THIS WEEK IN CHINA

Agbank IPO To Boost Cooperation Between China And Middle East

Middle Eastern sovereign wealth funds Qatar Investment Authority (QIA) and Kuwait Investment Authority (KIA) will be the biggest cornerstone investors in the Hong Kong portion of the Agriculture Bank of China IPO next month.

QIA is said to have signed an agreement to buy $2.8 billion worth of shares in the Hong Kong offering, making it the single-largest investor in AgBank’s mega-IPO. KIA will invest $800 million in the offering.

Global economic growth “is very much in favor of the BRIC countries,” Brazil, Russia, India and China, Abdul Kadir Hussain, chief executive at Mashreq Capital DIFC Ltd., said.

Agricultural Bank, China’s largest lender by number of customers, is seeking to raise as much as $15 billion in the Hong Kong part of what may be the world’s largest IPO. It is expected to sell totally $23 billion-$30 billion of stock in Hong Kong and Shanghai combined, exceeding the $22 billion sale by Industrial & Commercial Bank of China in 2006.

The investments from QIA and KIA totaling $3.6 billion in a huge Chinese share offering are the latest sign of the financial and economic ties between China and the Middle East.

QIA also signed a memorandum of understanding for strategic cooperation with AgBank to expand its portfolio in China. The agreement will allow QIA “to further develop its portfolio in China, as well as allowing AgBank to build a leading presence in the Middle East,” QIA said.

“The reduction of global imbalances is pushing toward enhancing this new Silk Road connecting China and the Middle East”, says Alessandro Magnoli Bocchi, chief economist at Kuwait China Investment Co., an investment vehicle established by KIA.

While Western investments still account for about 75% of foreign assets held by Gulf countries, Mr. Magnoli Bocchi believes this proportion will drop by around 10% going forward, and “that 10% will be allocated to areas of the world that are growing fastest.”

China’s economy is forecast to grow by 10% this year and by 9.9% in 2011, according to the International Monetary Fund. It will allow a more flexible renminbi, the central bank said June 19th, signaling an end to the currency’s two-year-old peg to the dollar a week before G20 summit.

The links between UAE and China were strengthened during the infrastructure boom. The Middle East is currently going through the kind of large scale infrastructure development that China experienced in the 1990s and early 2000s. This has generated better understanding of the economic models followed by the two regions.

In 2009, bilateral trade volumes between China and the UAE hit $21 billion, up by 160% within five years. UAE investment in China is also on the rise and is the highest among Arab countries, with over 650 projects.

Economic ties between China and the Middle East are likely to continue to strengthen in the coming years.

Adam Roseman,
Founder & CEO
ARC China

China Close To Catching United States In Manufacturing

China’s manufacturing sector is on the brink of passing that of the United States, according to a report.

Analysis of the latest government readings by economic research firm IHS Global Insight show that China’s manufacturing sector nearly caught the U.S. output in 2009. The value of goods produced by China’s factories reached about $1.6 trillion last year, compared to $1.7 trillion by U.S. manufacturers.

Mark Killion, a managing director at IHS, says China may be able to quickly close that gap following the announcement by China over the weekend that it will let its currency, the yuan, rise in value versus the dollar.

But even without a stronger yuan, China’s manufacturing sector was already growing at a much faster clip than in the U.S. China’s industrial output rose nearly 17% in May compared to a year ago, according to figures from the Chinese government, while Federal Reserve estimates U.S. factory output was up only 8%.

Killion said that it is most likely China will pass the U.S. in manufacturing in 2011, but that it could be a “close call” this year.

It is not a surprise that China would eventually top the United States. China relies more on its manufacturing sector — it makes up more than a third of the overall Chinese economy, while it accounts for less than 13% in the United States.

Losing the No. 1 ranking in manufacturing does matter, argues Scott Paul, executive director of the Alliance for American Manufacturing. And he said he believes the average American wants to see the country stay ahead of China.

“I hope it’s a wake-up call for Washington,” said Paul, whose group is a partnership between the United Steelworkers union and various manufacturers. “Manufacturing fuels the rest of the economy. It’s the bedrock.”

Source: CNN Money

Wall Street Wants To Get Bigger In China

Where are the real opportunities for growth on Wall Street? Try China.

The biggest financial firms have not tried to hide their ongoing ambitions to grow in the world’s fastest-growing economy.

Earlier this month, JPMorgan Chase struck a joint venture deal with China’s First Capital Securities to underwrite stocks of domestic firms. Rivals including Citigroup and Bank of America are also believed to be eyeing expansion plans within China.

While investors in the U.S. and Europe continue to grapple with sovereign debt fears and lackluster demand for new stocks and corporate bonds, market activity in China has been off the charts.

So far this year, Chinese firms have issued approximately $3.6 billion in high-yield bonds, according to research firm Dealogic, more than twice what they issued in all of 2009.

China has also single handedly helped prop up the IPO market. Of the $32.2 billion in new stock issued so far this year, more than a third came from firms based in China. Experts suggest many other Chinese companies are waiting in the wings for their own debut.

Next month will likely represent another major milestone for China as one of its largest banks – Agricultural Bank of China – goes public. Reports suggest that the lender will list on exchanges in both Shanghai and Hong Kong, and raise as much as $20 billion. That would make it one of the biggest IPOs in history.

As a hub of investment banking activity for the foreseeable future, it’s no surprise that Western financial institutions have been anxious to get in on the action.

Source: CNN Money

Asian Millionaires Beat Europe In Rich List

The net wealth of Asian millionaires has eclipsed that of rich Europeans for the first time, largely because of the relative health of stock markets in Hong Kong, India and China last year, according to a new survey.

The annual Merrill Lynch Wealth Management / Capgemini analysis of investors with $1 million or more in assets found that as of late last year, there were 3 million millionaires in both the Asia-Pacific and Europe. The survey quantified the wealth held in Asia at $9.7 trillion, compared with $9.5 trillion in Europe.

The survey defines millionaires as people with net financial wealth of more than $1 million, excluding their primary residence.

The rise of Asian millionaires is being tracked by the industry that manages the fortunes of rich individuals, with banks moving senior staff to Singapore and Hong Kong to chase new clients.

After taking a hit in 2008 during the financial crisis, the wealth of the world’s millionaires recovered last year with the upswing in stock markets, rising 19 percent to $39.0 trillion.

North Americans are still the best-off. At the end of last year, the continent was home to 3.1 million millionaires worth $10.7 trillion.

The US, Japan and Germany produce about half of all millionaires, who were numbered at 10 million in 2009. China was ranked fourth, boasting 477,000 individuals with $1 million or more in their accounts. India is catching up, having seen the number of millionaires rise more than 50 percent to 126,756 in 2009.

Though the UK economy shrank, British millionaires swelled to 448,100, up 24 percent from 2008. Russian millionaires also saw their ranks rise to 117,700. The Middle East struggled, with the United Arab Emirates losing 19 percent of its millionaires in 2009 as the Dubai property crisis took its toll.

Investments by the wealthy in fixed-income instruments crept up to 31 percent from 29 percent in 2008 and allocations to equities also increased slightly to 29 percent from 25 percent in the previous year.

Source: Financial Times

‘Hot Money’ Controllable

China will be able to keep inflows of speculative capital under control even if the latest clarifications on its yuan policy trigger any influx of “hot money”, a former central bank adviser has said.

The People’s Bank of China, the central bank, said in a statement that it will proceed further with the reform of the yuan exchange rate regime to enhance its rate flexibility. The move has been interpreted as the start of allowing the yuan to rise against the US dollar after it remained stable for 23 months.

The central bank said in a statement that it will maintain a stable exchange rate and there will be no drastic fluctuation in the value of the yuan. There will be no one-off adjustment in the value of the yuan and the fluctuation of its value must be “controllable” to prevent market forces from causing excessive swings, it said.

The statement emphasized the yuan be pegged to a basket of currencies, adding that the US dollar should not be the only gauge for judging the renminbi exchange rate level.

The country’s decision to shift to a basket of currencies as a reference for the yuan’s value will also give policymakers more room to maneuver in their effort to control cross-border capital flows, said Yu Yongding, a former member of the central bank’s monetary policy committee.

The gradualist way of currency appreciation, while causing more inflows of speculative capital, will help control such adverse capital movement, analysts said.

Source: China Daily

China Promises Funding For International Reactor

China will fulfill its commitment to contribute 10 percent of the funding for the International Thermonuclear Experimental Reactor (ITER), as members of the multi-billion-dollar project are struggling to meet the spiraling costs.

China made the vow as ITER members are still trying to negotiate the exact spending on the project, which will see “a not slight” increase, said Wang Shaoqi, deputy director-general of the ITER Organization.

“The ITER has to increase the budget it made years ago, mainly because of the added scope, scientific and technological development, and the global financial situation,” Wang added.

The budget rise is an important part of a basic document that will be negotiated by the seven ITER members – China, the European Union, India, Japan, the Republic of Korea, Russia and the United States, he said.

In 2005, the ITER project was estimated to cost about 10 billion euros ($12.3 billion) and was to be spread among its stakeholders.

EU will contribute 45 percent of the spending and the other six parties will cover the remaining expenses equally, according to the initial agreement.

However, Nature, the British science journal, reported that construction costs “are likely to double” and that the cost of operations “may also rise”.

Norbert Holtkamp, principal deputy director-general of ITER organization, said that ITER members will address the challenges posed by the funding gaps.

Wan Gang, China’s minister of science and technology, pledged that the country will keep its commitment to share 10 percent of the cost. “We will implement our responsibility and keep contributing to ITER, and China will make good use of the international scientific and technological resources to promote the country’s independent innovation,” he said.

Source: China Daily

More Banks Eye M&As In Asia Pacific

An increasing number of financial institutions expect to undertake mergers and acquisitions in Asia Pacific amid a post-crisis recovery, according to an industry survey.

More than 54 percent of them expected to evaluate or undertake M&As in 12 months, they told a survey made in March and April, up from 42 percent a year ago, PricewaterhouseCoopers said.

“M&As in the region will rise in the next 12 months,” said Nelson Lou, a PwC partner in China. “And existing global players in China will provide opportunities for domestic institutions (for M&As).”

As the dust of the global financial crisis settles, home-grown financial institutions are seen as becoming stronger to compete against established global players, creating a new competitive landscape, the accounting firm said.

In China, domestic banks are expected to go abroad for M&A opportunities after they completed capital replenishment this year.

The banks are seeking to raise funds this year after they extended a record RMB 9.6 trillion ($1.4 trillion) of loans in 2009.

Retail banking is the primary acquisition target, followed by private banking with the rise of millionaires in the region.

In the region, the proportion of Asian financial institutions expecting to do M&A deals has returned to near pre-crisis levels, according to the accounting firm.

PwC teamed up with IDC Financial Insights Asia Pacific for the survey of senior managers of 122 major financial firms in the region.

Source: Shanghai Daily

China To Finish Work On New Hybrid Rice In 2012

Yuan Longping, known as the “father of hybrid rice”, said that his team was working on a new version of high-yield hybrid rice and might complete it in 2012.

The new hybrid, the phase-III super hybrid rice, was expected to yield 13.5 tons of rice per hectare, Yuan said.

The previous hybrid, the second-generation super hybrid, was released for commercial production in 2006, yielding 9 tons of rice per hectare, on average.

Rice is a major food crop that feeds more than half of the world’s population, Yuan said.

China is now planting 440 million mu (29 million hectares) of rice per year, with an average output capacity of 6.3 tons per hectare.

Among the acreage, hybrid rice accounts for about 57 percent of the total, with an average output capacity of 7.2 tons per hectare.

“The average yield of hybrid rice is at least 20 percent more than that of inbred rice, feeding 70 million more people annually,” Yuan said.

China is faced with a challenging grain situation this summer because of strong rainfalls in the south during the summer harvest season. Other problems include droughts in northern grain production areas and lingering low temperatures in the south.

According to the Ministry of Agriculture, China needs to maintain an annual grain output of 500 million tons to feed the nation’s 1.3 billion people.

“Hybrid rice will play a key role in ensuring food security worldwide in the new century,” Yuan said.

Source: China Daily

BMW Hybrids Gear Up For Greener Future

As automakers worldwide gear up to produce alternative-energy vehicles, BMW is on track to fulfill its own commitment to save energy and reduce emissions while enhancing driving pleasure.

The company recently held a test drive for its ActiveHybrid 7 Series sedan and X6 sports activity coupe along Thousand Island Lake in eastern China’s Zhejiang province.

The two models are the company’s first hybrid cars in volume production. They went on sale in China after the Beijing auto show in April.

Powering the ActiveHybrid 7 Series is a 4.4-liter eight-cylinder petrol engine, an electric motor and a lithium-ion battery. The model consumes 9.4 liters of gasoline for every 100 kilometer on average, 17 percent less than conventional 7 Series models.

The X6 is a full hybrid car that can be powered solely by electricity when driven at speeds below 60km/h. Under conventional power it offers maximum power of 357 killowatts and a top torque of 780 Nm (newton meter).

The company says both models are milestone products that mark the beginning of a new phase in its “EfficientDynamics” strategy.
BMW began to implement the long-term strategy in 2002 with the aim to reduce fuel consumption and carbon emissions in its full range of products.

In its first phase, BMW raised efficiency primarily through the improvements in its internal combustion engines and the use of lightweight body materials and aerodynamics.

The company started the second or mid-term phase of the strategy this year with extensive use of “intelligent energy-flow management” technology on its hybrid and electric models, including the ActiveHybrid 7 Series and X6.

BMW will bring 50 Mini E electric cars to China later this year for a field test after trials in the US, the UK and Germany.

Source: China Daily

World Bank Sees 9.5% Growth For China

China’s economic outlook remains favorable despite some recent signs of softening, the World Bank said.

The Washington-based bank maintained a 9.5 percent projection for China’s economic growth this year and predicted an increase of 8.5 percent for 2011 in its latest China Quarterly Update.

The report foresaw that China would make more use of interest rates to help manage its development and reduce the risks from surging housing prices and overinvestment.

“China’s growth should be less investment-driven this year and benefit from more favorable external trade, while consumption is likely to remain supported by a strong labor market,” said Ardo Hansson, the bank’s lead economist for China. “The external surplus should decline somewhat further this year.”

Contrary to many economists’ forecasts, Hansson said China’s inflation is likely to be contained this year by the absence of price pressures globally. He saw little likelihood of a wage-price spiral.

China’s gross domestic product surged 11.9 percent from a year earlier in the first quarter, the fastest pace in more than two years. The strong growth rate not only demonstrated China’s quick emergence from the global financial crisis, but also triggered concerns of an overheated economy.

But the economy has shown signs of slowing since April, when the growth of industrial production and fixed asset investment began to moderate.

“So far this year, the slowdown in government-led investment after last year’s massive stimulus has partly been offset by strong real estate investment,” the World Bank report said. “Household consumption growth has held up well, reflecting a favorable labor market.”

Source: Xinhua Net

Australia And China Sign Over A$10 Billion Of Deals

Canberra and Beijing signed 10 commercial deals worth more than A$10 billion ($8.8 billion) as the two nations strengthened trade links during a state visit to Australia by Xi Jinping, the Chinese vice-president, who is expected to become the country’s next president.

The agreements, mainly in the resource and energy sectors, are small compared with a number of recent deals, including PetroChina’s decision last year to buy up to A$50 billion worth of liquefied natural gas from Western Australia’s Gorgon project.

However, Kevin Rudd, the embattled Australian prime minister who is facing a backlash from local and international miners over the government’s proposed 40 percent “resource super profits tax”, used the agreements to highlight the continued strength of the country’s natural resource sector.

China is Australia’s biggest trading partner, with two-way trade surging 30 percent to A$83 billion during the depths of the global downturn in the year ended June 2009. Based on the growth trajectory of recent years, that figure could rise to A$100 billion this year.

The economic relationship continues to strengthen in spite of a string of diplomatic difficulties.

The deals signed include China Development Bank’s agreement to provide $1.2 billion to finance port and rail infrastructure for a new iron ore mining province in Western Australia. Fortescue Metals Group, whose founder Andrew Forrest has been a vocal critic of the mining tax, has also agreed to an engineering and procurement contract with China Gezhouba Group to “fast-track” expansion of the group’s iron ore projects in the Pilbara.

Source: Financial Times

Asian Sovereign Wealth Funds Invest In Chesapeake

Sovereign wealth funds from China, Singapore and South Korea and two private-equity firms agreed to invest $900 million in Chesapeake Energy Corp., the third-largest natural-gas producer in the U.S.

The investors bought the Oklahoma City-based gas company’s 5.75 percent convertible preferred stock on June 18, Chesapeake said in a statement. South Korea’s $30 billion sovereign wealth fund said it will spend $200 million.

Asian sovereign funds are seeking to diversify after losing money on bank stakes as stocks tumbled through the financial crisis. The funds are buying into a company that’s among owners of rights to U.S. shale-gas reserves in deposits including the Marcellus shale in New York, Pennsylvania and West Virginia, an area the Department of Energy estimates may contain enough to supply America’s needs for more than a decade.

“Given that global financial markets have been volatile in recent years, it seems prudent to diversify their asset base,” said David Cohen, an economist at Action Economics in Singapore. “Emerging economies have accumulated substantial international reserves in recent years and are looking for a way to diversify their holdings.”

Source: Business Week

Goldman Says Shanghai In 2020 Will Mirror New York

Shanghai will have more than half of Asia’s stock market liquidity in 2020 as China gradually moves to full currency convertibility and opens yuan-denominated A shares to foreign investors, Goldman Sachs Group Inc. said.

Shanghai currently accounts for 25 percent of the region’s daily cash equity and futures turnover, the analysts wrote. The city will benefit “disproportionately” as China’s financial markets grow deeper and more sophisticated, they said.

China’s central government has a goal of Shanghai an international financial center by 2020. The city’s economy, which already surpassed Hong Kong’s in size last year, grew 8.2 percent in 2009. In comparison, New York City’s expanded 0.9 percent in the fourth quarter after seven straight quarterly declines.

The Goldman Sachs report comes after the People’s Bank of China pledged June 19 to make its currency more flexible, a move that drove the yuan up by the most since July 2005. The Shanghai Composite Index climbed 2.9 percent on June 21. U.S. President Barack Obama said the policy action will “contribute to a more balanced global economy.”

Goldman forecast that with a gradual liberalization, the value of equities and futures traded daily in China could reach $455 billion in 2020, about 70 percent of the regional total, up from the current $58 billion, or 36 percent of the liquidity in Asia, according to the report.

Under the same scenario, trading turnover in Shanghai could increase to more than $350 billion per day in a decade from the current $47 billion, Goldman Sachs estimated. That means Shanghai would account for more than 75 percent of China’s liquidity, and as much as 53 percent of Asia’s, they said.

“Despite Shanghai’s image as a modern commercial centre and its notable achievements, China’s equity capital markets are relatively immature,” the Goldman analysts wrote. “Although the government is on the path towards full currency convertibility and the opening up of the domestic equity market, the process will probably be very gradual, and this could potentially benefit Hong Kong.”

Source: Business Week

A Prescription For Chinese Health Care Stocks

Forget the banks: Some investors believe the more compelling investment prospects in China are in health care.

Even as a giant stock offering for Agricultural Bank of China steals the limelight, China’s pharmaceutical and healthcare stocks have been steadily attracting more attention from a number of investors eyeing demographic trends and eager for countercyclical stories that are less affected by the vagaries of monetary policy and currency risk.

A similar story is playing out elsewhere in Asia, too, as rising incomes and greater government spending on medical care boost the appeal of companies positioned to benefit. Health care is also a popular investing theme in developed markets, particular those with aging populations. But the potential impact is broader in Asia, where governments are building out social safety nets needed to boost domestic consumer demand and reduce excessive reliance on exports, even as wealthier elites are willing to spend more for better hospital care.

Within Asia, China has become especially popular. Even after a recent sell-off, China health-care stocks as measured by the MSCI China Health Care Index are up about 15% this year, while health-care stocks around Asia, excluding Japan, are unchanged. By comparison, broader measures of Asia’s markets are lower.

A big part of China’s appeal is that it has companies producing drugs and medical devices that are well-positioned to tap the burgeoning domestic market. In addition, China has announced ambitious reforms aimed at providing 95% of the population with health insurance and spending 850 billion yuan, or about $125 billion, on health-care improvements between now and 2011, CLSA Asia-Pacific Markets noted in a report last month.

Those initiatives will stimulate demand in biopharmaceuticals and medical devices, and drive 25% revenue growth in China’s pharmaceutical industry over the next two years, CLSA wrote.

Source: Wall Street Journal

China’s Financial Power Brokers Urge Bigger Overseas Role

As the U.S. Congress prepares to vote on the financial-overhaul bill, China’s financial regulators and top executives gathered over the weekend to celebrate the success of the country’s economic model and to call for greater international engagement.

In contrast to their U.S. counterparts, China’s financial institutions emerged from the financial crisis unscathed, largely due to their limited exposure to overseas markets and a hands-on regulatory regime that allows only gradual innovation.

With China now boasting some of the largest and best capitalized banks in the world, the clear message from the country’s finance-sector leaders was that financial services need to play a greater role in the economy and that financial institutions should further expand overseas.

China Life Insurance Co. President Yang Chao warned of the challenges facing Chinese companies moving overseas, such as cultural differences and finding the expertise to make M&A work. But his overall message was that the time is ripe for Chinese investment abroad.

“We’re optimistic about China’s firms going global,” he told the forum, named for Shanghai’s towering financial district. “But we need government support to streamline procedures and approvals to help efficiency. Market conditions are always changing, and if we wait too long we might lose the opportunity.”

Source: Wall Street Journal

Mission Hills Builds For China’s Golf Boom

When you run the biggest golf resort in the world and you bring a weak game, you play. Early and often, night and day. That’s what Ken Chu did when he became vice-chairman of Mission Hills Group. The company opened the first course on what is now a sprawling 12-course club in Shenzhen, China, in 1994, and is building a 10-course venue in Hainan, the southern Chinese island Beijing is backing as a tourism hub.

Fixing up a shaky swing could be the least of Mr. Chu’s challenges. On a recent Wednesday, the Mission Hills resort just an hour or so north of Hong Kong was all but empty following morning storms. Though golf in China is growing with the nation’s middle classes, it remains an elitist sport with average greens fees of $160 and memberships as high as 1.8 million yuan ($263,000). At the same time, there’s talk of a bubble in Hainan as developers rush in to the resort island.

Mr. Chu insists the sport will reach the popularity seen in the U.S. and Europe. It will take a long time for golf to reach its return-on-investment, which is why clubs like Mission Hills operate on a membership system combined with real-estate sales. “Real-estate development is crucial to the development of the facility. That’s why we’re able to grow so quickly over the past 18 years,” Mr. Chu says. Mr. Chu’s team says golf’s inclusion in the 2016 Olympics will trigger a new wave of players, through government funding for grassroots programs and public facilities.

Source: Wall Street Journal

Chinese Funds Venture Into U.S. Market

Chinese investment funds are tiptoeing into the U.S. stock market, raising their holdings of U.S. companies as they seek diversification from their volatile home market and see better prospects in the U.S. than elsewhere in the world.

Securities filings show that Chinese funds that cater to individual investors have been allocating a larger share of their investments to the U.S. market in recent months. New entrants are also rolling out U.S.-focused investment products.

The numbers are small—Chinese funds have less than $700 million invested in U.S. stocks—but the shift is potentially significant. In recent years, the Chinese government has allowed just over $64 billion to be invested overseas via funds run by big financial institutions. It has quickened the pace of approvals, adding $12 billion worth of overseas investments since October. But the money has stayed close to home, with 70% of the assets being invested in Hong Kong.

These funds are purchasing shares of U.S. companies the way U.S. mutual funds do. They are separate from the Chinese sovereign-wealth funds and companies, which have run into opposition in their attempts to buy controlling stakes in U.S. companies.

For years, Chinese funds had largely bypassed the U.S. market, by far the world’s largest, as Chinese markets soared. Just 3% of Chinese fund assets are invested abroad, and managers have invested only one-third of their allotted quotas overseas.

But with the Shanghai market down 22% this year, foreign markets look better. As of June 25, Chinese funds that invest abroad were down 7%. Investment firms are using the performance shift to introduce their clients to the idea of diversification, long a basic investment concept in the West.

Spreading out their investments in different markets is “a new concept for Chinese investors,” said Ben Zhang, who runs the Global Resources Fund at China Merchants Fund, which started in March. The $80 million fund has about 30% of its assets invested in North America.

Source: Wall Street Journal

Obama Pleased With ‘First Step’ In RMB Reform

US President Barack Obama believes that China’s currency will rise by a large margin and Washington will be “paying attention” to Beijing’s further exchange rate reforms in the coming months.

Chinese economists said the American president is indirectly urging China to further revalue its currency and is also calming down domestic critics of China’s foreign exchange reform. But they believed it is unlikely that the renminbi will grow as much as the US expects in the short term.

While he acknowledged the progress that China made so far in foreign exchange reform and indicated the US was pleased China “made the first step”, Obama said “we do expect that as more and more market forces come to bear, that given the enormous surpluses that China has accumulated, that the renminbi is going to go up and it’s going to go up significantly.”

“I don’t have the perfect formula, but I have the clear idea” that the US will have three months to determine whether the renminbi “is moving fast enough,” said Obama.

China last week announced it will allow more flexibility of its currency, which ended its de facto peg to the US dollar in force since July 2008.

But some US senators, lawmakers and manufacturers are still unhappy, calling for further gains in the value of the renminbi and urging the administration to punish Chinese exporters by imposing countervailing duties.

Source: China Daily

Yuan Depegging Long-term Positive For China Stocks

China’s decision to end the yuan’s nearly two-year peg against the dollar will boost its stock market heavyweights, as it heralds a long-term yuan appreciation based on robust productivity growth and aids an economic adjustment towards less reliance on exports.

All major sectors in China’s stock market — from airlines and banks to property and investment firms — are set to gain in the short or long term. Assets of Chinese companies, almost exclusively denominated in the yuan, stand to appreciate along with the value of the currency.

Exporters will be the main losers as they will find it more difficult to sell outside China.

Exporters are no longer the mainstream stock market sector and the impact of losses in such stocks will have only a limited impact on the overall market.

“The yuan’s appreciation is an indisputable trend in the long run, and it will be a great boost to China’s stock market by helping to improve China’s economic structure,” said Cao Xuefeng, senior analyst at Western Securities in Chengdu.

“Weak global economies and China’s rising costs of labour mean China will no longer be able to rely on exports as its engine for growth. Consequently, domestically focused companies, such as banks and investment firms, will be favoured.”

Banks, such as Industrial and Commercial Bank of China, the world’s biggest bank by assets, are seen rising in the medium term as their huge volume of yuan assets will appreciate in line with the rise in the currency. Land and property stocks will benefit from expectations of yuan appreciation in the long run.

Other winning sectors include heavy importers of raw materials, such as paper makers, and investment firms, which will get a boost from government moves to boost domestic consumption to compensate for the smaller portion of exports in the economy.

But the boost to the stock market will likely be gradual, as China will control the pace of appreciation in the near term to deter speculative “hot money” inflows betting on the yuan’s rise.

Source: Yahoo News

 

CONSUMER / RETAIL

Shanghai Welcomes City’super Mega Lifestyle Specialty Store

The high-end mega lifestyle specialty store operator City’super has opened a new outlet in Shanghai’s IFC Mall, marking the Hong Kong company’s latest important strategic investment in mainland China.

The new City’super store has an area of 2,700 square meters and its design aims to provide a comfortable shopping environment to customers. City’super collects top products from around the world, including high-end household items, exquisite cuisines, quality wines, delicious desserts, chocolates, coffees, and cooking materials.

Wu Jiahua, general manager for the newly opened City’super, said that as City’super’s first flagship store in mainland China, the new store in Shanghai, a metropolis integrating the world’s economy and culture, will become one of the best lifestyle specialty stores.

City’super is a mega lifestyle specialty store that offers a true one-stop-shopping experience for today’s busy urban professionals. Its stores have been designed to be a part of customers’ lifestyles by fulfilling their daily needs as well as enhancing the quality of their lives. The three core components of City’super include the Food Market, the Life Division, and the cooked Deli.

Source: China Retail News

HK Jeweler Targets More Outlets

3D-GOLD Jewelry (HK) Ltd targets to more than triple its network to over 800 outlets on China’s mainland in five years as the country’s growing economy continues to shine, Chairman Kennedy Wong said.

The company, an affiliate of Hong Kong-listed Hong Kong Resources Holdings Co, aims to achieve it by 2015 from the existing 250 stores, Wong said.

3D-GOLD, together with Hong Kong-based rivals like Chow Sang Sang and Chow Tai Fook, is riding on the rising purchasing power on the mainland amid a sizzling economic growth.

“We see rapid growth in central, southern and northeastern regions on the mainland and we will strengthen our presence in these areas,” said Wong.

The jeweler is set to have at least 300 mainland outlets by the end of this year. The mainland now accounts for about 80 percent of the firm’s revenue, with the Hong Kong and Macau markets contributing the remaining 20 percent.

The mainland’s jewelry market grew 15.9 percent last year.

China is the world’s second-biggest consumer of gold after India.

Source: Shanghai Daily

India’s Taj Aims For luxury In China

TAJ Hotels Resorts and Palaces, the largest hotel operator in India, aims to open four to five luxury hotels in major Chinese cities over the next few years as part of the its global expansion plan.

The Mumbai-based hotelier, an enterprise under Tata Group, India’s premier conglomerate, is set to open its first 106-room Taj hotel near the Temple of Heaven Park in Beijing in the middle of next year. The second property, a resort with around 400 rooms and suites in Xiangshui Bay of Sanya, Hainan Province, will hopefully open in 2012, the company said.

“We’ve already signed two management contracts in China and we plan to add two to three more properties over the next five to seven years,” said Ajoy K Misra, senior vice president of sales and marketing with Taj, in Shanghai .

Taj will initially focus on the luxury segment in China, the company said.

Source: China Retail News

 

ALTERNATIVE ENERGY

NE China Selects Sites For Nuclear Power Station

Chinese experts have started to evaluate the best place to build the first nuclear power station in northeast China’s Heilongjiang province, Xinhua learned from a power generator.

Four sites have been found along the valleys of the Songhua and Mudanjiang rivers with one in Hailin city, two in Fangzheng county and one in Tonghe county, said sources with Huaneng Heilongjiang Power Generation Ltd (HHPG).

Although the exact construction time is not known, HHPG sources said that the station would be built in two stages and have a generation capacity of 4 million kilowatts per year.

China has focused on nuclear energy recently to reduce its dependency on coal, a heavily polluting fossil fuel.

China had 21 nuclear power projects under construction and 11 ones in operation as of March, according to China’s National Energy Administration.

In the northeast, Hongyanhe Nuclear Power Station in Liaoning province is now under construction, and the construction of another nuclear project in Jilin province is scheduled to be started in 2012.

Source: China Daily

Venture To Develop Geothermal Energy

China Petrochemical Corp, also known as Sinopec Group, has partnered an Iceland-based company to set up a new venture to further develop geothermal energy in China as it seeks to expand the renewable resource.

Sinopec Star Petroleum Co, a subsidiary of Sinopec and its Iceland partner Geysir Energy Green Energy, signed a framework pact on June 9 to establish the Sino-Icelandic Green Energy Geothermal Development Corp, Sinopec said in a statement.

Sinopec and Geysir also planned to enlarge their existing geothermal district heating projects in Shaanxi and Hebei provinces.

The two partners started cooperating in May 2005 and operated three projects via a joint venture with a combined installed peak-load capacity of 140 megawatts thermal, capable of supplying geo-thermal heating energy to an area of 3 million square meters.

The establishment of the new corporation will be a platform to develop geothermal across China, Geysir said in a statement.

Geysir said the two parties share a common objective to promote further development of the renewable energy sector and to develop geothermal district heating services on a broader scale in China.

Separately, Sinopec said it’s expanding the new energy business via exploration in several areas including fuel ethanol, biodiesel and biochemical. It seeks an output of 2.5 billion square meters of coal seam gas and shale gas by the end of 2015.

Source: Shanghai Daily

China Southern Grid: Signs Laos Power Grid, Hydropower Agreements

China Southern Power Grid has reached agreements with the government of Laos to build a national power grid and a hydropower project in the Southeast Asian country.

The state-owned monopoly power distributor in China’s five southern provinces signed a memorandum of understanding with Lao’s Ministry of Planning and Investment on investment in and construction of a grid network in Laos, and an agreement to develop the Nam Tha 1 hydropower project, CSPG said on its website.

The agreements were signed during Chinese Vice President Xi Jinping’s state visit to Laos earlier this month, it said.

Source: Fox Business

 

RECENT TRANSACTIONS

UFIDA Software Announces $72 Million Takeover Plan

UFIDA Software Co, a major provider of management software solutions, announced a RMB 491 million ($72 million) takeover plan in the hope of jumping on the bandwagon of China’s fast-growing automotive industry.

UFIDA said in a statement that it will pay RMB 486 million for a 99 percent stake in Shanghai InfoService Technology Co, a management software provider for the auto industry, while its wholly owned subsidiary in Jiangxi province will take the remaining 1 percent for RMB 4.91 million.

UFIDA wants to grab opportunities accompanying the growth in demands for management software solutions and consulting services spurred by the rapid development of China’s auto industry, the company said.

UFIDA is set to sign an equity transfer accord with InfoService, it said, without giving a specific date.

If successful, the deal would mark the highest ever price for any acquisition in China’s management software industry, according to China Securities Journal.

Source: China Daily

China Resources to Buy 80% Stake in Pacific Coffee

China Resources Enterprise Ltd, a partner of SABMiller Plc, will acquire 80 percent of Pacific Coffee Group, Hong Kong’s second-biggest coffee shop chain, as it expands its consumer businesses.

China Resources’ Festive Wise Limited unit will pay HK$326.6 million ($42 million) to Chevalier Pacific Holdings Ltd for the stake.

State-controlled China Resources, the nation’s biggest beer maker, is concentrating on consumer businesses to tap increasing spending in China after selling its holding in a textile venture last year. Pacific Coffee has 83 outlets in Hong Kong, trailing only Starbucks Corp.

“The profit contribution from this acquisition will be limited in the short run; still, it’s a good buy for strategic development,” Kenny Tang, a Hong Kong-based analyst at Redford Assets Management Ltd, who rates the company “buy,” said by phone yesterday. This “will help to raise the company’s image, as it’s shifting its focus on the more high-end market.”

The purchase by China Resources will let Pacific Coffee gain greater consumer recognition in China and “seize a bigger market share in a more efficient manner,” Chevalier said.

Source: China Daily

Heinz To Buy China’s Foodstar For $165 Million

H.J. Heinz inked a $165 million all-cash deal to acquire soy-sauce maker Foodstar in an effort to extend the company’s reach in fast-growing China.

By scooping up Foodstar from private-equity holding company Transpac Industrial Holdings, Pittsburgh-based Heinz said its annual sales in China would jump to $300 million. In addition to the $165 million cash payout, the deal has a potential earn-out in 2014 based on performance of the business.

Foodstar makes Master Weijixian light premium soy sauce, the leading brand of Weijixian soy sauce in southern China, and a popular Guanghe fermented bean curd. The company has four manufacturing sites, 2,500 employees and is based in Guangzhou.

The Foodstar deal is subject to regulatory approval in China and other customary conditions.

Heinz said the retail soy sauce market in China is growing at an annual rate of 7% to 8%, compared to the more developed market in the U.S.

Source: Fox Business