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BOC, ICBC considering branches in Taiwan

BOC, ICBC considering branches in Taiwan

Bank of China Ltd (BOC) and Industrial &Commercial Bank of China Ltd (ICBC) are vying to be the first of the mainland’s lenders to open branches in Taiwan after the two sides agreed to widen access to each other’s financial industries.
BOC, the mainland’s third-largest lender, said yesterday it would apply to open a branch. ICBC, the world’s most profitable bank, needs a presence in Taiwan and wants to expand there, Chairman Jiang Jian-qing said on Nov 13.
The accord deepens financial ties with an island that has accounted for as much as $200 billion of investment in the mainland and has 100,000 companies operating there. It also paves the way for a broader economic agreement as relations between the two sides reach their warmest since a civil war ended 60 years ago.
“This is a big step on the political side and mainland banks are keen to show their support,” said Li Qing, an analyst at CSC Securities HK Ltd. “The reality is the Taiwan market is too small and saturated for mainland players to care much about. It’s more meaningful for the Taiwan counterparts who can expand in a much bigger market.”
An agreement with the mainland may help Taiwan’s drive to consolidate the island’s 37 domestic banks. On Nov 12, the island’s regulator issued draft rules to tighten requirements for branches of foreign banks.
Taiwan’s benchmark Taiex index has gained 70 percent this year, set for the best annual performance since 1993. The index fell 0.76 percent to 7733 yesterday in Taipei.
Financial regulators from the mainland and Taiwan signed three memorandums of understanding on Monday to ease restrictions on investment in banks, brokerages and insurers across the Taiwan Strait.
China Construction Bank Corp, the mainland’s second-biggest lender by market value, Bank of Communications Ltd and China Merchants Bank Co also said earlier they want to start operations in Taiwan once regulations allow such a step.
Relations between the two sides have improved since Taiwan leader Ma Ying-jeou took office in May 2008. Closer ties with the mainland, the island’s biggest trading partner, may help Ma hasten a recovery in its export-dependent economy, which shrank 7.5 percent in the second quarter.
Seeking space
Bank of China, Bank of Communications and China Merchants are among lenders that have looked at space in Taiwan’s landmark Taipei 101 building, Michael Liu, a spokesman for owner Taipei Financial Center Corp said last month.
Sean Chen, chairman of Taiwan’s financial supervisory commission, and China Banking Regulatory Commission head Liu Mingkang signed agreements that cover cross-Strait financial supervision, information-sharing and risk management, the statements said.
There were three accords, one each for banks, brokerages and insurers, the regulators said.
The agreements will be effective within 60 days. The island and the mainland are scheduled to start talks on an Economic Cooperation Framework Agreement next month.
The accord may let banks set up branches in each other’s markets, and Taiwan’s lenders may upgrade representative offices in the mainland to full service branches, skipping the usual three-year wait, said Tseng Fan-jen, an analyst at KGI Securities.

Top economist warns of asset bubbles

Top economist warns of asset bubbles

A Chinese economist has warned that the country’s soaring property prices and equities were “signs of asset bubbles,” owing to excessive liquidity.
The Economic Information Daily reported Tuesday that Wu Jinglian, an expert with the Development Research Center of China’s State Council, or Cabinet, said excessive lending and liquidity would be a long-term problem for the economy rather than liquidity shortages and weak demand.
Wu, 79, was one of the first economists to promote the market-oriented economy in China.
“A credit boom along with a loose monetary policy and positive fiscal policy could prevent the economy from collapse in the short term, but these measures cannot solve the underlying problems,” he said.
A total of 8.92 trillion yuan (1.3 trillion U.S.dollars) in new loans were pumped into the economy in the first 10 months based on a moderately loose monetary policy, far exceeding the government’s target of 5 trillion yuan for the entire year.
Wu said excessive lending and re-leveraging would produce risks and bring the country’s economy back to the days before the economic crisis. “The frothy property market can be taken as a sign of a new crisis and deserves great attention,” he said.
Home prices in 70 medium and large cities rise 3.9 percent from a year earlier and 0.7 percent from September, according to data from the National Bureau of Statistics last week.
A report from the Chinese Academy of Social Sciences (CASS) also expressed the same concern, forecasting that property prices would stabilize in the first quarter of 2010 and rise on expectations of inflation in the second quarter.
“Speculation is the main reason behind the current price hikes, ” said the CASS report.
Wu said too much investment in fixed assets was not a good idea despite the fact that China’s economic recovery was still largely dependent on property market.
“The real drive behind China’s recovery is the accelerating fixed-asset investment and record lending rather than the slow rise in domestic consumption, and this imbalance will be a drag on the country’s economic restructuring,” he said.
China’s fixed-asset investment surged 33.1 percent year on year in the first 10 months to 15.07 trillion yuan as China rebounded strongly from the unprecedented crisis.
Government data showed the real estate sector accounted for more than 20 percent of urban fixed-asset investment, a key driver of China’s economic recovery.
Wu called for more government efforts to address the excess liquidity and boost economic restructuring, so as to ensure long-term development “especially when we have achieved the rebound with short-term policies”.
Pei Changhong, head of the Institute of Finance and Trade Economics at the CASS, also suggested that Chinese economy refocus in 2010 from expansion to structural adjustment while continuing the stimulus plan.
China’s central bank said last week in its quarterly monetary report that the government would continue the relatively easy monetary policy while stepping up “efforts to balance inflation perception and economic growth.”

Skodas success as sales surge

Skoda’s success as sales surge


The Fabia Jingrui subcompact has registered strong sales, confirming Skoda’s strategy of tightly focusing on specific market segments.
A strong first half performance enabled Czech brand Skoda to hit its 2009 China sales target of 100,000 vehicles in early November, a full seven weeks ahead of schedule.
Owned by Volkswagen Group and made in China by Shanghai Volkswagen, Skoda sold 95,667 vehicles in the first 10 months, an increase of 92.8 percent over the same period in 2008, the second-highest growth rate among all auto joint ventures in China.
Skoda moved 71,132 Octavia Mingrui compact sedans, 23,817 Fabia Jingrui subcompact cars, and 7,823 Superb Haorui mid-sized vehicles in the period.
The automaker said robust sales came as a result of strategic market positioning. With three specifically targeted and affordable car models – the Superb Haorui, Octavia Mingrui and Fabia Jingrui – Skoda has covered the A0, A, B car markets in China.
Following its launch in June 2007, the Octavia Mingrui has risen rapidly to become one of the most popular models in the compact car sector.
September sales of Skoda’s Octavia Mingrui jumped to 10,000 units, making it one of the top three in the A-class Chinese auto market.
With more than 15 refinements in its latest configuration, Skoda’s marketing for the model continues to target “unassuming buyers who pursue a quality life and efficiency, and strive for a balance between the contemporary and the traditional”, according to the company.
Total sales of Octavia Mingrui in China have now surpassed 160,000 units over the past two years, the company says.
As Skoda’s first China-made model, the Octavia Mingrui’s customers are mostly from Beijing, Shanghai, Guangzhou, Zhejiang and other areas with well-developed sales networks.
Sales of the Fabia Jingrui also continue to surge with a consistent monthly sales level of more than 3,000 units. It has now edged into the top three in the subcompact car market.
As the most updated subcompact that boasts a German lineage, the Fabia Jingrui is popular among realistic young buyers due to its design, comfortable interior space, advanced technology and safe driving qualities.
Introduced this year, the Superb Haorui is Skoda’s most recent model that from its inception has set out to capitalize on the sales performance of other hatchback vehicles, coupled with its own roomy interior and other advanced specifications.
Skoda’s record sales confirm the success of Shanghai Volkswagen’s multiple-brand strategy.
Since Skoda began to expand its dealer network in 2006, it has maintained a focus on ensuring all of its service levels.
By the end of October, Shanghai Volkswagen Skoda has 143 4S dealerships throughout the country.

Coal-to-electricity plan to expand

Coal-to-electricity plan to expand

A seven-year plan to replace polluting coal-fired heaters inside the Second Ring Road ended on Saturday, with 160,000 families switching to electricity or gas.
Authorities are subsidizing the cost of electricity in order to encourage the use of cleaner heating sources in central areas like Dongcheng, Xicheng, Xuanwu and Chongwen districts.
They have also upgraded the city’s power grid.
The Beijing environmental protection bureau said it would expand the “coal to electricity” project to other areas, but was still discussing the details.

In 2009, it invested 7 billion yuan and covered 450 streets and 72,000 families, most of which were nearby the 19 cultural and historical relics in the downtown area.
Beijing started the project in 2001. At the end of 2008, 94,000 families had switched to electrical heating following a 6 billion yuan government investment.
Liu Wei, deputy director of the Beijing bureau’s atmosphere department, told the Beijing News that coal sales decreased by more than 60,000 tons between 2005 and the end of last year.
He estimated that during this winter’s heating season, sulfur dioxide emissions would reduce by up to 190 tons while carbon monoxide emissions would reduce by more than 10,000 tons.
However, an 85-year-old woman surnamed Yan, who lives in Xiaobanjie Hutong, Xicheng district, said she preferred coal-fired heating instead of the alternative.
“I love coal-fired heating, it easier to use and much warmer,” she said.
The government is subsidizing the price of electricity during 10 pm to 6 am, from Nov 1 to March 31.
The price per kilowatt-hour is now 0.1 yuan, 0.3 yuan cheaper than the normal price. The cheaper price includes all electrical appliances used within that time period.
According to a survey commissioned by the Beijing bureau, the price of electrical heating in a 15 sq m room is about 1,500 yuan for the winter season. However, with the government subsidy, the price drops to about 500 yuan.
A resident surnamed Gu in Wangpi Hutong, Chongwen district, said: “Coal prices have been rising continuously in recent years, using electrical heating will save some money and it is much safer.”
Now that the project has been completed, the annual coal consumption is expected to decrease by about 30,000 tons, which will contribute to a cleaner environment.
From Nov 1, the city recorded 10 days where the air quality had reached the “blue sky day” standard. Beijing has recorded 255 blue sky days this year, five below the aim of this year.

Domestic rice bran oil production to expand

Domestic rice bran oil production to expand

China, the world’s largest rice producer and consumer, will expand production of rice bran oil to help ease shortages of edible oil supplies, a company executive said.
China, also the world’s largest edible oil consumer, has to rely on imports for 66 percent of its needs, even though a large amount of rice bran is simply used for animal feed, said Tu Changming, trading director with the China operation of Wilmar International.
“Most Chinese rice mills are small in size with backward technology, and rice bran has been ignored and not fully utilized,” Tu said.
Rice bran oil is the oil extracted from the germ and inner husk of rice. It is rich in vitamin E and suitable for high-temperature cooking such as stir-frying and deep-frying. It is a popular cooking oil in Japan.
China’s annual rice output is about 185 million tons. If half of the rice bran production went to produce rice bran oil, it would account for 1.1 million tons of edible oil, equivalent to 5.8 million tons of soybeans, according to Tu.
China’s consumption of edible oils has doubled over the past decade to 24 million tons, and consumption could rise by 10 million tons in the coming decade, Tu estimated.
But limited farmland means the government has had to secure more acreage to grow cereals instead of soybeans.
China is already the world’s largest soybean importer, with annual imports accounting for more than half of the world trade in the last marketing year. The country also imports large amounts of rapeseed and palm oil and soy oil, as well.
Tu said that only 10 percent of China’s rice bran was used to produce edible oil, and the rest was used for animal feed.
Wilmar International has a rice mill with a daily capacity of 1,000 tons in the northeastern province of Heilongjiang, which can produce 12 tons of edible oil a day, Tu said.
“We think rice bran oil is the trend of future development,” Tu said.

Changan deal signals new wave of consolidation

Chang’an deal signals new wave of consolidation

China’s automotive industry might now be the world’s biggest, but it also one of the most fragmented.
Yet if Chang’an Motor Corp’s landmark acquisition of Aviation Industry Corp of China’s (AVIC) major auto assets last week is a sign of things to come, a new round of consolidation has now begun.
Chen Bin, an official from the National Development and Reform Commission, China’s top economic planner, said last week that other carmakers are also talking about mergers or acquisitions.
Chen declined to reveal any details, saying they are “secrets of enterprises”.
“We support consolidations between automakers. We will join other industry regulators to create a favorable policy environment for reshuffling,” he said.
Miao Wei, vice-minister of industry and information technology, said last month that his ministry will implement a range of measures before the end of this year to increase auto industry consolidation.
Chang’an acquisition
Chang’an, the fourth-largest Chinese motor group with partners Ford Motor from the US and Japan’s Isuzu Motor, last week acquired Hafei and Changhe – two minibus makers – and engine producer Dong’an Auto from AVIC.
Assets of Changhe’s car joint venture with Suzuki, and the Dong’an engine tie-up with Mitsubishi Motors, were also injected into Chang’an, which is based in the southwestern municipality of Chongqing.
In return, AVIC will obtain a 23 percent stake of the enlarged Chang’an from the carmaker’s State-owned parent China Weaponry Equipment Group.
No financial details for the deal have been revealed.
Through the deal, Chang’an raised its annual production capacity to more than 2 million vehicles from 1.5 million units and vaulted to become the third-biggest auto group in China, surpassing Dongfeng Motor Corp.
Chang’an President Xu Liuping said the group aims to boost annual sales to more than 2.6 million vehicles within the next five years and 5 million units over the next decade.
In the first 10 months of this year, Chang’an sold a total of 1.16 million vehicles, a 10.7 percent share of the overall auto market in China.
Other major motor groups in China are also in merger negotiations with smaller competitors.
Beijing Automotive Industry Holding Corp, the No 5 automaker, expects to finalize a deal at the end of this year to buy a 40 percent stake of Daimler AG’s van joint venture with Fujian Motor Industry Corp, according to industry sources. The Fujian group will slash its stake in the 40,000-unit van venture to 40 percent from 50 percent.
Beijing Automotive now runs two car partnerships with Daimler and South Korea’s Hyundai Motor Co.
Earlier this year, Guangzhou Automobile Group Corp, the No 6 Chinese motor group, was reportedly in merger talks with Southeast Motor, a car joint venture between Fujian Motor Industry and Taiwan’s China Motor Corp.
Guangzhou Automobile is the partner of Japan’s Honda and Toyota as well as Italian carmaker Fiat Auto.
The central government hopes to form two or three auto groups with an annual production of more than 2 million vehicles each, and four to five groups with annual output of more than 1 million vehicles by 2012 through consolidations in the industry, according to a plan launched in March this year.
The government also expects that combined production of the top 10 motor groups will account for more than 90 percent of total vehicle production in China in this period.
Vehicle production in China is predicted to hit 13 million units this year, up from 9.35 million units in 2008.
In the first 10 months of this year, the production surged by 36 percent year-on-year to 10.9 million units, according to data from the China Association of Automobile Manufacturers.

Beijing office market reports a welcome rebound

Beijing office market reports a welcome rebound


Beijing’s Central Business District is a hub of Grade A office buildings. Rentals of high-grade office property in the capital city are increasing. [CFP]
Beijing’s office market saw a steady recovery in the third quarter, with the demand from large domestic firms remaining strong and that from the multinational companies picking up as the global economy revives.
The recovery in the office market, which is reflected in the falling vacancy rate and stabilizing rent, is powerful evidence for the resurgent economy, experts said.
According to Jones Lang LaSalle (JLL), an international real estate service provider, the total net absorption of office buildings in the capital amounted to 139,100 sq m in the third quarter, which is the largest absorption recorded since the economic downturn and almost double the amount seen in each of the previous three quarters.
“Absorption was once again largely driven by the continued demand from State-owned enterprises, especially from domestic financial companies, which were aggressively expanding their presence in the capital city,” said Julien Zhang, managing director of JLL Beijing.
Within the total net absorption, 60 percent was taken by domestic financial companies, much higher than the 30 percent level seen at the beginning of the crisis in the third quarter of 2008.
The demand from multinational companies is gradually rebounding, although it was still much less than the demand from domestic firms because of the financial crisis.
Statistics from transnational real estate agency CBRE showed that NTT, Japan’s largest telecom company, recently rented 10,000 sq m of floor space at Phoenix Plaza, a Grade A office building located in northern Beijing’s Sanyuanqiao area.
Central Point, a Grade A office building located along the eastern section of Second Ring Road, has rented out more than 6,000 sq m to a number of international clients within the last two months.
Guo Fengrui, deputy manager of China Resources Land Ltd (Beijing), the developer of Phoenix Plaza, said that around 75 percent of Tower A of the office building complex had been rented in the past four months, exceeding their expectation.
“The rent, which currently ranges from 160 yuan to 190 yuan per sq m, also saw an obvious increase compared with months ago,” Guo said.
A representative of NTT said that, besides the quick and convenient transportation between Phoenix Plaza and Beijing International Airport, it is a good time to rent offices now, as the price remains attractive.
JLL’s latest report showed that in Beijing’s overall office market, rents decreased by 2.9 percent quarter-over-quarter from July to September, much slower than previous quarters, to 208 yuan per sq m per month.
Newly completed Grade A buildings contributed most to the decrease, with a 3.9 percent drop quarter-over-quarter in the Grade A market to 228 yuan per sq m per month.
Among the Beijing submarkets, net absorption in the Finance Street area surpassed that in the Central Business District (CBD) for the first time this quarter, totaling 60,800 sq m, mostly from domestic financial companies.
The most noteworthy transactions in this area are Beijing Rural Commercial Bank’s leasing of the whole 29,000 sq m block of the north tower of Finance Street Center and Pudong Development Bank securing 30,000 sq m in the Fortune Resources International Building.
As these tenants are less sensitive to rentals and generally backed by the government, their transaction rentals were much higher than in other buildings on the eastern side of the city.
The vacancy rate in the CBD area decreased for the first time since the third quarter of 2008, as there was no new supply so far. And demand in the CBD continued to be stable, with net absorption totaling 41,300 sq m.
“Although less than that on Finance Street, we still consider this area as the most preferred destination for companies to settle in due to the more diversified tenant mix in this area and the higher availability of high-quality office space leading to much lower rentals,” said JLL’s Zhang.
The rebounding of demand proved to be much quicker than originally expected. However, as the demand from multinational companies is still slowly returning, and the overall economy remains uncertain, whether the net absorption in the fourth quarter can surpass that in the third quarter is still in doubt.
“Rents in the fourth quarter are expected to stabilize, as the rebounding confidence of the market will prevent them from dropping significantly,” said Donny Ma, director of CBRE China.
Looking forward, there will be three Grade A offices completed in the fourth quarter in Beijing, bringing 195,000 sq m into the market, according to CBRE.
“The rents may even pick up in the fourth quarter, depending on the extent of the global economy’s recovery,” said Wen Shuyue, senior manager of the office sector for Savills Beijing.

Supervision stressed on insurance investment

Supervision stressed on insurance investment

China should enhance supervision and management of the country’s insurance investment, said Li Kemu, vice chairman of the China Insurance Regulatory Commission (CIRC) on Sunday. 
“With insurance funds were extended into disparate fields, other than bank deposit, demand for a better supervision and risk control enhanced, said Li at the International Finance Forum held in Beijing.
By the end of September, 3.4 trillion yuan (497.8 billion U.S. dollars) of insurance funds were invested in bonds, mutual funds, and stocks markets. Bonds investment alone accounted for 50.6 percent of the total.
Jiang Dingzhi, China Banking Regulatory Commission (CBRC) Vice Chairman also highlighted the importance of establishing a “all-coverage” financial supervision system.
He suggested the country broaden the financial supervision and management system, which would put the mutual funds, hedge funds, and credit risks appraisal agencies under control.
The new system requires financial institutions to share information, and also cooperate to fill the supervision blanks between different financial markets, he said.

Airlines get nod to set fuel surcharge

Airlines get nod to set fuel surcharge

Chinese airlines will be able to set their own fuel surcharges, subject to a government-set ceiling, from Saturday, the country’s top economic planner said yesterday.
The National Development and Reform Commission (NDRC) announced a mechanism that links jet fuel prices and fuel surcharges for domestic routes and scrapped a unified standard for the surcharge.
Domestic airlines can collect the surcharge when their jet fuel purchase prices are above 4,140 yuan ($606) per ton. The government will set the ceiling based on a formula that includes jet-fuel prices, flight distance and airport fees.
The airlines must shoulder at least 20 percent of the increased fuel costs, the NDRC said on its website. The airlines will be able to make changes to their fuel surcharges within five days of the government adjusting jet-fuel prices.
“The new mechanism will allow airlines to differentiate their fuel surcharges and give passengers more choice. It will help promote healthy competition in the market,” the NDRC said on its website.
The NDRC cancelled fuel surcharges 10 months ago when oil prices hit a record low. But expectations for a resumption of fuel surcharges soared after the NDRC raised domestic jet fuel prices by 6.6 percent to 5,190 yuan per ton from Tuesday to reflect global oil prices.
“We definitely welcome the new system because it will give airlines more flexibility,” said Rao Xinyu, board secretary of Air China, the country’s flag carrier.

But Rao declined to tell when and how the airline would start charging the fuel tax and how the new system would affect its profitability.
Jet fuel accounts for about 40 percent of the total operating costs of Chinese airlines.
“The airlines will have more freedom to design their own pricing strategies and alter their ticket prices more easily to win travelers,” said Li Lei, an aviation analyst with CITIC China Securities.
Chinese airlines carried 18 percent more passengers in October than a year earlier, the Civil Aviation Administration of China said yesterday. Domestic passenger air traffic soared 22 percent year-on-year in the first 10 months despite a worldwide industry slump.

Eximbank may get capital shot soon

Eximbank may get capital shot soon

China Eximbank, a wholly State-owned policy lender, may get a capital boost from the government as early as January next year to help kickstart its long-awaited restructuring process, sources with knowledge of the matter said yesterday.
China Central Huijin Investment Co, an investment arm of the nation’s sovereign wealth fund, will be the only entity that will infuse capital into the bank, one source at China Investment Corporation, who declined to be named, told China Daily.
“A restructuring plan for the bank has been submitted to the State Council for approval, though the amount of cash injection has yet to be decided,” the source said.
The State-owned trade financier, which has been on the restructuring radar since 2007, needs government funds to bail itself out of the lending mess arising from non-performing loans given to government-favored projects.
Another source at the Ministry of Finance, who asked not to be named, said the bank will not be transformed into a commercial entity and will remain committed to supporting the country’s export and import development by offering favorable financial services even after the restructuring.
“The bank will retain its function as a lending arm of the government, but it will also be allowed to do some commercial lending businesses as an important source of revenue,” the source said.
This is a far cry from the reform path that China Development Bank (CDB), another major policy lender that funds the nation’s large infrastructure projects, went through after it was relaunched late last year.
The government thought of overhauling CDB into a pure commercial bank in its original reform blueprint, but the drive to fully commercialize the bank lost steam after the global financial crisis.
China Eximbank had total assets of 566.7 billion yuan ($ 83.01 billion) by the end of 2008 and earned a profit of 199.6 million yuan last year, its 2008 annual report showed.

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 China Eximbank loads up support for shipbuildersEarlier, it was reported that Central Huijin would sell as much as $11.7 billion in bonds to fund China Eximbank and China Export and Credit Insurance Corp. The two banks may get the equivalent of $12 billion and $4 billion respectively from Huijin, Bloomberg reported yesterday, citing people close to the matter.
“It is very rare for Huijin to issue bonds to finance the recapitalization of banks, as the common practice earlier was that Huijin injected money it received from the nation’s foreign exchange reserves directly into the banks,” the source at China Investment Corporation said, adding that he was unaware about the bond issuance.
The government spent about $650 billion to recapitalize major State-controlled commercial lenders, including the Industrial and Commercial Bank of China and Bank of China, in an effort to help them eventually float shares in a row a couple of years ago.
After completing the restructuring process of China Eximbank, the government may embark on reforming the Agricultural Development Bank.