese Products Moving Up The Value Chain

China’s pace of industrialization has gone faster than Japan’s and Chinese products are moving up the value chain, Ernest & Young’s Global Chairman and CEO James Turley said.

“When I was a boy in the United States, ‘Made in Japan’ meant inexpensive, low-value-added manufactured goods. But by the time my son was born, ‘Made in Japan’ meant some of the very best, most high-tech manufactured goods in the world. That happened in a generation. China’s pace of industrialization, and of moving up the value chain, has gone even faster than Japan’s,” he said.

China’s GDP has surpassed Japan as the second biggest economy in the world, and “Made in China” is already all around the world, but the low value-added products, the lack of world-class brands and technology are still a problem for the country.

The Chinese government had previously advertised overseas “Made in China, Made with the World” to share its ideology of win-win game with other countries.

Turley said the way that China and other developing and emerging markets are producing their own world-class companies is one of the great stories of the past decade, and they will have more and more in the coming years. “Geely, for example, was the winner of our China ‘Entrepreneur Of The Year’ competition in 2009 and is a great example of a company that is going places.”

Source: China Daily

Eastern Groups Buy Into Western Future

In a cavernous factory in Rochdale, Lancashire, a group of workers is putting the finishing touches to high-tech machine tools used to make vital parts for giant cannons used by the US military. In a separate plant half an hour’s drive away near Halifax, West Yorkshire, another engineering team is assembling large machines used in the oil, road-building and aerospace industries.

The 180 people in the two operations – formerly part of two of Britain’s most famous machine tool makers – are now part of the business empire of Chongqing Assets Supervision and Administration Commission, one of China’s biggest state-owned holding companies.

This example of the shifting patterns of industrial globalization has come about through the £20 million ($31 million) acquisition in April of Precision Technologies Group, a UK-based business mainly active in machine tools, by Chongqing Machinery & Electric Company.

The Chinese company is one of 30 controlled by the state-owned Chongqing Commission. While Chinese companies have so far purchased only a handful of industrial businesses in Europe and the US, such deals are likely to become more common, according to Madeleine Sturrock, managing director of Pancathay Consulting, a London-based advisory group.

“While China has become an extremely important industrial country, a lot of Chinese businesses realize they need to learn [technology and management skills] from the West,” says Ms Sturrock.

In the case of PTG, the Chinese plan calls for £10m of investment in the next few years, mainly in Rochdale, to boost the UK company’s prowess in machine tool technology.

Chongqing Machinery is among China’s biggest machine tool makers, with sales of this equipment last year of about $300m, but is technologically not as advanced as many rival machinery makers outside China.

PTG is not the only UK target of Chinese buyers. Last year, Ningxia Zhongyin Cashmere Company, bought Todd & Duncan, a specialist maker of finished cashmere yarn.

Source: Financial Times

Chinese Venture Firm Stakes Approved

The Financial Supervisory Commission (FSC) approved local financial firms owning a controlling stake in finance leasing or venture capital companies in China.

Subsidiaries of local banks or financial holding firms may apply to own a stake of 25 percent or more in a single Chinese finance leasing company in which they can control the investee’s operation, FSC Banking Bureau Director-General Kuei Hsien-nung said at a press briefing.

In addition, subsidiaries of Taiwanese industrial banks may apply to own a stake of 25 percent or more in a Chinese venture capital company, Kuei added.

The relaxation came after the nation’s banking sector pressed the FSC to further ease cross-strait banking rules so they can better compete with foreign rivals in the Chinese market.

In related news, the FSC said non-performing loans (NPL) for the nation’s 37 lenders totaled NT$167.9 billion (US$5.24 billion), or 0.87 percent of total loans, at the end of last month.

That marked a record-low NPL ratio with a drop of 0.04 percentage points from the previous month, the FSC said.

The coverage ratio – loans covered by banks’ provisions and a gauge indicating the sufficiency of bad loan reserves – stood at 118.98 percent on July 31, up 5.6 percentage points month-on-month, the FSC said.

Source: Zero2IPO

China To Set Up Safety System For Cosmetics, Skin Care Products

China’s State Food and Drug Administration (SFDA) has moved to create the country’s first safety assessment and monitoring system for cosmetics and skin care products, said an SFDA official.

The SFDA would soon issue an implementation plan for monitoring safety of cosmetics and skin care products as part of the system, said the official.

The SFDA had drawn up a draft plan for a product test system, was reexamining the qualifications of agencies that approve cosmetics and skin care products, and was screening candidates for a safety commission, he said.

The official also said the SDFA would work to optimize the emergency response system for safety incidents, noting that such incidents had aroused great public concern.

Safety watchdogs across the country would strengthen emergency response capabilities by making emergency plans and securing enough technological, personnel, and material support among other things, the official said.

The SDFA issued guidelines on its website that specify procedures, requirements and other information of safety assessment of cosmetics and skin care products.

It would be China’s first system to assess and monitor safety of cosmetics and skin care products.

Source: China Daily

Wooha Sees Gains From New Customs Rules

Online luxury goods retailer Wooha.com said the new customs regulations for mailed goods will prove beneficial to its business and create a level-playing field for companies.

Chinese Customs has recently said it intends to tighten the free payment norms on import duties for international mails.

The new rules, which come into effect on Sept 1, stipulate that import duties will be waived for goods with a dutiable value of under 50 yuan ($7.35) compared with 500 yuan ($73.5) earlier.

By lowering the tax ambit, Customs also plans to regulate the practice of importers buying goods abroad and then mailing it to Chinese buyers without paying import duties.

Apart from tax evasion, the practice was also hurting the fortunes of organized B2C (business-to-consumer) retailers like Wooha.com. These companies purchase luxury goods abroad and then sell them in domestic markets after going through the proper procedures.

“The new rules help us have an advantage in the market now as it reduces the gap with the smaller and unorganized online retailers who often lure consumers with cheap prices,” said Peng Zelin, marketing director of Wooha.

Peng said his company makes it a point to declare all the duties paid for importing the product before it sells the same to customers.

Wooha will start the English-version of its e-commerce website in October, said Peng. At the same time the company is also reducing the list of goods it offers on its website to 100 from 300 to focus more on premium brands.

The company intends to list its shares in the US or UK capital markets by 2013, said Lian Tingkai, chief executive officer of Wooha.

However, the Customs directive has not found favor with some retailers. Some companies feel that such moves are detrimental to their business.

The market value of China’s online overseas purchases amounted to 2.895 billion yuan ($426 million) in 2008, said data from research firm Analysys International.

Source: China Daily

Experts Find Gene Variants For Stomach Cancer

Scientists have identified genetic mutations that appear to be associated with both esophageal and stomach cancer in two studies in China, suggesting they may share similar triggers.

This finding adds to the understanding of how these cancers develop and may help in the hunt for cures.

In the first study, Chinese researchers analyzed genes of 9,053 patients with esophageal cancer and 2,766 with stomach cancer. The research also included a smaller number of esophageal cancer patients of Uighur-Kazakh descent.

Two mutations — PLCE1 at location 10q23 and C20orf54 at location 20p13 — showed up consistently in all these patients, the researchers wrote in a paper published in Nature Genetics.

“These results show that genetic variations at 10q23 and 20p13 contribute significantly to risk for esophageal cancer and (stomach) cancer in Chinese Han and Uighur-Kazakh populations,” wrote the researchers, led by Li-Dong Wang at the Xinxiang Medical University in China’s central Henan province.

China bears roughly half of the world’s burden of these two cancers. Stomach cancer, the number-two killer after lung cancer, kills 803,000 people around the world each year, while esophageal cancer kills 400,000.

In the second study, researchers led by Christian Abnet at the National Cancer Institute in Bethesda in the United States analyzed the DNA of 2,240 Chinese patients with stomach cancer and another 2,115 with esophageal cancer.

They found that the PLCE1 variant showed up consistently in both groups, they wrote in a paper in Nature Genetics.

Source: Reuters

China Told To Develop Its Own GM Food

The Chinese consume millions of tons of genetically modified (GM) soybean oil every year without fuss despite the fact that attitudes toward GM food remain as divergent in the nation as they are in the rest of the world.

China needs to step up agricultural innovation, including development of its own GM varieties, in response to climate change and to reduce reliance on foreign technologies, top agricultural experts and scientists told China Business Weekly.

The genetic modification of food involves the insertion of genes from one variety of a crop to another in order to transfer certain desired characteristics such as insect-resistance or drought tolerance.

The technology is controversial. Critics say it is inherently risky to mess with nature. Supporters say it will prevent food shortages.

GM crops can provide solutions to various problems facing the ecosystem such as limited land and water resources, scientists say.

Last year, China issued bio-safety certificates to two strains of pest-resistant GM rice and corn. The strains still need about three to five years of registration and production trials before commercialization.

China consumes about 10 million tons of soybean oil and about 40 million tons of soybean meal per year in processed food and animal feedstuff, industry analysts said.

More than 80 percent of the total is imported GM soybean oil or made from imported GM soybeans.

Chinese agricultural research institutes should catch up and develop their own anti-drought crops to reduce possible reliance on foreign technologies, said scientists.

Source: China Daily

Caterpillar Targets China

While some U.S. companies fear low-cost competition from China, Caterpillar Inc. Chief Executive Doug Oberhelman welcomes the challenge. “The more they come out and compete around the world, the better off we are,” he said.

Mr. Oberhelman, who took over in July as head of the world’s largest maker of construction and mining equipment, has set a goal of making Caterpillar the top brand in its industry in China by 2015.

He said that some Chinese equipment companies have become “pretty darned good” and that Caterpillar is studying their operations, including their product designs, as it goes toe-to-toe with them in China and, increasingly, in the U.S. and Europe, where good-quality Chinese exports are taking hold.

The exercise is driving down costs at Caterpillar and encouraging innovation, he said. Already, Chinese engineers are developing parts for Caterpillar wheel-loaders, a type of tractor that is made in China for a domestic market. Of the company’s 6,200 employees in China, only about 100 are expatriates, Mr. Oberhelman said, including managers brought in from other Asian countries. “We’re pretty Chinese,” he said.

Caterpillar is jockeying for position in a fragmented Chinese market, divided into regions that each have strong competitors in which no single company has dominance. Mr. Oberhelman said no Chinese competitors are yet able to match the way that Caterpillar joins together manufacturing, research and development, logistics and financing, which is the company’s key advantage.

Source: Wall Street Journal

TCL Multimedia Looks To China Despite Slowing Growth

Benefiting from strong demand for flat-panel televisions in China’s rural market through a government subsidy scheme, China’s largest television maker by shipments, TCL Multi-media Technology Ltd., swung to net profit last year and reported a 69% increase in its first-quarter net profit. But growth has been slowing down this year due to intensifying competition. While first-quarter liquid-crystal-display TV shipments in China rose 56% from a year earlier to 1.19 million units at TCL Multimedia, it still missed its own target due to lower-than-expected market growth and its adjustment in product mix. Foreign brands such as Samsung, Sharp and LG Electronics have been expanding into China aggressively, which has also put pressure on the company.

About half of TCL Multimedia’s revenue still comes from producing cathoderay tubes, but the company, which makes TVs under the TCL, ROWA, Thomson and RCA brands, is growing in flat-screen TVs. According to market research firm Display Search, TCL Multimedia was China’s third-largest LCD TV maker, behind Hisense and Skyworth, in 2009.

George Yuan, TCL Multimedia’s 43-year old chief financial officer, says he is cautious about growth in the company’s key market, China.

Growth in China’s TV market has more than doubled in the last two years. But we have seen the growth slowing down from the end of last year. The industry is overly optimistic about the government’s subsidy program, which has led to inventory problems. The stimulus effect is fading as most customers in rural markets can’t afford to buy more than one LCD TV set. I expect the company’s gross profit margin this year to be lower than [the 12.3%] of last year because of falling average selling prices and rising competition, said Yuan.

Source: Wall Street Journal

China’s Alibaba Makes Second U.S. Buy In 2 Months

China’s largest e-commerce company, Alibaba.com Ltd, made its second U.S. acquisition in as many months, stepping up its expansion into the market by buying into a provider of services to eBay.

The Chinese company said it has entered into an agreement to buy Auctiva, which provides listing and marketing tools to vendors on e-commerce websites, such as eBay’s.

Alibaba, a fast-growing Web operator founded by outspoken former schoolteacher Jack Ma, is building up its AliExpress wholesale transaction platform. It said buying Auctiva would help it reach U.S. businesses, and connect them with suppliers outside of the country.

Alibaba said its acquisition of Auctiva, which closed on August 18th, is part of a $100 million investment plan for AliExpress that the company announced in April. Auctiva will operate as a new business unit and will retain its own brand and operations.

In June, Alibaba bought Vendio Services Inc in its first major U.S. acquisition to further its strategy of expanding its global footprint.

Alibaba, which this month reported its strongest quarterly profit in two years, said that the combination of both the Auctiva and Vendio acquisitions brings more than 250,000 new customers to Alibaba.com and related platforms, such as aliexpress.com.

Web commerce is on the upswing in China, as buyers look for better deals in the nation’s fragmented distribution network.

Source: Reuters

China E-Commerce Titan Expands Travel Unit

Alibaba Group, which operates China’s biggest e-commerce site, said it is expanding its travel business to include international-airline-ticket sales, and plans to take on China’s largest online travel company.

Taobao.com, Alibaba’s retail website, began selling tickets online for international flights and is aiming to undercut ticket prices of Ctrip.com International Ltd., the current market leader in China, and other competitors. A Taobao spokeswoman said it would match the price of any non-Taobao listing and subsidize an additional discount in order to attract buyers. “By the end of the year, Taobao travel channel hopes to be selling 50% more airplane tickets than Ctrip.com’s online ticket sales,” she said.

The move shows how China’s internet companies are increasingly competing in each other’s niches. Several companies are developing search sites to compete with Baidu Inc., China’s biggest search company. That includes Alibaba, which earlier this month agreed to buy a stake in Sohu.com Inc.’s Sogou search business. Baidu, meanwhile, is beefing up its offerings in e-commerce, online video and other areas.

Hangzhou-based Alibaba launched air-ticket sales on its website earlier this year. It hopes consumers will be attracted to a new buyer-protection policy, which offers a refund of up to three times the amount of any international air ticket sale in the event of a dispute.

According to Taobao, more than 200 travel agencies and airlines have sold tickets on Taobao, and approximately 10,000 tickets are sold daily on the site. According to the Civil Aviation Administration of China, about 486 million plane trips were taken in China in 2009, about 37 million of which were international flights.

Online travel booking represents a relatively small portion of travel bookings in China’s booming travel market.

Source: Wall Street Journal

China Eases Forex Controls On Earnings By Exporters

China will start allowing exporters to keep some of their foreign-currency earnings offshore, another in a series of moves to relax the country’s currency controls and one that could temper the buildup of its foreign-exchange reserves.

The trial program announced by the State Administration of Foreign Exchange eases the so-called surrender requirement that forces exporters in China to convert most of their overseas earnings into local currency. China’s central bank then buys up those dollars, euros and other currencies, and adds them to its stockpile of official reserves, which is the world’s largest at $2.45 trillion.

But dealing with that rapid accumulation of reserves has become an increasing headache for the central bank: It bought $81.1 billion of foreign reserves just in this year’s second quarter, most of which was parked in U.S. government debt. While China has increased purchases of Japanese and Korean bonds this year, few markets are big enough to handle the amounts of money China’s export sector generates.

China has long had measures in place to retain its currency within its borders, but has followed its June decision to loosen the currency’s de facto peg to the dollar with other long-awaited currency changes. The new program doesn’t directly affect how China sets its exchange rate, little changed against the dollar since June and the subject of continued pressure for more movement from China’s critics. But it could help address several issues for China’s monetary authorities.

In recent months, China has also expanded a program that allows exporters to settle trade in yuan rather than dollars, made it easier for the yuan to circulate among banks in Hong Kong, and widened foreign banks’ access to the domestic bond market.

Source: Wall Street Journal

In Asia, Investors Get Allies

Private Equity firms stung by soured deals in Asia are increasingly pushing for restructuring or legal action at troubled companies to which they are exposed, in the process championing investor rights in the region.

Investors in Asia are often left with little recourse when investments go bad. But an increase in private-equity firms’ holdings of corporate debt is giving them more say as creditors. Funds are beginning to look at legal solutions such as liquidation for companies that have fallen on hard times or have not met financial obligations like debt payments, as their confidence in the legal process for creditors in Asia grows.

Since the financial crisis, many private-equity firms and hedge funds have had problems reaping gains from investments they had made earlier that banked on an initial public offering as the route to an exit.

The period between 2006 and early 2008 was also a boom time for private debt issuance in Asia, spurred by growing demand from hedge funds and other alternative investors. While hedge funds, which have shorter investment horizons, have largely disposed or written off such investments, private-equity firms have been busy refinancing and restructuring troubled deals over the last two years.

Industry insiders anticipate a wave of restructuring or legal action as some of the deals that were refinanced move near to maturity again.

Private-equity funds are also facing exit deadlines and getting itchy feet after holding on to their investments for a few years.

Private equity firms are also taking a hit from previous investments in industries that are being cut off from lending, such as real estate in China.

Source: Wall Street Journal

CONSUMER / RETAIL

Nike, Adidas Readjust Marketing Strategy

Leading sportswear makers are readjusting the marketing strategies of their brands in China with two of the top sellers moving into lower-tier cities in order to be more competitive.

Nike Inc, the best-selling global sports brand, which is expecting record sales growth in China this year, claimed in May that it would double the business in China in the next five years. To achieve this objective, Nike will work with retail partners beyond Beijing and Shanghai into other smaller cities throughout China.

The Chinese market was Nike’s fastest growing and the brand’s largest market outside the United States.

A similar drive is also being undertaken by Adidas AG, another major overseas sportswear brand in China. Managing Director Christophe Bezu said the company’s strategy was to maintain its strong position and spread its influence throughout new areas of the country.

To grow its business in lower tier cities, Nike goes beyond just creating points of sale. Nike’s goal is to connect with consumers both online and in store with premium brand experience.

At present, Chinese brands including Li-Ning, the majority of whose sports shoes sell for 300 yuan, are dominating China’s rural markets because of the lower price.

Source: China Daily

Mitsui Fudosan To Open More Shopping Malls In China

Mitsui Fudosan Co., Japan’s largest developer, plans to open more shopping centers in China as the company bets consumer spending will spur demand even as the government attempts to cool the housing market.

Mitsui Fudosan plans to build “several” shopping centers in cities including Beijing from 2014, after completing its first mall in Shanghai by 2013, said Takehito Fukui, a project manager of the retail properties division at Mitsui Fudosan. The plan will depend on the completion of the Shanghai project.

Mitsui Fudosan, which generated less than 10 percent of its profit overseas last fiscal year, is expanding its business in China amid rising consumer spending in the world’s fastest- growing economy. Disposable income in the country has grown an average of more than 10 percent a year in the past decade, according to data compiled by Bloomberg based on government figures.

Source: Business Week

Handbag Maker Longchamp Makes Big China Strides

French handbag maker Longchamp Co Ltd expects China to be among the top five global markets by 2013, a top company official said.

Currently the company’s five biggest markets by revenue are France, United States, Germany, Japan and South Korea. Jean Cassegrain, managing director of Longchamp said China would probably overtake Japan and South Korea to be the top market in Asia.

China is now the world’s second biggest luxury goods market, with sales averaging €6.6 billion ($8.5 billion) in 2009. It also accounts for 4 percent of the global market, according to consultancy company Bain & Co.

Sales in China are expected to reach $14.6 billion in the next five years, making it the world’s top luxury market.

Longchamp has 14 stores in China and Cassegrain said the company intends to grow it to around 40 by 2015. The French company has 130 stores worldwide.

Earlier this year, Longchamp bought out its Chinese distributor and localized the management, in line with its long-term development goals in China, said Cassegrain.

Source: China Daily

ALTERNATIVE ENERGY

China Becomes Hydro Superpower

As all generating units began running at Xiaowan Hydropower Station in the southwestern Yunnan province, China’s hydro-power capacity became the world’s largest.

The new 700,000 kilowatt-unit at Xiaowan sent China’s installed hydro-power capacity just above 200 million kilowatts and marked the completion of the 4.2 million-kilowatt Xiaowan Hydropower Station project, China’s second largest hydropower project after the Three Gorges.

With a total investment of 40 billion yuan ($5.86 billion), Xiaowan can produce 19 billion kWh of electricity every year.

China undertook a commitment to generate 15 percent of its power from non-fossil sources by 2020, up from the current 7.8 percent. As the most competitive non-fossil energy, hydropower was key for China to realize its emissions reduction goal.

Source: China Daily

China’s Nuclear Power Set To Increase Sevenfold By ‘20

China has to raise its nuclear power capacity to 75 megawatts by 2020, eight times that of the current nine-megawatt capacity, to offset the pressure of emission reduction, Shanghai Securities News reported.

“At least 15 percent of China’s total energy consumption must be non-fossil energy by 2020 to meet the nation’s commitment at the Copenhagen Climate Conference. Nuclear power should contribute up to six percentage points,” said an unidentified senior official.

Nuclear power generation costs $50 per megawatt-hour, the report said citing data from the International Atomic Energy Agency. China’s mature nuclear power plants need less than 0.4 yuan (6 US cents) per kilowatt-hour.

“China’s two nuclear power giants are buying overseas uranium mines in a speedy manner to meet demand from a huge installed nuclear power capacity, laying the foundation for a great leap of the nuclear power generation industry,” said Zhang Shuai, an analyst at Sinolink Securities.

Source: China Daily

Yancheng To Open Carbon Exchange In September

The Yancheng Carbon Credit Exchange is to open on September 3rd in Yancheng city, a port city in East China’s Jiangsu province, the vice mayor said.

The exchange, a branch of Shanghai Carbon Credit Exchange, is planned in Yancheng Environment Protection Industrial Park, China’s model environment protection industry zone, embracing hi-tech industry and the environment friendly service sector.

The park is to develop six manufacturing industries as major projects: water treatment equipment, air pollution treatment equipment, solid waste treatment equipment, noise and vibration control equipments, environment friendly pharmacy, environment examining equipments.

Yancheng city plans to form an industry cluster of environment protection in three to five years.

China’s National Development and Reform Committee, the country’s top economy planner, has reportedly issued a plan listing five provinces and eight cities for carbon credit exchanges pilot program. Zhejiang province, Yancheng city, and Shanghai municipality is not among the selected jurisdiction areas. The selected provinces and cities are: Guangdong province, Liaoning province, Hubei province, Shanxi province, Yunan province, Tianjin municipality, Chongqing municipality, Shenzhen city in Guangdong province, Xiamen city in Fujian province, Hangzhou city in Zhejiang province, Nanchang city, Guiyang city in Guizhou province, Baoding city in Hebei province.

Source: China Daily

RECENT TRANSACTIONS

eHi Car Rental Receives US$70 Million in Growth Capital

eHi Car Rental, a Shanghai-based leading car rental company in China, signed a definitive investment agreement valued at US$70 million with a consortium led by Goldman Sachs.

eHi is the first car rental company in China to launch a car-sharing service in Beijing and Shanghai in 2009. It is similar to the Cambridge, Mass.based Zipcar Inc., which is now preparing for an IPO in the U.S. “eHi’s mission is to help China avoid taking such a disastrous route…we promote this lifestyle and hope to raise the consciousness of China’s consumers,” according to Ray Zhang, the founder, Chairman and CEO of eHi.

Source: Prnewswire.com

Tencent Buys Google-Backed Social Networking Company

Tencent Holdings Ltd, China’s largest Internet company, has bought Chinese social networking company Comsenz for more than $60 million, the China Business News reported.

Comsenz announced the takeover in a statement on its website. The Beijing-based company is backed by Google Inc, Sequoia Capital and Morningside Ventures.

The report said the deal was worth more than $60 million, citing a source familiar with the matter.

Tencent, China’s No 1 online game operator and largest instant messaging provider, could be on the look out for more acquisitions as it seeks to expand its dominance beyond China. Earlier this year it bought a 10-percent stake in Russian Facebook investor Digital Sky Technologies (DST) for $300 million.

Source: China Daily

PetroChina, Shell Finalize Takeover Of Arrow Energy

PetroChina Co, the largest oil producer in Asia, and Royal Dutch Shell have completed a joint takeover of Australian coal seam developer Arrow Energy, PetroChina announced.

In an acquisition deal signed on March 19, PetroChina International Investment Company Ltd, a subsidiary of PetroChina, and Shell Energy Holdings Australia Ltd, agreed to establish a 50-50 joint venture to pay A$3.5 billion ($3.1 billion), or A$4.70 ($4.31) per share, to buy all Arrow stock.

Under the deal, the joint-venture owns Arrow and Shell’s coal seam assets in Queensland, and Arrow’s power generating sector in Australia. Assets of a natural gas project on Curtis Island are also included.

The deal was PetroChina’s first move into Australia’s coal seam market, and was expected to lay a solid foundation for Sino-Australian cooperation in coal seam development, the statement said.

Source: China Daily

CIC Gets Fed Nod For Morgan Stake

China Investment Corporation (CIC) has received the necessary approvals from the US Federal Reserve to acquire a 10 percent voting stake in Morgan Stanley after the sovereign wealth fund said it will not seek operational control of the investment giant.

The deal will have no adverse effect on competition or on the concentration of banking resources as the CIC does not intend to “exercise or attempt to exercise a controlling influence” over the management of Morgan Stanley, the Fed said in a statement.

The fund currently holds 2.49 percent stake in Morgan Stanley. CIC also has $5.58 billion of the Morgan Stanley securities it purchased in 2007, which were converted into common shares earlier this month.

Source: China Daily

OVERSEAS TRANSACTIONS

HSBC In Talks For $6.8 Billion Majority Stake In Nedbank

British bank HSBC Holdings PLC said it is in talks with financial group Old Mutual PLC to buy a controlling stake in Nedbank Group Ltd. of South Africa in a deal worth as much as $6.8 billion.

Old Mutual said the discussions center on the sale of a 70 percent stake in Nedbank, South Africa’s fourth-largest banking group in terms of total assets.

Old Mutual said the proposed sale, if agreed and approved by regulators and shareholders, would be a major step in its strategy to simplify its business. Proceeds would be used to reduce debt and make new investments in South Africa.

The sale “is likely to result in a material strengthening of South Africa’s financial sector, foreign direct investment by HSBC in the banking sector and material incremental investment by Old Mutual in the long-term savings sector,” Old Mutual said in an announcement to the London Stock Exchange.

Source: Yahoo News

Citadel of Egypt May Sell Investment, List Taqa Shares As Market Improves

Citadel Capital Corp. may sell at least one investment by year-end and list one of its oldest energy units by June, the chief financial officer of Egypt’s largest publicly traded private equity firm said.

Citadel, which invests in energy, mining, cement, agriculture, transportation and retail businesses across the Middle East and East Africa, posted a second-quarter loss of 95 million Egyptian pounds ($16.7 million), the second consecutive quarterly loss since the company listed on the Egyptian exchange in December. Profit for the three months was 300,000 pounds on a standalone basis, which excludes early-phase investments.

“We aren’t going to exit just to make the numbers look good,” Chief Financial Officer Ahmed El Shamy said. “But we are considering making these exits when we feel we can maximize value for our shareholders.”

The Cairo-based firm, which controlled $8.3 billion in investments as of June, made its last full exit of an investment in June 2007 with the sale of Egyptian Fertilizers Co. to a group of investors led by Dubai-based Abraaj Capital Ltd. for $1.41 billion. Citadel’s initial 2005 investment in the fertilizer producer was less than $400 million, he said.

Source: Bloomberg

Intel Buys Infineon Wireless Radio Chip Unit For $1.4 Billion

Intel Corp., the largest chipmaker, agreed to buy the wireless operations (WLS) of Infineon Technologies AG for about $1.4 billion, gaining a foothold in the mobile-phone business it has struggled to crack for more than a decade.

Infineon, Europe’s second-biggest semiconductor maker, expects the all-cash transaction to close in the first quarter of 2011, according to a statement. The business makes third-generation, or 3G, chips for devices like Apple Inc.’s iPhone and Samsung Electronics Co.’s Galaxy S.

The acquisition follows Intel’s $7.68 billion purchase of security software maker McAfee Inc., and fits a plan by Chief Executive Officer Paul Otellini to lessen the company’s reliance on the personal-computer market. Intel, based in Santa Clara, California, wants to get its processors into smartphones like the iPhone and could use the business to beef up the wireless features of PCs.

The sale enables Infineon to expand leading position in markets for automotive, industry and security technologies.

The WLS will operate as a standalone business. Intel is committed to serving WLS’ existing customers, including support for ARM-based platforms.

Source: Bloomberg

THIS WEEK IN CHINA

China Encourages A-Share Companies To Introduce Foreign Strategic Investors

China’s State Council recently has said that it will support domestically listed companies to bring in foreign strategic investors and encourage foreign investors to participate in local companies’ reforms and restructuring though various methods such as equity investment, M&A, and others.

Among the 20 directives listed by State Council to facilitate foreign investments in the country, there is also a call to support qualified foreign investments in China in conducting stock offers and issuing bonds and medium-term corporate notes to broaden their financing channels.

This is the latest in a series of moves to bring investment into China and coincides with McDonald’s Corp.’s announcement of a RMB 200 million ($29.5 million) Chinese bond issue, the first sale of so-called “Panda bonds” – foreign issued yuan-denominated bonds – by a non-financial company from outside the country.

Brown Brothers Harriman characterized McDonald’s yuan-bond issuance as part of China’s push to expand use of its currency. “This is part of China’s efforts to increase the international use of the yuan, and should lead to more issuers to tap the market,” analysts wrote in a note.

The directives are seen as the latest gesture from the government to welcome foreign businesses, following a batch of new foreign direct investment development guidelines unveiled in April.

Earlier last week, for example, the People’s Bank of China said it would launch a trial program allowing foreign financial firms to buy into the Chinese interbank bond market which is aimed at increasing the currency’s international use and making it convertible and comes amid growing pressure on Beijing to let the yuan appreciate against the dollar.

“China is in a critical period of transforming its economic landscape, which cannot be realized without foreign enterprises’ participation, as they have been an important engine for the country’s economic development in the past 30 years,” said Li Xiaogang, head of the Foreign Investment Research Center at the Shanghai Academy of Social Sciences.

It is a win-win situation for foreign and domestic firms, as foreign companies whose finances are strained due to the financial crisis can get funded in the Chinese market where liquidity remains ample.

For domestic firms that are still struggling in the lower end of the industrial value chain, tie-ups with foreign companies are a good learning experience.

Despite foreign accusations of China’s challenging investment environment, the country’s foreign direct investment continued to surge in July, up 29% from a year earlier. The increase showed that foreign investors are still keen about operating in China, one of the most vibrant economies in the world, analysts said.

The latest directives will further facilitate the flow of foreign investment into China and foreign investors will continue to play an important role in the country’s economic restructuring in the coming decades.

Adam Roseman
Founder & Managing Director
ARC China

Investors Take Indirect Route Into China

With a stimulus-fueled boom in domestic demand altering the composition of China’s breakneck growth, investors are increasingly looking at fresh angles to buy the dragon.

Gaining exposure to China’s growth story can be a tricky prospect – China’s currency is still largely controlled by the state, its bond market is small and suffers from a weak legal structure, and Chinese equities have been a poor indicator of the country’s economic success.

The Shanghai Composite index remains the second-worst performing major equity market in the world this year, after Greece, despite gross domestic product growth steaming ahead at 11.3 percent in the first half of 2010.

So it comes as little surprise that the investment community is looking at alternatives to gain China exposure from resources and currencies to debt and non-Chinese equities.

A long-time China play has been through commodities and within the commodity basket, copper has been the traditional choice. The red metal is important both for infrastructure development and improving energy efficiency. In recent years it has been a decent proxy for Chinese industrial output, and that looks set to continue.

Morgan Stanley’s China commodity pick is coal – China’s growing demand has seen it turn net importer in recent years, while neighboring producer countries, such as Mongolia, are looking into new projects to exploit that rising trend.

In the agricultural sector BarCap favours corn. While China’s rising incomes haven’t seen its population significantly turn to coffee or chocolate – it has seen a rising appetite for meat. As corn is used both for human consumption and animal feed, it is a good proxy for changing dietary habits.

Recent research from Jonathan Garner of Morgan Stanley into macro-economic shifts in China points to a number of big multinational stocks that look set to benefit from rising wages and changing spending patterns in China.

Those are mainly globally established brands, such as Nike, Yum! Brands, Unilever, H&M and L’Oréal, that target middle-income consumers. The potential for these companies is unprecedented – Mr Garner projects that by 2020, there will be more households with a disposable income of over $10,000 in BRIC countries than in the US and the eurozone combined, with most of that growth coming from China.

Source: Financial Times

China Approves Power Plant, Grid Projects, NDRC Says

China, the world’s largest energy user, approved 24 power projects last month to help meet rising energy demand in the country’s less developed northern and western provinces.

The government has approved grid projects in provinces including Qinghai, Tibet, Liaoning, Inner Mongolia and Shaanxi, according to a statement posted on the website of the National Development and Reform Commission. The economic planner didn’t give any investment values.

President Hu Jintao pledged to double investment in Xinjiang province and the government said the country’s western regions will be a base for energy production and processing of natural resources. State Grid Corp. of China is building transmission lines linking Qinghai and Tibet that will cost about 14 billion yuan ($2.1 billion).

The government has also approved power plant projects including a 1,000-megawatt coal-fired unit to be built by China Guodian Corp. in Hubei province, two 600-megawatt coal-fueled units in Inner Mongolia, and two 1,000-megawatt units that China Datang Corp. is planning in Guangdong, the NDRC said.

Source: Business Week

China-related M&A To Rebound

Most China-related merger and acquisition deals have rebounded strongly in the first half of the year, and set the scene for robust activities for the remainder of 2010 and into 2011, accounting firm PricewaterhouseCoopers (PwC) said.

Chinese outbound merger and acquisition deals for the first six months of 2010 have reached record levels, up by more than 50 percent over the same period last year, PwC said in a report. A total of 99 outbound deals were announced in the first half of this year, continuing a growing trend that began in the first quarter of 2008.

Natural resources are the main industry target for Chinese investors overseas. Fourteen resource deals were announced in the first half, with the largest being Sinopec’s $4.7 billion acquisition of a 9 percent stake in Synacrude from ConocoPhillips.

Another notable investment was China Investment Corporation’s double investment in PennWest Energy, aggregated to $1.2 billion in total.

Though Australia is identified as the main target destination, Africa is growing in prominence for Chinese resource investors.

China’s domestic and inbound merger and acquisition deals also rebounded strongly, reaching peak levels before the financial crisis. Deal volumes increased by 26 percent to 1,884 in the first half of this year, compared to a three-year low in the first half of 2009.

The largest transaction in the first half of 2010 was China Mobile’s acquisition of a 20 percent stake in Shanghai Pudong Development Bank for $5.8 billion. Foreign inbound merger and acquisition activities are still below pre-financial crisis levels, but are trending back.

Financial buyer activities including private equity and venture capital have flat lined, but foreign funds remain committed and domestic private equity and venture capital fund raising in the first half of 2010 reached record levels.

Looking ahead, domestic strategic merger and acquisition activity in China is expected to increase in industries previously only accessible to State-owned enterprises.

Meanwhile foreign investors are expected to reenter the market at volumes last seen prior to the financial crisis.

As for Chinese outbound investment which has seen record growth, this trend is expected to continue and in an increased number of industries apart from natural resources including automotive, equipment, and high-technology industries.

Source: China Daily

China No. 1 Destination Of Italian Goods

China has passed Japan to become the number one import country of Made-in-Italy products, Italian Junior Economic Development Minister Adolfo Urso said.

Urso said that in the first six months of this year exports of Italian products to China has risen by 23 percent while exports to Japan rose by just 2 percent, ANSA news agency reported.

According to the minister, the data demonstrated that Italian firms were ever more looking towards China as a new market destination for their goods, despite acknowledging that Japan had severely suffered from the economic turmoil.

Looking at Italy’s market shares in China, Urso noted that “we have gone from 1.7 percent to 2.3 percent.”

The sector that most benefited from a rise in Chinese demand was one of Italian processing machines. On the other hand demand in Japan remained high of Italian agro-food products, fashion, clothing and furniture.

Source: China Daily

Nanjing Vows To Boost The Smart Network Market

Nanjing is to boost the market of smart networks and accelerate industry development in the future three years, the Nanjing mayor Ji Jianye said.

The city government has prepared 1 billion yuan ($147.10 million) to fund emerging industries and technological innovations, including the IOT industry.

An office has been set up to review financing applications from enterprises.

The Nanjing government is working on the infrastructures in the smart network industrial market, such as smart power grids, smart transportation networks, and smart medical networks.

The State Grid, State-owned parent group of SGEPRI, will invest a total of 2.2 billion yuan ($324 million) in a smart power grid industrial zone during the period from 2010 to 2012.

Source: China Daily

China Medicine Proves Tonic For Investors

It is not the small brown pills that stand out at the Shanghai No. 1 TCM factory, produced by shiny machines inside pressure-controlled rooms and supervised by technicians in white coats. It is the ingredients.

Like any western drugmaker, Shanghai Hutchison Pharmaceuticals, the joint owner, produces neatly printed packets of medicine to high-quality standards, complete with holograms to dissuade counterfeiters. But the contents include musk, mandarin orange peel and cow’s liver.

SHPL, part of Hutchison Whampoa, one of Hong Kong’s most powerful conglomerates, is capitalizing on surging demand for traditional Chinese medicine (TCM), which is attracting businesses and investors domestically and abroad.

Zhou Jun Jie, general manager, says TCM is growing just as rapidly as the fast-expanding Chinese market for western pharmaceuticals – at about 20 percent per year. His company’s sales rose by a third to $18 million in the first half this year.

Estimating the size of the market is hard, local pharmaceuticals analysts say, because it includes both hand-mixed “home brew” products dispensed without prescription, and modern pill versions of the same medicines.

IMS, the healthcare consultancy, says TCM has grown from 1 percent to 11 percent of the Chinese pharmaceuticals market over the past decade, with annual sales today of more than $2.5 billion. The Chinese Food and Drug Administration says it represents 36 percent of the total medicines market.

By its nature, TCM was difficult to turn into a large-scale business. It involved individual consultations with doctors, who prescribed a custom combination of herbs they collected and mixed themselves.

The Chinese government has also imposed tougher regulatory hurdles to improve the quality and consistency of ingredients, and to protect against “wild” harvesting of endangered plants. SHPL’s factory, for example, which is jointly owned with the state-controlled Shanghai Pharmaceuticals, has switched from using natural musk in She Xiang Bao Xin Wan, its top-selling pill for angina, to an artificial equivalent.

There are powerful economic reasons behind TCM’s growth. As China grows wealthier, there is greater demand for medicines of all types. While not all plants are cheap, common products are often more affordable than western-style drugs, and their long-term use offers the prospect of sustained sales.

TCM seems to be obeying the old medical mantra of doing no harm to its patients’ health. For its financial backers, it is also increasingly generating wealth.

Source: Financial Times

China Moves To Improve Vegetable Supply

The State Council, China’s Cabinet, agreed to take measures covering the entire process of vegetable planting, storage, transport, distribution, marketing, quality monitoring and consumption.

It ordered local governments to stabilize and expand vegetable farms in the suburbs of large cities, with minimum planting areas, and to set up vegetable reserves to meet demand for five to seven days in large cities like Beijing and Shanghai.

In a statement issued after an executive meeting, the State Council pledged more funds and preferential policies to support the construction of major vegetable production bases across the country.

Banks and other financial institutions were encouraged to step up lending to vegetable production firms and individuals. The State Council also urged efforts to step up construction of special railway lines linking production areas with major cities.

Source: China Daily

Shenzhen Launches New Policies To Support PE Funds

The Regulations on Promoting the Development of the Equity Investment Funds Industry was recently launched by the Financial Industry Development and Service Office of Shenzhen Municipal People’s Government. This marks the first systematic release of supporting policies targeted at Shenzhen’s PE industry, and, insiders said, this move is expected to bring about skyrocketing growth of local PE funds.

The equity investment funds mentioned in the regulations include industrial investment funds and VC funds as well as the equity investment fund management companies and private securities investment fund management companies. The Regulations involve preferential policies for the headquarters of equity investment funds that settle down in Shenzhen in such aspects as awards, industrial & commercial registration and tax. The new policy encourages the companies or projects invested in Shenzhen-”a lump-sum award, equivalent to 30% of the local financial capacity, will be given to the project that exits or produces returns, but the award for one single project shall be no more than RMB 3 million ($440,000).”

Source: Zero2IPO

Foreign Investment In China Soars Despite Labor Woes

China drew 29 percent more foreign direct investment (FDI) in July than a year earlier, with global firms still flocking to the country to build factories and set up research centers despite a bout of labor unrest.

FDI inflows, which surged after the country joined the World Trade Organization in 2001, have recovered steadily this year after being hit hard by the global economic slowdown.

Although China has recently been hit by a series of high-profile labor disputes — notably, at suppliers to Japanese automaker Honda Motor Co — it continues to exercise a magnetic pull on foreign businesses setting up production facilities. In July alone, China attracted $6.9 billion in FDI, up 29.2 percent from July 2009, the commerce ministry said. It drew $58.35 billion in foreign direct investment (FDI) in the first seven months of the year, up 20.7 percent from the same period in 2009.

Chinese wages have been rising, but productivity has been rising even faster in most industries and labor costs remain far lower than in developed economies. Investors are also attracted by the country’s modern infrastructure and the prospect of tapping its fast-growing domestic demand.

Source: Reuters

Luxury Brands Move to China’s 2nd and 3rd Tier Cities

The consultancy firm McKinsey indicated that 30% of China’s rich live in Beijing, Shanghai, Shenzhen and Guangzhou, but by 2015, 75% of China’s wealthy will be living in second and third tier cities.

In a survey of China’s wealthy over 40% indicated that they planned to buy a luxury car, the first time it has jumped over the choice of buying a luxury home (which stood at 38%) while clothes, diamonds and art stood at 9%, private planes at 4% and luxury travel stood at 1% and other items stood at 8%.

Bentley recently opened its 10th sales center in Yunnan province, and is a stark difference to its original dealership in the year 2000 when it only had one single dealership and a sales goal of 30 vehicles. Fast forward to 2009 and Bentley cleared 421 cars from its dealership forecourts. However first tier cities are still expected to be strong sales points, and in 2011 Bentley is aiming to sell 1000 cars in China and will open dealerships in fast developing cities, specifically Xiamen, Shenyang, and Tianjin.

In 2009, Lamborghini sold 80 vehicles in China, which was an increase of 11% over 2008 sales and is likely to achieve its sales goal of 100 vehicles in 2010 without much difficulty. Lamborghini currently has seven dealerships in China and will open its 8th dealership in Chongqing the first in China’s west and also plans to open dealerships in Qingdao and Dalian.

Rolls Royce is the big winner in China, with it selling 678 vehicles between January and April 2010, an increase of over 146% over 2009 sales. While Rolls Royce’s sales network is smaller than Bentley’s, it has chosen its network locations carefully and only in fast developing cities such as Shenzhen, Chengdu and Hangzhou, where the number of wealthy consumers is quite high.

Following the development of China’s second and third tier cities, luxury car makers will adopt their tactics and take the focus away from big cities such as Beijing and Shanghai where the market for super cars and luxury models is already begining to saturate, the new focus is going to be on Chengdu, Harbin, Dalian, Chongqing, Xi’an, Wuxi, Wenzhou, Qingdao and other second tier cities.

Source: autonews.gasgoo.com

16 Firms Combine To Develop China’s Electric Cars

China’s 16 centrally-managed State-owned Enterprises (SOEs) will form an association, aimed at developing China’s own electric cars, the Shanghai Securities News reported.

The association, under direct control and guidance of the State-owned Assets Supervision and Administration Commission, will coordinate activities of companies along the upstream and down-stream industrial chain and try to avoid overlapping efforts in developing China’s electric autos.

The association aims to integrate technological standards and to help Chinese companies master key technologies in making electric vehicles.

Car manufacturers China FAW Group, the Dongfeng Motor Corporation and Chongqing Changan Automobile Co, also known as Chana Auto, will join the association.

Oil companies including the China National Petroleum Corporation, the China Petroleum & Chemical Corporation, and the China National Offshore Oil Corporation will also join the association. These companies will help build recharging stations, according to China Business News.

Source: China Daily

A New Way To Invest In China

If you follow private equity as an investor at all beyond just knowing some of the big listed brand names in the field like The Blackstone Group, Kohlberg Kravis Roberts and Fortress Investment Group, you know that the fast-coming trend in China is funds denominated in the currency of the moment, the yuan, or RMB. Big players have already sought onshore partners to go in together on domestic funds – Blackstone has an RMB fund in development with the Shanghai Pudong government, and the city of Beijing has linked up with Carlyle Group, which announced late last month it had received commitments of $2.4 billion RMB, or about $350 million, to begin investing.

Now it looks like there will be another more systematic way in for institutional investors. Xinhua News Agency, courtesy of istockanalyst.com, reports on a new Qualified Foreign Limited Partner system to be piloted:

“…qualified foreign investors would be allowed to convert their foreign capital into Chinese currency RMB and invest the RMB-denominated capital in China’s domestic private equity funds and venture capital funds.”

This could get rolling on a very limited basis by the end of the year and expand after that.

Source: Zero2IPO

China’s Investing Turns To Neighbors

As China takes steps to reduce its reliance on the U.S. dollar, it is increasingly looking toward its Asian neighbors instead.

Data already shows China has stepped up its buying of Japanese government bonds, and evidence has emerged that the country is also buying more South Korean debt. And China added the Malaysian ringgit to a small group of currencies it allows to be traded directly against the yuan.

Analysts say the shift toward emerging Asian currencies, albeit incremental, is significant. With China’s $2.5 trillion of reserves, it would only take relatively small purchases to have a big impact on currencies like the ringgit.

China, the largest holder of U.S. debt, has long said it plans to move its foreign-exchange reserve holdings away from dollars, but it has moved slowly. And the secrecy with which China acts — it doesn’t detail the composition of its currency holdings — has limited traders to a guessing game.

Mr. Douglas Borthwick, head of trading at Faros Trading says China’s buying of other emerging Asian debt at this time is an especially savvy move that allows it to earn much higher yields than are available on developed-market debt and potentially reap gains later with the help of currency appreciation in those countries—that it to some degree controls.

South Korea’s Financial Supervisory Service shows that the total holdings of all Chinese institutions in Seoul’s treasuries has more than doubled this year, to 4.3537 trillion Korean won ($3.7 billion) at the end of July.

Data from Japan’s Ministry of Finance show that China bought a net 1.73 trillion yen ($20.3 billion) of Japanese government bonds in the first half of this year, compared with a net sale of 5.9 billion yen ($69 million) a year earlier. That strong demand has been a key factor strengthening the yen in recent weeks, to the frustration of Japanese exporters.

Source: Wall Street Journal

Chinese Pharma Finds Partner In India

With a fast-growing and lucrative domestic market, most Chinese pharmaceutical companies have spurned the costs and complexities required to sell their drugs abroad, but Desano has more global ambitions with the help of an unusual foreign backer.

Founded in 1996, the Shanghai-based company expanded rapidly in the production of active pharmaceutical ingredients, the raw materials of drugs, with much of its sales going to Cipla of India for the manufacture of anti-retroviral medicines for HIV and antimalarials.

That helped establish Desano as a producer of the finished drugs for the domestic market, while the know-how provided by Cipla has helped it win supply contracts with other companies and certification of its plants by the US Food & Drug Administration.

Now, with Cipla funding and support, it is building factories to produce far more complex biological drugs, with the aim of selling cut-price versions of such cancer treatments such as Avastin and Herceptin in developing countries.

More generally, Indian companies have struggled to gain a foothold in China. Ranbaxy, one of India’s largest generic companies that was bought in 2008 by Daiichi Sankyo of Japan, sold out of its Chinese joint venture at the end of last year.

Until recently, India’s drug companies have been more integrated into the global economy, expanding their sales of low-cost generic medicines around the world. But the shift to China of the lower margin chemical drug ingredients business is now kindling interest in the growth in higher value activities, from biological production and even gradually towards more basic research that could threaten over time to usurp India.

Source: Financial Times

China Remains As Parkson’s Main Growth Driver

China remains the major growth driver for the same store sales (SSS) segment which influences Parkson Holdings Bhd’s (Parkson) bottomline.

According to RHB Research Institute Sdn Bhd (RHB Research), China’s contribution comprised 72 percent and 95 percent of Parkson’s revenues and profit before tax (PBT) respectively.

The research house said for the first quarter of the calendar year 2010 (1QCY10), China recorded an SSS growth of 10.8 percent, while management expected the same level of growth for the second quarter of the calendar year 2010 (2QCY10), which was in line with its SSS assumptions of 10 percent.

RHB Research pointed out that for the first half of the calendar year 2010 (1HCY10), China recorded an SSS growth of 10 percent to 11 percent, while the beginning of the second half of the calendar year 2010 (2HCY10) continued to see double-digit SSS growth.

The research house stated that assuming this growth was maintained for the rest of the calendar year (CY), this would be in line with its SSS assumptions of 10 percent for the financial year ending December 2010 (FY12/10).

The research house liked Parkson as it provided a cheaper alternative to the robust China retail industry, at less demanding valuations than its Hong Kong-listed subsidiary, Parkson Retail Group.

RHB Research also favoured the company due to its stable expansion strategy, along with its strong cash flow and asset light business model.

Source: theborneopost.com

CONSUMER / RETAIL

Levi’s Expands In China, With Western Fits

Aiming to expand business, Levi Strauss & Co. rolled out a new brand to win over a broader range of China’s consumers.

The new Levi’s brand, called Denizen (a play on the words “denim” and “zen”), was — prior to the launch — reported by trade publications to be specifically designed for Chinese body types, typically narrower and shorter than their Western counterparts. Not just made in China, they said, but made for China. It turns out, however, that’s not the case. Denizen is a global brand for men and women, and its tailoring — still equipped for all those global curves and tall statures — remains unchanged.

What’s different is the price. A new pair of Denizen jeans sells for $40 to $60 in China, well below the more than $100 the San Francisco-based company charges for its high-end denim lines, which have stone-washed or color finishes that warrant the higher prices. The cheaper price tag on the no-frills Denizen shirts, jeans and accessories is an attempt to make Levi’s more affordable for China’s budget-conscious consumers, namely the 18- to 28-year-old target audience. It is also the iconic denim company’s tactic to expand its clothing beyond China’s biggest and most affluent cities.

Source: Wall Street Journal

Gadget Giant’s Evolution: Make, Then Sell

Hon Hai Precision Industry Co., whose Chinese factories produce many of the world’s most popular electronics products, including iPads and iPhones is making a push to sell gadgets in China’s own fast-growing consumer market.

Starting later this year, Hon Hai plans to open at least 10 large electronics stores in the Shanghai area by the end of 2011, under a partnership initiated last year with Germany retailer Metro AG. Louis Woo, the senior Hon Hai executive in charge of the retail push, outlined the plans in an interview.

Hon Hai also intends to open 45 to 50 branches of Cybermart, a small retail chain it purchased a decade ago but which has seen little growth. Cybermart currently operates 34 stores in 20 Chinese cities.

And Mr. Woo said the company plans to open another 200 electronics booths in hypermarkets in Chinese cities, while also providing funding for Chinese employees who return to their hometowns to start small shops through which Hon Hai can distribute products.

Source: Wall Street Journal

Shanghai Jahwa Pumps New Brand After Short Delay

State-owned manufacturer of cosmetics and personal care products Shanghai Jahwa United Co unveiled its Shanghai VIVE brand, part of the company’s strategy to enter the luxury cosmetics’ segment of the market.

Shanghai Jahwa was originally slated to launch its VIVE brand back in July, but market entry was put on hold due to the delayed reopening of the store’s location in the Peace Hotel.

The domestic cosmetics market is dominated by foreign companies acting alone or in joint ventures and Jahwa’s move is the latest sign that domestic cosmetics’ companies are seeking to improve margins after growing traction in the lower priced market.

Ge said VIVE would have at least five outlets in Shanghai by the end of the year, with more than 20 more in the works over the next two to three years

VIVE’s product range includes cosmetics, jewelry and accessories, with prices ranging from 300 yuan ($44.11) to more than 1500 yuan ($221), a significant price hike in comparison to the company’s other product lines.

Source: China Daily

ALTERNATIVE ENERGY

China To Spend $3 Billion On Alternative Energy Fuels and Reforestation

China plans to invest $3 billion in the next 10 years to develop alternative energy fuels, combat desertification and prevent landslides.

Wu Jian, a senior engineer with State Forestry Administration, said that the trees will fight climate change by absorbing carbon and will produce material for bio-diesel and ethanol fuels by 2020.

The plan aims to have 23 percent of the country covered with forests in 10 years, a 3 percent increase from the current level.

China is one of the world’s fastest-growing economies and relies on coal to meet two-thirds of its energy needs. It has been under increasing pressure to take more forceful measures to curb releases of greenhouse gases.

Source: Chinamining.org

China Renewables To Power Ahead Without CDM

Green investment in China will forge ahead even without a United Nations carbon offset scheme, eventually shriveling the country’s dominant role in a program that has underpinned billions of dollars in investment.

Investors are sidestepping the Clean Development Mechanism in China because of uncertainties over its future, a Citibank carbon executive told Reuters.

“CDM investment in China has pretty much dried up,” said Nan Li, head of Asian environmental markets for Citi, who sources carbon offsets for trading products to manage price risk. “People are betting on the future of renewable energy without CDM.”

China is the largest player in the $2.7 billion U.N. scheme, which rewards clean energy investors in developing nations with valuable carbon credits that make the projects viable.

China took top spot in global clean energy finance and investments in 2009, with $34.6 billion, ahead of the United States at $18.6 billion, the Pew Charitable Trusts said.

Globally, clean energy investments are expected to grow 25 percent to $200 billion in 2010, the U.S.-based trust said.

China is also the top supplier of CDM offsets called certified emissions reductions, generating half the 428.6 million CERs issued to date.

Source: Chinamining.org

China, South Africa Sign Deals To Deepen Ties In Resources, Energy

China and South Africa signed a series of commercial deals in mining, finance, nuclear energy and other sectors during a visit by South African President Jacob Zuma, as Beijing strengthens its commercial ties with Africa’s largest economy.

The list of more than 10 deals, the total value of which wasn’t announced, reflects China’s focus on expanding its resources and energy reach in South Africa to fuel continued growth of China’s booming economy, which is on pace to surpass Japan’s this year as the second largest after the U.S. China’s demand for resources has lent great support to South Africa’s economy as well as its currency, the rand, in recent years.

Chinese Vice Commerce Minister Gao Hucheng said Beijing will encourage domestic companies to invest in South Africa’s mining and resources sectors as well as higher value-added sectors. But senior South African officials also indicated some discontent with the trade relationship. They called on China not to focus exclusively on investing in raw materials and other “primary goods,” and to buy more value-added goods from South Africa to help promote more balanced trade.

Source: Chinamining.org

RECENT TRANSACTIONS

Tsingtao To Buy 45 Percent Stake In Xihu Beer

Tsingtao Brewery, China’s best known beer brand, plans to purchase a 45 percent stake in Hangzhou Xihu Beer Asahi Co for up to 2 billion yuan ($294.4 million), the Economic Observer newspaper reported.

Tsingtao plans to acquire the stake owned by state-owned Hangzhou Industrial Assets Management Co, and the purchase will not affect the 55 percent stake held by Asahi Breweries, the paper said, quoting an unnamed company official from the general manager’s office at Xihu Beer.

Asahi also owns a 19.99 percent stake in Tsingtao Brewery.

The purchase is still pending government approval, the paper said.

Xihu is a famous beer brand in the affluent coastal province of Zhejiang.

Source: Reuters

Prosperity Investment Collaborates With Shenzhen Capital To Acquire Interest In Holding Company Of Juli

Prosperity Investment Holdings Limited (“Prosperity Investment” or the “Company”) announced its investment in a privately-owned hi-technology chemical company, Yantai Juli Isocyanic Ester Co., Ltd. (“Juli”), in Yantai, Shandong Province through acquiring interest in China Juli Fine Chemical Co., Ltd. The total investment of the Company is HK$26 million.

The only asset of China Juli Fine Chemical Co., Ltd is the 100% equity interest it owned in Juli. The main product of Juli is toluene diisocynate (TDI) and the company is one of the few producers of TDI in Mainland China. TDI is a key chemical material for the polyurethane industry. It is widely used in the production of polyurethane product applications such as sponges, high-grade paint and high-grade adhesive, high elasticity polyurethane, etc. Juli produced a total of 19,000 tonnes of TDI in 2008, representing a year-on-year growth of 146%. Sales income was RMB500 million ($73.5 million), an increase of 119% when compared with the previous year.

Source: Zero2IPO

Two China New Energy Firms Eye $2 Billion In IPOs

China Huaneng Group Corp and Datang Corp, the country’s top power producers, plan to float shares of their renewable energy units in Hong Kong in offerings that could raise over $2 billion, sources close to the deals said.

The deals are unfolding as China aggressively develops its renewable energy sector and the nation’s biggest power firms look to boost investment in the industry to drive future growth.

Huaneng’s renewable energy unit, Huaneng New Energy Industrial Co., plans to raise $1 billion to $1.5 billion in an initial public offering as early as October, sources close to the deal said.

China Datang Corp, the country’s second-largest power producer, also plans to float shares of its renewable energy unit in a Hong Kong IPO as early as December, sources familiar with the deal said.

“The market still has appetite for new energy listings,” said Patrick Yiu, a director at CASH Asset Management.

“Depending on the valuations, renewable enery shares may still be attractive given expectations of growth in the industry.”

The wind power unit of China Huaneng Group plans to issue no more than 2.9 billion shares in Hong Kong at between 3 to 4 yuan ($0.44-0.59) per share, China Daily said.

Datang is planning to spin off China Datang Corp Renewable Power Co Ltd, which holds its wind and hydro assets.

Source: Reuters

OVERSEAS TRANSACTIONS

Chi-X Europe Stock Platform Gets Unsolicited Takeover Approach

Chi-X Europe Ltd., the trading platform started in 2007 to compete with London Stock Exchange Group Plc and Deutsche Boerse AG, said it was approached about a possible takeover by an unidentified bidder.

The pan-European electronic market received an “enquiry” from an unidentified suitor which might lead to an offer for the whole firm or a partial sale, Chi-X Europe said in an emailed statement. It’s being reviewed by the board, according to the London-based multilateral trading facility.

Chi-X Europe, which traded almost 500 billion euros ($634 billion) of shares in the second quarter, competes with Bats Europe, owned by Bats Global Markets, as well as traditional exchanges such as New York-based Nasdaq OMX Group Inc., NYSE Euronext, LSE and Deutsche Boerse in Frankfurt. LSE in February completed the purchase of a majority stake in Turquoise, another electronic platform owned by a group of banks including Morgan Stanley, Credit Suisse, Bank of America Corp., Deutsche Bank AG and Goldman Sachs Group Inc.

Source: Bloomberg

EFG-Hermes Of Egypt Agrees To Buy 65% Of Credit Libanais For $542 Million

EFG-Hermes Holding SAE, the biggest publicly traded Arab investment bank, agreed to acquire a 65 percent stake in Beirut-based Credit Libanais SAL for $542 million to expand in consumer and commercial banking.

EFG-Hermes obtained an option to buy an additional 25 percent stake over the next two years on the same terms it will buy the 65 percent stake, the Cairo-based investment bank said in a Regulatory News Service statement. The acquisition values Credit Libanais at $834 million, the company said.

EFG-Hermes sold its stake in Banque Audi SAL- Audi Saradar Group, Lebanon’s largest lender by assets, for $913 million after giving up on acquiring a bigger stake. Half was sold to a group of existing shareholders and other individuals, none of whom own more than 5 percent each of Bank Audi.

EFG-Hermes, which has expanded its operations in recent years to countries including Syria and Saudi Arabia, will use its own cash for the acquisition and won’t need external funding, the bank said. The bank has said it’s seeking to expand into Libya, Morocco, Sub-Saharan Africa and Pakistan.

Source: Bloomberg

Dell Said To Prepare Sweetened 3Par Bid After HP’s Counteroffer

Dell Inc. is readying a sweetened offer for data-storage provider 3Par Inc. after its earlier bid was bested by a $1.6 billion proposal by Hewlett-Packard Co.

The offer may be sent in the coming days, said a person who declined to be identified. Last week, Dell had agreed to pay about $1.15 billion.

HP offered to pay more than twice what 3Par’s shares were worth before Dell’s bid was announced. In a regulatory filing, 3Par said that if it finds HP’s offer to be superior, it will give Dell three days to come up with new terms. The board determined that the new bid was “reasonably likely” to be a better deal and is entering talks with HP.

In fighting a bidding war with HP, Dell is challenging the world’s largest computer maker and a company with almost $15 billion in cash. 3Par, which makes technology that helps companies store information, would give its new owner a leg up in a challenge to Cisco Systems Inc. and International Business Machines Corp. in the market for data-center products and services. HP and Dell are using acquisitions to move into businesses that generate higher margins than personal computers.

Source: Bloomberg

THIS WEEK IN CHINA

China Surpasses Japan As the No. 2 Largest World Economy in 2Q 2010

Japan’s economy came in valued at about $1.28 trillion in the second quarter of 2010, slightly below China’s $1.33 trillion, meaning China has overtaken Japan as the world’s second-largest economy last quarter.

Tokyo also said Japan’s economy grew 0.4% in the quarter, which is substantially less than forecast. This weakness also suggests that China’s economy will surpass Japan’s for the full year of 2010.

For Japan, whose economy has been stagnating for more than a decade, the figures reflect a decline in economic and political power. Japan has been the world’s second-largest economy for much of the last four decades, according to the World Bank.

While Japan’s economy is more mature and its population quickly aging, China is in the middle of urbanization and is far from developed, meaning it has a lot more room to grow. Just five years ago, China’s gross domestic product was about $2.3 trillion, about half of Japan’s economy.

While the United States and the European Union are struggling to grow in the wake of the worst economic crisis in decades, China has continued to climb up the economic league tables through investing heavily in infrastructure and backing a $586 billion stimulus plan.

China led the world out of last year’s global recession with an economy that is more than 90 times bigger than when leader Deng Xiaoping launched a free-market reform in 1978.

Although its economy is still only one-third the size of the economy in the United States, China passed the United States to become the world’s largest auto market last year. China also passed Germany to become the world’s biggest exporter. The country is currently the world’s largest buyer of iron ore and copper and the second-biggest importer of crude oil.

The country will overtake the United States, which has a GDP of about $14 trillion, as the world’s largest economy as early as 2027, according to Goldman Sachs Group Inc. chief economist Jim O’Neill.

Four of the world’s top 10 companies measured by market capitalization are from China, including PetroChina Co., Industrial & Commercial Bank of China Ltd., China Mobile Ltd., and China Construction Bank Corp.

China’s future influence on the global economy will definitely increase. The country’s “double-digit” expansion will contribute a third of global growth in 2010.

China’s rapid growth also suggests that it will continue to compete fiercely with the United States and Europe for natural resources but offer huge opportunities for companies eager to tap into its market.

Global companies such as Caterpillar, General Electric, General Motors, and Siemens are making a more aggressive push into China, in some cases, moving research and development centers in the country.

Investment firms with a strong focus on investing in companies levered to China’s continued growth in domestic consumption will also benefit from China’s rising status as an economic superpower.

Adam Roseman
Founder & Managing Director
ARC China

China Remains Top Global Growth Engine

China will contribute as much as one third to global economic expansion this year, according to Byron Wien, a senior managing director at Blackstone Group LP, the world’s biggest private equity firm.

“Washington believes China is a bubble waiting to burst; however, I do not think it is the case,” Wien said in a radio interview with “Bloomberg Surveillance”. “China is going to continue to be the engine of growth for the world.”

Global expansion will be more than 3 percent, with China contributing “a full percentage point,” said Wien, former chief market strategist at Pequot Capital Management Inc.

Chinese government is cracking down on real estate speculation to prevent asset bubbles, curbing credit, and closing factories to meet energy-efficiency targets after three quarters of growth of more than 10 percent. Real estate prices were unchanged last month from June, according to the statistics bureau. The overheating is mainly in high-end realty, according to Wien.

“It is a problem, but the Chinese government is doing a lot to control the real estate price in terms of restricting bank lending,” he added. “The situation is not as bad as the one in the United States.”

Government restrictions thus far this year include higher down-payment and mortgage rates for multiple-home buyers and instructions for lenders to halt third-home loans in areas with “excessive price gains.”

China’s banking regulator has ordered stress tests for lenders to gauge the impact of home prices falling as much as 60 percent in the hardest-hit markets.

The nation’s economy will grow 8 to 9 percent annually, and China’s stocks are now a good buy, according to Wien added. The Shanghai Composite Index has lost more than 20 percent this year after rallying 80 percent in 2009.

Source: Zero2IPO

China And India Listed Among The World’s Top Plastic Surgery Markets

The International Society of Aesthetic Plastic Surgery (ISAPS) recently released the first ever independent study on global cosmetic surgery trends in the industry’s 25 most popular countries and regions.

The ISAPS Biennial Global Survey confirmed that the United States and Brazil are the top markets for plastic surgery, but the report also showed a remarkable rise in cosmetic operations among citizens of emerging economies such as China and India.

The ISAPS report surveyed over 75 percent of the world’s estimated 30,817 certified plastic surgeons and classified over 17 million surgical and nonsurgical procedures conducted during 2009. Of the 8,5 million surgical operations undergone last year, the world’s top five were liposuction (18.8 percent), breast augmentation (17 percent), blepharoplasty (13.5 percent), rhinoplasty (9.4 percent), and abdominoplasty (7.3 percent). Of the 8.6 million nonsurgical operations undergone last year, the world’s top five were botulinum injections (32.7 percent), hyaluronic acid injection (20.1 percent), laser hair removal (13.1 percent), autologuos fat injections (5.9 percent), and IPL laser treatment (4.4 percent). The types of procedures, though, vary greatly depending on the country and region.

“It is not always liposuction and breast augmentation that rank number one,” according to Nahai. Asian countries such as China, South Korea, and Thailand, are extremely popular for silicone implants such as nose reshaping and eyelid surgery. However, injections are not as popular in other countries as they are in the United States.

Source: 2point6billion.com

China Favors Euro Over Dollar As Bernanke Alters Path

China, whose $2.45 trillion in foreign-exchange reserves are the world’s largest, is turning bullish on Europe and Japan at the expense of the United States.

The nation has been buying a lot of European bonds, said Yu Yongding, a former adviser to the People’s Bank of China who was part of a foreign-policy advisory committee that visited France, Spain, and Germany between June 20 and July 2. Japan’s Ministry of Finance said that China bought 1.73 trillion yen ($20.1 billion) more Japanese debt than it sold in the first half of 2010, the fastest pace of purchases in five years.

China’s position may make it harder for the yuan greenback to rebound after falling as much as 10 percent from this year’s peak in June, as measured by the trade-weighted Dollar Index. The nation cut its holdings of U.S. government debt by $100 billion, or 11 percent through June from last year’s record of $939.9 billion in July 2009, according to Treasury Department data.

Asian central banks holding nearly 60 percent of the world’s foreign-exchange reserves are turning away from the U.S. dollar. Concerned about weakening U.S. economic growth and the Treasury’s record borrowing, they are switching toward euro assets to safeguard reserves, driving gains in the 16-nation currency. South Korea, Malaysia, and India also reduced their holdings of U.S. Treasuries.

In March, Chinese Premier Wen Jiabao urged the U.S. to take “concrete steps” to reassure investors about the safety of dollar assets. The nation, which is the largest overseas holder of Treasuries, trimmed its stockpile of U.S. debt to $867.7 billion in May from $900.2 billion in April and a record $939.9 billion in July 2009.

Chinese purchases of Europe’s bonds come in the wake of measures taken by European policy makers to allay concern the sovereign-debt crisis will threaten the single-currency union. In May, the E.U. announced a loan package worth as much as 750 billion euros ($956 billion) to backstop euro-area governments.

Source: Bloomberg

China Labor Cost Increases, Setting The Bar For Others

It has been clear over the past few months that labor costs are going up in China. That also causes a rippling effect to other manufacturing economies in Asia, Bruce Rockowitz, president of Li & Fung Ltd., the bellwether Hong Kong-based trading and logistics giant that is a major buyer of toys and clothes for the likes of Wal-Mart and Target said.

But labor and material costs are rising too.

“Most of the countries, if not all, look to China for pricing direction. When prices in China go up, most of the other countries follow suit. Labor costs are likely to go up in other parts of the world,” he said.

“We are going through a major change in the manufacturing countries that is going to take a few years to sort itself out,” he added.

It is not just labor costs that are rising. “Material prices have gone up. Commodity prices have also gone up,” he added. “Overall there is definitely cost a pressure despite the weakness in the market.”

Retailers will have to accept are these higher costs without passing them on to cash strapped consumers.

“Most of the retailers are accepting the higher prices, and they have no choice because passing it onto the consumer in this market will be difficult. As such, retailers are looking for ways to become more efficient and to have less markdowns.”

Source: Wall Street Journal

China Still A Focus For Foreign Direct Investment

Some western commentators say China’s foreign direct investment climate has worsened, but experts and entrepreneurs attended the on-going 5th Pan-Beibu Gulf (PBG) Economic Cooperation Forum disagreed.

China is a better destination because of China’s advantages, including its stable policies and continuous economic growth, said Wei Jianguo, secretary-general of the China Center for International Economic Exchanges (CCIEE) at a forum held in the capital city of south China’s Guangxi Zhuang autonomous region.

Compared to other developing countries, China’s logistics network is relatively developed, Wei said, adding that some foreign entrepreneurs moved their factories out of China after Chinese labor costs increased but have returned to China.

The secretary-general also said China has advantages in terms of production chains and infrastructure.

Wang Wei, head of the Wal-Mart China’s general affairs department, said Wal-Mart lowered its costs thanks to a Chinese government-initiated program to link farmers’ products and supermarkets directly.

For many Fortune 500 companies, the question is not whether to invest in China, but the question is how, Wei added.

Sun Dan, vice president of Honeywell China, said the company is hoping to invest in China’s new energy industry.

With the start of the China-Association of Southeast Asian Nations (ASEAN) Free Trade Area (CAFTA), more than 90 percent of China-ASEAN trade became tariff-free.

Huang Jie, managing director of Intel China, said Intel’s business development in China benefited from Chinese government policies.

In the first half of the year, 12,400 foreign-funded enterprises were established in China, an increase of 18.8 percent compared to 2009, and actual FDI in China climbed 19.6 percent to $51.43 billion, according to China’s Ministry of Commerce (MOC).

In 2009, FDI in China hit $90.03 billion — equivalent to 73 percent of the FDI inflows into the United States, despite the fact that China’s economy in dollar terms is only one third the size of the U.S. economy.

In 2010YTD, there were 690,000 registered foreign companies in China which had invested more than $1 trillion, according to the MOC.

Source: China Daily

China Post And TOM Group Launch Shopping Website

China’s postal service is expanding into e-commerce through launching a new online shopping website along with domestic media company TOM Group.

The website, Ule.com.cn, is a business-to-consumer portal that will function as both an online and offline retail network. State-owned China Post has 46,000 post office locations around the country and will provide offline sales while TOM Group plans to spend 200 million renminbi ($29.4 million) in marketing the Web site and supporting its operations. Ownership of the company will be split 51-49 percent between China Post and TOM Group, respectively.

China’s e-commerce business is already filled with competitors such as Taobao.com, one of China’s most popular online auction and retail sites. However, the new shopping venture between China Post and TOM Group will have advantages over rivals, said Chen Shousong, an analyst with Analysys International.

Ule will benefit from China Post’s extensive reach into the smaller cities and underdeveloped areas, where other competitors have less exposure, Chen said.

Source: Yahoo News

China Offers New Tax Break To Outsourcing Businesses

China, keen to end India’s dominance in the out-sourcing industry, announced it will not levy operating taxes on outsourcing business in 21 of its key cities till 2013 to promote growth of the offshore service industry.

The five percent operating tax exemption will run from July 1, 2010 until December 31, 2013, the Chinese government said. The 21 cities include Beijing, Tianjin, Dalian, Harbin, Daqing, Shanghai, Nanjing, Suzhou, Wuxi, Hangzhou, Hefei, Nanchang, Xiamen, Ji’nan, Wuhan, Changsha, Guangzhou, Shenzhen, Chongqing, Chengdu, and Xi’an.

According to a joint statement released by the Ministry of Finance, the State Administration of Taxation, and Ministry of Commerce, offshore service outsourcing income refers to service revenue arising from contracts signed with offshore entities in order to provide information technology outsourcing (ITO), business processing out-sourcing (BPO), and knowledge processing out-sourcing (KPO) services.

Those already taxed on offshore service out-sourcing income since July 1 would be refunded within this year, the official news agency Xinha added.

China’s service outsourcing industry posted a 21 percent year-to-year increase to $23.6 billion in 2009, according to a recent report published by Deloitte. Last month, accounting firm KPMG said China had overtaken India as the primary destination of outsourcing and shared services for Asia-Pacific companies.

The KPMG survey, which covered 280 senior company executives across Asia, showed that China’s outsourcing and shared services are rapidly expanding and winning a substantial market share over India and other regional destinations.

Source: Economic Times

China May Spend $1.5 Billion To Support Drug Development Industry

China may spend more than 10 billion yuan ($1.5 billion) in order to support development of new drugs as part a plan for the nation’s biotechnology and pharmaceutical industries in the next five years, the 21st Century Business Herald reported.

The development plan for these industries has been submitted to the National Development and Reform Commission and may be announced as soon as the end of this month, the newspaper added.

Source: Bloomberg

China Mobile and Xinhua Form Search Engine Firm

Xinhua said it will develop mobile search technology along with China Mobile, the nation’s dominant carrier, potentially challenging current mobile search leaders such as Baidu and Google.

China Mobile shares resulted in a late day rally after Xinhua reported the joint effort, closing up 2.44 percent in Hong Kong after trading down for most of the day.

Xinhua, China’s government-owned official news agency, said it signed a framework agreement to establish a search engine company with China Mobile, which currently controls more than two-thirds of the cell phone market.

Mobile search may become a major growth area as more smart-phones with Internet capability come into the market following China’s launch of high-speed 3G mobile services last year.

China’s mobile search space is currently led by Baidu with about a third of the market, followed by venture capital-backed Easou with 17 percent, and Google with about 12 percent, according to marketing consultant Analysys International.

Source: China Daily

China Remains The World’s No. 2 Energy Consumer

China remains the world’s second largest energy consumer as its energy consumption last year was still more than 200 million tons of standard oil equivalent below that of the United States.

The joint statement issued by the National Energy Administration and the National Bureau of Statistics of China came three weeks after the International Energy Agency (IEA) said China replaced the United States last year to become the world’s largest energy consumer.

China’s energy consumption was 2.146 billion tons of oil last year, compared with the 2.382 billion tons consumed by the United States, according to information provided by U.S. Energy Information Administration.

“The energy consumption per capita in China last year was just one fifth of the United States,” the statement stressed, adding that China’s energy consumption keeps growing along with the nation’s rapid industrialization and urbanization.

The Chinese government has taken a series of energy conservation and emission reduction measures, including shutting obsolete factories to reduce its dependence on energy to stimulate economic growth.

“China’s total energy consumption growth has slowed on an annual basis,” the statement said.

Source: China Daily

China Key To Morocco’s Tourism Development

In order to further develop its tourism industry, Morocco is now looking to Asia such as China, a tourist office chief said.

“China is developing fast, and the Chinese tourist market shows great potential,” Abdelhamid Addou, general director of the Moroccan National Tourism Office, told Xinhua.

Moroccan tourism has been growing compared with other countries, which had suffered a 4 to 10 percent decline due to the financial crisis. In 2008 and 2009, arrivals of tourists, including both domestic and international, have increased 7 percent each year, Addou said.

The revenues of the tourism industry amounted to 52.8 billion dirham ($6.4 billion) in 2009 and reached 22.7 billion dirham ($2.62 billion) in the first half of 2010. Mr. Addou added that this was the result of a “ten-year development plan” launched a decade ago.

Under the plan, the tourist volume is expected to hit 10 million this year, and 600,000 new jobs will be created in domestic tourism. Addou told Xinhua all targets will be met by the end of this year.

However, tourism revenues did not grow as fast as tourist numbers did due to the impact of the financial crisis, Addou noted.

Besides consolidating traditional European markets including France, Spain, Italy, Britain, Germany, and Belgium, Morocco will also explore East Europe, North America, and the Middle East.

China would be the focus in its potential Asian market, he added. Although three were less than 10,000 Chinese visiting Morocco each year, Mr. Addou believed its rich culture, ancient historical heritage, and unique landscape would attract more tourists from China. “We already set up offices in Beijing, and we have unveiled a promotion plan aimed at introducing Morocco to people in China. We also want to tell Chinese about our special national arts, culture, and products through publications, websites, and exhibitions,” Addou said.

Source: China Daily

China’s Alibaba.com Targets More Acquisitions in the U.S.

Alibaba.com Ltd., the Chinese e-commerce operator partly owned by billionaire George Soros, is seeking to buy more companies in the U.S. in order to expand its overseas business, Chief Executive Officer David Wei said.

“The United States is a top priority in our investment list,” Wei said. In terms of users, Alibaba counts the United States as its biggest market outside China, Wei added.

Alibaba, used by Wal-Mart Stores Inc. and Procter & Gamble Co. to purchase goods, started an e-commerce site aimed at the U.S. market this year, and the company completed its first acquisition in the world’s biggest economy in July 2010. Wei said his company is not trying to set up a direct competition with Amazon.com Inc. and EBay Inc.

“We help merchants on EBay and Amazon to improve their profit,” Wei said. “Thus far, we have no ambition to serve consumers in the United States”

The company completed its acquisition of California-based Vendio Services Inc. to boost its overseas business. The purchase is part of the $100 million that Alibaba has set-aside for investment in its AliExpress website, which is aimed at online merchants in the U.S.

Source: Business Week

China Eyes Local Carbon Trade

China’s plans to launch a series of pilot carbon trading projects beginning next year underscores its need to curb its soaring greenhouse gas emissions.

With power capacity set to double again in the next decade to 1,600 gigawatts, billions of dollars of investment in cleaner technologies will be needed, and a carbon price would help increase energy efficiency without jeopardizing economic growth.

It could also be a benefit to some domestic environmental exchanges if a compulsory national trading scheme is launched.

“The big picture will be worked out before March 2011, but there are going to be certain components that need to be worked out, including the details on implementation,” Changhua Wu, China director at the London-based Climate Group said.

In the short term, China will want to protect its position in an UN-backed global carbon trading scheme that has earned billions of dollars from rich nations in exchange for carbon offsets, known as certified emission reductions (CERs).

Beijing will also be cautious given that global climate talks on a “scaled-up” version of the Clean Development Mechanism (CDM), capable of delivering even more investment, have largely stalled.

A researcher at the National Development and Reform Commission told Reuters that an expert panel has been working for more than a year on pilot carbon trading schemes in high-emission provinces or sectors.

The CDM, part of the United Nations’ Kyoto Protocol, grants CERs to industrialized nations when they invest in clean-energy projects in developing countries.

Those CERs are traded or used to comply with Kyoto targets.

While it remains unclear what the CDM will look like after 2012 when the Kyoto Protocol’s first phase expires, its future direction is expected to shape China’s own carbon market plans.

Whatever happens to the CDM, more than environmental exchanges in China are hoping government commitments to reduce CO2 will boost their own voluntary trading schemes and eventually put them at the centre of a single global market.

Source: Business Spectator

Global Media Titans Hit China Wall, Take Local Route

After years of hitting their heads against China’s bureaucratic Great Wall, global media giants such as News Corp are finally getting the message — Beijing does not want them to own its airwaves.

That realization has led to a subtle shift in the way these global titans conduct business in a market once hyped for its 1.4 billion potential viewers and as a result toning down their once-ambitious plans.

“The major theme is that the government focuses on promoting its local media to a sizable scale and profitability so that it can withstand competition,” said Vivek Couto, an analyst at Media Partners Asia. “You cannot conduct business in China as a majority owner — full stop.”

The sobering new view came into focus with the announcement by News Corp, whose Chairman Rupert Murdoch was once one of China’s biggest cheerleaders, that it was selling control of its Chinese TV channels to a well-connected local private equity group.

“China has been a tough market for a variety of reasons including an extremely regimented market,” said Tuna Amobi, an equity analyst at Standard & Poor’s. “Then there is the bureaucracy, which means it takes a very long time to get anything done.”

Foreign media officials and industry watchers say Beijing, obsessed with information control and a desire to protect domestic media, has put up numerous hurdles to limit their presence.

China now limits foreign-owned channels to affluent Guangdong province for mass viewership. News Corp’s Xing Kong is only a top 10 channel with 3-4 percent market share, while channels backed by Viacom and Time Warner own just a sliver of the market after a decade on the air.

For all its efforts, News Corp generates only $40-$50 million a year in China, while the Time-Warner backed TV station such as Viacom and CETV, make about half of that amount, according to estimates provided by media consultancy Media Partners Asia.

Analysts have said that the News Corp retreat was financially negligible for the media giant as China only contributes well under 1 percent of its $30 billion revenue in 2009.

News Corp chief Rupert Murdoch’s wife Wendi Deng, who is originally from China, has played a role in seeking out new opportunities there, but analysts believed the link has limited advantage without a local control partner.

The foreign companies’ experience in many ways parallels that of global Internet companies in China, and it could likely result in a similar ending, analysts said.

Google became the latest victim earlier this year, engaging Beijing in a fight that it ultimately shuts down its China-based search service.

Before that, both Yahoo and eBay found that going against local rivals such as Baidu and Taobao were too tough. Amazon.com and Expedia also have little to show from their strategic investments in the market.

After running into their own Chinese wall, many of the Internet companies began to realize that local partnerships were the way to go.

Before going it alone in China, Google initially tried to buy Baidu in 2005. Yahoo also put its investment with Alibaba Group, owner of Taobao and B2B marketplace operator Ali-baba.com, when it paid $1 billion for 40 percent of the group in 2005.

The News Corp example could show that local joint effort could be the only way to go, with foreign firms yielding control to Chinese partners in order to satisfy Chinese government officials wary of foreign influence, said Media Partners Asia’s Couto.

Source: Reuters

Rare Earth Monopoly Is A Boon To Chinese Clean Tech Firms

In the race to build hybrid cars and wind turbines to feed growing demand of green technology, China has one clear advantage as it holds the world’s largest reserves of rare earth metals and dominates its global production.

Wind turbines, made by No.2 wind turbine maker Xinjiang Goldwind Science & Technology, and hybrid cars, developed by Warren Buffet-backed Chinese automaker BYD, are among the biggest user of rare earth minerals, which analysts says they are facing a global supply crunch as demand swells.

This little-known class of 17 related elements is also used for a vast array of electronic devices ranging from Apple’s iPhone to flat screen TV, all of which are competing for 120,000 tons of annual global supply.

China controls 97 percent of rare earth production.

Worldwide demand for rare earth is expected to exceed supply by some 30,000 to 50,000 tons by 2012 unless major new production sources are developed, say officials at Australian rare earth mining company Arafura Resources.

China has curbed exports of the mineral since 2005 through quotas and duties, saying it needs additional supplies to develop its domestic clean energy and high-tech sectors. The country said it would cut export quotas in 2010 by 40 percent.

China’s domestic consumption of the metals poses the biggest threat to global supply. The country currently holds a third of the world’s reserves, uses up to 60 percent of global rare earth supply for a wide range of applications from consumer gadgets and medical equipment to defense weapons.

Source: Reuters

Hidden Trillions Widen China’s Wealth Gap

China’s richest citizens are even wealthier than the statistics suggest, and these citizens may hold as much as 9.3 trillion yuan ($1.4 trillion) of hidden assets, according to a Credit Suisse-sponsored study.

Official statistics in 2008 failed to capture income equivalent to about 30 percent of China’s gross domestic product, according to a report named “Analyzing Chinese Grey Income”.

Nearly two thirds of that unreported income goes into the pockets of the richest 10 percent, widening China’s already troubling wealth gap, said Wang Xiaolu, the economist at the China Society of Economic Reform, who headed the survey.

The findings may explain in part Beijing’s tolerance of recent strikes in manufacturing zones, and Chinese official has been focused on ensuring more equitable division of wealth, the report added.

Average per-capital income for the richest 10 percent, at 97,000 yuan ($14,265), was 65 times of that of the poorest 10 percent. The figure provided by National Statistics Bureau’s household income survey was only 23 times, Wang’s survey showed.

A fairer income distribution could ease social tensions and support Beijing’s plan to boost domestic consumption.

China accounted for 3 percent of sales for Volkswagen and 5 percent for Pepsi, while it made up 20 and 28 percent for luxury retailers such as Richemont and Swatch Group.

“If income distribution becomes more equitable, it would help boost the consumer market.”

The report suggested actual urban income was around double of official levels. The gap between earnings recorded in National Bureau of Statistics Data and Chinese citizens’ real earnings and assets also grew rapidly from the “middle income group” and become a yawning gulf for the richest.

Source: Reuters

Brazil Hopes To Promote Agriculture Trade With China

Brazil wants to boost trade in agricultural products with, export more pork to, and import more fish from China over the next few years, Brazilian Agriculture Minister Wagner Rossi said.

The two countries enjoy a very good trade partnership, but there is still huge potential for expansion, Rossi told Xinhua.

“Today, China is our main trade partner, and Brazil is China’s 10th largest trade partner,” Rossi added. “I think as our economies are complementary, we have a great future for cooperation, especially in agriculture.”

“We have a very positive attitude toward China. President Luiz Inacio Lula da Silva considers China to be a very important partner, and our goal is to trade new products, increase quantities, and enhance values of our trade with China,” he added.

Food production is very important to Brazil and China as both countries share a common goal of providing better living conditions to their people, Rossi said, adding that the two countries can help each other in this area.

According to Rossi, there are many projects where Brazil and China can work together, not only on their own territories, but also in other countries that China may already be helping.

“I think China is a successful case because it has managed to feed its population and has one of the highest numbers of youngsters graduating from college, especially in scientific fields. China is an example we should applaud and follow,” he said.

Source: China Daily

Active Power Aims To Cash-In On Slim Margin Of Failure

Cashing in on the 0.1 percent failure rate in China’s power supply reliability may not seem to be a huge business, but Active Power, a backup power supplier, is eyeing the niche market in China and believes it is likely to grow with the country’s increasing demand for a stable electricity supply.

China State Grid, the country’s largest power distributor has vowed to keep electricity reliability at 99.9 percent, meaning there is still a 0.1 percent possibility of failure.

Even with the minor chance of failure in the country’s power system, Active Power is eyeing a huge potential.

The power supplier recently launched its Beijing office providing uninterruptible power systems (UPS) to entities with mission-critical operations such as data centers, airlines, broadcasters, healthcare facilities, and financial institutions.

The firm said it has thus far deployed 12 of its containerized power systems in China and is partnering with 20 clients.

“China’s growing online and data sectors have higher standards for supply stability,” said Wang Huan, head of China at Active Power, adding that a blackout may mean losses in millions of dollars for an online business.

Wang said its major clients will be search engine operators, e-commerce websites, and data centers.

The transaction value of China’s e-commerce industry was 2.25 trillion yuan ($332.6 billion) in the first half of 2010.

“The China market will account for 20 to 25 percent of our global business within next five years,” said John Penver, the company’s chief financial officer.

Emerson, which also makes uninterruptible power systems, is set to make “major investments” in China, according to Chief Executive Officer David Farr.

The UPS market in China is projected to grow at 12 percent compound annual growth between 2009 and 2014, second only to India.

Source: China Daily

CONSUMER / RETAIL

Nike Seeks Expansion In China’s Lower-Tier Cities

After more than a decade entering China, Nike is seeking to expand its product to lower-tier cities throughout the country, confirmed Charlie Denson, Nike brand manager.

After witnessing fast development in China, Nike puts its expansion in the world most promising market further into second-, third-tier cities.

“I think China may represent seven, eight, or nine percent of our overall market share today. We expect that to increase next several years as China becomes our biggest market outside the United States. We expect that to grow even more,” said Denson.

“Our goal is to continue to expand in China, to promote the tier on cities such as Shanghai, Beijing, and Guangzhou, and we then moved into the second-, third-tier cities. Our goal is also to continue to bring access to the Nike brand through distribution and partnerships, as well as to connect with China’s youngsters. I think it is a great opportunity for us to continue to build product for China, produce creativity, and promote innovation out of China. It is a very important market place for us.”

Source: China Daily

Marbury Courts Hoops Fans In China

Not only is former NBA star Stephon Marbury staying on with his new basketball team in China, he is also planning to open dozens of stores and a distribution company for his brand in the country.

Under a proposed joint venture with the owner of his team, Starbury Corp. plans to manufacture, distribute, and promote Starbury products in China such as shoes, with prices ranging from $14.88 to $48.88. Start-up funding will be used to open three stores by the end of this year in the city of Taiyuan, the hometown of Mr. Marbury’s team, Shanxi Zhongyu.

Mr. Marbury, who has played for teams including the Knicks and the Celtics, founded Starbury in 1996 and later sold products through retailer Steve & Barry’s LLC until the clothing company filed for bankruptcy two years ago. Starbury has been primarily funded by Mr. Marbury himself, and he is seeking to raise an additional $50 million to expand operations both overseas and in the U.S., where it plans to relaunch its brand, distributing via standalone stores.

Under the yet to be signed plan, Beijing-based Ren-Heshengye International Economics & Trading Co., the company that owns Mr. Marbury’s team, will make an initial investment of 10 million yuan ($1.48 million) to establish a joint-venture company with Starbury according to Gustavus Bass, the chief financial officer of Starbury. RenHeshengye is expected to make additional investments later.

Source: Wall Street Journal

Lotte’s First Chinese Single Ownership Store Opens In Tianjin In 2011

The South Korean department store Lotte has announced its new strategy for the Chinese market, stating that it will accelerate its expansion in China and will open its first Chinese single ownership store in Tianjin in 2011.

The new Lotte department store in Tianjin will be located at Renheng Square, with a store area of 50,000 square meters. Thus far, representatives of over 120 brands, including Bvlgari, Armani, Coach, and Fendi have expressed their intention to cooperate with Lotte’s new site location.

A representative from Lotte also revealed that the company plans to develop more stores in China and has selected several target cities, including Shanghai, Chengdu, Suzhou, Dalian, and Qingdao. By 2018, Lotte will have at least 20 department stores in China.

Source: China Retail News

ALTERNATIVE ENERGY

Jianghuai Invests Nearly $4.4 Billion In Clean Energy Cars

Chinese carmaker Jianghuai Automobile Co said it plans to invest about 30 billion yuan ($4.4 billion) on production of clean-technology vehicles through a partnership with Yang Rong, a Chinese automobile tycoon.

Jianghuai will set up a 50-50 joint venture with the private equity unit of Yang Rong’s Far East Golden Resources Group and aims to make one million cars in the next eight years, according to a statement filed with the Shanghai Stock Exchange.

The new venture, based in China’s northern city of Tianjin, will also make car engines and batteries.

China, the world’s biggest auto market, would invest more than 100 billion yuan ($14.7 billion) to subsidize its fledgling environmentally friendly car industry over the next 10 years.

Source: China Daily

4 Ways To Play China’s Energy Stance

According to the International Energy Agency, China has taken the top spot as the world’s largest energy consumer and is pledging to develop cleaner energy.

In fact, China plans on spending nearly $738 billion over the next 10 years developing cleaner energy sources. Of the 60 nuclear reactors that are currently under construction around the world, nearly one-third of them are being constructed in China. Additionally, China built more wind turbines than any other country last year and is expected to install an additional 18 gigawatts worth of wind turbines this year. Lastly, China has attracted more than $11 billion in capital for renewable developments in the second quarter alone, more than the United States and the European Union combined.

In short, China’s growing economy and emphasis on alternative energy spending could pose an opportunity for investors.

Source: TheStreet.com

China Solar Projects Draw Interest From 50 Companies

China’s effort to double its capacity to produce solar power has attracted project bids from 50 companies, ranging from nuclear plant operators to circuit-breaker makers.

The tender process has generated 135 offers to build and run solar plants in six provinces, including the nation’s second-biggest atomic plant builder China Guangdong Nuclear Power Group Co., according to Qiu Zhanwei, vice-director of Beijing-based solar-module maker Astronergy, which also bid in the process.

China is offering subsidies, loans, tax breaks, and premium rates to spur renewable energy. The world’s biggest air polluter is seeking to boost its installed capacity of sunlight-driven generation by more than 60-fold to 20,000 megawatts by 2020 in order to cut its reliance on fossil fuels, which produce higher emissions. Approximately 80 percent of the nation’s power plants currently run on coal.

China is using a bidding system to grant concessions to build and run solar energy plants after using the same model for the first time ever last year. The scale of the 13 concession projects, which have 280 megawatts of total capacity, almost equals the nation’s cumulative installed solar capacity at the end of 2009, according to Bloomberg New Energy Finance data.

National and regional governments are experimenting with incentives to spur solar construction. Shandong province said last month it would purchase powers from photovoltaic generators at 1.7 yuan (25 cents) a kilowatt-hour, more than four times what coal-fired power plants are paid.

Source: Business Week

RECENT TRANSACTIONS

Shanghai Media Group Buys Murdoch TV Channels

China’s second-largest media company, Shanghai Media Group (SMG) purchased the controlling stakes of three News Corp. channels, paying Rupert Murdoch’s company an undisclosed amount for the assets.

SMG will now control Xing Kong, Xing Kong International and Channel [V] Mainland China, as well as News Corp.’s Fortune Star Chinese movie library.

The news comes less than a month after SMG also linked with the Australian Broadcasting Corporation (ABC) regarding the concept of sharing content between the Australia Network and International Channel Shanghai.

Source: AVCJ

China’s ICBC Seeks To Take Hong Kong Unit Private

China’s largest lender said it is seeking to buy out its publicly listed Hong Kong unit at a premium. Industrial & Commercial Bank of China Ltd. said it would pay 29.45 Hong Kong dollars ($3.79) for each share of Industrial & Commercial Bank of China Asia Ltd. that it doesn’t already own. The offer represents a 27.8% premium over ICBC Asia’s HK$23.05 ($2.96) close before its shares were suspended pending the announcement. ICBC currently owns close to 73% of ICBC Asia, said the tender represents its final price offer and would be allowed to lapse if shareholders do not respond.

Source: Fox Business

Buchang Pharmaceuticals Receives $5 Million Capital Injection

Shandong Buchang Pharmaceutical Co., Ltd. (Buchang Pharmaceuticals) gained $5 million capital injection in July 2010. It also received investment from other well-known foreign and domestic investment institutions.

Buchang Pharmaceuticals is a domestically renowned high-tech group in the healthcare industry that integrates pharmaceutical research, production, and sales. Its products mainly include patented herbal medicines used to treat cardiovascular and cerebrovascular diseases. Buchang Pharmaceuticals presently has up to 60 kinds of products with exclusive intellectual property rights and has sales networks covering all major medical organizations and drugstores nationwide. It enjoyed a compound annual growth rate of 35% and above in recent years and is expected to maintain a growth rate of 25% to 35% in the next five years. It plans to conduct IPO in the A-share market at the end of 2011 or in early 2012.

Source: Zero2IPO

AgBank Greenshoe Brings $22 Billion IPO Record

Agricultural Bank of China’s (AgBank) initial public offering hit a record $22.1 billion, after it exercised an over-allotment option in full.

In a widely expected move, AgBank — China’s third largest lender by assets — sold extra shares in its Shanghai portion of the offer, a source with direct knowledge of the fundraising plan said.

AgBank’s IPO thereby toppled fellow Chinese lender Industrial and Commercial Bank of China’s $21.9 billion offering in 2006 to become the world’s biggest IPO in history.

During the first month after AgBank’s listing, analysts said there were heavy signs of institutional purchase to keep its Shanghai share price above the IPO price, which was necessary to enable AgBank to exercise the over-allotment in full.

The exercise of the over-allotment, also known as greenshoe, brings the number of shares sold in AgBank’s Hong Kong and Shanghai offerings to 54.79 billion, increasing its original $19.3 billion raised by 15 percent.

Source: China Daily

OVERSEAS TRANSACTIONS

European Union Clears Novartis To Buy Eye Care Company

The European Commission cleared Swiss-based pharmaceutical company Novartis AG to buy a majority stake in the United States-based eye care company Alcon Inc., but the E.U. also forced Novartis to sell a number of businesses to address antitrust concerns.

These businesses include opthamological anti-infection products, antiallergics, decongestants, and artificial tears.

The deal is the largest acquisition in Swiss corporate history, costing Novartis a total of $49.7 billion. In January 2010, the company announced it would pay Nestle SA $28.1 billion to acquire an additional 52% stake in Alcon, after buying an initial 25% in 2008.

The move is part of Novartis’ bid to expand into growing areas of the health care market, including generic drugs and vaccines. The company expects the eye care sector to grow by up to 7% over the next five years.

Novartis hopes to buy all of Alcon, which would allow the company to realize potential $300 million of synergies, but it faces the hurdle of buying out Alcon’s minority shareholders. At the time of the deal’s announcement in January, the company offered shareholders 2.8 Novartis shares for every Alcon share.

Source: Fox Business

Abu Dhabi’s IPIC Sold Oilbank Stake For $2.2 Billion After Rulings

Hyundai Heavy Industries Co. said International Petroleum Investment Co. (IPIC) has agreed to sell Hyundai Oilbank Co. to the world’s largest shipbuilder for $2.2 billion after two courts ruled in favor of the transaction.

The Abu Dhabi government investment arm and Hyundai Heavy signed an agreement according to a regulatory filing by the shipbuilder. Sally Cho, a spokeswoman at a public relations firm representing IPIC, said she is currently reviewing the agreement.

Last month, Seoul Central District Court confirmed the right of Hyundai Heavy to buy the South Korean refiner from IPIC, backing a ruling in Singapore last year. IPIC appealed the decision to the Seoul High Court at the end of July.

The International Chamber of Commerce in Singapore said that IPIC breached a shareholder agreement with Hyundai Heavy and ruled that IPIC should sell its 70% stake in Hyundai Oilbank for KRW2.57 trillion ($2.2 billion) to the South Korea-based company.

The acquisition would potentially help Hyundai Heavy expand its energy business and cut its dependency on building vessels.

In December 2009, Hyundai Heavy filed a lawsuit against IPIC to enforce the International Court of Arbitration’s ruling, which confirms its right to buy back shares of Hyundai Oilbank Corp., the country’s fourth-largest refiner.

In November 2009, the arbitration court ruled that the Abu Dhabi-based firm must sell its stake in the refiner back to Hyundai Heavy for KRW15,000 ($12.5) per share, a transaction valued at around KRW2.6 trillion ($2.2 billion). IPIC, which invests in oil-related projects for the government of Abu Dhabi, acquired 50% of Hyundai Oilbank in 1999 and took another 20% in 2003.

Source: Bi-Me.com

AIG Considers Sovereign Wealth Funds For AIA Pre-IPO Stakes

AIG is apparently considering placing up to $26 to 30 billion or 30% of its IPO in Hong Kong with institutions and high net worth individuals. The Abu Dhabi, Kuwait, and Qatar sovereign wealth funds are reportedly among those approached.

AIG’s listing of AIA forms part of a plan to repay the $182.3 billion debt incurred to the U.S. government since 2008.

Source: AVCJ

THIS WEEK IN CHINA

China Mulls New Instruments To Bolster Foreign Exchange Reform

According to the State Administration of Foreign Exchange (SAFE), China is considering introducing new foreign exchange instruments to meet domestic demand and complement currency reforms launched in June.

Although SAFE did not say what reforms it has in mind, it laid out its work program for the second half of 2010 including keeping a tight grip on “hot money” inflows, enhancing guidance given to market makers, and improving the currency composition and asset mix of China’s $2.45 trillion in foreign exchange reserves.

China currently maintains capital controls that are largely effective in preventing money from flowing freely in and out of China. The yuan may be exchanged for trade and direct investment purposes but generally not for purely financial transactions.

Since this year, SAFE has been cautiously easing some restrictions. In April, the agency started to allow Chinese residents to buy foreign exchange from banks online within permitted limits. In July, China and the Hong Kong Monetary Authority (HKMA) signed agreements to ease restrictions on yuan transfers between banks and companies in Hong Kong, seeking to encourage use of the currency in the Asian finance hub.

Yi Gang, the Director of SAFE and Deputy Governor of the People’s Bank of China, said in a recent interview that China would eventually make the yuan fully convertible, a goal that was endorsed by the country’s leadership as early as 1993. He also noted that the country currently has no timetable for doing so.

In the meantime, China is seeking to allow the yuan to strengthen to deflect criticism from its trading partners, while protecting a recovery in its exports. The nation’s foreign-exchange reserves expanded $7.19 billion in the second quarter to a record $2.45 trillion, the smallest increase since the second quarter of 2001.

The yuan declined 0.4 percent to 6.7957 yuan per US dollar in the week ended August 13th, the biggest five-day drop since December 2008, according to the China Foreign Exchange Trade System, although still 0.5 percent higher than the level of 6.83 that existed prior to the loosening of the exchange rate regime.

According to Credit Lyonnais Securities Asia (CLSA)’s latest estimate based on purchasing power parity, the Chinese yuan is 30% undervalued against the dollar. “Chinese yuan may rise to 5 per US dollar in approximately five to six years of time as the central bank will permit appreciation to curb growth in the nation’s foreign-exchange reserves,” said Amar Gill, the head of thematic research of CLSA’s Hong Kong office.

A flexible exchange rate in China will help stimulate trade and structural adjustments and also ease appreciation expectations. The appreciation of the yuan will be of great benefit to international private equity investors in China as it (i) will increase the reported currency earnings power and valuation of existing internationally listed Chinese portfolio companies and (ii) will increase the purchasing power of Chinese consumers and further boost domestic consumption.

Adam Roseman
Founder & Managing Partner
ARC China

China Leads IPO Race But There Are Hurdles Ahead

When it comes to initial public offerings (IPOs), China holds pole position, with deals involving mainland companies in the past decade worth a total of $188 billion, according to a recent report published by Ernst & Young.

In the first six months of this year alone, a total of $32.1billion was raised by companies on the mainland through IPOs both inside and outside China according to the accounting firm. And this figure does not include Agricultural Bank of China (AgBank)’s initial share sale, which raised $19.2 billion in Shanghai and Hong Kong last month.

AgBank continued to raise additional funds by exercising the over-allotment of its share offering. On July 29, the bank exercised the full over-allotment option on the Hong Kong portion of the IPO, raising a further $1.57 billion, boosting the total to $22.1billion, and making it the largest IPOs in history.

China Everbright Bank has said it aims to complete its own listing on the Shanghai Stock Exchange on August 18, allowing it to join the legion of other banks from the world’s most populous nation that have looked to IPOs as a way to generate funds so they can adhere to tighter capital requirements.

The combination of government support and fast economic growth will ensure IPO activity remains brisk, Ms. Ren Xian-fang, a China analyst at IHS Global Insight believes.

But there are potential difficulties ahead. And among them is the risk of “overloading the market”, according to Ron Schramm, an economist at New York’s Columbia Business School.

Mr. Schramm says there are “a number of pitfalls” that could derail IPO activity, most notably if any of the upcoming IPOs proves unsuccessful. “If any of these appear weak … a different route, the private equity route would develop for owners to cash out their shares. It is not clear to me which path is superior.

“Only over time will the advantages and disadvantages [become apparent],” he says.

Source: Zero2IPO

China’s Trade Surplus Reaches $28 Billion

The Chinese government announced the country’s biggest trade surplus in a year and a half, as an unexpected surge in Chinese exports and weakening of imports pointed to the prospect of renewed frictions with the United States and other countries over China’s international economic policies.

China’s surplus climbed to $28.7 billion in July, the highest since January of last year, and far more than the consensus expectation of economists for a surplus of roughly $19 billion. Exports leaped 38.1 percent from an already strong showing in the same month of last year, while imports rose modestly by 22.7 percent.

China’s central bank announced that it would begin to allow the country’s currency, the renminbi, to fluctuate more against other currencies, a decision that the Obama administration and others expected to lead to the renminbi’s appreciation against the US dollar. But the pace of that appreciation has been very slow so far, with the renminbi rising only 0.8 percent against the dollar since then.

China’s policy of releasing a quick snapshot of trade less than two weeks after the end of each month provides one of the earliest glimpses of the strength of international demand, particularly for the consumer goods for which China increasingly dominates global markets.

Source: NY Times

Private Equity Firms Show More Interest In Emerging Markets

Buoyed by improving economic environment and higher investment flows, private equity (PE) companies are increasing their exposure to emerging markets.

According to Emerging Markets Private Equity Association, investments by PE companies in China, India, and Latin America have risen to $13 billion between January and June 2010, up 55 percent from $8.4 billion a year ago.

“Investment conditions in emerging markets are revitalizing. There are more and better quality deals in the pipeline. Emerging market fund managers are increasingly bullish in the light of stabilizing markets and lower valuations,” Sarah Alexander, chief executive officer, Emerging Markets Private Equity Association said.

In the first six months of 2010, there were 402 transactions compared with 280 during the same period a year ago.

The average deal size too has gone up to $51 million from $40 million, driven by 28 transactions of over $100 million each. During the same period a year ago, there were only 17 deals of over $100 million.

Source: Zero2IPO

China May Give Electric Cars, Hybrids $15 Billion Jump Start

China may invest more than RMB100 billion ($15 billion) in alternative-energy vehicles during the next 10 years to boost the industry, the Shanghai Securities News said.

The spending is included in a draft plan for 2011 to 2020 that the Ministry of Industry and Information Technology may submit to the State Council for approval this month, after seeking feedback from other ministries, the newspaper reported.

Automakers including Toyota Motor Corp, General Motors Co and Warren Buffett-backed BYD Co. The plan is to increase output of alternative energy powered vehicles in order to meet demand in China. China already subsidizes purchases of energy-efficient cars to help cut emissions, potentially increasing sales of the vehicles by more than RMB400 billion ($58.6 billion), the government said.

China aims to become the world’s largest market for renewable energy vehicles by 2020, according to Shanghai Securities News report.

China, which became the world’s biggest auto market last year, aims to increase annual production capacity of alternative energy vehicles to 500,000 by next year as part of efforts to cut oil imports and rein in pollution.

Source: China Daily

China May Launch Environmental Tax Trial

Three Chinese ministries will soon submit a proposal for an environmental tax on a trial basis, the China Business News reported.

The tax would be tested in four largely rural provinces — Hubei, Hunan, Jiangxi, and Gansu, the newspaper said. The finance ministry, environmental protection ministry, and tax administration were set to make the proposal to the State Council, or cabinet, it added.

An environmental tax, likely to be levied on emissions of carbon dioxide and discharges of polluted water, would form part of China’s goal to make its economic growth cleaner.

China has pledged to cut its carbon intensity — the amount of CO2 produced per unit of GDP — by 40 to 45 percent by 2020. Beijing has already taken steps to crack down on highly polluting industries and many expect it to get progressively tougher in the coming years.

In the past month, a toxic gold mine discharge in southeast China and an oil spill in its northeast have underscored how much work the government has ahead of it.

Source: China Daily

Algae Menace To Be Savior Of China’s Fabric Industry

Those algal blooms that have blotted waterscapes around China and almost sabotaged the 2008 Olympics may soon have a useful purpose — fibers for high-tech fabrics.

A Chinese company is aiming to mass produce the fabrics that could be used in protective clothing worn by firefighters and medical personnel as early as next year, a company spokesperson said.

A factory has been built in Qingdao, a coastal city in east of China’s Shandong province, with a designed annual production capacity of 1,000 tons of fiber made from alginate, a chemical salt extracted from algae.

The plant and technologies were jointly funded by Qingdao University and Qingdao Xiyingmen Group, one of China’s leading textile companies, with a total investment of RMB50 million ($7.35 million).

The plant will process algae, extract alginate fiber, and produce fabrics, a spokesperson of the Xiyingmen Group said.

The environment-friendly fiber was developed from various species of algae at a national laboratory for new materials and textiles at Qingdao University.

“According to our estimates, the production cost for alginate fiber would be RMB50,000 ($7,321) to RMB70,000 ($10,249) a ton. The cost of fabric will be even lower if it is blended with cotton,” Dr. Kong Qingshan, who participated in the research said.

Xia Yanzhi, a senior researcher with the lab, said the limited land and petroleum resources for traditional chemical and natural fiber production had highlighted the urgent need for a new environment-friendly fiber made from sustainable raw materials.

China consumes around 60 million tons of fibers annually, including plant and animal fibers such as cotton, hemp, fur and silk, as well as petroleum-based synthetic fibers.

Source: China Daily

China Scraps Power Sops For Heavy Users

As of July 14, China has canceled all preferential power tariffs for energy-intensive industries directed by local governments in 22 provinces in order to curb expansion in energy-guzzling and polluting industries, the National Development and Reform Commission (NDRC) said.

The move, involving RMB15 billion ($2.22 billion) in power charges, will help the nation conserve energy and control emissions, as well as shutter outdated manufacturing facilities, the NDRC said.

The steps will also help the nation achieve its target for cutting energy intensity to some extent. China has pledged to reduce its energy intensity — the amount of fuel needed to generate each unit of gross domestic product (GDP) — by 20 percent from 2005 to 2010.

An immediate fallout of the move would be higher power charges for energy-intensive industries. At the same time, it is also expected to trigger an industry consolidation in the future as many of the smaller companies may find it difficult to cope with the higher power charges.

Local governments were asked to stop offering power on favorable terms to energy-intensive industries in May this year, with the impact most likely to be felt in industries like electrolytic aluminum, ferroalloy, and calcium carbide.

The government had earlier asked local governments and electricity companies to stop all preferential power price treatment for energy-intensive sectors. Official statistics showed that energy intensity fell by 14.38 percent between 2006 and 2009.

Source: China Daily

‘Bigger Say’ Set On Rare Earths Market

Baotou Steel Rare Earth High-Tech Co and Jiangxi Copper Corp are set to launch a unified pricing mechanism on light rare earth materials nationwide, a move that is expected to give China a bigger say in international markets over the valuable resource.

China supplies more than 95 percent of global rare earth oxides and contains more than half of the world’s reserves. Baotou Steel Rare Earth alone supplies 46 percent of the global market.

Rare earths are composed of 17 elements and are used in many high-tech areas ranging from wind turbines and hybrid cars to missile-guidance systems and mobile phones. Light rare earths have a much larger reserve and are easy to process.

The central government has indicated that it wants large companies to spearhead the consolidation of the country’s rare earths sector to prevent the resource from being undervalued.

“Enhancing the concentration of the rare earth sector will benefit the Chinese side and give it a bigger say in the global markets,” said Yu Zong-sen, former secretary-general of the Chinese Society of Rare Earths.

To that effect, Inner Mongolia-based Baotou Steel Rare Earth, which controls almost all of the rare earth resources in the northern parts of China, is working with Jiangxi Copper Corp to launch a unified pricing mechanism for light rare earths.

Jiangxi Copper is also planning to consolidate its resources with two partners in Southwest China’s Sichuan province, the other main light rare earth region after Inner Mongolia, by next year, said a source.

The alliance between Baotou Steel Rare Earth and Jiangxi Copper means they will virtually control the entire light rare earth market, analysts said.

Almost all light rare earth reserves are located in the Inner Mongolia autonomous region and Sichuan, while heavy rare earths come from Jiangxi, Guangdong, Hunan, and Fujian provinces, as well as the Guangxi Zhuang autonomous region.

Industry sources said the central government aims to reduce 123 rare earth mines across the nation to less than 10, as well as cut down 73 processing firms to 20.

Source: China Daily

Large Cement Companies Set To Cash In

Large cement makers will benefit from industry consolidation as China accelerates the phasing out of energy-wasting and outdated production capacity, according to industry experts.

China has ordered more than 2,000 companies to shut down overcapacity and more than 700 polluting and energy-intensive cement factories to shut down completely by the end of September.

The Ministry of Industry and Information Technology said this would cut the cement industry’s annual production capacity by 107 million tons.

Companies that fail to comply with the instruction will not be able to obtain loans, receive government approval for new investments, get access to additional land, and renew their production license and pollution permit, the ministry said.

Qinghai, Shanxi, Beijing are the top three areas with most affected factories, according to Guotai Junan Securities.

“Governments will be the first to benefit from the measure, as it will help them achieve environmental targets and save energy,” said Kong Xiangzhong, secretary-general of China Cement Association.

“In addition, large cement companies will benefit from an increased market share.”

Source: China Daily

China Must Replace Half Its Homes In 20 Years

More than half of China’s existing residential structures will need to be demolished and rebuilt in the coming 20 years, according to a senior researcher from the Ministry of Housing and Urban-Rural Development, a claim that has sparked fresh questions about the short lifespan of Chinese buildings.

Chen Huai, director of the policy research center at the ministry, told Southern Metropolis Daily that homes built before 1999 will be dismantled to make way for new development during the next two decades. Chen also said some historical relics that deserve protection will be spared the wrecking ball.

He explained that buildings constructed before 1949 have long passed their designed lifespan of 50 years. Many of those built between 1949 and 1979, for historical reasons, were essentially makeshift and met basic needs for housing during a difficult time but were not meant to be used for the long-term.

China sees more construction than any other country annually. In recent years, the nation has had up to 2 billion square meters of development annually. Each year, China uses 40 percent of the world’s cement and steel, the main ingredients of the construction industry.

Around 40 percent of building land is created every year by the demolition of older developments.

“Today, there is an impulse from both the government and developers to build newer and higher buildings to capture greater profits, which has accelerated the pace of the demolition of old buildings. However, it is actually not in line with the concept of sustainability and has even pushed up real estate prices,” said Yu Hongsheng, director of the Urbanization Research Center under the Shanghai Academy of Social Sciences. Yu added that ordinary working class ends up bearing the brunt of rising house prices.

With China’s urbanization rate likely to be close to 50 percent by 2015 and the growing need for more residential buildings, Yu recommended the government invest more in developing towns in suburban areas where there are more available lands and less need for demolitions before development.

Source: China Daily

Luxury Brand Makers Scent More Profits

A new era in global luxury brands is coming to China with more companies in the sector buying back direct control of their operations in the country from local business partners.

Last month, Burberry, the UK’s largest luxury company, bought its Chinese franchises for $107.65 million to unify its brand. After the completion of the deal, Burberry will resume managing 50 boutiques and assets of its Chinese partner, Hong Kong-based Kwok Hang Holdings. In addition, the brand will open 10 stores and intensify the monitoring of its distribution chain, sourcing, and market development in China.

Many international brands have also built web-based outlets in the Chinese market and resorted to direct selling.

International luxury brands often develop a new market through cooperation with local business partners who are more familiar with the scene in order to make good headway, according to an industry expert.

Industry observers see the buying back of brands as a means for them to keep a bigger slice of the profits in China, the world’s fastest-growing luxury market.

Research released by the Chinese Academy of Social Sciences in May showed that the value of China’s luxury market will reach $14.6 billion in the next five years, making it the largest luxury market in the world.

Source: China Daily

CONSUMER / RETAIL

Starwood Opening Three New Hotels In China

Starwood’s Le Meridien Hotels and Resorts has announced that it plans to open three new hotels in Greater China in Taipei, Zhengzhou, and Xi’an.

Le Meridien Taipei is slated to open in October 2010, to be followed by the openings of Le Meridien Zhengzhou in January 2012 and Le Meridien Xi’an in December 2013. These follow the recent openings of three new Le Meridien hotels in China in the cities of Xiamen, Chongqing, and Qingdao.

According to Eva Ziegler, the global brand leader for Le Meridien and W Hotels Worldwide, Le Meridien currently has 29 hotels in the Asia Pacific market, which makes up 25% of its current global footprint. She added that Asia Pacific, and specifically China, is seen as an important growth opportunity for Le Meridien brand and Starwood Hotels.

Source: China Retail News

Coca-Cola Gets Real About Its Business

Coca-Cola, the world’s biggest beverage company, says it is integrating sustainability and green production into every aspect of its business operations in China.

At a time when the world is focusing on low-carbon lifestyles and environmental protection, China’s experts and academics of sustainable development recently gathered at the company’s Green Building located inside its headquarters in Shanghai to discuss the environmental impact of China’s rapid economic development and the role of sustainable business development.

Experts pointed out that sustainable development will be a central theme throughout China’s 12th Five-Year Plan (2011-2015), and the concept of sustainable developments extends beyond business and throughout every aspect of society.

So far, Coca-Cola China’s cumulative charitable commitments have totaled more than RMB200 million ($29.5 million) covering environmental and community projects.

For example, there was a 35 percent improvement in water efficiency across Coca-Cola’s bottling plants in 2009 compared with the 2004 baseline. The company has also made a commitment this year that 100 percent of the wastewater discharged in China meets standards for supporting aquatic life.

So far the company has invested more than RMB30 million in China to install water recycling and purification equipment, improve water recycling and reuse, and reduce water usage.

Source: China Daily

Hengdeli Planning To Add 50 Stores In China, Taiwan, Hong Kong This Year

Hengdeli Holdings Ltd., the retail partner of Swatch Group AG in China, plans to add 50 stores in China, Taiwan, and Hong Kong this year.

Hengdeli is opening stores mainly in so-called second-tier cities in China, including Hangzhou, Shijiazhuang, and Taiyuan, Chairman Zhang Yuping told reporters in Hong Kong. The planned additions will bring its outlets to about 320.

The watch retailer is adding outlets to tap rising demand for timepieces in China, where a quarter of all Internet searches for brands last year were for Swatch Group’s Omega, according to the World Watch Report published by research firm IC-Agency. Hengdeli may also buy retailers to expand its network in southwestern China and Jiangxi, Zhang said.

“China’s domestic consumption is very strong,” Zhang said. He reiterated the company has a sales growth target of at least 30 percent this year.

Hengdeli plans to spend as much as RMB400 million ($59 million) on store openings, Zhang noted. The company added 60 outlets last year.

Source: Bloomberg

ALTERNATIVE ENERGY

Nuclear Power Firms Move Into Top Gear

Global equipment makers are rushing to corner a slice of the fast growing nuclear power sector in China, a market estimated to be in excess of RMB1 trillion ($148 billion).

Domestic nuclear companies are also in the fray and are competing with global players to take advantage of the huge opportunities in China.

Dongfang Electric Corp, one of the three largest power equipment makers in China, said over one-fourth of its revenue now comes from the nuclear power sector.

Power systems provider Rolls Royce expects nuclear power to be a major growth segment for its energy business in China. The company, which is better known for its aerospace business, has supplied instrumentation and control systems for the Qinshan nuclear power plant in Zhejiang province and the Ling Ao nuclear power plant in Guangdong province.

French nuclear power group Areva has participated in six of the 11 nuclear power reactors currently in operation in China. Nearly 20 of the 24 reactors currently under construction in China use Areva’s technology, while the French company is directly participating in four of the 20 reactors.

Nuclear power equipment providers are witnessing “unprecedented opportunities” in China and hence should take steps to meet the higher technology and environmental requirements, said Zhou Xiujie, a nuclear power expert.

Source: China Daily

Chint Group To Invest In Gansu Solar Power Projects

Zhejiang-based Chint has signed an agreement with Gansu provincial government to build a solar power plant in Lanzhou with capacity of 1 gigawatt (gW) and a solar module manufacturing venture in the city with initial manufacturing capacity of 200 megawatt (mW), said in a recent company statement.

At present, solar power projects completed or under construction in Gansu exceed 100 mW.

China plans to develop 13 solar power projects in the western region as part of a government plan to cut emissions and boost energy investment in the area. The government is tendering bids to develop similar projects in six provinces, which will have a combined capacity of 280 mW, said the National Development and Reform Commission.

In line with the rapid development of China’s solar power industry, an increasing number of enterprises have strengthened their focus in the area. The country has now become a center for the global solar power industry, said analysts.

Source: China Daily

JV Will Focus Mirrors To Leverage Sun

Beijing Zhonghang Airport General Equipment Co Ltd plans to set up a joint venture to invest in a concentrated solar power (CSP) equipment project worth RMB878 million ($129.63 million) in Yuanling county of Hunan province.

Beijing Zhonghang will hold around 30 percent of the joint venture, in which several other “well-known” venture capital firms will participate, Zheng Xueshi, chairman of Beijing Zhonghang said.

While concentrated solar power plants are more cost-effective and efficient than widely-used photovoltaic panel installations, they have seen little commercial use in China to date.

The new company is expected to realize RMB2 billion in annual sales and go public on the ChiNext board for start-ups in Shenzhen within three years, according to Zheng.

Source: China Daily

RECENT TRANSACTIONS

China Wind Turbine Maker Plans $500 Million US Listing

Mingyang Electric, one of the five biggest wind power turbine suppliers in China, plans to raise $500 million in a share sale in the United States in September, in what could be the largest such listing by a Chinese company this year, the International Financing Review reported.

China is the world’s largest market for wind turbines, and domestic wind equipment manufacturer such as Mingyang supplies 80 percent of the market. China installed more than 13 gW of wind power generating capacity last year.

Mingyang’s IPO plan follows the shelving of a $1.17 billion Hong Kong listing by Chinese wind equipment supplier Xinjiang Goldwind Science & Technology Co Ltd in June. The Shenzhen-listed company pulled the offering because of fragile investor sentiment in the wake of the European sovereign debt crisis and concern about over-capacity in the sector.

Source: China Daily

Zhujiang Brewery Listing To Aid Firm’s Expansion

Guangzhou Zhujiang Brewery, which is 24 percent owned by Anheuser-Bush InBev, launches its initial public offering (IPO), in which it is expected to raise up to RMB406 million ($59.93 million) to support the company’s nationwide expansion.

“The funds raised from the float would be used to establish two beer production bases each with an annual output of 200,000 kiloliters in Hunan province and Guangxi Zhuang autonomous region respectively,” Zhujiang Brewery spokes-person Lin Yuanchun told China Daily.

According to its prospectus, the Guangzhou-based company, whose business mainly focuses on South China, is striving to develop Zhujiang beer into a nationwide brand.

China has been the world’s biggest beer producer for eight consecutive years since 2001. Last year, China beer output totaled 42 million kiloliters.

Source: China Daily

Ambow Education Plans To Raise $117 Million In IPO

Ambow Education Holding Ltd., which provides educational services throughout China, hopes to raise about $117.4 million in an initial public offering of its shares.

The Beijing based company plans to offer 7.5 million American depositary shares for $10 to $12 a piece, while shareholders sell 3.2 million shares for the same price.

Each ADS represents two Class A ordinary shares.

Ambow expects net proceeds of about $71.6 million after expenses, assuming that shares sell for $11 each. It plans to use the funds for teaching training programs, developing educational content, and growing its business by expanding its campuses and acquiring other companies.

Source: Zero2IPO

China Everbright Bank Raises $2.8 Billion In The Country’s Second-Biggest IPO Of 2010

China Everbright Bank’s $2.8 billion debut lifts the total value of Chinese IPOs to $63.7 billion this year, or almost half the global value.

China cemented its position as the global IPO champion when China Everbright Bank raised RMB18.9 billion ($2.8 billion) in the country’s second-biggest initial public offering of the year. It is the fourth-largest in the world in 2010 year-to-date.

So far this year, Chinese companies have launched 261 IPOs on both domestic and overseas stock exchanges, raising a total of $63.7 billion — already more than the $50.6 billion raised in 2009, and 46.8% of global IPO volume this year, according to data from Dealogic.

Source: Finance Asia

OVERSEAS TRANSACTIONS

GDF Takes Control Of International Power To Form Energy Giant

France’s GDF Suez will take control of Britain’s International Power, creating the world’s largest utility with annual revenue of €84 billion ($111.5 billion).

The deal comes after resuming talks aborted earlier this year and will allow GDF access to growth in emerging markets and give it a foothold in the UK and Australia.

Britain’s International Power can expect to cut financing costs as a result, anticipating its credit rating to be lifted to investment grade, from BB now, it said.

GDF Suez will transfer a number of assets into International Power, in return for 70 percent of the ownership in the new enlarged group. Existing International Power shareholders will hold the remaining 30 percent.

International Power shareholders will also receive a special dividend of 92 pence per share, totaling ￡1.4 billion pounds ($2.2 billion) — at the top end of analyst expectations — in exchange for relinquishing control of the company.

International Power will stay listed and based in London and will have a market value of ￡18.6 billion ($29 billion) after the deal, based on its current share price.

Source: Reuters

Symantec Completes Acquisition Of VeriSign’s Security Business

Symantec Corp. has announced it has completed its acquisition of VeriSign’s identity and authentication business, which includes the Secure Sockets Layer (SSL) and Code Signing Certificate Services, the Managed Public Key Infrastructure (MPKI) Services, the VeriSign Trust Seal, the VeriSign Identity Protection (VIP) Authentication Service, and the VIP Fraud Detection Service (FDS). The acquisition agreement between Symantec and VeriSign also included a majority stake in VeriSign Japan.

“Enterprises and consumers alike expect simple and secure access to information from any device, protection from identity fraud, and online experiences that are user-friendly and hassle-free,” said Enrique Salem, president and CEO, Symantec. “The combination of Symantec’s leading security solutions with VeriSign’s security products, services, and recognition as the most trusted brand online, uniquely positions Symantec to drive the adoption of identity security and restore trust online unlike any other company.”

Source: Ameinfo.com

Nabors To Buy Superior Well Services For $736 Million

Nabors Industries Ltd, the world’s largest land rig contractor, agreed to buy oilfield services company Superior Well Services Inc for about $735.6 million to boost its pressure pumping operations, a key requirement for shale drilling.

Oil services firms with the technological expertise in the drilling methods, including rock fracturing, offer larger firms the technology to tap the shale hotspots such as the Marcellus, Eagle Ford and the oil-rich Bakken in the U.S.

Superior Well is the top independent player in the pressure pumping business, and it gives Nabors control of over 430,000 hydraulic fracturing horsepower — crucial for horizontal drilling in shale plays. Nabors’ offer of $22.12 per Superior Well share is a premium of about 21 percent to Superior Well’s closing price on Nasdaq. The total deal size is valued at about $900 million after including Superior Well’s outstanding debt of approximately $165 million.

Source: Reuters

THIS WEEK IN CHINA

China’s Economy Will Surpass Japan’s Imminently

China is set to overtake Japan as the second largest economy in the world in a resurgence that is changing everything from the global balance of military and financial power to how cars are designed.

China’s GDP in 2009 was $4.98 trillion and Japan’s was $5.07 trillion. In 2010, China’s GDP was $1.335 trillion for the April-June quarter – a period for which Tokyo has yet to report. China is growing at 10% a year while Japan’s expansion this year is forecast at no more than 3%.

“On that basis, the crossover probably happened last quarter,” said Julian Jessop, chief international economist for Capital Economics in London.

China came close to surpassing Japan in 2009. It technically overtook Japan as the second largest economy in the world in the fourth quarter of 2009 since China produced more goods and services than did Japan.

China is already the biggest exporter, auto buyer and steel producer, and its worldwide influence is growing. The fortunes of companies from Detroit automakers to Brazilian iron miners depend on spending by China’s consumers and corporations. Chinese pressure helped to win developing countries a bigger voice in the World Bank and International Monetary Fund.

If China can maintain 5% growth per year in the 2020s, it will have maintained growth for 50 years that would be unprecedented in history.

The uninterrupted economic ascent, which saw China overtake Britain and France in 2005 and then Germany in 2007, is gradually translating into clout on the world stage.

China is a leading member of the G20, which since the 2008 financial crisis has become the world’s premier economic policy-setting forum.

The rise of China wasn’t new, either, of course. But the speed at which the shift is taking place, and the fact that China has remained so stable and prosperous during the financial crisis has called into question Japan’s export-based growth model. China is moving up the food chain faster than anyone thought possible, and even beginning to challenge Japan at the very core of its economy: high-end manufacturing.

China mostly still exports low priced goods to the West, but the government has made it clear that they want to go for higher-end goods and have been offering subsidies to more innovative companies, payments for patent filings, and all sorts of tax breaks and supports to entrepreneurs in areas like green technology and energy-efficient cars and fuels.

Although per capita income is still lower, China’s consumers are so avidly courted by global companies that products from autos to home appliances destined for sale worldwide are designed with their tastes in mind. This year, French luxury goods maker Hermes Group unveiled a brand, Shang Xia, to be designed specifically for Chinese customers.

China’s ascent to become the world’s second largest economy may be overshadowed by the global influence that it has already attained.

Adam Roseman,
Founder & Managing Director
ARC China

The Rising Power Of The Chinese Worker

Cheap labor has built China’s economic miracle. Its manufacturing workers toil for a small fraction of the cost of their American or German competitors. At the bottom of the heap, a “floating population” of about 130 million migrants work in China’s boom-towns, taking home RMB 1,348 a month on average last year. That is a mere $197, little more than one-twentieth of the average monthly wage in America. But it is 17% more than the year before. As China’s economy has bounced back, wages have followed suit. On the coasts, where its exporting factories are clustered, bosses are short of workers, and workers are short of patience.

The hands of China’s workers have been strengthened by a new labor law, introduced in 2008, and by the more fundamental laws of demand and supply. Workers are becoming harder to find and to keep. The country’s villages still contain perhaps 70 million potential migrants. Other rural folk might be willing to work closer to home in the growing number of factories moving inland. But the supply of strong backs and nimble fingers is not infinite, even in China. The number of 15- to 29-year-olds will fall sharply from next year. And although their wages are increasing, their aspirations are rising even faster. They seem less willing to “eat bitterness”, as the Chinese put it, without complaint.

Higher Chinese wages would be good for the West. This may seem odd, given how much the rich world has come to rely on cheap Chinese labour: by one estimate, trade with China has added $1,000 a year to the pockets of every American household, thanks to cheaper goods in the country’s stores, cheaper inputs for its businesses and stiffer competition in its markets. Just as expanding the global labor force by a quarter through the addition of cheap Chinese workers helped to keep prices down in the West, so higher Chinese wages might start to export inflation. Furthermore, from the point of view of the global economy, labor is a resource, like land or oil. It would not normally benefit from the dwindling of China’s reserves of labor any more than from the drying up of Saudi wells.

Source: Economics

China-Focused Private-Equity Firms Look To Stocks

With attractive opportunities among private Chinese companies in short supply, private-equity firms are striking an increasing number of deals to take stakes in China’s publicly traded companies.

The trend marks a shift away from the traditional private equity strategy of getting in on a private company early and cashing out when the company goes public or is sold. Investors who pledge money to private equity funds are often skeptical of such investments in public companies because they are often already easily available on the open market, without the 2% management fee and 20% performance fee that funds charge.

So far this year, almost one third of private equity deals in China have been private investments in public equity, known as PIPE deals. That’s up from 8% in 2006, according to Asia Private Equity Review. Last year, 43% of private equity deals done in China were PIPE deals, according to the Review.

The trend illustrates the difficulty many firms face in finding good investment opportunities for the $47.6 billion investors have plowed into China-focused funds since 2006. Buyout deals have always been hard to come by in Asia, and it hasn’t gotten any easier with fund sizes getting larger, creating the need for bigger deal sizes, as well as increased competition for deals from local competitors such as yuan-denominated funds.

Source: Wall Street Journals

Beijing Billionaire Who Grew Up With Mao Sees No Housing Bubble

From her leafy, 11th-floor rooftop terrace at the headquarters of Soho China Ltd., billionaire Zhang Xin scans the relentlessly expanding Beijing skyline she helped create. Zhang’s avant-garde buildings — some sleek as chopsticks, others stepped like rice terraces — became part of the hottest real estate market on Earth in 2010.

Zhang says she’s well aware of the chorus of investors and economists who predict that China’s property boom is about to go bust, taking the global economy down with it. The doomsday scenarios don’t intimidate Zhang, a onetime penniless sweatshop worker who ascended to Wall Street by defying the odds. She hopes to prove skeptics wrong again this year by betting hundreds of millions of dollars on new buildings in Beijing and Shanghai, Bloomberg Markets magazine reports in its September issue.

“I don’t see any bubbles,” says Zhang. “The next few months will be a fantastic time to buy.”

If China’s real estate takes a dive, so will its economy, analysts say. Property investment and related industries make up about 20 percent of the country’s gross domestic product, Citigroup Inc. research shows. The economy, which expanded 10.3 percent in the second quarter, may slow to 5 percent in the third period if housing plummets, says Jim Walker, chief economist at Hong Kong-based Asianomics Ltd.

China’s economic rulers moved earlier this year to engineer a soft landing. In April, China’s cabinet, led by Premier Wen Jiabao, began imposing stringent restrictions on lending to curb speculation, particularly on luxury dwellings.

Officials raised down-payment requirements and interest rates on housing purchases, boosted the proportion of deposits that banks must hold in reserve and, in Beijing, banned families from buying more than one new home.

The measures cooled the economy after it grew at a sizzling 11.9 percent pace in the first quarter. Housing prices, which jumped a record 12.8 percent in April, eased to 11 percent in June.

Source: Bloomberg

China Plans Oil-Storage Spree

Beijing may be tapping the brakes on growth, but oil-market bulls can take heart: The tanks are on their way.

China is on the cusp of a major expansion of its oil storage capacity that will boost its oil imports and underpin its refinery runs going forward, even if the country’s gross domestic product doesn’t again reach the 11.9% growth seen in the first quarter of the year.

According to Xinhua news agency, China’s oil product storage capacity may reach close to 500 million barrels by 2015, nearly 50% above last year’s level.

In addition, the country is expanding its strategic petroleum reserve for crude oil with a view to adding capacity of 338 million barrels in two phases to existing stocks of 102 million barrels of crude.

With stagnant demand in many big oil-consuming countries, like the U.S., China has been the driving force behind the rise in global oil demand in recent years, especially with government stimulus channeled into energy-intensive infrastructure projects since 2008.

The International Energy Agency, the developed world’s energy watchdog, predicts China will remain the engine of oil demand in 2010, forecasting consumption to rise 761,000 barrels a day this year to 9.13 million barrels a day, accounting for more than 40% of the estimated total global growth.

Demand growth projections point to an eye-catching acceleration in stockpiling. In its medium-term oil market report, the IEA forecast China’s total oil use will rise to 11.6 million barrels a day by 2015.

Source: Wall Street Journal

China Gets Top Ranking In Survey Of World’s Emerging Economies

China ranks No 1 among 27 emerging economies due to its huge consumer market and rapid economic growth, according to the Emerging Markets Opportunity Index released by US accounting firm Grant Thornton.

The index takes account of key factors such as the size of the economy, wealth, involvement in world trade, growth potential and levels of human development.

China scores 454 points, double the India’s score (222 points) in second place and almost triple that of Russia (163 points) in third place.

“China leads the way thanks to the country’s huge consumer market, an increasingly open economy and extremely rapid trade growth, which offer a myriad of business opportunities for potential investors,” said Xia Zhidong, partner and vice-chairman of Grant Thornton China.

According to figures from the United Nations Conference on Trade and Development, China attracts the most foreign investment among the BRIC (Brazil, Russia, India and China) countries.

Last year, the inward foreign direct investment (FDI) flow to China was $95 billion, followed by Russia at $39 billion and with India and Brazil posting $35 billion and $26 billion respectively.

However, a lack of skilled labor, increasing labor costs and the low per capita gross domestic product (GDP) pose major challenges to foreign investment in China.

Source: China Daily

China: A New Core Rises

Almost every Chinese city has an industrial park or two but few are as attractively named as the Big Peach Flower industrial zone in Hefei. And even fewer are growing as quickly. Gree, the country’s biggest maker of air conditioners, opened a plant less than two years ago that already employs 10,000 people. Next door Midea, another air conditioner-maker, also has a vast factory.

What is most remarkable about these new plants is their location. Hefei is the capital of Anhui province, a rural backwater 400km inland from Shanghai, whose main role in the boom of the past three decades has been to supply labor to the factory towns on the south and east coasts. Now, however, the modern industrial world of the coastal region is coming inland to Anhui.

After an impressive rebound from the global crisis, China is running into new headwinds. The government is scaling back its massive monetary stimulus, prompting a slowdown in the growth of activity. Meanwhile, rising demand for exports from consumers in the US and Europe can no longer be relied upon. Increasing domestic demand is more important than ever given the mounting signs that the recovery in the rest of the world is faltering. Yet there are plenty of doubts about where any new growth will come from.

In provinces such as Anhui, Hunan and Jiangxi, previously unfashionable cities are entering a phase of “industrial take-off”. A combination of rising costs and wages on the coast, better rail and road infrastructure, and stimulus spending is encouraging Chinese companies to join a rush that started as a trickle a decade ago. Hefei is one of the most striking examples.

The boom in Anhui and other parts of the center is the result of a mix of government push and market pull. Public spending on transport infrastructure has transformed the sense of distance in parts that used to feel much more isolated from the coast.

Anhui, for instance, will be one of the biggest beneficiaries of heavy investment in high-speed railways.

Source: Financial Times

China Revs Up Renminbi Expansion

China’s quest to transform the renminbi into an international reserve currency – and thereby challenge America’s dominance of the global monetary system – may take decades, if it happens at all. But this month, for the third time this year, China took another big step in that direction.

Regulators lifted a raft of restrictions blocking the free flow of renminbi in Hong Kong, the semi-autonomous region that is open to international investors and is the designated launchpad for the renminbi’s global expansion.

Any company in the world can open a renminbi bank account in Hong Kong and exchange the currency as they please, while financial institutions in the former British crown colony are free to create investment products denominated in the Chinese currency.

There are also no longer any restrictions on the type of corporations that can be granted renminbi loans or on the type of loans that can be extended – a key liberalisation that could eventually trigger an offshore renminbi credit boom.

“[The new rules are] a big step in promoting the international use of the renminbi,” said Frances Cheung, a strategist at Crédit Agricole in Hong Kong.

As soon as the measures were announced, Hong Kong banks unveiled a slew of renminbi-denominated products, scrambling to gain a foothold in a market they hope will surge over the coming years.

Beijing last month announced a huge expansion of the renminbi cross-border trade settlement scheme, extending it from Hong Kong, Macau and a handful of nations in south-east Asia to companies in all countries, and domestically from five cities to 20 provinces.

Cross-border trade in renminbi totalled Rmb 70.6 billion ($10.3 billion) in the first half of the year – about 20 times the Rmb 3.6 billion ($527 million) recorded in the second half of 2009.

Source: Financial Times

Nielsen: Online Shopping Gaining Ground In China

Online consumers from China are the most prolific online shoppers in the Asia Pacific region and nearly 95 percent of them are planning a web purchase in the next six months, said John Burbank, chief executive officer of Nielsen Online, the online division of research firm Nielsen.

According to the survey, books and clothing, accessories and shoes top the list of planned online purchases in the next six months for Chinese online consumers. Compared with other countries in the Asia Pacific region, Chinese online consumers are the keenest to purchase clothing online, followed by consumers in South Korea (56 percent) and Philippines (37 percent).

As of June 2010, the number of Internet users in China climbed to 420 million, 36 million more than the end of 2009, according to a report from the China Internet Network Information Center. But the country’s Internet penetration rate, which was 31.8 percent by the end of June, still lags behind many other countries.

Online retail sales increased 117 percent annually between 2007 and 2009, and is expected to reach RMB450 billion ($66.45 billion) this year, according to the research center of Alibaba Group, which runs the global e-commerce site Ali-baba.com.

Though e-commerce in China is growing at a rapid pace, online shopping’s share of total retail sales in China is still lower than the US and the rest of world. “Online payment security, ensuring product quality and after sales services are the key barriers for online shopping,” said Burbank.

Source: China Daily

China Welfare Fund To Increase Overseas Investment

China’s RMB700 billion ($103 billion) National Social Security Fund (NSSF) will start making private equity investments overseas, the official Shanghai Securities News reported.

NSSF is considering setting up an office in Hong Kong and is now selecting managers to help it make private equity investments in foreign unlisted companies, mainly small-and medium-sized ones.

The insurance fund’s overseas portfolio, including stock and bonds, currently accounts for less than 7 percent of total assets, compared with a ceiling of 20 percent.

Out of NSSF’s nearly RMB 700 billion ($103 billion) in assets, 45 percent is in fixed-income products, 30 percent in stocks while 25 percent is in unlisted equity in domestic companies.

Source: Zero2IPO

Some Russian Assets May Be Sold To Chinese State Funds

Russia may sell some government-owned companies’ assets to Chinese state investment funds, the Sunday Times reported.

Preliminary talks have taken place with government officials from Russia and China. Chinese state funds could act as investors in Hong Kong share sales of Russian companies, the Sunday Times said.

The government said it planned to sell holdings in OAO Rosneft, Russia’s largest oil producer, within three to five years to help narrow the budget deficit. The Finance Ministry also proposed selling minority stakes in companies including Russia’s two largest lenders, OAO Sberbank and VTB Group.

Source: Bloomberg

China Resources Group Eyes Bio-medical Sector

The State-owned Assets Supervision and Administration Commission (SASAC) of Beijing and the China Resources Group in Hong Kong agreed to cooperate in the bio-medical sector, the financial website Caing.com reported.

A source close to the matter said that China Resources Medication Group under China Resources Group will hold 100 percent of the shares of Beijing Pharmaceutical Group Co. In return, SASAC of Beijing will hold 28 percent of China Resources Medication Group’s shares and China Resources Group’s shareholdings in China Resources Medication Group will be reduced to 72 percent.

China Resources Group plans to include the medical sector as its new profit growth point.

Song Lin, president of China Resources Group, said they will list China Resources Medication Group in at least two to three years.

Source: China Daily

Aviation Industry Merger In Works

China National Aviation Holding Company is to take over China Aviation Supplies Holding Company (CASC), a major aircraft and material provider for domestic airlines, which is part of the government’s plan to consolidate the aviation industry, a source familiar with the deal said.

The buyer-China National Aviation is the parent company of Air China.

“The acquisition is the result of a structural readjustment of China’s aviation industry, and is in line with the country’s strategy to make its State-owned enterprises bigger and stronger, with the eventual goal of becoming the world’s best,” said Li Xuerong, a researcher with China Investment Consulting.

The number of China’s State-owned aviation companies will be scaled back to five after the acquisition.

SASAC said earlier it plans to initiate large-scale industry consolidation this year among State-owned enterprises and will cut the number to 100 from the current 125.

Source: China Daily

China And Russia Sign Power-grid Agreement

The State Grid Corp of China has signed a framework agreement with the Russian national grid operator to extend their collaboration on grid technology, cooperation and management, the company said.

The cooperation will cover “technology and experience exchange, power grid construction and management, equipment supply, and technology consulting”, State Grid said on its website.

According to Rusnews.cn, a Russian news portal, both companies will build a 500 kV, cross-border power line in the Amur region of Russia.

The project is scheduled to start in 2011. The investment value of the project was not disclosed.

The cooperation is in line with growing power cooperation between China and Russia, said analysts. In order to meet rising demand, China may increase power imports from Russia in the next few years.

The move is also in line with State Grid’s strategy of going abroad, they said. The company has accelerated its overseas development in recent years.

Imported electricity from Russia surged in 2009, up more than 316 times over 2008 figures to reach 738 million kilowatt-hours (kWh), according to statistics from north-eastern China’s Harbin Customs. The power link cost China around $29 million, according to the provincial capital’s customs.

Around 1 billion kWh of electricity will be imported by the end of 2010, with a total value of over $40 million, according to Heilongjiang Electric Power Co.

As the world’s two major energy consumers and producers, China and Russia are planning to build several power transmission lines across their borders. This would involve “multi billion yuan” investments, said an official familiar with the project.

Source: China Daily

China To Help Venezuela Build Three Power Stations

China will help Venezuela build three 300 megawatt electricity generating plants in return for oil deliveries under a long-term $20 billion financing deal, the Latin American OPEC nation said.

Three months ago, Beijing said the China Development Bank had signed a “framework financing agreement” worth about $20 billion with Caracas, half to be paid in dollars and half in yuan, but gave few other details.

The Venezuelan government said 19 development projects costing almost $5 billion had been agreed during bilateral talks in its capital, including constructing the three power stations at a cost of about $520 million.

The Andean nation suffered severe electricity shortages during a drought this year that slashed hydropower production and led to power rationing in much of the country.

Venezuela’s socialist President Hugo Chavez says he wants to boost oil sales to Beijing and diversify away from the country’s top customer, the United States.

Venezuela said it was sending China more than 460,000 barrels per day (bpd) of crude and oil products, a 21 percent increase from the year before.

Chinese energy companies are involved in developing the Latin American country’s massive hydrocarbon reserves. In February, the China National Petroleum Company was awarded a stake in the Junin 4 block of its vast Orinoco extra heavy crude belt, which is seen as one of the biggest in the world.

Relations outside the energy sector have also expanded in recent years: China built and launched a $400 million communications satellite for Venezuela in 2008, reducing the dependence of Caracas on U.S. and European satellites.

Source: Fox Business

IMF Report Urges China To Consume More

China’s trade surplus is set to balloon again unless the government takes more steps to support domestic consumption, including letting its currency strengthen, the International Monetary Fund warned in its annual review of the nation’s economy.

The assessment by the IMF staff, published, reflects the growing concern among some economists and officials that a shift toward a more sustainable pattern of global economic growth could be stalling as the worst of the crisis recedes and countries return to business as usual. Some of the report’s conclusions — including its contention that China’s currency is “substantially” under-valued — were disclosed by the IMF.

China gave domestic demand an enormous boost with its stimulus program to combat the effects of the financial crisis, resulting in a surge in imports of raw materials and equipment to feed a construction boom. As a result, China’s current account surplus — the broadest measure of its trade balance — fell sharply, reaching 4.5% of gross domestic product in the first quarter of this year, less than half the peak level of nearly 11% of GDP in 2007.

For China to ensure that its trade surplus continues to decline will be “an exceptionally complicated exercise in macro-economic engineering” that “will require concerted action on multiple fronts,” the IMF said. Although China has taken some steps in the right direction, including the recent loosening of its currency’s link to the U.S. dollar, the IMF said, “The critical mass of policy reforms that will be needed to realize this goal is not yet fully in place.”

Achieving a shift toward lower trade surpluses in nations such as China, and smaller trade deficits in nations such as the U.S., should help global economic growth to be faster and more broad-based, the leaders of the Group of 20 major economies agreed at their summit meeting last month.

But with China’s government now gradually phasing out its stimulus program, and economies in the rest of the world getting closer to normal, the factors that drove the trade surplus down are in danger of being exhausted, the IMF report said. Earlier this month, the U.S. Treasury made a similar argument, warning that “China’s trade surplus is likely to rise again as the rest of the world recovers.”

The IMF noted that China’s government disagreed with its assessment, arguing that continued fast growth, rising wages and already-implemented reforms will ensure that the current-account surplus keeps falling, to about 4% of GDP over the next few years.

The IMF urged China to press ahead with measures such as allowing higher and more market-driven interest rates; reducing taxes to encourage consumption; improving health-care coverage; accelerating urbanization by reducing restrictions on migration; and raising low, government-set prices of energy and raw materials.

China also needs to adjust its currency, the IMF said, which despite official promises of greater flexibility has so far moved very little. “The current undervaluation is counter-productive and acts as a headwind to increasing private consumption,” the report said. “A stronger currency will help increase the purchasing power of households, raise the labor share of income, and reorient investment toward those sectors that serve the domestic market.”

China has contested that analysis, and the report notes the Chinese government believes the currency’s value is now “much closer to equilibrium than at any time before.”

Source: Wall Street Journal

Domestic Auto Part Firms Jump On Global M&A Bandwagon

Chinese auto parts makers are moving into the overseas merger and acquisition (M&A) fast lane, eyeing a distressed global market to close a technology gap with world leaders to meet sizzling demand at home and eventually sell overseas.

Several major deals have already been inked and more are expected in the months ahead as the global industry retrenches, planting the seeds for a future crop of Chinese titans to compete with the likes of Robert Bosch and Denso.

But missteps, typical in many of China’s major M&A deals to date, could also leave the sector saddled with headaches that drove foreign parts makers into difficulty in the first place.

China’s automotive sector has grown at breakneck speed in the last decade, passing the United States last year to become the world’s top auto market. Yet its parts sector remains fragmented with 20,000 manufacturers lacking the capital needed to invest to meet higher quality and emissions standards and move up the value chain.

Many Chinese companies, eyeing technologies ranging from engines to braking and transmission systems, are now hiring investment banks, management consultants and law firms to study possible deals.

“We have been advising a number of Chinese companies, which are actively looking at overseas acquisitions in the United States and European markets,” said Michael Jiang, a KPMG partner and corporate finance co-head of Automotive China. Jiang forecast the coming wave of purchases could see a deal that breaks the $1 billion mark. That would be more than double the largest deal to date, the purchase of General Motors’ Nexteer steering components unit by a joint venture of Beijing’s Tempo Group and the Beijing government for a reported $450 million.

Most Chinese parts companies currently lack the size to foot it on the global stage. Seven of China’s 10 biggest component makers are foreign companies, and about 70 percent of the country’s $160 billion auto supply market is occupied by foreign or joint ventures.

Of the three Chinese companies in the top 10, all are units of the country’s leading auto-makers – SAIC Motor Corp, FAW Group and Dongfeng Motor, KPMG said. Most of those specialize in lower-end parts.

Source: China Daily

China Approves Geely’s Volvo Car Purchase From Ford

China’s Ministry of Commerce said it has approved Zhejiang Geely Holding Group Co.’s purchase of Ford Motor Co.’s Volvo Car unit, paving the way for completion of the $1.8 billion acquisition agreed by the two companies in March.

Geely agreed to buy the Volvo Car business from Ford, marking the biggest overseas acquisition by a Chinese automaker. Volvo is the latest premium European brand to be sold off by Ford Chief Executive Officer Alan Mulally, who has divested Aston Martin, Land Rover and Jaguar since joining the carmaker from Boeing Co. in 2006.

Ford has said it will continue to supply Volvo with engines, transmissions and other vehicle components. It also agreed to provide engineering and technology support and access to tooling for common components for an unspecified period.

Volvo Car has about 20,000 employees world-wide, including almost 14,000 in Sweden. The unit had pretax profit of $53 million in the second quarter, compared with a $237 million loss a year earlier, Ford said.

Selling Volvo would complete Mulally’s strategy of exiting European luxury lines to focus on Ford’s namesake brand.

Source: Business Week

CONSUMER / RETAIL

Foreign Brands Cash In On Expo

International brands are cashing in on Expo 2010 Shanghai by launching new limited edition products and developing their customer bases in the city, as well as across China.

Shiseido, a Japanese cosmetics company, launched a new range of perfume, Shanghai Bouquet, especially for the Expo and drew inspiration for the bottle’s design from the magnolia, Shanghai’s city flower. The perfume, sold exclusively in Shanghai, costs 150 yuan ($22).

The US sportswear giant Nike designed two styles of running shoes that bear an image of Haibao, the official Expo mascot.

The Finish mobile phone company Nokia, the Swiss watchmaker Swatch and a number of other big brand names have followed suit with Expo-related products.

Luxury high-end brands are also trying to cash in on the Expo. Prada’s limited edition handbags and key rings feature images of the Oriental Pearl Tower, a Shanghai landmark.

Meanwhile, Karl Lager-feld, the head designer at Chanel, used traditional Chinese patterns on his latest collection, including earrings, necklaces and bracelets.

Qi Xiaozhai, dean of the Shanghai Commercial Economic Research Center, considers Shanghai’s vast, growing market to be an important factor in the influx of foreign brands offering Expo-related products.

Source: China Daily

Ascott Expands Global Portfolio

The Ascott Ltd, a wholly-owned serviced apartment unit of CapitaLand, one of Asia’s largest real estate companies, said in Shanghai that it plans to expand its global portfolio to around 40,000 apartments from the current 26,000 by 2015.

The Singapore-based company, the world’s largest serviced residence owner and operator, has 29 properties, more than 5,500 rooms, in China under three brands – Ascott, Somerset and Citadines. It has also secured four new management contracts in the country, all under the premier Ascott brand.

The four properties, located in Guangzhou, Suzhou, Ningbo and Hangzhou and scheduled to open between 2011 and 2015, will therefore take the company’s China portfolio to 33 properties with more than 6,000 rooms. China, Vietnam, Singapore and India will remain its key growth markets in Asia.

Source: Shanghai Daily

CRV Unveils Ole Store In Xujiahui

Retail giant China Resources Vanguard opened its first high-end supermarket Ole in Shanghai, marking its entry into one of the most vigorous markets in China.

CRV, the retail chain brand of state-owned China Resources, will open a second Ole next year in Pudong New Area. Another two outlets under Ole’s sub-brand blt will also be launched by the end of this year in Yueda 889 in Jing’an District and Lianyang area in Pudong, spokeswoman Jiang Yan told Shanghai Daily. Blt is a smaller version of Ole.

“CRV has been planning to make a foray into Shanghai since last year to improve our layout in the eastern China region,” said Dai Hong, general manager for Ole’s business.

The store, located at Grand Gateway in Xujiahui, covers 4,000 square meters. More than 70 percent of the products are imported while about 20 percent are only available in Ole.

Supermarket chains have been eying Shanghai’s high-end retail business to cater to increasing demand from elite consumers. Brands including City Supermarket and City Super have set up business in the city.

Source: Shanghai Daily

ALTERNATIVE ENERGY

Solar Power May As Cheap As Electricity From Coal In A Decade

China may make solar power as cheap as electricity produced from coal in about a decade as the country accelerates the development of cleaner energy to cut emissions.

The country’s solar-power tariffs may fall to between RMB 0.6 ($9 cents) and RMB 0.8 ($12 cents) a kilowatt-hour by 2020 as China expands its capacity to generate electricity from sunlight by about fourfold to 20 gigawatts from 2015 levels, the Xinhua News Agency reported, citing Liu Qi, a deputy director at the National Energy Administration.

China may spend about RMB5 trillion ($732 billion) in the next decade developing cleaner energy sources, said Jiang Bing, head of the National Energy Administration’s planning and development department. Solar projects in China are approaching “grid parity” where clean power costs are similar to those for fossil fuels, Anil Srivastava, executive president for renewable energy at Areva SA said.

Shandong province has set an electricity purchase price of RMB 1.7 ($0.24) a kilowatt-hour for photovoltaic power plants for 2010, according to a Bloomberg New Energy Finance. Prices nationwide may average below RMB 1 ($0.15) by 2015, Liu said.

Source: China Daily

China Clean Power Capacity To Reach 600 GW By 2020

China’s clean electricity capacity is estimated to touch 600 gigawatts by the end of 2020 catering to 35 percent of electricity needs, said a report from Xinhua news agency quoting Liu Zhenya, the general manager, State Grid Corp.

According to State Grid, the government’s plan to increase the clean electricity generation in the country includes deployment of smart grid technology in the next ten years.

Recently, China has rebuffed a report from International Energy Agency (IEA) that it has overtaken the United States as the largest consumer of energy in the world in 2009.

China also defended by saying that it has surpassed the US in generating clean energy from various sources such as hydropower, solar power, nuclear power and wind power.

By the end of 2009, renewable energy capacity in the country was 212 GW and occupied 25 percent of the total energy capacity. Wind energy got doubled in 2009 to 16 GW compared to previous year.

Smart grid technology enables the utilities to evade outages by streamlining the irregular electricity flow from wind, solar and hydropower plants.

The State Grid has committed RMB 250 billion ($36.88 billion) towards deploying smart gird technology in 2010, the report said.

Source: International Business Times

Demand For Solar PV Energy To Top 500,000 kW

China’s domestic demand for solar photovoltaic (PV) energy would reach 500,000 kilowatts this year, said Liu Qi, deputy head of the National Energy Administration (NEA).

Liu made the remarks at a forum on renewable energy industry cooperation across the Taiwan Strait.

China plans to expand the solar PV energy market gradually: to about 5 million kilowatts installation capacity in 2015 and 20 million kilowatts in 2020, according to the NEA, China’s top energy planner.

Photovoltaic is a method of generating electric power by converting solar radiation into direct current electricity by using semiconductors.

Source: China Daily

RECENT TRANSACTIONS

China’s Tudou.com Raises $50 Million

Chinese online-video website Tudou.com said it raised $50 million in its latest round of financing, the bulk of which is an investment from Singapore’s state-owned investment firm, Temasek Holdings Pte. Ltd.

Temasek invested $35 million in Tudou, which provides streaming online video, including syndicated television shows and user-generated content.

The company, which has raised a total of $135 million since its website went live in 2005, will use the money to invest in differentiating its products and services, including creating more original video content and developing the ability to develop mobile applications in-house, Mr. said Gary Wang, chief executive of Tudou.

Tudou and Youku.com are the top online-video websites in China.

Source: Wall Street Journal

SouFun Sets Eyes On US$300 Million Flotation IPO

China’s leading online real estate portal SouFun is ramping up for its long-overdue initial public offering, according to a company source.

SouFun’s IPO could be worth up to $300 million, which would make it the largest such listing by a Chinese mainland Web company this year, according to a report by the South China Morning Post.

“Based on a valuation of about $1 billion and a usual float of 25 percent of a company for such listings, SouFun’s shares could be worth $100 million to $300 million,” said the paper, quoting a banker working on the offering.

SouFun is 51 percent owned by Australia’s Telstra Corp, which said last December it intends to sell its stake in SouFun as part of the latter’s IPO plan.

Since June 2009, SouFun CEO Mo Tianquan has said on several occasions that an IPO in Hong Kong or US would be made in 2010.

Source: Zero2IPO

Yixintang Drugstore Receives RMB 150 million ($22 million) Investment

Yixintang Drugstore, the seventh-largest drugstore chain operator in China is reported to receive RMB 150 million ($22 million) investments to support its expansion in the region.

Yixintang currently operates its outlets in regions including Yunnan, Guangxi, Sichuan and Guizhou provinces, and reportedly generated revenue of RMB2 billion ($295 million) in 2009.

Source: AVCJ

eBen Secures RMB56 Million ($8.3 million) Capital Injection

Beijing-based tablet PC manufacturer eBen will receive an investment of RMB 56 million ($8.3 million) to increase its number of demonstration storefronts and add staff.

It recently announced the development of a tablet computer features a seven-inch TFT display, 3G and Wi-Fi connectivity.

Source: AVCJ

VC-backed China Kanghui Seeks $75 Million IPO On NYSE

VC-funded China Kanghui Holdings, a manufacturer of orthopedic implants, has filed for a $75 million IPO on the New York Stock Exchange.

Established in 1997, Changzhou-based Kang-hui makes orthopedic implants for the treating of trauma and spinal conditions.

The company has raised capital several times in the past in order to meet increasing demand for its product line.

Source: AVCJ

OVERSEAS TRANSACTIONS

Danone Sells Stake In China’s Huiyuan

French food producer Danone sold its stake in China’s Huiyuan Juice Group to a Chinese private equity fund for €200 million ($260 million) to bolster its most profitable business in the Chinese market, the company said.

Danone offered its 22.98 percent stake in Huiyuan to Hong Kong-based SAIF Partners after the two finalized an agreement worth €200 million ($260 million).

“The sale of the minority stake is a part of a strategy aiming at focusing on water division and on mineral water,” Danone said.

“Danone will continue to improve growth opportunities in its core businesses in China, which are dairy products, water, child and medical nutrition to quicken the company’s development in the Chinese market,” it added.

Danone has set up 20 factories in China and employs some 9,000 workers.

In its financial results for the first half of 2010, Danone posted a 10.1 percent rise in net profit to €848 million ($1.15 billion).

The company’s annual report said China contributed 4 percent of its overall sales in 2009 with a gain of €14.98 billion ($19.77 billion).

Source: China Daily

Emaar MGF Said To Cut India Public Offering Target To About $433 Million

Emaar MGF Land Ltd., the Indian unit of Dubai’s largest developer, plans to cut a proposed initial public offering to a maximum 20 billion rupees ($433 million), two people with direct knowledge of the matter said.

The builder, a unit of Emaar Properties PJSC, will this month seek approval from India’s capital markets regulator to sell shares this year, the people said, declining to be named before a public announcement. The offer may raise as little as 15 billion rupees ($326 million), they said.

Emaar MGF, based in New Delhi, was forced to abandon plans to raise as much as 70.8 billion rupees ($1.54 billion) in February 2008 even after cutting the offer price as global equity markets slumped, the company said at the time.

The developer, which renewed fundraising plans in September, had secured approval to raise 38.5 billion rupees ($840 million), it said. It has since tarried on the IPO as investors shunned Indian property stocks, leading to an 11.7 percent drop in the Bombay Stock Exchange Realty Index this year, compared with a 3.4 percent gain in the Sensitive Index.

Kotak Mahindra Capital Co., Deutsche Bank AG, UBS AG, Credit Suisse Group AG, HSBC Holdings Plc, ICICI Securities Ltd. and Royal Bank of Scotland Group Plc were hired to manage the sale, according to Emaar MGF. The seven banks will be retained for the revised offering.

Emaar MGF plans to raise 15 billion rupees ($326 million) from selling a 10 percent stake, the Economic Times reported, citing two people it didn’t name.

The company may face competition from at least 10 developers including Raheja Universal Ltd. and Lodha Developers Ltd., who are planning to raise more than $3 billion through IPOs in India, according to Bloomberg.

Source: Bloomberg

India’s Crompton In $400 Million Bid For Emerson Unit

Indian power equipment maker Crompton Greaves has offered $400 million for the transformer division of U.S.-based Emerson Electric Company, India’s Business Standard reported, citing three unnamed investment bankers familiar with the development.

If successful, the acquisition would be Crompton’s second in the United States after the Indian firm acquired MSE Power System for $16 million in 2008, the newspaper reported.

THIS WEEK IN CHINA

China’s Economic Growth Moderating According to Expectations

The People’s Bank of China (PBOC), the central bank, said recently in its latest macro economic report that while it is possible for China’s economic growth to slow, the chances of a “double dip” are seen as slim. It emphasized that it’s “prudently optimistic” about the economic outlook and ruled out any big policy changes in the coming months.

Meanwhile, the Bank of Communications Center for Financial Research released its Second Half of 2010 China’s Macro-economic and Financial Outlook also saying that China’s economy is unlikely to see a “double dip” in the second half of this year and the economic growth will show a “high to low” trend and is expected to surpass 9% in 2H 2010.

Although current economic development has revealed signs of a slowdown in the country’s growth, the economic fundamentals remain strong. In addition, investment and retail sales continue to show strong growth, plus the global economy is improving. Retail sales and fixed asset investments grew 18.2% and 25% year-on-year, respectively.

Furthermore, the European sovereign debt crisis is not expected to have a large impact on China’s economy.

According to the PBOC, the current slowdown in China’s GDP growth was a correction following the earlier excessive expansion and also a result of the government’s macro regulations that aimed at curbing steep property price increases, easing local government debt risks and avoiding possible inflation.

“It is good for rebalancing the economic structure and achieving sustainable economic growth.” PBOC’s report said.

China’s new RMB-denominated loans for the first half of the year reached RMB 4.63 trillion, down by RMB 2.74 trillion compared with the same period last year. The new bank lending is estimated be controlled within the RMB 7.5 trillion ($1.1 trillion) target in 2010 if the increase is maintained at the June level. Depegging the renminbi from the dollar would help China to keep the renminbi exchange rate basically stable at a reasonable and balanced level.

As for inflation, PBOC said the inflation pressure had eased. But the government will stay alert, warning of a possible rebound in food prices, rising labor cost and previous fast growth of money supply.

Chinese President Hu Jintao expressed at a recent symposium held in Beijing that China’s economy is moving in the expected direction. The Chinese government will stand by current policies such as cooling the property market and reining in rampant bank lending and stick to the proactive fiscal policy and moderately loose monetary policy in the second half of this year to ensure a stable and relatively rapid economic development.

As described by Stephen Roach, Chairman of Morgan Stanley Asia, “The Chinese leadership [utilizes] a forward-looking approach that relies on the combination of fiscal, monetary, and regulatory tools to lean against bubbles and financial crises.” The current actions that have been taken to moderate growth and curb excesses represent another example of this model in action.

Adam Roseman,
Founder & Managing Director
ARC China

China Key For Trade Growth

The World Trade Organization (WTO) lauded China for the significant role it has played in reviving global trade growth and said the nation has more than fulfilled its commitment to the organization.

The WTO said in its annual report that it expects global trade to grow by 10 percent this year.

WTO chief Pascal Lamy told reporters in Shanghai that “trade growth is coming back fast after a terrible 2009, thanks in no small measure to the continuing dynamism of China and the other nations.”

“China’s strong economic growth and its demand for imports are important factors in the stabilization of the global economy,” said Lamy.

The nation has also quickly integrated into the world economy after it entered the WTO in November 2001. It has been an active member and has strictly adhered to the WTO rules, he said.

Lamy’s comments are in sharp contrast to the tirade launched by the US against the nation and its trade policies. US Deputy Trade Representative Demetrios Marantis had recently said that China must honor its past commitments and provide new market access. “Failure to do so imperils not just our bilateral ties, but also the success of multilateral trade talks,” said Marantis.

Marantis’ comments came after China submitted a revised proposal on government procurement agreement (GPA) to the WTO. Under the new proposal, China plans to open up some sectors of government procurement to foreign companies.

“The nation has fully fulfilled its commitments and set up a trade mechanism in line with the WTO rules. The Chinese market is now one of the most open markets worldwide,” the Ministry of Commerce said in a statement.

“China has also removed all non-tariff measures to abide by the commitments it has made,” said the ministry.

In terms of service trade, China has opened up 100 service sectors, including banking, insurance, telecommunications, education, distribution and accounting, it said.

Source: China Daily

China Will Open Wider To Foreign Business

Worries that China is throwing up obstacles to foreign business are misplaced, Commerce Minister Chen Deming said.

“In fact, China will open wider in the future,” Chen added.

European and U.S. business groups have complained in particular about the unpredictability of Chinese regulation, favoritism toward local rivals in areas such as government procurement and poor protection of intellectual property rights.

The visiting chief executives of German multinationals BASF and Siemens went public with some of their concerns at a recent meeting with Premier Wen Jiabao.

Chen welcomed the advanced technology and business know-how that a wave of foreign direct investment has brought to China, noting that since April foreign firms seeking accreditation for “innovation products” have benefited from the same rules of origin as domestic companies.

“Coming out of crisis, China must now work to upgrade its own industries in areas such as high-end manufacturing and environmental goods and services. To do this, China wants to make better use of the knowledge and expertise of multinationals,” Chen said.

“The world economy is at a crucial stage of restructuring. As China works with others to push the global recovery, tremendous opportunities will open up for foreign companies. China remains open for business, and the rest of the world can benefit,” he said.

Source: Yahoo News

China Promises Bigger Private Role In Industry

China’s Cabinet promised private investors a bigger role in industries from oil drilling to finance, apparently responding to complaints that state companies were boosted by Beijing’s huge stimulus while private enterprise withered in the global crisis.

The Cabinet announcement appeared to apply only to Chinese investors, not foreign companies, and gave no details of their possible role in politically sensitive areas such as energy. It also promised to help private companies invest more abroad.

Beijing’s stimulus spending fed an expansion of state industry while private companies shrank or struggled amid plunging global demand, temporarily reversing the trend of three decades of economic reform. Chinese media dubbed the phenomenon “guo jin, min tui,” or “the state advances, society retreats.”

Private companies generate the bulk of China’s new jobs and wealth and analysts warned that concentrating so much money on less dynamic state-owned companies might lead to economic problems later.

The announcement included a five-page list of areas where the government promised to increase access for private investment. They ranged from building airports, hospitals, schools and water systems to setting up financial institutions.

In energy, private companies will be encouraged to partner with state oil and gas companies to “co-exploit” reserves, the statement said.

Private companies will be encouraged to invest abroad and regulators will treat every investment entity equally, the statement said. Chinese foreign direct investment has surged in recent years, but much of that is spending by state companies on oil and other resource assets while investment by private entities is low and growing slowly.

Source: Forbes

China’s Carbon Emissions May Reach Peak by 2030, State Researcher Says

China, the world’s biggest polluter, may see its carbon-dioxide emissions peak around 2030 as the country taps cleaner sources of energy, a researcher at a think tank run by the National Development and Reform Commission said.

Emissions may reach almost 9 billion metric tons in 2030, from about 7 billion tons currently, said Jiang Kejun, director of energy and market analysis at the NDRC’s Energy Research Institute.

China has pledged to reduce its carbon-dioxide output per unit of gross domestic product by 40 to 45 percent from 2005 levels by 2020. The country overtook the U.S. as the world’s biggest energy user last year and relies on coal as fuel for 80 percent of its power plants, according to the International Energy Agency.

China will have to raise the efficiency of burning coal and increase the share of cleaner sources including nuclear power in its energy mix, said Jiang, whose team helped the government draft the 2020 emissions-reduction target.

The nation’s energy consumption may rise to as much as 4.3 billion tons of coal equivalent by 2020, Jiang said, citing data from his institute. That’s equal to about 8.4 billion tons of carbon-dioxide emissions, he said. Energy use was 3.07 billion tons last year, according to the National Bureau of Statistics.

To reduce China’s reliance on polluting fossil fuels, the government has been subsidizing renewable energy including wind and solar power. China spent $34.6 billion on clean-fuel projects last year, almost double the $18.6 billion invested by the U.S., estimates from Bloomberg New Energy Finance show.

Source: Bloomberg

United Nations: China Leading the Way in Clean Energy

The United Nations Environment Program and the Renewable Energy Policy Network for the 21st Century confirmed that clean energy is enjoying a growth spurt these days, despite an overall financial downturn in 2009. The report pegs global investments in clean energy at a total of $162 billion. Leading the pack was none other than China, surpassing the US as the greatest investor in clean energy.

New private and public sector investments in clean energy in China leaped 53 percent in 2009. China added 37 gigawatts of renewable power capacity last year, greater than any other country.

“China’s wind farm development was the strongest investment feature of the year by far, although there were other areas of strength worldwide in 2009, notably North Sea offshore wind investment and the financing of power storage and electric vehicle technology companies,” the report stated.

Private sector green energy investments in Asia and Oceania, totaling $40.8 billion, surpassed US green energy investments of $32.3 billion for the first time. In Europe, however, private investments in green energy declined 10 percent at $43.7 billion.

Increasing environmental standards and policies around the world have spurred the increase in green energy, with more than 100 countries enacting policy related to renewable energy by early 2010. Thirty-eight nations set policy goals. Forty-one percent had policies promoting renewable energy.

Renewable energies counted for 60 percent of newly installed capacity in Europe, and 50 percent in the US in 2009. Experts expect the world as a whole to add more energy installments from renewable than nonrenewable resources.

Nearly 80 GW of renewable power capacity was added globally, including 31 GW of hydro and 48 GW of non-hydro capacity. Wind power and solar PV additions totaled a record high of 38 GW and 7 GW, mostly due to a large drop in the costs of solar PV. This decline was offset by high investments in smaller scale solar installments. Wind energy was a strong investment.

Investments in core clean energy, including nonrenewables, biofuels, and energy efficiency, decreased by seven percent in 2009, according to the report. Spending from several subsectors declined significantly, particular in large utility scale solar power operations and biofuel technology.

Source: Redherring

Asia Seeks To Step Up Regional Energy Cooperation

Southeast Asia, China, Japan and South Korea will step up cooperation in areas such as energy-security, oil stockpiling, natural gas, renewable energy and conservation, regional statements said.

The 10-state Association of South East Asian Nation and China, Japan, South Korea and New Zealand will jointly “monitor the price-hike effect of the recent recovery in energy demand”, a statement said.

The 10-country bloc aims to lift output of renewable energy to 15% of regional energy capacity by 2015, a second statement for ASEAN said. That includes hydro-power and biofuels. Renewable energy includes wind and nuclear power.

Vietnam called on Southeast Asian countries to consider using nuclear power for peaceful purposes as Asia faces rising energy needs to fuel economic growth.

ASEAN groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

Source: ABS-CBN News

More Investments In Renewables In China Than In US And Europe Combined

China attracted more asset financing in clean-energy technology in the second quarter than Europe and the U.S. combined, according to Bloomberg New Energy Finance. A clever piece of legislation created the renewable energy bonanza.

Six months ago, China made it the law that all utilities have to buy any renewable power put on the grid or they get fined. Since then private investment in renewable sources in the country has surged past US and EU levels. Investors are betting on China.

In the second quarter, outside financing of wind turbines, solar panels and low-carbon technology in China soared 72% to $11.5 billion.

China’s renewable sector accounted for one third of renewable investment for the period for the entire world, which totaled $33.9 billion, including all share sales, venture capital, private equity and asset finance.

Of this amount, private investment in clean energy in the US rose to $4.9 billion for the quarter while in Europe it fell to $4.5 billion for the same time period.

Source: Zero2IPO

China Invests Heavily In Brazil, Elsewhere In Pursuit Of Political Heft

Here along the golden sands that grace the Atlantic coastline 175 miles north of Rio de Janeiro, China is forging a new economic reality.

Just past a port where workers are building a two-mile-long pier to accommodate huge vessels known as Chinamaxes that will transport iron ore for China’s ravenous steel industry, past berths for tankers to lug oil to Beijing, a city of factories is sprouting on an island almost twice the size of Manhattan. Many of the structures will be built with Chinese investment: a steel mill, a shipyard, an automobile plant, a factory to manufacture oil and gas equipment.

The port project recalls the China of the past decade: a worldwide effort to extract resources for use in the country’s vast manufacturing sector. But the factory city represents something new: an aggressive push to invest in industries overseas to bolster the country’s image and political influence.

The investments in Brazil reflect China’s “going out” strategy, which seeks to guarantee natural resources for development purposes and to shield the country’s state-owned enterprises from slower growth at home. Flush with more than $2 trillion in foreign exchange reserves, China has directed its state firms to scour the globe for opportunities.

As it does so, China is playing by its own rules, giving its firms an edge over U.S. and other multinational companies bound by internationally mandated restrictions intended to promote fair competition. In addition, Brazil and other developing countries, which once saw China as an ally, are now realizing that Chinese companies are competing on their own turf for resources and market share. And some analysts say the United States has been slow to perceive that China is using investment to build political heft.

In the first half of this year, China’s investment in Brazil topped $20 billion, more than 10 times all of China’s previous investment in the country. That puts China on track to be Brazil’s No. 1 investor for 2010, compared with 29th in 2009. China’s investments are also booming elsewhere — from Peru, where one-third of the minerals sector is in Chinese hands, to Japan, where Chinese mergers and acquisitions quadrupled from 2008 to 2009.

Source: Washington Post

China’s Love Affair With Luxury Cars

Super-Luxury cars are back in vogue in China, even though the nation’s highway network and the disposable income of its citizens still fall far short of Western standards.

Wealthy business people in China are ready to splash out upwards of RMB 38 million ($5.6 million) to buy dream cars manufactured by Bugatti, Lamborghini and other luxury car makers. They are also more discerning about all the sporty extras, such as personalized interior colors and floor mats inscribed with their names.

The surge in buying has luxury car makers going into overdrive with new models and expanded dealer networks. The race is on to fill a lucrative niche market while sales in more developed markets are still suffering the after-effects of the global financial crisis.

At least a dozen new luxury models premiered in the Chinese market in the first half of this year including the RMB 40 million Bugatti Veyron super sports car and the RMB 10 million Rolls Royce Phantom Extended Wheelbase Edition.

Sales of these cars aren’t confined only to the wealthy coastal regions of China. Luxury auto manufacturers are also looking inland, where a new breed of well-heeled consumers is on the rise.

The high enthusiasm in China is a sharp contrast from Western markets where the luxury segment is still gloomy in the post-crisis era, said Stephan Winkelmann, chairman and chief executive officer of Lamborghini.

Source: Shanghai Daily

Green Stimulus Spurs Cellulosic Ethanol Makers

The government’s commitment to come out with favorable policies aimed at promoting clean energy will give a boost to early commercialization of cellulosic ethanol.

The moves also assume significance as ethanol makers are facing criticism for using grain stocks for fuel, especially at a time when the nation’s grain yields are falling.

Cellulosic ethanol differs from conventional ethanol in that it uses the non-edible part of plants or agricultural waste to make fuel.

Leading the group of companies who are trying to commercialize the technology in China is Cofco Group, the nation’s largest fuel ethanol supplier.

At present China has five fuel ethanol companies who together produce around 1,720,000 tons of ethanol, mainly from corn, wheat and cassava. Cofco wholly or partly owns four of the five companies.

Yue Guojun, assistant president of Cofco said the company is now moving up the ladder of biofuel technology and cellulosic ethanol will become its core business in the long run.

Cofco expects to start selling cellulosic ethanol commercially in the next few years, said Guo Shunjie, senior manager of the bio-chemical and bio-energy division. He, however, declined to give an exact time frame for the process.

“Policymakers are designing preferential tax and subsidy policies for cellulosic ethanol. The policies will help in large-scale commercialization,” Guo said.

Cofco has teamed up with China Petroleum & Chemical Corp (Sinopec) and enzymes producer Novozymes to build a demonstration plant for cellulosic ethanol.

With a planned annual production capacity of 10,000 tons, the plant is expected to start output by the third quarter of 2011, he said.

The cost of producing one ton cellulosic ethanol is as high as RMB 9,000 ($1,318) per ton in China due to lack of key technologies, while the cost in the US is about RMB 6,000 ($878.5) per ton, said Li Shizhong, a professor of bioenergy at Tsinghua University.

Source: People Daily

CONSUMER / RETAIL

Harrods In Talks To Open Shanghai Store

London-based luxury department store Harrods is holding talks with the Shanghai municipal government on the opening of its first store outside the United Kingdom in the historic Bund area.

The British emporium is keen on opening a department store in one of the imposing buildings where British banks and merchant houses once traded, a real estate agent familiar with Harrods’ plan said.

But the choices for the British retailer are limited to only a few locations that are large enough for Harrods, which operates one of London’s largest department stores.

Harrods is already a well-know purveyor of luxury goods among well-to-do Chinese consumers who make frequent overseas shopping trips every year.

The Guardian reported that the number of Chinese travelers who shopped at Harrods in the first six months of this year rose 125 percent year-on-year.

China has overtaken the US to become the world’s second-largest luxury goods market, with Japan holding the top spot. Sales of luxury goods in China grew 12 percent in 2009 to $9.6 billion, accounting for 27.5 percent of the global market, according to Bain & Co.

In the next five years, China’s luxury spending will increase to $14.6 billion, making it the world’s largest luxury market.

Source: China Daily

Basketball Star Yao Ming Launches Electronics In China

American electronics and headphones firm Monster is partnering with Houston Rockets star Yao Ming to develop a broad range of co-branded ‘Yao Monster’ consumer electronics and lifestyle products for distribution in China.

Noel Lee, Monster’s founder, stated: “While there is tremendous opportunity in the China marketplace, there are many barriers to expansive distribution that make it a challenge for companies seeking to penetrate the market. So, in developing the Yao Monster line, we went to great lengths to create products with strong appeal to China’s lifestyles and trends.” Yao Monster products will be different from any existing consumer electronics products and will be designed to impact the way we relax, how we exercise, and how we inspire ourselves. They will bring people more real enjoyment in life, and let them feel the incredible excitement of a fusion of technology and life.”

Source: China Retail News

Lenovo’s Retail Deal Focuses On Recycling In China

British retail chain operator Tesco Plc recently announced that it established a partnership with Lenovo Group to develop a green IT project in China.

Under the agreement signed between the two sides, Lenovo will collect Tesco’s used IT products with environment-friendly standards, and outsource those products to its affiliated company for recycling process.

Environmental protection has been a major issue in Tesco’s corporate social responsibility policy. The company aims to cut carbon dioxide emissions at its stores by 50% by 2020.

In China, Tesco currently runs 81 hypermarkets and plans to open 23 stores in fiscal year 2010.

Financial terms of this deal were not revealed.

Source: China Retail News

ALTERNATIVE ENERGY

GD Power Registers Its Inner Mongolia Wind Farm Under CDM

Chinese firm GD Power Development has registered its 49.5 MW Inner Mongolia wind farm as a Clean Development Mechanism project.

The application for the wind farm to come under the CDM took two years before it was officially approved.

The CDM allows industrialized countries to invest in emission reductions wherever it is cheapest globally. The project, located in China’s northern region, is expected to reduce about 134,000 tons of CO2 emissions a year.

Meanwhile, the Shanghai listed GD Power plans to raise up to RMB 9.7 billion ($1.4 billion) through selling no more than 3 billion shares in a placement. The proceeds will be used to acquire a few power plants from its parent company and to investment in a dam project in Sichuan.

The placement is still subject to approval from shareholders and China’s securities regulator.

Source: Chinamining.org

Rutgers’ Chinese Solar Panels Show Clean-Energy Shift

At Rutgers University in New Jersey, 7,600 panels convert sunlight into electricity, saving some $200,000 in energy costs this year in the biggest solar-power experiment at a US college.

Yingli Green Energy Holding Co, China’s second-largest solar-panel maker, supplied the $10 million project. Yingli is one of several Chinese manufacturers that have slashed costs to reduce global prices for solar modules by about 50 percent in two years. The drive made them more affordable for buyers from Rutgers to Wal-Mart Stores Inc, the biggest US retailer.

“It’s all about economics,” said Chief Executive Officer Al Bucknam of SunDurance Energy, the South Plainfield, New Jersey installer that picked Yingli over Western competitors on price and helped sell the deal to Rutgers as a money-saver.

“The ability of the Chinese to manufacture at scale is a very big reason why the cost of these panels has come down,” said Kathleen A. McGinty at venture capital firm Element Partners in Radnor, Pennsylvania. “They’re a big part of the reason why we can even start to talk about grid parity.”

Source: China Daily

China Seen Quickening Hydropower Approvals

China is likely to expedite approving hydropower projects from the second half of this year, or face missing its ambitious renewable energy target after cutbacks in the past five years, local media said.

China has set a goal to utilize renewables to supply 15 percent of its primary energy demand by 2020, and two-thirds of it will come from hydropower, according to a plan mapped out by the National Energy Administration, the paper said.

Under the plan, China, the world’s No.2 energy consumer and the top emitter of carbon dioxide, will need to have installed a total of 380 gigawatts of hydropower capacity by then, or nearly double the current capacity.

“It seems the central government’s attitude towards hydropower has warmed again. It’s expected to speed up approving projects from the second half of the year and in the next five years,” an official with China Society for Hydropower Engineering was quoted as saying.

Hydropower is one crucial element in achieving China’s target to cut carbon dioxide emissions by 40-45 percent by 2020 from the 2005 level.

Source: Yahoo News

RECENT TRANSACTIONS

China’s Jihua To Launch $480 Million Shanghai IPO

China’s military uniform maker Jihua Group, said it would launch an initial public offering worth about RMB 3.25 billion ($470 million) next week mainly to fund production expansion.

Jihua Group, which has a 75 percent share of China’s market for military and police garment, among other equipment, planned to issue 1.157 billion A shares denominated in yuan for a later listing on the Shanghai Stock Exchange.

The issue would account for 30 percent of the company’s expanded share capital, it said in a prospectus published in the Shanghai Securities News.

Beijing-based Jihua said it needed about RMB 3.25 billion ($470 million) to help it fund five projects to expand production of military garment, boots, cloth and special protection equipment as well as to improve its research ability.

Source: China Daily

Everbright Bank Plans $3 Billion IPO

Everbright Bank, the only big Chinese state-owned lender that has not yet gone public, plans to raise as much as RMB 20 billion ($3 billion) next month in a long-delayed initial public offering in Shanghai.

The IPO marks the end of a decade-long reform process during which China’s biggest lenders have been cleaned up, injected with fresh capital and floated on stock exchanges.

The China Securities Regulatory Commission said it would review Everbright’s IPO application, an announcement that in effect gives the green light for an imminent listing.

Everbright, China’s sixth-largest lender by assets, plans to sell 6.1 billion shares in Shanghai, with a greenshoe option that could boost the sale to 7 billion shares.

The bank may offer shares to international investors in Hong Kong after its A-share listing, according to Chinese media reports.

Source: Financial Times

Andatee China Marine Fuel Services Corporation To Acquire 52% Equity Stake In Hailong Petrochemical Co., Limited

Andatee China Marine Fuel Services Corporation, the leading independent operator engaged in the production, storage, distribution, wholesale purchase and sale of blended marine fuel oil for cargo and fishing vessels in Northern China, announced that the Company has signed an equity purchase agreement under which Andatee is to acquire 52% equity of Hailong Petrochemical Co., Limited, a Tianjin, PRC based company engaged in retail and wholesale of fuel oil and petrochemical products.

Under the terms of the agreement, Andatee will acquire 52% of Hailong’s equity for a cash payment of RMB 3.64 million (approximately $0.54 million). Andatee will cooperate with Hailong on business development in the local market and provide capital for Hailong’s expansion which will include four 1,000 cubic meter oil storage tanks, five storage tanks for raw materials with a total volume of 1,500 cubic meters, and 300 square meter plant used for slurry oil filtration.

The Company expects Hailong’s sales volume to reach 10,000 tons in the remaining five months of 2010. Hailong’s revenue is expected to be RMB 2.56 million (~$0.38 million), 52% of which, or approximately RMB 1.33 million (~$0.20 million), attributable to Andatee. The Company also expects to increase Hailong’s sales volume to 48,000 tons in 2012. The Company anticipates that at that time, revenue will reach RMB 12.8 million (~$1.89 million) and Andatee will earn a net income of RMB 6.66 million (~ $0.98 million).

Source: Yahoo News

OVERSEAS TRANSACTIONS

EU Clears Germany’s SAP To Buy U.S. Software Vendor Sybase

The European Commission cleared German business software company SAP to buy U.S. software vendor Sybase.

The deal is SAP’s largest since its 2007 $6.8 billion buy of Business Objects SA. It comes as the company attempts to keep pace with competitor Oracle Corp. in the business software market.

The two companies agreed last year to a deal in which Sybase builds all mobile applications for SAP. In March, SAP released an application for mobile workers to respond to alerts and complete certain tasks through an email inbox.

Under the terms of the deal, SAP will pay $65 per Sybase share, for a total of $5.8 billion. The company took out a €2.75 billion ($3.58 billion) loan from Deutsche Bank and Barclays Capital to finance the acquisition, said people familiar with the deal in May.

Source: Fox Business

IPIC Seeks Full Control of Abu Dhabi Investment Fund

Aabar Investments, the largest shareholder in German luxury-car maker Daimler AG, moved a step closer to becoming a private company after its major stakeholder International Petroleum Investment Co., or IPIC, offered to buy out remaining Aabar shareholders at 1.45 U.A.E. dirhams ($39 cents) a share.

Aabar, in a statement to the Abu Dhabi bourse, said it had received the IPIC offer. The statement didn’t propose a date for delisting Aabar’s shares.

“This offer may not look that compelling, but it is better than nothing,” said Akram Annous, deputy fund manager at Dubai-based Al Mal Capital.

It is unclear what would happen if shareholders reject the deal, given that IPIC already has majority control of Aabar.

These risks include accepting the ability of majority shareholders, or shareholders holding 75% of the company’s capital, to make investment and financing decisions, including the issuance of bonds of any kind and decisions on profit distribution, at annual general meetings, the statement said.

About 29% of Aabar’s shares are publicly owned, according to Zawya.com. The rest are owned by IPIC, which is in turn fully owned by the government of Abu Dhabi.

Aabar — which has assets worth about $10 billion — has made a slate of high-profile investments in recent years, buying stakes across non-oil sectors to diversify investments for parent company IPIC.

Source: Wall Street Journal

Pace To Buy US Broadband Company

British set-top box maker Pace is to buy US broadband technology firm 2Wire for $475 million (£307 million).

Pace is the world’s largest set-top box maker, overtaking Motorola in May.

It says the move will extend its customer reach from cable and satellite into the telecoms market.

Pace said that 2Wire, “with its expertise in the broadband residential gateway market, will enable us to address a full range of US operator requirements”.

It pointed out that 2Wire had established relationships with top-tier North American telecoms providers including AT&T.

Yorkshire-based Pace now feels that the 2Wire deal will now move it to number three in the global telecommunications home-hub market.

2Wire is owned by a consortium including Alcatel-Lucent, Telmex and Oak Investment Partners.

Pace makes set-top boxes for BSkyB, Canal+ and Comcast.

The 2Wire announcement comes as Pace revealed a 46% rise in first-half pretax profit, to £45.4 million ($71.2 million).

Source: BBC News

Radical change

As the boom in the Chinese economy spreads into the hinterland, US fund manager Adam Roseman is riding the trend, identifying targets for investment outside the big economic centres.

Dalian has become rich over recent years. Very rich, in fact: the main street of this city near the Korea Bay in North-Eastern China boasts five-star hotels like the Nikko and the Shangri-La. On the lower floors of these luxury hotels, top-brand shops such as Prada and Louis Vuitton show their wares, with shoes, handbags and luggage on offer. A big screen clings to the outside of a shopping mall, advertising a new block of flats, complete with fitness centre and kitchens fitted to Western standards; this is followed by ads for French red wine, Swiss chocolate and shark fin soup.

Adam Roseman has taken a seat on the second floor of the Furama Hotel, opposite the shopping mall. It is still early on this slightly chilly June morning: Dalian, a city of 3.5 million inhabitants, approximately one hour’s flight from Beijing, is just about to wake up. Roseman also looks tired, having arrived from Frankfurt late the night before. The tall American gets muesli, fruit and yoghurt from the breakfast buffet. He needs to be fit, as he has great plans for Dalian. Eager to profit from the economic boom in North-East China, Roseman has just under 150 million US dollars available: funds entrusted to him by institutional and private investors around the world. German private investors looking to participate in Roseman’s investments may do so via a fund registered in Luxembourg. At present, they still need to contact ARC – in the near future, however, Roseman plans to launch a special product targeting European investors.

Full backing by the authorities

Roseman is joined by Wang Huijun and his entourage – four Chinese who hammer away on laptops, Blackberries and mobile phones. Wang is the Vice Director of Huayuankou Economic Development Zone, a commercial zone on Dalian’s periphery where high-tech enterprises and manufacturers of environmental technology appliances are domiciled. Together with Wang, Roseman plans to launch a fund to invest in high-potential businesses in the Dalian region. The American outlines his terms – calmly, but firmly: “The Chinese must co-invest at least 20 per cent”, he explains, “this is a condition set by our investors”. Wang sees no problem. Smiling, he points out that he has full backing from the authorities: “We could also raise funds from the provincial and central governments.”

32-year old Roseman first travelled to China three years ago. Originally, the trip was supposed to be a short one: the fund manager had planned to close a deal in the solar power sector. “I fell in love with China, its people and culture straight away”, Roseman recalls. He points out that in China, nobody complains about working overtime – in contrast to the United States: “In the US, people make 75,000 dollars a year, working 35 hours a week. In China, they earn one tenth but work twice as long”, he explains. Driven by his enthusiasm for China, Roseman focused his ARC fund – launched four years ago – fully on the country. Today, he has offices in Shanghai, in Chengdu in Western China, in Xiamen on the East Coast, and in Danyang in Eastern Jiangsu province.

Always on the move

The young American employs 30 staff in China, including investment bankers with international experience as well as auditors headhunted from leading firms such as KPMG and Ernst & Young. With few exceptions, his staff are Chinese. Most of them are always on the move across the giant nation of 1.3 billion people, on the hunt for companies meeting Roseman’s strict investment criteria. Born in Northern California, Roseman studied at University of California in Santa Cruz. His focus in China is on businesses working on energy efficiency solutions, and on the healthcare and retail sectors. His investments always follow the same pattern: Roseman’s targets are companies that are highly profitable but have low multiples. He also looks for fast-growing revenues – preferably growing at double-digit rates – and a narrowly-defined line of business. He has no time for companies with a bizarre strategy – such as those producing batteries for mobile phones whilst looking to expand into biotechnology and helicopters. After all, there are numerous such enterprises in China.

Experts approve the strategy adopted by Roseman: “China has top-rated, very sophisticated companies, particularly in the alternative energy sector”, says Frank-Jürgen Richter, founder and president of Horasis, a Geneva-based organisation that awards an annual prize for China’s most forward-looking companies. Richter also agrees with Roseman’s focus on the retail sector, citing double-digit revenue growth over recent years, with growth rates of 20 per cent for each of the past two years.

Roseman looks at companies whose products offer potential for the future, but which are unknown in the West, and whose management is lacking experience, professionalism and exposure to international networks. “We find them, and consistently develop their business”, Roseman says. He invested in eight Chinese companies during the past 18 months, of which five are listed and the remaining three unlisted (see table on the right).

Roseman plans to make between six and ten investments per year going forward. One of his ventures is NF Energy, located in Shenyang, Northern China, where he invested two million US dollars last year. NF Energy develops systems to control the flow of heat and energy for coal-fired power plants, petrochemical plants and steel mills. The company’s applications help its customers to cut energy consumption by up to 20 per cent. Roseman’s fund invested in the US-listed company when its shares were trading at around 60 cents. Within eight months, the share price of NF Energy (which is listed in the OTC high-risk segment of Nasdaq, as well as at the Stuttgart Stock Exchange – albeit without trading volumes) rose to USD 4.00, before falling back to USD 2.60 (see chart below). “When we arrived, nobody at the company spoke English, and the shares were hardly traded at all”, Roseman explains. The purpose of his involvement is to grow NF Energy’s business internationally. The company is already very healthy right now: last year’s profits amounted to USD 6 million (up 30 per cent), on revenues of approximately USD 25 million.

Without exception, Roseman’s investment targets are outside the large metropolitan areas in Eastern China: Roseman goes to the hinterland, to second- and third-tier cities – reflecting his belief that growth momentum for the years to come will originate there. He is not alone in this assessment, in fact: “Strong growth dynamics are shifting from the coastal areas to the inland areas”, according to Deutsche Bank’s analysts, in a study on growth prospects in China’s provinces.

Signs of a boom abound

Dalian is an example for a second-tier metropolis holding lots of potential. After meeting his Chinese partners, Roseman gets into a dark blue Buick. He wants to gain a first-hand experience of Dalian. The historic centre of the city on the Yellow Sea coast has been nicely renovated. With imposing rocks along the coastline and white sands underneath, Dalian has what it takes to develop into a modern coastal resort. Which is something the city planners have recognised, too: new residential quarters and hotels – one of them modelled upon Neuschwanstein, Bavarian King Ludwig II’s dream palace – are being built. At the Dalian city centre, entire quarters have been demolished, and construction work goes on around the clock. Yet property prices are still low, at around EUR 1,300 per square metre – a fraction of what residential buyers in Beijing or Shanghai have to pay (see page 84). Prices in Dalian are set to rise strongly during the next years. Roseman sees all the signs of an impending boom: “The world has not yet grasped the fact that the key developments in China are happening in the smaller towns”, he says, as the building sites flash past.

Purchasing power in the provincial metropolis has risen dramatically in recent years. GDP per capita in the city is approaching USD 10,000 – almost near the levels prevailing in Beijing and Shanghai. This is one of the reasons why VLOV – a company from Xiamen, Eastern China – has opened two outlets here. Last year Roseman’s fund invested over two million US dollars in VLOV, a fashion chain offering medium-priced menswear. The outlets are somewhat reminiscent of H&M stores. The concept seems to be working: last year, VLOV’s approximately 700 outlets generated profits of USD 12 million on revenues of around USD 70 million.

Taking in the mentality

The wood-panelled room on the second floor of the Furama Hotel is fitted with a heavy carpet, with a chandelier providing warm light. Two large armchairs have been placed at one end of the room: Roseman, dressed in a grey pinstripe suit, has taken a seat in one of them – Dalian’s Deputy Mayor in the other one. The Radetzky march sounds from loudspeakers, as Roseman meets his Chinese partners for the signing ceremony to establish the local fund in Dalian. Wang Huijun and his team are there, representing the Huayuankou Economic Development Zone, together with numerous high-profile local personalities. A local TV team is covering the scene, whilst two beautiful ladies in exquisite red dresses hand over the documents.

Roseman, a well-trained teetotaller and an enthusiast for vegetarian food, has fully taken in the Chinese mentality: the American navigates the web of Far Eastern customs with skill and security. This is important in China, where rituals and formalities count for a lot. Roseman listens to the Deputy Mayor’s deliberations – which are at times long-winded – with patience, nodding occasionally, and praises the beauty of Dalian and the city’s business potential in a low voice. Once they have finished, the group raise glasses to toast the deal. But instead of champagne, Roseman’s chalice contains only water.

RISK CAPITAL

Chinese companies ARC has already invested in

Sources: own research, Bloomberg – data updated as at 15 July 2010

It is easy to understand why local governments are ready to co-invest with Roseman: they are under massive pressure from Beijing to invest in sustained development and businesses which are ready for the future. “In the old days, local politicians were promoted if they ensured strong economic growth for their region”, explains Richter at Horasis; “today their career is promoted by doing something for environmental protection”. The Chinese government wants to move away from cheap production, which fuelled the boom of recent decades, but damaged the environment. Roseman contributes the necessary knowledge and experience.

Having worked for various investment banks during his studies, Roseman spent several years of his career with Lehman Brothers and with a law firm specialising in mergers and acquisitions. Furthermore, he can rely on a tightly-knit network of contacts in the US and in China. When investing in Chinese alternative-energy firms, Roseman seeks the advice of his friend Steve Westly: the Californian was responsible for Ebay’s international expansion strategy for several years, and subsequently served as Controller and Chief Fiscal Officer of the State of California.

Nowadays Westly runs his own fund management company, which invests mainly in the cleantech sector. When he needs key contacts to Chinese politicians, Roseman relies on his Chinese friend Jun Hou, Head of Asian Sales at Philadelphia-based Delaware Investments. More importantly: Jun is a nephew of Bo Xilai, Party Secretary at Chonqing in Western China. Bo thus forms part of the inner circle of the People’s Republic leadership – allowing Jun to open doors for Roseman.

But in spite of the closely-knit network and the unfettered boom in China, Roseman’s Chinese funds operate in an uncertain environment – without any guarantee for success. And recently, the Chinese government reversed numerous economic reforms. Hence, state enterprises are once again advancing, systematically taking over private-sector enterprises, supported by loans extended by public-sector banks. Moreover, anti-Western sentiment has recently emerged in China. But Roseman is unfazed by such developments: “China will remain the most important growth story worldwide for the next decades.”

matthias.kamp@wiwo.de | Beijing

Beijing, China – July 27, 2010 – Adam Roseman, Founder and Managing Director of ARC China, presented as a keynote speaker at the 2nd China International Fund of Funds Summit 2010, where he spoke on the public-private investment opportunities in Tier II and Tier III Chinese cities. Roseman’s firm, ARC China, is primarily focused on investing in China’s domestic consumption‐oriented high‐growth enterprises in the developing Tier II and III cities.

ARC China has partnered with the NDRC to establish Public-Private Joint Funds in Tier II and Tier III cities to assist local government partners with capital allocation and to help develop the local economies. “Partnerships such as these benefit the city governments by increasing employment, tax revenue, and technology transfers and benefit investors by providing opportunities to invest in unique high growth businesses,” said Roseman. “As the Chinese economy shifts to a growth model that is more driven by domestic consumption, the Tier II and Tier III cities have continued to expand at a rapid rate, offering what we believe to be the best investment opportunities in China.”

The China International Fund of Funds Summit was established to provide a platform for attendees to familiarize themselves with China’s policies and regulations on the Fund of Funds investment environment. This year’s Summit brought together global investors, entrepreneurs, government officials, and investment professionals to discuss Fund of Fund topics such as the interpretation of policies governing fund establishment, investment strategy and process, operational models and potential barriers to success, the creation of optimized ROI models, and more.

For more information please visit www.chinafofsummit.com

About ARC China

ARC China is an investment firm focused on investments in entrepreneur-owned small and medium sized enterprises located in Tier II and Tier III Chinese cities. We seek to create value for our investors and companies we invest in by applying our professional experience and relationships to help companies upgrade their management teams, technology, systems, and business processes. Our team of experienced investment professionals and in-house due diligence analysts deploy a proven and unique on-the-ground activist investment strategy of making value-oriented highly involved, exit-driven equity investments in a diversified portfolio of domestic consumption-focused high-growth Chinese businesses. For more information, please visit www.arcchina.cn.

Contact:

Adam Roseman
ARC China
182 Chang Shu Road
Xu Hui District
Shanghai 200031, P.R. China
Email: info@arcchina.cn

THIS WEEK IN CHINA

China Strives To Further Improve Foreign Investment Environment

China’s MOFCOM (Ministry of Commerce of People’s Republic of China) expressed in a recent press conference that China will continue to improve the environment for foreign capital and will encourage foreign capital investment in high-tech industries and China’s central and western regions.

Latest statistics show that the foreign direct investment (FDI) that flowed into China in June surged 39.6% from a year earlier to $12.51 billion, resulting in a 19.6% year-on-year increase to $51.43 billion during the first half of this year.

The surge, the highest single increase since December 2007, according to industry analysts, reflects how China’s investment climate remains highly attractive in the midst of the global economic slowdown.

During 1H 2010, the service sector clearly outperformed other parts of the economy in absorbing the FDI, accounting for 44.9% of the total volume, up by 38.2% y-o-y. FDI in agriculture, forestry, animal husbandry and the fishery sector was up by 79%.

The Chinese government approved the establishment of over 12,400 foreign-funded enterprises in the first half of 2010, an increase of 18.8% y-o-y. The western region witnessed a rapid increase of 31%, although the volume remains smaller compared with the east and central regions, which comprised 84.3% and 10.8% of total new foreign-funded companies respectively.

During the past two years, the government has been working to reform the foreign investment approval system. The approval procedure for five categories of foreign investment has now been vastly simplified, as the central government has allocated significant approval power to its local counterparts. For foreign investment projects with a total investment amount below $300 million and categorized as “encouraged” or “permitted”, the approval power is now with the local government. Previously, the threshold was at $100 million.

In 2009, the total FDI related approval data items submitted to the central government was reduced by 90% y-o-y. MOFCOM is studying new methods to further improve efficiency of approval such as online approving systems.

The Chinese government has sought to consult foreign companies more on policy making. The government is making relentless efforts to enhance protection of intellectual property rights, an issue of major concern for foreign companies.

In April, China modified draft rules of “indigenous innovation” programs. The revised rules dropped previous requirements that trademarks and brands must first be registered in China to be qualified as “indigenous innovation” and a product must possess technology that matched international standards.

China ranked the 2nd most attractive country for FDI in terms of volume in 2009 following the US and is likely to continue this position in 2010. The Chinese government’s effort to streamline FDI approval processes and to attract foreign capital will speed the country’s evolution into a decoupled, domestically driven economy.

Adam Roseman,
Founder and Managing Director
ARC China

Chinese Foreign Investment Surges Despite Slowdown

China’s foreign direct investment (FDI) swelled to $13 billion for the month of June – an increase of nearly 40 percent over the same period last year.

The surge, the highest single increase since December 2007, according to industry analysts, reflects how China’s investment climate remains highly attractive in the long-term, despite an economic slowdown.

This robust FDI growth is also a powerful rebuke to rising concerns among foreign businesses that China’s investment environment is worsening, and thus losing ground to its neighbors elsewhere in Asia.

Ministry of Commerce officials announced that China’s FDI in non-financial sectors grew by 39.6 percent in June to $12.51 billion, the 11th consecutive month of growth since last August. This investment volume, moreover, is now at its largest since any point at the end of 2007, while its growth rate is at its fastest since the end of 2009.

The government released national economic figures for the first half of the fiscal year, showing China’s economic expansion eased to 10.3 percent in the second quarter.

Ministry of Commerce officials similarly insisted that the slowdown in GDP growth would not dampen the global investor confidence in China in the months ahead.

John G. Rice, vice-chairman of General Electric (GE), one of the world’s leading industrial and technology companies, said that weakening growth in China will not “dampen the company’s enthusiasm in its economy and the market”.

This is echoed by worldwide assessments of China’s economy. “There is no surprise that the growth of FDI is significant,” Rice said, “as there are many that bet the same way as we believe.”

The International Monetary Fund (IMF) raised China’s growth forecast for 2010 to 10.5 percent – three times that of the US.

During the first half, the service sector clearly outperformed other parts of the economy in absorbing the FDI. The Ministry of Commerce said that this accounted for 44.9 percent of the total volume.

The western region, meanwhile, has witnessed a rapid increase in foreign investment, although this volume remains smaller compared with other parts of the country. From January to June, new investment in western provinces grew by 31 percent.

China NEA: Preparing Stimulus Plan For Renewable, Nuclear Energy

China’s National Energy Administration is preparing to submit a stimulus plan for the renewable and clean energy industries to the State Council, Zhou Xi’an, an NEA director said.

The plan has been in the making for more than a year, and is expected to include revised development targets for nuclear, wind and solar power, among others, to ensure that the country can achieve its commitment to increase power from non-fossil fuels to 15% of its energy mix by 2020. The State Council acts as the government’s cabinet.

China aims to install wind-power generating capacity of more than 100 gigawatts and solar-power capacity of more than 20 GW by 2020, NEA head Zhang Guobao said previously.

The nation will also have at least 70 GW of nuclear installed capacity by the end of the next decade, Zhang said.

The NEA chief’s estimates far outpace the targets put forward in the renewable energy blueprint to 2020 that China released in 2007.

Why China Has To Dominate Green Tech

China just passed a new milestone: it consumes more energy than the United States, which had been the world leader ever since energy consumption started to be measured. Twenty years ago, such a milestone would have been marked with unabashed pride, but in today’s energy-conscious world, it is not a good threshold. From now on, when it comes to global warming, pollution and related issues, China will no longer be able to hide behind its claims of being a developing nation.

The country is very fortunate in that most of the discovered deposits of rare earths used in the development of new technologies are found in China. While these deposits are very valuable, up until recently, the industry has not been regulated much by the Chinese central government. But now that Beijing is aware of their importance and value, it has come under much closer scrutiny. For one, Beijing wants to consolidate the industry and lower energy waste and environmental damage.

At the same time, Beijing wants to cut back rare earth exports to the rest of the world, instead encouraging domestic production into wind and solar products for export around the world. With patents on the new technology used in manufacturing, China would control the intellectual property and licensing on the products that would be used all over the world. If Beijing is able to do this, it would control the next generation of energy products used by the world for the next century.

That is the plan. It would be comparable to the oil-producing nations in the 1920s and 1930s saying they do not need Western oil exploration firms and refineries to distribute oil products; they would do all the processing themselves, and the Western countries would just order the finished oil products from them. This is how China plans to keep most of the value-added profits within China’s borders.

VC And PE Boost Funds To Invest In Mainland

Venture capitalists raised $5.83 billion to invest in the Chinese mainland in the first half of this year, a surge of 145.7 percent from a year earlier, in anticipation the Chinese economy will continue strong growth for the rest of the year, an industry report said.

Meanwhile, private equity firms netted $19 billion to invest in the mainland, a jump of 616.9 percent on an annual basis, the Zero2IPO Research Center said in a report.

“The global economy is still turbulent amid the European debt crisis and weak recovery of the US economy, but it has little impact on China. The Chinese economy is expected to grow mildly this year backed by the government’s positive policies despite speculation over inflation and an asset bubble,” the report said.

Investments by VCs in the mainland totaled $1.59 billion in 295 cases from January to June, compared with $1.07 billion in 179 cases a year earlier, the report said.

The information technology industry absorbed more investments, totaling $209 million in 44 cases, from VC firms than any other industry. Next came the biological technology and health care industry and the clean technology industry, according to the report.

The number of Internet users has grown by more than 85 million annually in China in the past two years, according to the China Internet Network Information Center.

PE investments fell 62.3 percent to $2.22 billion in 75 cases in the period, reflecting investors’ cautious attitude toward the domestic market. In the first half, 39 PE funds withdrew investments.

China, Germany Sign Billions Of Dollars In Deals

China and Germany inked ten cooperation agreements in Beijing ranging from green energy to the establishment of joint ventures on truck production.

Chinese Premier Wen Jiabao and visiting German Chancellor Angela Merkel witnessed the signing ceremony.

The agreements include a financial cooperation agreement which involves €124 million ($160.21 million) of green funds to encourage emission reduction and energy saving of enterprises.

The two sides signed a joint declaration on the establishment of environmental partnership, covering water resource protection, equipment safety and evaluation, energy saving, renewable energy, electric mobile production, technology contacts and cooperation.

To boost green energy cooperation, both sides signed an MOU on the establishment of Sino-German eco parks. It involves bilateral cooperation to promote energy economy in national zones of development, sustainable industrial production and energy efficiency, according to the German Foreign Ministry.

Shanghai Electric Group of China and Siemens AG signed an agreement for the research and development of steam and gas turbines, involving $3.5 billion.

Foton Motor of China and Daimler-Benz AG signed an agreement on setting up a joint venture of trucks.

The joint venture, with equal shares from both countries, involves RMB 6.35 billion ($938 million). It will be located in Huairou District in suburb Beijing, with an annual output of 100,000 complete vehicles and 45,000 heavy diesel motors.

The two countries also signed a declaration of intent to beef up economic and technological cooperation, joint declaration to promote service sector cooperation, MOUs on intensifying talks on credit cooperation and the holding of Chinese Culture Year in Germany in 2012.

Premier Wen held two-hour talks with Merkel before they attended the signing ceremony. Wen described Merkel’s current China trip as “of historical significance” to build bilateral comprehensive cooperative partnership.

China National Nuclear Seeks To Build Reactor In Argentina

China National Nuclear Corp, the country’s biggest builder of reactors, is seeking to construct a nuclear plant in Argentina as the company expands overseas.

State-run China National Nuclear will place a bid to build Argentina’s fourth atomic plant, President Sun Qin said at a conference in Shanghai. He didn’t provide further details.

China’s emergence as an exporter of nuclear power equipment would increase competition for Areva SA and General Electric Co, who were beaten in December to a $20 billion order in the Middle East by a group led by Korea Electric Power Corp. Chinese suppliers may make “a big breakthrough” in overseas expansion in one to two years, Sun said.

China National Nuclear and China Guangdong Nuclear Power Group are already in discussions with potential overseas customers, Sun said then, without elaborating.

Health Care Investment Up in China

The budding promise of China’s health-care sector is prompting a spate of deals and share offerings that has defied the broader market malaise.

In the last 10 months, 23 pharmaceutical and health-care related companies have gone public in mainland China and Hong Kong, according to Dealogic. Many deals are small: 17 of them raised less than $200 million, and eight were for $100 million or less. But cumulatively they have packed a punch, raising $5.37 billion, the data show, with companies continuing to list even through the market turbulence stirred up by debt problems in Europe.

Interest in takeovers has picked up, too. In April, U.S. pharmaceutical-research company Charles River Laboratories International Inc. agreed to buy one of China’s largest drug-research contractors, WuXi AppTec Co., for about $1.6 billion in cash and stock. (Activist hedge fund Jane Partners LLC, which owns about 7% of Charles River, is trying to block approval for the deal.)

Across Asia, pharmaceutical, life-science and health-care service companies are attracting attention from investors as increasing affluence drives demand for better medical services and governments invest in improving the quality of public health care. For some companies, low manufacturing costs and rising quality control are opening up export opportunities as well. Adding to the appeal is the belief that these companies are defensive plays whose prospects aren’t subject to the ups and downs of banks, commodity stocks or other more-cyclical parts of the economy.

Private-equity firms and other big investors looking for deals have now turned their sights on Chinese health-care companies listed in Singapore and New York, where valuations remain well below levels in Hong Kong and China’s domestic exchanges. The aim, ultimately, is to relist in Hong Kong or the mainland and capture that higher valuation.

Nuclear Renaissance Around The Corner

The world is on the verge of a nuclear renaissance that will be driven by accelerated energy demands in China and India coupled with efforts to cut carbon emissions and combat pollution.

This was the view of Argonaut managing director and chief executive Eddie Rigg, who provided compelling figures at the Australian Uranium Conference to back up his forecasts.

Even though uranium is currently trading at $42 a pound, 20 per cent below its value in January 2009, Mr Rigg said energy issues that preceded the global financial crisis had not disappeared.

Mr Rigg said that by 2030, 60 percent of the world’s middle class would live in China and India and their demand for energy would be massive. By 2030, the demand for energy would increase by 50 to 75 percent compared to today’s usage, he added.

Accompanying the demand for uranium would be the need for reactors. Currently the United States, France and Japan had 57 percent of the world’s reactors, but by 2020 they would have been surpassed by new reactors in China, India and Russia.

“We see this is a real renaissance in the demand for nuclear power as the only baseload form of power to meet the world’s requirements,” he said.

“The world bank estimates that 6 percent of the GDP of China is lost dealing with their pollution problem. By 2030 13 percent of their GDP, a pretty staggering figure which at that stage will be the world’s largest economy, will be spent dealing with problem.”

China Passes U.S. As World’s Biggest Energy Consumer

China is now the world’s biggest energy consumer, knocking the U.S. off a perch it held for more than a century, according to new data from the International Energy Agency.

The Paris-based agency, whose forecasts are generally regarded as bellwether indicators for the energy industry, said China devoured 2,252 million tons of oil equivalent last year, or about 4% more than the U.S., which burned through 2,170 million tons of oil equivalent. The oil-equivalent metric represents all forms of energy consumed, including crude oil, nuclear, coal, natural gas and renewable sources such as hydropower.

The figures reflect, in part, how the global recession hit the U.S. more severely than China and hurt American industrial activity and energy use. Still, China’s total energy consumption has clocked annual double-digit growth rates for many years, driven by the country’s big industrial base. High-lighting how quickly its energy demand has increased, China’s total energy consumption was just half the size of the U.S. 10 years ago.

Prior to the recession, China had been expected to become the biggest energy consumer in about five years, but the economic malaise and energy-efficiency programs in the U.S. brought forward the date of that superlative, Mr. Fatih Birol, an IEA chief economist said.

Mr. Birol said China requires total energy investments of some $4 trillion over the next 20 years to keep feeding its economy and to avoid power blackouts and fuel shortages.

China is expected to build over the next 15 years some 1,000 gigawatts of new power generation capacity. That is about the total amount of electricity-generation capacity in the U.S. currently, and the construction of all those gigawatts occurred over several decades. “This demonstrates the major growth we are talking about” in energy demand and capacity growth in China, Mr. Birol said.

China Denies IEA Claim On Energy Use

China dismissed claims that it was the world’s largest energy consumer, calling the latest estimates from the International Energy Agency “not very credible”.

The energy watchdog disclosed that China had overtaken the US in energy consumption, according to preliminary estimates. The news – and China’s quick reaction – underlines the sensitivities that surround China’s thirst for energy, particularly as the government struggles to meet ambitious efficiency targets by the year’s end.

China’s booming energy demand is caused by rapid economic growth, particularly in heavy industry.

China’s own numbers for its 2009 energy consumption are lower than the IEA’s. But even those figures suggest that China and the US are neck and neck for the top consumption spot.

The IEA estimates that China consumed 2.265 billion tons of oil equivalent in 2009, whereas preliminary data from China’s National Bureau of Statistics puts consumption at about 3.1 billion tons of coal equivalent during the same period. That is about 2.17 billion tons of oil equivalent based on back-of-the-envelope conversions – lower than the IEA’s estimate but almost the same as US energy consumption during the same period. China’s 2009 energy use is still lower than that of the US between 2004 and 2008, according to the IEA.

One of the main differences between the IEA numbers and those of China is that the IEA includes China’s consumption of traditional biomass.

Chinese Firms Snap Up Mining Assets

In the global hunt for mining assets, China has emerged as the buyer to beat: Just a few years after suffering high-profile failures to close big acquisitions, Chinese buyers of all sizes are sealing more sophisticated deals at a higher rate of success.

Companies based in China or Hong Kong participated in $13 billion of outbound mining acquisitions and investments last year — 100 times the level in 2005, according to data tracker Dealogic.

China-based companies are on a similar pace in 2010. Last week, Shandong Iron & Steel Group Co. announced a $1.5 billion investment into an African Minerals Ltd. iron-ore project in Sierra Leone, the latest of 76 outbound mining deals announced by China-based buyers so far this year, valued at $8.3 billion, according to Dealogic.

China’s hunger for metals and minerals will be a principal driver in boosting its overall outbound investment to more than $100 billion in 2014, predicts Derek Scissors, a Heritage Foundation researcher who has built a database to track those deals.

China’s success in snapping up makers of iron ore, nickel, molybdenum and other minerals has come as much of the world smarted from the global financial crisis. In 2009, China accounted for one-third of the value of all cross-border mining mergers and acquisitions, up from 7.4% in 2007 and less than 1% in 2004, Dealogic found.

In Australia, historically a major destination for Chinese mining investments, Chinese acquirers accounted for nearly 40% of all inbound mining deals last year, according to Pricewaterhouse-Coopers annual review of mining M&A. In Canada, a newer market for Chinese buyers, the number was around one-quarter.

In years past, Chinese buyers of overseas oil and ore assets tended to be big, state-owned enterprises that favored outright takeovers and got reputations for ham-handed deal making—suffering a series of public rejections, such as China Minmetals Corp.’s failed attempt to buy Canadian miner Noranda Inc. in 2005.

These days, potential investors range from private manufacturers to Hong Kong investors to China’s sovereign-wealth fund, China Investment Corp. China deal trackers say those investors are savvier and more flexible than they were a few years ago, experimenting with joint ventures and minority stakes.

The Chinese government hasn’t made a public push for these acquisitions, but the explosion of deals in recent years, many by state-owned companies, suggests they are a priority.

China already consumes one-third of the world’s copper and 40% of its base metals, and produces half of the world’s steel. Though demand for commodities has eased a bit as the pace of China’s growth has slowed this year, it is expected to stay strong in the long term.

China’s buying binge could eventually increase the global supply of many minerals and ores, says Tim Goldsmith, the Australia-based global mining leader for PricewaterhouseCoopers. If China’s demand stays strong, and other economies like India’s grow rapidly as well, the added supply could help to temper commodity-prices rises, he said.

Some Chinese investors are buying companies with mines that are at earlier stages of development or exploration, a riskier but potentially more profitable proposition.

CONSUMER / RETAIL

Hermès Creates Bespoke Brand For China

Hermès is set to launch a new brand in China in September, in an attempt by the French company to win more customers in the world’s second-largest luxury goods market.

Florian Craen, Hermès managing director in north Asia, said the Shang Xia brand – which means “up and down” in English – would remain “completely separate” from the main Hermès line to avoid customer confusion.

Some analysts believe that the new Shang Xia shop, which will open in Shanghai selling tableware and furniture, will dilute the Hermès brand, famed for its Kelly and Birkin bags.

However, Mr Craen said that while Hermès was a “Parisian company,” Shang Xia would be “completely different.

Hermès’ decision to create a brand for the Chinese market also reflects a thorny issue faced by luxury companies on the mainland.

Companies need to figure out ways to appeal to more Chinese consumers with localised products without jeopardising the value of their brands.

Shang Xia will initially sell home products, such as tableware and furniture, with a traditional Chinese theme. However, Mr Craen said it might later expand into other areas.

Australia’s Barossa Entering China Market

Almost 600 Chinese employees of wine and spirit company Pernod Ricard have arrived in South Australia’s Barossa Valley as part of the company’s major push into the Chinese market.

Pernod Ricard, which distributes the Jacob’s Creek brand in China, said the exercise was an investment in education and training that would provide a boost for the company in what was a major emerging market.

Jacob’s Creek wines are produced by Orlando Wines and Managing Director Stephen Couche said it was crucial that everyone promoting the brand in China understood its Australian origins.

‘The Pernod Ricard team will return to China with much more knowledge about Jacob’s Creek and our international marketing and distribution strategies,’ Mr Couche said. “China was emerging as a growing market for all Australian wine but establishing a brand like Jacob’s Creek would take time”, he added.

Pernod Ricard’s operations in China are based in Shanghai and six regional centres with its products distributed to more than 100 cities.

Suning Plans Ten Musical Instrument Shops In Mainland China

Chinese electronics and home appliances retailer Suning has opened its first MusicVox musical instrument shop in Pudong, Shanghai, marking the beginning of the retailer’s development of ten such shops on the Chinese mainland.

MusicVox is the musical instrument shop brand owned by the Japanese electronics retailer Laox, which sells video games, toy models, and musical instruments. The Japanese company was acquired by Suning in June 2009 and Suning’s Chinese MusicVox shops will copy the product and management model of those in Japan.

According to an investigation on the Chinese musical instrument consumer market, in 2010, the scale of the Chinese musical instrument market will reach RMB 24.7 billion ($3.6 billion); and the scale is expected to increase by 14.81% and 15.02% year-on-year in 2011 and 2012, respectively. In the family sector alone, the scale of the Chinese musical instrument market will reach RMB 7.7 billion ($1.1 billion) in 2010 and the number will surge to RMB 10.8 billion ($1.6 billion) in 2012.

ALTERNATIVE ENERGY

New Nuclear Plant To Land In Guangxi

China Guangdong Nuclear Power Holding Corp will start work on a nuclear power plant in Guangxi Zhuang autonomous region later this month.

Guangxi Investment Group will partner China Guangdong in the Fangchenggang Nuclear Power Station. The State Council gave the green light for the project on July 15, according to Lou Yun, a China Guangdong spokesman.

The new plant will have six pressurized water reactors with an installed capacity of about 1,000 megawatts (mW) each, said Lou.

Lou indicated that the first phase of the project may cost around RMB24 billion ($3.5 billion) and the localization rate will be around 80 percent.

Two pressurized water reactors will be installed in the first phase, and one will be ready for commercial operation by 2015 and the second by 2016. The two reactors are expected to generate 15 billion kilowatts hours (kWh) of power every year.

The Guangxi reactor will also help cut pollution by reducing energy consumption, analysts said. The first phase of the Fangchengang project will cut coal consumption by 6 million tons, carbon dioxide emissions by about 14.8 million tons, sulfur dioxide and nitrogen oxide by 136,400 tons compared with coal-fired power plants of a similar scale.

China May Spend About $738 Billion on Clean Energy Projects in Next Decade

China, the world’s biggest polluter, may spend about RMB 5 trillion ($738 billion) in the next decade developing cleaner sources of energy to reduce emissions from burning oil and coal, a government official said.

The government will submit plans to develop cleaner energy, including nuclear power and gas from unconventional sources, in 2011 to 2020 to the State Council, or Cabinet, for approval, said Jiang Bing, head of the National Energy Administration’s planning and development department.

China needs between RMB 500 billion ($73.2 billion) and RMB 600 billion ($87.8 billion) annually to develop energy-conservation and low-carbon technologies, according to the government’s 2050 China Energy and CO2 Emissions Report published last year. The country attracted $11.5 billion of asset financing in clean-energy technology in the second quarter, more than Europe and the U.S. combined, Bloomberg New Energy Finance said.

$10 Million Project To Store CO2 Underground In China

CSIRO is partnering with China United Coalbed Methane Corporation Limited (CUCBM) on a A$10 million joint demonstration project that will store 2000 tons of carbon dioxide (CO2) underground in the Shanxi Province and extract methane for use as an energy source. The project will focus on advancing enhanced coal bed methane (ECBM) recovery and providing a pathway to adoption for near zero emissions technology from coal-fired power.

ECBM involves the injection of CO2 into coal seams to displace methane that can be used to generate energy, while providing the additional benefit of reducing greenhouse gas emissions by storing the CO2 underground.

This ECBM project received funding from the Chinese and Australian Governments as part of the Asia-Pacific Partnership on Clean Development and Climate.

The ECBM demonstration project builds upon CSIRO’s existing collaborations with China, which include supporting the launch of a post combustion capture (PCC) pilot plant in Beijing and the first capture of CO2 in China using PCC technology.

RECENT TRANSACTIONS

ICBC To Buy 70% Of AXA-Minmetals

Industrial and Commercial Bank of China aims to acquire a controlling stake in French insurer AXA’s Chinese insurance unit, the Securities News reported.

ICBC, the world’s most valuable bank by market capitalization, plans to acquire a 70 percent stake in AXA-Minmetals as part of plans to tap the country’s fast-growing insurance industry, the newspaper said.

AXA currently owns 51 percent of AXA-Minmetals. State-owned base metals trading firm China Minmetals Group controls the remaining 49 percent.

ICBC has submitted the acquisition proposal, which will eventually turn AXA-Minmetals into a Chinese-controlled entity, for regulatory approval, the Securities News said.

AXA’s ownership in AXA-Minmetals could be reduced to about 25 percent following the proposal, it added.

Shougang Close To Tonghua Buy

Steelmaker Shougang Group will take over Jilin-based Tonghua Iron & Steel Group this month to further expand capacity.

The deal comes a year after steel mill Jianlong Steel Holding Co abandoned its Tonghua takeover after a riot.

Earlier reports suggested that Shougang, China’s eighth largest steel mill, had reached an agreement with the State-owned Assets Supervision and Administration Commission of Jilin, the owner of Tonghua, and agreed to pay RMB2 billion ($0.29 billion) for a controlling stake.

Industry insiders said Shougang’s takeover of Tonghua is in line with its expansion strategy.

Shougang, which merged with three domestic steel makers last year, plans to expand its annual production capacity to 30 million tons by launching new projects and acquiring mills in Hebei, Shanxi and other provinces by 2012.

Along with the Shanxi-based Taiyuan Iron & Steel Group, Shougang plans to lead Shanxi province’s 60 million tons of capacity consolidation this year.

Shougang paid RMB 500 million ($73.2 billion) for a 90 percent stake in Changzhi Iron & Steel in Shanxi province last year and plans to invest RMB 19 billion ($2.78 billion) over the next three years to boost its annual steel production capacity to 6 million tons.

Shandong Yinzuo Group To Open Eight New Outlets In 2010

According to information from the general meeting of Shandong Yinzuo Group Company Limited, Yinzuo Weifang, a subsidiary of the group, will acquire the Fortune Plaza Shopping Center project in Weifang for RMB 465.2 million ($68.1 billion).

The main body of the project has reportedly been completed and is currently undergoing renovation. It is expected to be completed and open to the public before the end of 2010.

The Shandong-based department store and supermarket operator said that the acquisition is in line with its regional development strategy and aims to expand the Weifang retail market while improving its regional competitiveness. At present, Yinzuo has three outlets in Weifang, including a 35,000-square-meter department store.

As a regional department store and supermarket giant in Shandong, Yinzuo has entered ten out of the 17 major cities in the province with 42 stores.

According to the related department of the company, Yinzuo plans to open at least eight new outlets in China in 2010.

OVERSEAS TRANSACTIONS

Burberry To Buy Chinese Franchise Stores To Increase Profit By Almost 10%

Burberry Group Plc, the U.K.’s largest luxury retailer, will take control of its franchised stores in China for ￡70 million ($108 million) in a transaction that may boost earnings by almost 10 percent.

The acquisition of 50 stores and related assets from franchise partner Kwok Hang Holdings Ltd. will add as much as ￡20 million ($30.7 million) to operating profit in the year through March 2012, the London-based company said.

Luxury companies are seeking to tap growth potential in China, where the number of millionaires soared 31 percent last year, according to research by Capgemini SA and Merrill Lynch & Co. The country’s luxury goods market will be worth $14.6 billion in five years, making it the world’s largest, the Chinese Academy of Social Sciences said.

The value of the gross assets being acquired is about ￡30 million ($40 million), according to Burberry, which had group operating profit of ￡219.9 million ($337.8 million) in fiscal 2010, excluding exceptional costs. The all-cash transaction is due to be completed later in 2010, the company said.

Sam Zell Buying 10% Of EMG From Egyptian Side

Jewish-American real estate baron Samuel Zell is in advanced stages of negotiating to buy more than 10% of the Egyptian-Israeli gas consortium Eastern Mediterranean Gas & Oil (EMG).

EMG was established in 2000 to supply natural gas from Egypt to Israel and other countries. The partnership included Egyptian businessman Hussein Salem (65%), the Egyptian National Gas Company (10%) and Israeli businessman Yossi Maiman (25%).

Zell would be buying shares from Salem, who owns 65% of EMG. The company was recently valued at $2.22 billion.

If completed, the transaction will constitute a first-rate stamp of approval of Israeli natural gas potential, as well as a vote of confidence in the Egyptian supplier, which operates under the shadow of political uncertainty in the area.

The local natural gas market has become more dynamic over the past few weeks as the gas transportation system between Ashdod and Ashkelon – the first stage in the EMG pipeline – nears completion, and particularly due to the progress made in secret talks with British Gas (BG) over the purchase of natural gas from reservoirs located off the Gaza coast.

Nokia Siemens Buys $1.2 Billion in Motorola Assets

Nokia Siemens Networks (NSN) is to buy most of the wireless network infrastructure assets from US firm Motorola for $1.2 billion to bolster its rank as number two in the sector, it said.

The German-Finnish telecom equipment company said the move would strengthen its position as world number two in the telecom infrastructure segment.

NSN said it expected the transaction “to significantly strengthen (its) presence globally, particularly in the United States and Japan.”

It will gain about 50 operators which are clients of Motorola, including China Mobile, Sprint and Verizon of the US, and Britain’s Vodafone.

The infrastructure NSN is acquiring from Motorola includes mobile networks of second generation (GSM), third generation (CDMA and WCDMA) and fourth generation (LTE and WiMAX).

The $1.2 billion cash deal will leave only a few players in the consolidating sector, with Ericsson, China’s aggressive newcomer Huawei and NSN the strongest survivors.

THIS WEEK IN CHINA

China Shifts Gears For A Balanced Economy

China’s National Bureau of Statistics (NBS) recently released the macro-economic data of the first half of 2010. The economy expanded by 11.1% year-on-year to hit RMB 17.28 trillion ($2.55 trillion) in 1H 2010. This compares to GDP growth of 7.4% during the same period last year. “China’s economy performed generally well in the first half and has developed according to the government’s macro regulation.” NBS spokesman Sheng Laiyun said. The International Monetary Fund raised its China growth forecast for 2010 from 10 percent to 10.5 percent this month.

Besides sound growth, China’s trade pattern is becoming more balanced with the gap between imports and exports narrowing.

While exports rose 35.2% to $705.09 billion, imports were up 52.7% to $649.79 billion. Therefore, the trade surplus shrank by 42.5% from a year earlier to $55.3 billion in 1H 2010.

A sharp decline in the trade surplus during 1H 2010 indicates that China, the world’s fastest-growing major economy, has significantly lifted domestic demand to drive the double-digit economic growth seen thus far in 2010.

China’s previous export driven economic growth model is shifting towards one based on domestic demand. Such a move toward greater domestic consumption will open up a whole new market for Chinese goods. Given that domestic consumption accounts for only a third of China’s GDP, China is really yet to truly tap the potential of its huge domestic market.

The government has rolled out a series of incentives to bolster consumption to counter fallout from the global economic downturn, including subsidies for home appliances in rural areas and tax breaks for auto purchases, among others.

The latest 1H 2010 data shows that China’s effort to lift domestic demand has been fruitful. China’s retail sales grew 18.2% to hit RMB 7.27 trillion in the first half of the year from a year earlier. Urban consumption hit RMB 6.27 trillion, up 18.6% from a year earlier, while rural residents spent RMB 1 trillion, up 15.6% in the first half of the year.

China’s auto sales in the first half of the year rose 37.1% from a year earlier, furniture sales were up 38.5% and home appliance sales climbed 28.8%.

The income of China’s urban and rural residents continued to increase in 1H 2010. Per-capita urban disposable income reached RMB 9,757 ($1,429), up 10.2% year on year.

Since March of this year, more than 20 Chinese provinces and cities have raised minimum wages. Provinces like Shanghai, Shanxi, Jiangsu, Zhejiang, Fujian, Tianjin raised minimum wages around 10% on average. The minimum wages were raised 20% on average in provinces such as Guangdong, Shandong, Jilin, Ningxia, Hubei. Higher pay will help companies to recruit workers and also to boost consumption.

All of the initiatives to drive domestic consumption in China will serve to benefit ARC China’s existing portfolio companies and allow the Chinese economy to continue a path of decoupling from the weaknesses of other major economies.

Adam Roseman,
Founder & Managing Director
ARC China

China’s Q2 GDP Growth At 10.3%

China’s economy registered a double-digit growth rate in the first half of the year, even as the market cooled a bit in the second quarter in line with market expectations, official data showed.

While analysts excluded the possibility of a double-dip, some suggested that China should prepare itself for growth figures that aren’t as remarkable as they’ve been in the past three decades, which would actually be more in line with a sustained development.

The economy expanded at a 10.3% rate, year-on-year, from April to June, slower than both the 11.9% growth in the first quarter and the 10.7% growth in the fourth quarter of last year, National Bureau of Statistics spokesman Sheng Laiyun said.

The decline in gross domestic product (GDP) growth has been echoed by other indicators, with industrial production growth falling to 13.7% in June from 16.5% in May, sharper than expected, and retail sales expanding at 18.3% last month, slowing from May’s 18.7%.

But Sheng said the slowdown is likely to help accelerate the transformation of the economic model and avoid overheating.

Despite the slowdown in growth, China’s GDP hit RMB 17.28 trillion ($2.55 trillion) in the first six months of this year, up 11.1% from a year earlier, according to preliminary statistics.

It was 3.7 percentage points higher than in the same period last year, when the country’s economy was still wrangling with the effects of the global financial crisis, and also higher than the annual economic growth target of around 8% for 2010.

Ba Shusong, deputy director of the Institute of Finance with the State Council Development Research Center, said that the double-digit, half-year increase is basically as expected, but the cooling pace will continue over the rest of 2010.

Reuters commented that the latest macro data reinforced the view that the first quarter marked a cyclical peak for China, which is set to overtake Japan this year as the world’s second-largest economy after the US.

Source: English.People.Com

China May Allow Foreign Listings In Shanghai In 2011

China may allow foreign companies to sell stock in Shanghai next year, opening the world’s largest market for first-time share sales and advancing the city’s bid to become an international financial center.

HSBC Holdings Plc and London Stock Exchange Group Plc are among companies that have expressed interest in a Shanghai listing when China opens the world’s largest market for stock sales to foreign firms. Companies may raise about RMB 500 billion ($74 billion) in initial public offerings in Shanghai and Shenzhen this year, more than in any other country, PricewaterhouseCoopers said.

The China Securities Regulatory Commission and the Shanghai stock exchange “are taking the lead” in preparing rules governing stock offerings by overseas companies in the city, Fang Xinghai, director general of Shanghai’s financial services office said.

Shanghai has been contacted by foreign companies from the finance, telecommunications, consumer goods and manufacturing industries about selling shares in the city, Fang said in May. The city is introducing investment products to tap the nation’s corporate and household savings.

Two overseas companies and one red-chip firm — a company controlled by Chinese owners and listed abroad — may debut on Shanghai’s international board as early as in this year’s second half, Frank Lyn, PwC’s China markets leader, said.

Source: Business Week

Disney To Expand Language Schools In China

Mickey Mouse might not be the most obvious choice as a language teacher, but he and Donald Duck are being put to work in China by Walt Disney as part of a rapid expansion of a schools program that aims to teach English to 150,000 children a year by 2015.

Disney, which has identified Shanghai as the location of its next theme park, is the first western media company to operate schools in China. It owns a handful in Shanghai and recently opened its first in Beijing.

After a successful trial phase, Russell Hampton, president of Disney Publishing Worldwide, said the company wanted to expand from 11 to 148 schools across China in five years. “It is a very sizeable opportunity, something that can deliver operating earnings of well over $100 million in the next five years,” he said.

The schools are open to children aged 1 to 11 and use a curriculum featuring Mickey Mouse, the Little Mermaid and other Disney characters.

The growing Chinese middle class means there is no shortage of parents willing to pay $2,200 a year for tuition of two hours a week. But the schools also enable Disney to forge a bond with a new generation of consumers who may be unaware of the company’s characters and stories.

Mr. Hampton said Disney had licensed its characters to other English-language training schemes for the past 25 years but decided to develop its own program and run its own schools when it noticed surging demand in China.

Disney is considering a distance learning scheme based on the curriculum it has developed, and a language training package that can be bought in retail outlets. “We think the opportunity is broader than 150,000 kids per year,” Mr Hampton said.

Source: Financial Times

Nike Looks To China To Make LeBron A Billion Dollar Athlete

According to Magic Johnson, if LeBron James “wants to be a billionaire, or close to it, he’s gotta go to New York.” Nike, however – the company that is LeBron’s top sponsor – believes that another destination is more vital for achieving this goal.

The Walt Disney owned sports network ESPN evaluated Nike’s strategy of creating LeBron James as a global brand and showed why China, currently the world’s largest basketball market with over 300 million basketball enthusiasts, is a necessary step on the path toward LeBron’s billion-dollar aim.

The biggest reason, as CNBC’s Darren Rovell explained: “It’s clearly not about US market size anymore when you talk about endorsements.” And thus, based on the numbers, China, whose number of basketball fans almost totals the population of the United States, is the most logical place to look to. Currently, according to Rovell, Nike has a $400 million basketball operation in China experiencing stunning annual growth of about 12%-15%. To put this in perspective, Nike’s basketball-related profit in the United States is growing annually at just 1%.)

But, according to Terry Rhodes, owner of a marketing firm in Shanghai, the Chinese are attracted only to champions – a category that (as has been widely harped on, particularly after the Cavaliers’ loss to the Celtics this year) LeBron is yet to fall under. On this note, Rhodes offers a suggestion:

“For LeBron and Team LeBron, the ultimate objective has to be get those rings onto LeBron’s fingers, and then, the rest of the opportunities in China really can become available.”

Source: Sportsgrid.com

China To Implement Resource Tax In Western Regions

China, the world’s second-biggest energy consumer, plans to impose a new tax on the extraction of coal, oil and gas in the country’s western areas as part of a push to develop the region’s economy.

The country will change the resources tax in the region to a price-based rather than volume-based levy, the government said in a statement on its website, citing comments by Premier Wen Jiabao at a meeting with officials. The shift will boost tax revenues for the local economy, analysts said.

President Hu Jintao has pledged to double investment in the western province of Xinjiang. The country’s western areas shall be a base for energy production and processing of natural resources.

“This is part of a wider trend to move some of the profits of companies like PetroChina Co to poorer parts of the country so they can benefit,” Wang Aochao, head of China research at UOB-Kay Hian Ltd, said by telephone from Shanghai.

The central government will invest in “key projects” in those areas to improve the economic well-being of the local people, Wen said. Additional policies will also be implemented to support the development of the region, he said.

China imposed a 5% price-based resources tax on crude oil and natural gas produced in Xinjiang, effective as of June 1, the Ministry of Finance said.

“The adjustment of the resources tax will undoubtedly lead to higher tax costs for energy producers led by PetroChina and China Petroleum & Chemical Corp,” said Grace Liu, an energy analyst with Guotai Junan Securities Co.

Source: China Daily

China Plans Some $30 Billion On Rural Grid Construction

China will invest some RMB 200 billion ($29.53 billion) in the next two and a half years to expand and upgrade its rural power grid network, China’s energy officials said. The plan comes as electricity is still beyond reach for some rural residents despite China’s effort to expand rural networks since 1998. There are also new supply bottlenecks with the fast sales of electric home appliances in the countryside partly fuelled by government incentives.

“There are still 5.3 million people nationwide that have no access to power, and most of them are in Inner Mongolia, Sichuan, Yunnan, Tibet, Qinghai and Xinjiang,” Zhang Guobao, head of the National Energy Administration, told a national meeting.

The central government will allocate at least RMB 36 billion for rural grid construction before the end of 2012. Combined with bank loans and other input, total investment would amount to some RMB 200 billion, Zhang and Shi Lishan, deputy head of the energy administration’s renewable and new energy department, said.

China’s grid investment has fallen behind power generation investment in past years and investment in rural grids lagged further. Average annual expenditure on rural grid facilities was around RMB 38.5 billion since 1998, compared with more than RMB 300 billion of investment by the State Grid Corporation of China alone in 2009.

The insufficient rural investment was in part because grid firms diverted some designated funds to other more profitable projects in urban areas.

China levies a surcharge of RMB 0.02 per kilowatt hour on power sales to finance rural grid construction, which by current power sales could amount to more than RMB 50 billion per year.

Source: Hindustan TImes

China, Argentina Agree on $10 Billion In Rail Deals

China and Argentina agreed on contracts for railway projects in the South American country totaling $10 billion, Argentine Transport Minister Juan Pablo Schiavi told AFP.

A total of 10 projects — ranging from two to five years — were agreed, including the purchase of Chinese railway technology and investments in electrification of Argentina’s rail lines, Schiavi said.

Some of the agreements were signed in the presence of Kirchner and Chinese Vice-Premier Hui Liangyu earlier and the rest were to be signed following the talks between Kirchner and Hu, the Argentine minister said.

In a speech to businessmen from both countries, Kirchner praised the signing of what she called “important deals between the Argentine government and several Chinese firms” for the improvement of her nation’s railways.

Firms from both sides also signed a deal to build a laboratory in the South American nation to produce swine flu vaccines.

Relations between Beijing and Buenos Aires have been strained in recent months. In April, China imposed heavy restrictions on imports of soybean oil from Argentina, the world’s top exporter of the product.

Some observers said that was in response to restrictions on imports put in place by Kirchner’s government last year during the global economic crisis which resulted in reduced purchases of Chinese appliances and textiles.

Kirchner made no direct reference to the tensions, but called for a “relaunch” of the relationship.

Trade between the two countries rose from $4 billion in 2004 to $14 billion in 2008, according to official data. Kirchner said China was Argentina’s second largest trade partner after Brazil.

She asked that China use Argentina “not only as a trade partner but also as a platform to do business in the world.”

Kirchner said that Argentina, which only has 40 million inhabitants but can feed 500 million people with huge farmable lands, could help ensure China’s food security.

Source: Yahoo News

Volkswagen First Half China Sales Rise 46% On New Cars

Volkswagen AG, the biggest foreign carmaker in China, boosted sales in the nation 46% in the first half after introducing new models to attract consumers in the world’s largest vehicle market.

The automaker’s sales to consumers rose to 950,278 vehicles in the greater China area, it said in an emailed statement. Deliveries of Audi luxury-brand sedans rose 64% to 109,887.

“We are practically sold out of many of our models,” said Winfried Vahland, president and chief executive officer of Volkswagen China.

Volkswagen plans to invest €4.4 billion ($5.5 billion) to expand production capacity and introduce new models in the country, Chief Executive Officer Martin Winterkorn said in April. The Wolfsburg, Germany-based automaker sold 1.4 million vehicles in China last year and aims to boost annual sales to more than 2 million in the “medium-term,” Winterkorn said then.

Volkswagen, which counts China as its biggest market, added models including the Tiguan sport-utility vehicle, the Audi Q5 and an upgraded Jetta this year. The company will start sales of the CC four-door sports coupe on July 15th in Shanghai, the company said.

General Motors Co., VW’s biggest overseas rival in China, increased deliveries 49% to 1.21 million vehicles in the first six months.

Source: Business Week

China’s Comac Targets New Jet Controls With GE Venture Contract

China’s first narrow-body jet may take a technological leap with a contract awarded to a joint venture between General Electric Co. and state-owned Aviation Industry Corp. to help design a new way to control the plane.

The deal with China’s Commercial Aircraft Corp. also marks the first foray into the integration and supply of such control equipment by GE Aviation Systems, part of the world’s biggest jet-engine maker, and AVIC.

GE and AVIC targeted the 150-seat C919 when they unveiled their 50-50 avionics venture in November. They plan to compete with suppliers such as Honeywell International Inc., United Technologies Corp. and Rockwell Collins Inc. by using so-called open-architecture software that isn’t tied to one manufacturer.

Comac, as the Chinese planemaker is known, is promoting the C919 as a rival to Boeing Co.’s bestselling 737 and Airbus SAS’s A320. The C919 is due to enter service in 2016, and Comac predicts having 2,300 of the single-aisle planes in operation over the next two decades.

For GE, the venture means a chance to take advantage of Chief Executive Officer Jeffrey Immelt’s $4.8 billion purchase of Smiths Group Plc’s aviation unit in 2007. The acquisition added electronics to the engine business at Fairfield, Connecticut-based GE.

The contract announcement came a week before planemakers and parts manufacturers gather in Farnborough for the industry’s biggest showcase for new products. Many of the companies are rushing to court business in China as travel demand rises in the world’s most-populous country.

“China is the world’s fastest-growing aviation market and we need to ensure GE and the United States are part of this growth,” John Rice, a GE vice chairman who oversees divisions including GE Aviation, said in a statement announcing the C919 contract.

The C919, which will join the narrow-body Boeing and Airbus jets that are the workhorses of airline fleets worldwide, is already drawing U.S.-based manufacturers. Honeywell said that it won a contract valued at more than $3 billion to supply brakes and other parts for the plane.

GE said the contract will support jobs in the U.S., China and the U.K. About $6 billion of GE’s revenue last year came from China, Immelt said. Sales totaled $157 billion. Sales in China should rise by at least 10% this year, Immelt reiterated.

Source: Business Week

Inner Mongolia To Produce One-Fourth Of China’s Coal By 2015

North China’s Inner Mongolia autonomous region will increase it coal-producing capacity to 1 billion tons in 2015, one-fourth of the country’s total, local authorities said.

The region saw its annual coal output soaring from 114.5 million tons in 2002 to 637 million tons in 2009, replacing Shanxi province as China’s biggest coal producer.

Inner Mongolia will keep its coal output at around 700 million tons this year, and will shut down all small mines with annual output of less than 300,000 tons, the region’s coal industry bureau said.

It will also reduce the number of coal companies from 350 at present to 180 and form two mining giants with annual output of 100 million tons through mergers and acquisitions, the bureau said.

The region, which has the country’s largest proven coal reserve of 732.3 billion tons, will also invest more on the coal chemical industry to boost value added.

Source: China Daily

China Lights Up Silicon Valley Business

As the American solar industry stumbles along with highs and lows, a Silicon Valley start-up has hit what looks to be a multi-year jackpot. And it did it by looking abroad.

Innovalight, tucked away in Sunnyvale, makes something called silicon ink. When added to solar panel production, this ink makes the panels more efficient, and therefore more profitable. That last part is what has thus far been eluding most solar companies, so Innovalight is onto something.

Now, a Chinese solar giant is onto Innovalight. JA Solar, based in Shanghai (trading in the US under the ticker symbol JASO), just signed a 3-year deal with Innovalight to boost its panels with silicon ink. With the initial rush to solar cooling considerably in most countries, a deal like this (to make JA’s panels more efficient and money-making) is undoubtedly welcomed with open arms.

And open wallets. Says JA Solar CEO Dr. Peng Fang, “we are very excited about the strong partnership with Innovalight.” From Innovalight Chief Executive Conrad Burke, “I am delighted with the long-tern agreement to jointly develop new products.”

Long-term? New products? Not words heard all that much recently from the solar sector. Here’s a new deal that could turn a start-up into a regular player.

Source: Nbcbayarea.com

International Demand Increases Retail Rents In Shanghai

Heated demand from international retailers jacked up Shanghai’s retail rents by 6.8% in the second quarter from a year earlier, and demand for prime retail space will remain robust particularly with the boost from the ongoing Expo, said analysts.

Average prime retail rents increased 6.8% year-on-year in the second quarter and reached RMB49.5 per square meter per day in Shanghai. During the same time, the vacancy rate fell 1 percent to 0.8 percent, according to a report from real estate service provider Jones Lang LaSalle (JLL).

Increasing occupancy of properties along Huaihai Road was the reason for the lower vacancy rate, said Anthony Couse, managing director of JLL. “Demand from retailers for prime locations limited the prime retail vacancy rate under 1%,” he said.

Demand in the Shanghai retail market intensified between April and June. A growing number of high-end retailers such as Louis Vuitton, Zegna, Gucci, Dior, Tiffany, Hermes and Prada opened in the emerging luxury shopping destinations of Huaihai Road, the Bund and Shanghai IFC Mall of Lujiazui in Pudong New Area.

Other retailers actively followed suit. International fashion company Inditex Group opened multiple new locations across the city, while US tech giant Apple opened its second Apple Store in China at Shanghai IFC.

The retail sector’s strong performance in the first half stabilized retailers’ confidence, said Colliers International, a leading property provider. Total retail sales increased 15.2% in the first five months year-on-year. In addition, the Expo 2010 Shanghai is acting as a catalyst for brands to expand or strengthen their foothold in Shanghai, said Colliers.

Given the fact that some projects postponed their pre-leasing due to the Expo, Colliers expected over 200,000 square meters of retail space to enter the market in the second half this year, and the majority of the new supply will be located in non-prime traditional downtown areas.

Analysts believed the new supply will raise the city’s overall vacancy rate, while rental rates will edge up 5% overall.

Source: China Daily

CONSUMER / RETAIL

China Resources Plans To Build Largest Coffee Retail Chain In China

China Resources Enterprise Limited has announced that it will invest HK$326.6 million to acquire an 80% stake in Pacific Coffee from Chevalier Pacific Holdings Limited and will further expand the cafe chain’s business in China.

On the completion of this acquisition, Chevalier will still own a 20% stake in Pacific Coffee.

Chen Lang, managing director of China Resources, said that the company plans to establish Pacific Coffee as the largest cafe brand in China.

According to China Resources, the company currently has 2,900 retail stores in China. If Pacific Coffee opens shops in the same areas, it will not only increase traffic and revenue, but also can promote its growth in the Chinese market.

Source: China Retail News

The Style Merchants To Widen Fashion Footprint In China

Mainboard-listed fashion retailer, The Style Merchants, formerly known as Netelusion, says it plans to widen its fashion footprint in China by another 50 outlets over the next 12 months.

The Style Merchants is engaged in the design and marketing of ladies’ apparel and accessories in China through its newly-acquired subsidiary, Retail Resources Management, RRM.

RRM currently has 19 outlets including five points-of-sales in department stores, 11 franchisee stores and three self-owned stores in Beijing, Jiangsu, and Shanghai.

Its main brand currently is “The Carnaby” targeted at women in their 20s and 30s.

Style Merchant’s executive director Sam Lin says women’s wear targeted at the growing Chinese middleclass is a high-margin fashion business.

The firm plans to use the $7 million in proceeds of a recently ended rights issue to fund its expansion plans.

This includes enlarging the retail floor space of its existing stores and opening bigger outlets in key markets including Beijing, Shanghai, Chongqing, Chengdu and Guangzhou.

Source: Channel News Asia

BlackBerry Enters Consumer Market

Research in Motion, which used to focus on the corporate market with its BlackBerry models, seeks to penetrate the booming consumer market on the Chinese mainland by cooperating with domestic telecommunication operators, the world’s second largest smart-phone vendor said in Shanghai.

The cooperation could be in setting up a research center in China, launching 3G models based on China-developed home-grown technology and offering a diverse range of models, said Simon Li, RIM China’s director of marketing.

Canada-based RIM, China Mobile and Digital China jointly launched the new model BlackBerry 8910 Curve in Shanghai, the first official BlackBerry device in the domestic retail market.

Consumers can buy the Curve at more than 300 authorized stores of Digital China, the country’s No. 1 IT distributor.

BlackBerry models were popular due to its strong push email technology, and they were only available to corporate clients in China before the official launch. But smuggled models were sold in the gray markets.

RIM is testing with China Mobile to launch 3G BlackBerry models based on the domestically-developed TD-SCDMA technology. RIM also plans to open a research center on the mainland, which will focus on studies of domestic market demand, Li said.

Source: English.Eastday.Com

ALTERNATIVE ENERGY

Yingli’s $5.3 Billion Loan May Help China Double Global Solar Panel Supply

China may double the world’s capacity for making solar panels by loaning Yingli Green Energy Holding Co RMB 36 billion ($5.3 billion) to expand production, a Bloomberg New Energy Finance analyst said.

The funds from the State-run China Development Bank Corp follow lending of RMB 50 billion to Suntech Power Holdings Co and RMB 30 billion for Trina Solar Ltd in April, New Energy Finance said. The three New York-traded companies are China’s biggest solar firms by market value.

The money will allow China to strengthen its position as the world’s largest maker of solar panels used to generate electricity from the sun’s rays. Yingli and its Chinese competitors shipped 43% of the world’s solar panels last year, according to the London-based research group owned by Bloomberg LP.

Yingli will use the funds to finance both domestic development and boost its overseas business, the Baoding-based company said in a statement on its website.

Source: China Daily

China To Develop 13 Solar Power Projects In Western Region

China, the world’s second-largest energy user, plans to develop 13 solar power projects in the western region as part of a government aim to cut emissions and boost energy investment in the area.

The government is tendering for bids to develop the projects in six provinces, which will have a combined capacity of 280 megawatts, the National Development and Reform Commission, the country’s top planner, said in a statement on its website.

The central government will invest in “key projects” in those areas to improve the economic well-being of the local people, President Wen Jiabao said. Additional policies will also be implemented to support the development of the region, he said.

China aims to have an installed capacity of 20 gigawatts of solar units and 100 gigawatts of wind power by 2020, Zhang Guobao, head of the National Energy Administration, said in May.

Source: China Daily

In China, Wind Suppliers Face Local Competition

Western wind power companies active in China are fighting to keep their share of the world’s fastest wind growing market.

China in 2009 installed 13 gigawatts (GW) of new wind power capacity, compared to 10 GW in Europe and 9.9 GW in the United States, figures from industry group Global Wind Energy Council indicate. This year, China could add up to 18 GW of capacity.

By 2017, it will have the world’s largest accumulated capacity, topping the U.S. and European markets, GWEC spokes-woman Angelika Pullen said recently.

With Beijing pumping billions of dollars into green energy, Western companies are eager keep profiting from this lucrative renewable energy market.

Several large European and U.S. wind turbine manufacturers have a manufacturing presence in China, including General Electric, Denmark’s Vestas, Nordex and Siemens Wind Power of Germany and Gamesa of Spain. Back in 2005, they controlled more than 70% of the still small Chinese market.

But as Beijing is boosted its renewable energy profile, an increasing number of local firms formed to become fierce competitors to the Western companies.

The Chinese success is aided by cheap licensing of older Western technology, a steep learning curve and aggressive national subsidies that favor domestic suppliers.

Source: UPI.Com

RECENT TRANSACTIONS

African Minerals In $1.5 Billion Deal With Shandong

African Minerals Ltd has sealed a second investment deal with a Chinese group for its flagship iron ore project in Sierra Leone, selling a 25 percent stake to Shandong Iron & Steel for $1.5 billion.

In January, the London- listed company inked a GBP 153 million ($229 million) deal with the China Railway Materials Commercial Corporation — one of the country’s largest steel trading companies — to help fund the first stage of the Tonkolili project.

News of the latest deal, which involves a three-stage investment and an agreement for Shandong to buy 10 million tons of iron ore per year at discounted prices, sent shares soaring.

The investment will allow the firm to boost production from the first phase of the project to 10 million tons a year from 8 million tons, the firm said.

Source: Reuters

Zoomlion Eyes HK Offering

Changsha Zoomlion Heavy Industry Science and Technology Development Co, the nation’s third-largest machinery maker by market capitalization, said it plans to list shares in Hong Kong.

In a statement to the Shenzhen Stock Exchange, Zoomlion said the company’s board of directors has approved the plan. Shares sold publicly in Hong Kong may account for as much as 15 percent of Zoomlion’s outstanding shares after the listing.

The capital raised will be used to expand the company’s international business, accelerate its globalization strategy, upgrade its hardware and improve Zoomlion’s capital flow, according to the statement.

Source: China Daily

China Increases Stake In IMX Resources

IMX Resources Ltd has received final approval for Chinese company Sichuan Taifeng to increase its stake in the company and invest in a South Australian iron ore, copper and gold mine.

IMX said the Foreign Investment Review Board (FIRB) had approved Sichuan Taifeng’s acquisition of up to 19.9% of IMX. The miner’s shares rose on the news, climbing 8.97 percent to 42.5 cents at 1237 AEST.

The approval allows IMX to finalize the placement of 21.7 million shares to Sichuan Taifeng, raising $10.5 million.

IMX also will place 7.8 million shares with OZ Minerals Ltd, maintaining their original 13% shareholding, and raising an additional $3.8 million.

Source: Business Spectator

Publicis Groupe Acquires G4 Advertising Co. Ltd. In China

Publicis Groupe announced that it has acquired G4, a Bejing-based full-service advertising agency. Effective immediately, the agency will rebrand as Publicis G4, and will be joined by the Publicis Beijing Nestle team to service Nestle throughout Greater China.

Current G4 Managing Director, Laurent Beloeuvre, will head the new entity, and will have the additional role of Greater China Director on the Nestle account.

China has one of the most dynamic and fastest-growing advertising markets in the world. According to Zenith-Optimedia forecasts (March 2010), the Chinese ad market is expected to grow by 11.5% in 2010. Publicis Groupe is present in China through all of its global networks. The Groupe employs more than 3,700 professionals throughout more than 50 cities (including Beijing, Shanghai, Chengdu, and Guangzhou).

Source: Yahoo News

OVERSEAS TRANSACTIONS

Mechel OAO Announces Acquisition Of Turkish Steel Trading Company

Mechel OAO, one of the leading Russian mining and metals companies, announces purchase of 100% stake in Turkish steel trading group Ramateks by Mechel Service Global B.V., Mechel OAO’s subsidiary managing the group’s steel products retail sales and service network.

Mechel continues implementation of its strategy to expand its own steel service and sales network named Mechel Service. Mechel Service Global B.V. completed the transaction to acquire 100% of the shares of Turkish steel trading group Ramateks. The purchase price amounted to $3 million. Ramateks debt incurred by Mechel, the majority of which (77%) is trade financing, didn’t exceed $13.8 million.

The main activity of Ramateks Group is distribution of construction and stainless steel long products as well as other types of steel products. Ramateks’ storage capacities are located in Istanbul and Konya. The company also has equipment for steel product cutting.

Source: Yahoo News

Qatar In Talks Over Greek Bank Stake

The Qatar Investment Authority is in talks about taking a strategic stake in National Bank of Greece, the eurozone country’s biggest lender.

People familiar with the discussions say the Gulf state’s sovereign wealth fund, via its unit Qatar Holding, would acquire about 5-7 percent of NBG, about €250 million ($304 million), in line with an investment policy of buying stakes below 10 percent in financial institutions.

The acquisition would help boost confidence in the Greek banking system, which is under pressure as a result of the country’s sovereign debt crisis.

The discussions were revealed after George Papandreou, Greek prime minister, urged Athens-based banks to consolidate, saying the sector had to “make strategic choices for restructuring in order to stay competitive.”

The QIA already has a 4 percent stake in Greece’s Alpha Bank, the third-largest lender, acquired through a holding company before the country’s debt crisis.

Qatar launched talks earlier this year with the Greek government on a €2 billion ($2.43 billion) project to build a liquefied petroleum gas storage facility and a power plant in western Greece.

Greece is seeking investment in energy, tourism and banking in a drive to stimulate growth as it carries out fiscal reforms under a €110 billion ($133.8 billion), three-year bail-out programme.

Source: Financial Times

Aon To Buy Hewitt For $4.9 Billion

Chicago-based Aon Corp. will purchase human resources consulting firm Hewitt Associates of Lincolnshire for $4.9 billion in cash and stock in a move to expand its offerings to global employers navigating the complexities of health care reform and employee financial benefits.

Aon, an insurance brokerage and consulting giant, will figure large in uninsured individuals’ and small employers’ ability to purchase health insurance once federal government subsidies are available in the next four years. Meanwhile, Hewitt’s business focuses on advising Fortune 500 companies in the areas of benefits consulting and outsourcing.

Health reform passed by Congress and signed into law four months ago by President Barack Obama will bring medical care coverage to 32 million uninsured Americans. That will mean millions of new customers to insurance companies, as well as give small employers who have not provided health benefits the ability to add or enhance their employee health coverage.

Source: Chicago Tribune