Investors shrug off bubble talk

Investors shrug off bubble talk

 

A worker atop metal scaffolding at a construction site in Shanghai. Global investors have played down fears of overheating in China’s property sector and said they would continue their investments. [CFP]
International investors do not anticipate any burst in the property bubble for now and continue to remain bullish even as the government is taking steps to cool the sector.
Noted investor Mark Mobius, who oversees $34 billion of developing-nation assets at Templeton Asset Management Ltd, said in Singapore on Friday that he plans to increase holdings in Chinese stocks by purchasing shares that benefit from consumer demand, including developers and raw-material suppliers.
“Property prices are high, but I don’t see a crash,” said Mobius. “The Chinese are watchful and they are not going to let things get out of control. They want the growth to continue at a measured pace and there’s nothing wrong with that.”
China’s property prices climbed in November at the fastest pace since July 2008, fueling concerns of asset bubbles. Residential prices in 70 major cities rose 5.7 percent from a year earlier, compared with a 3.9 percent increase in October.
The State-owned Assets Supervision and Administration Commission on Thursday asked enterprises under its supervision to be careful while venturing into the real estate and stock markets amid the complicated and fickle economic conditions.
Meanwhile, the central bank on Thursday raised the auction yield of its three-month bills for the first time since mid-August and is set to drain 137 billion yuan ($20 billion) from the market this week, as it intensifies the pace of quantitative tightening to curb excessive market liquidity.
The China Banking Regulatory Commission may further increase the down payment from the existing 40 percent to 50 percent for second-home buyers to curb speculative purchases, said sources.
Andrew Mattock, who manages the $342 million Henderson Horizon China Fund, said he would stay “fairly aggressive” on property stocks as the risks of curbing loan growth are already priced in.
The Shanghai index of property stocks has dropped nearly 28 percent in the year through Jan 7 after reaching a one-year high in July. Shenzhen-based Vanke, the country’s biggest publicly traded developer, and Guangzhou-headquartered R&F Properties Co are among the worst performers on the MSCI China Index in the last six months. The measure has climbed 23 percent during the period, lagging behind a 35 percent gain in the MSCI Emerging Markets Index.
Manop Sangiambut, head of China A-share research at CLSA Asia-Pacific Markets, feels that property stocks will rebound as policy changes have already been factored into share prices.
International real estate funds are also changing their modalities of investment in China’s property sector.
Grant Ji, director of Savills (Beijing), a UK-based real estate service provider, said many foreign investors are now keen on joining hands with the developers from the development stage itself.
“That in turn would be easier for the investors to get returns of 20 to 30 percent, which they can never achieve through investments in completed office buildings or shopping malls,” said Ji.
The traditional mode is also losing luster for foreign investors as yields have declined due to surging prices and lower rental income, he said.

Small steel mills face “big” problems

Small steel mills face “big” problems

Consolidation moves in the fragmented domestic steel industry are set to gather pace in the coming days as the government is contemplating restricting sector entry to mills having production capacity of at least 1 million tons or more annually.
The biggest casualties of such a move would be the small steel mills, who would now have no choice but to come together or get snapped up by bigger rivals, said industry sources.
The government has also decided to raise environmental standards for steel mills, forcing them to upgrade their equipment or have their licenses revoked, said a draft policy document released yesterday by the Ministry of Industry and Information Technology.
The proposals are yet to be implemented and have currently been sent for public feedback, the statement said.
As per the new guidelines, steel mills would now have to install blast furnaces of over 400 cu m, compared with the 300 cu m standard set in April this year.
“We may add two 500-cu-m blast surfaces to meet the standards and expand our capacity to 1 million tons, but it also depends on our ability to get bank credit,” said a sales manager from Shandong Jintai Steel Corp, a steelmaker with an annual capacity of 600,000 tons.
“Most of the smaller mills may find the going tough once the new norms come into place. Their survival would depend on the ability to tie up financing requirements and failure to do so would trigger a spree of mergers in the sector or closures,” he said.
“The planned moves look contradictory to the government’s intention to curb oversupply, especially when small steel mills expand their capacity to over 1 million tons,” said Du Wei, a steel analyst with Umetals Research Institute. “The norms should also be backed up with supporting credit policies,” he said.
According to the new environmental standards, mills should cap sewage discharge at 2 cu m and sulfur dioxide emission at 1.8 kg for every ton of steel made.
Government departments should not approve construction and upgrading if steel mills can’t meet the requirements and should not issue sewage discharge and land permits, the draft proposal said.
Industry sources, however, maintain that Chinese government has taken the first steps as the fragmented industry could find itself at the mercy of the “Big Three” miners, namely BHP Billiton, Rio Tinto and Vale, for future iron ore supplies.
They point out that even big miners like Rio Tinto and BHP Billiton are on a consolidation mode, after they decided to merge their Australian iron ore operations into a new venture. By forcing the small steel mills to join hands, the Chinese government expects to build up enough firepower to match up to the international miners.
However, the industry also faces an acute oversupply situation and that could dent future profitability, said China Iron and Steel Association (CISA).
“Oversupply problems have weighed heavily on steel prices and squeezed profit margins. This could lead to a more difficult situation next year also,” Luo Bingsheng, vice-chairman of CISA, said earlier.

New lending cap of 8 trillion yuan

New lending cap of 8 trillion yuan


Customers line up at a bank in Nanjing, Jiangsu province. New yuan loans amounted to 8.9 trillion yuan in the first 10 months of 2009. [China Daily]
China’s banking regulator plans to cap new lending at around 8 trillion yuan next year, but the target might be subject to instant changes according to the economic environment, a source with knowledge of the matter said.
The regulator has retained flexibility in its credit policy, as there were still uncertainties lying ahead, the source, who declined to be named, told China Daily yesterday.
The credit policy is in line with the tone set by the Central Economic Work Conference that ended on Monday, in which the government pledged to continue with its expansive fiscal and monetary easing policies but reserved leeway for possible policy fine-tuning.
“We will guide Chinese banks to maintain the continuity and stability of their credit policy and enhance the banks’ role in supporting the economic development,” the China Banking Regulatory Commission (CBRC) said in a statement on its website in response to the pivotal economic conference.
However, it is still up to the People’s Bank of China, the nation’s top monetary authority, to set the loan target for next year. Conventionally, the central bank will disclose the target sometime after the Central Economic Work Conference. “So far the central bank is still working on the loan target,” the source said.
The CBRC’s 8 trillion yuan loan target is less than the record-setting 8.9 trillion yuan that Chinese banks advanced in new loans in the first 10 months of this year, doubling the 3.4 trillion yuan that banks gave out in the whole of 2008.
The rapid credit expansion helped China to emerge from the economic doldrums earlier this year, but it eroded Chinese banks’ capital position, causing wide speculation that banks were planning to raise a hefty amount of capital from the equity market next year.
Wang Zhaoxing, vice-chairman of the CBRC, made it clear in an article published last week that big State-run lenders and medium-sized banks were now obliged to maintain their capital adequacy ratio above 11 percent and 10 percent respectively, from the earlier requirement of a unified 10 percent for all the banks.
With the more stringent regulatory standards, Chinese banks are expected to raise some 200 billion yuan in fresh capital next year, including 160 billion yuan needed by the top three lenders, to keep their capital adequacy ratio above 12 percent, major domestic brokerage Haitong Securities estimated.
The news that big banks planned to raise funds through new share sales has already weighed on the stock market, which plunged more than 3 percent in one day last month on the market rumor that Bank of China, the nation’s third-largest lender, had to raise 100 billion yuan from the bourse.
Yin Zhongli, a senior researcher at the Chinese Academy of Social Sciences, said that although credit growth might slow next year, banks’ thirst for capital was still pressing.
He suggested diverting some of the new share sales to the international market to avoid a heavy blow to the domestic capital market, as most Chinese banks were dual-listed in the mainland and Hong Kong and had a good prospect for growth in the eyes of international investors.

Auto stimulus retained for 2010

Auto stimulus retained for 2010


Buyers examine a small car in an auto market in Nanjing. Purchase tax for smaller cars will be levied at 7.5%. [China Daily]
China will extend stimulus measures in the automobile industry for one more year, with small adjustments, to further support the world’s biggest and fastest-growing auto market.
The government announced the decision yesterday after an executive meeting of the State Council chaired by Premier Wen Jiabao.
The stimulus package, which was due to expire at the end of this month, includes a 50 percent cut in the 10 percent purchase tax for cars with an engine capacity of, or less than, 1.6 liters and subsidies for trade-in cars. It will now be extended to Dec 31, 2010.
However, the purchase tax for smaller cars will be lifted from the current 5 percent to 7.5 percent of the total vehicle price.
Furthermore, the government also decided to raise the subsidy for trade-in cars from between 3,000 and 6,000 yuan to between 5,000 yuan and 18,000 yuan per vehicle.
The stimulus package launched by the government in January helped China’s automobile sales to exceed an expected 13 million units this year, making the country surpass the US as the world’s biggest auto market.
“It’s unusual that demand for automobiles in a country increases more than 4.5 million units within 12 months, and sales break the monthly record for seven months in a year,” said Rao Da, secretary-general of China Passenger Car Association.
Statistics from the China Association of Automobile Manufacturers (CAAM) show that the smaller cars, with engine capacity of, or less than, 1.6 liters, contributed 85 percent of the sales increase in the domestic auto market. Most of the best-selling cars in China are smaller cars.
The association estimated that the stimulus measures boosted the sales of smaller cars by 2.6 million units this year.
Because of the favorable policy, sales of the battery and electric car pioneer BYD in the first 11 months surged 150.2 percent to 388,246 units. About two-thirds of the car sales were of the F3 model, a compact sedan that topped China’s best-selling car list for seven months, with monthly sales surpassing 30,000 units, nearly double the figure for last year.
According to CAAM, China’s auto production and sales almost doubled from figures a year ago to reach 1.39 million and 1.34 million units respectively in November.
Overall auto sales topped 12.23 million units in the first 11 months, up 42.39 percent from the same period last year.

22 Chinese cities to get subways

22 Chinese cities to get subways

China’s State Council has approved plans for 22 cities to build subways with a total investment of 882 billion yuan ($129 billion), the People’s Daily Overseas Edition reported Wednesday.
Eleven cities in China currently have subways covering a total of 835.5 km.
China will also have another 89 subways measuring 2,500 km in total as of 2016 with an investment of 993 billion yuan ($145 billion).

Taiwan Bank to set up Shanghai bureau

Taiwan Bank to set up Shanghai bureau

The Chinese mainland authority gave approval Tuesday for Taiwan Bank (TB) to establish an office in Shanghai, the chinataiwan website reported.
As a leading bank in Taiwan, the move acts as a milestone in cross-Straits financial cooperation, according to financial circles.
After the bureau is in place, TB will conduct market research and make contact with local businesses. The TB authority expects to see the Cross-Strait Economic Cooperation Framework Agreement (ECFA) sealed and a TB branch also set up in Shanghai.
TB is anticipating that the Memorandum of Understanding on Financial Supervision will be enacted on January 16, 2010 and Taiwan banks will establish more branches and offices on the mainland accordingly after that, the website quoted Taiwan-based CAN as saying.

Australia nods Baosteel investment in Aquila

Australia nods Baosteel investment in Aquila

Australia’s Foreign Investment Review Board (FIRB) on Friday approved the acquisition by China’s largest steel maker of up to 19.99 percent of coal miner and iron ore explorer Aquila Resources.
The Australian government has given the green light for the AU$285 million ($260 million) transaction.
The final hurdle to be cleared is approval by Chinese regulators after Aquila shareholders voted in favor of the proposed deal at the company’s general meeting in Perth on Wednesday.
“Whilst the proposed issue of shares to Baosteel by the company is for 15 percent of the expanded issued share capital of the company, Baosteel has FIRB approval to acquire up to 19.99 percent, ” Aquila said.

“Subject to receipt of relevant Chinese regulatory approvals which have been sought by Baosteel, the company anticipates completion of the transaction in the latter half of November.”
The deal is Baosteel’s first major international strategic investment in a public company and secures it a long-term supply of raw materials.
“Aquila looks forward to working closely with Baosteel and to fast tracking the company’s significant coal, iron ore and manganese projects,” Aquila said.
Under the terms of the deal, announced on Aug 28, Baosteel has agreed to assist Aquila in sourcing low cost financing from Chinese institutions to underpin development of its projects.

New Airbus logistics hub in Tianjin to serve all projects

New Airbus logistics hub in Tianjin to serve all projects

Airbus will set up a logistics center in Tianjin to optimally manage the supply chain for all its projects in China, the aircraft manufacturer said yesterday.
The European aircraft manufacturer signed a memorandum of understanding with Tianjin Free Trade Zone yesterday to set up the center, which will serve as a hub to manage the transportation needs of all Airbus aircraft components flowing in and out of the country.
“As Airbus is expanding its activities in China, a logistics center will help us optimize the supply chain for all our projects in a more streamlined way while reducing costs and increasing efficiency,” said Laurence Barron, Airbus China president.

Barron said Tianjin was selected mainly because of the northern coastal city’s geographic advantage as a major seaport and its proximity to Airbus’ A320 aircraft final assembly line.
The logistics center will begin operations at a temporary location in the free trade zone in January 2010. The facility will first manage simple logistics operations for the A320 wing-equipping project in Tianjin and Airbus’ manufacturing joint venture in Harbin.
The center will become fully operational at a permanent location in March 2010 and its service will be extended to cover all Airbus industrial packages in the country, including the final assembly line.
More than half of Airbus’ worldwide fleet has components produced in China. Currently, six Chinese aviation companies manufacture parts and components for Airbus. They are located in Harbin, Shenyang, Tianjin, Xi’an, Chengdu and Shanghai, and handle their own logistics.
The total value of Airbus’ procurement in China surpassed $100 million last year and is expected to touch $200 million annually in 2010 and $450 million from 2015.
Airbus opened its first final assembly line outside of Europe in Tianjin last year. The plant delivered its first A320 plane in June and is expected to roll out a total of 11 jets this year. The project has helped Tianjin attract investment from other foreign aviation related companies, such as Goodrich and Thales.
The logistics center is expected to further promote the development of Tianjin as one of the major aviation centers in the country, said He Lifeng, the city’s deputy Party secretary.

CNPC charts big investment plan

CNPC charts big investment plan

The company will invest 200 billion yuan in Xinjiang. [China Daily] 

China National Petroleum Corp (CNPC), the country’s largest oil and gas producer, plans to invest 200 billion yuan in the Xinjiang Uygur autonomous region between next year and 2015 to boost economic development in the region, said a company official.
The investment will mainly go toward oil and gas production facilities, oil refining and chemicals manufacturing bases, crude and refined oil reserves and oil and gas pipelines, said Zhou Jiping, vice-president of the company.
Xinjiang has 30 percent of China’s onshore oil reserves and 34 percent of the country’s natural gas reserves, available statistics indicate. At present, CNPC’s largest oil and gas production base and oil refining facilities in western China are all located in Xinjiang.

In September, the company started operating its Dushanzi oil-refining complex in Xinjiang. With a crude processing capacity of 10 million tons a year and an ethylene production capacity of 1 million tons annually, the project is also the largest oil-refining complex in western China.
Last year, CNPC discovered a natural gas field with proven reserves of 100 billion cu m in northern Xinjiang. The Klameli field is the first reserve of this size ever discovered around the Junggar Basin.
Discovery of the field, about 250 km from the city of Karamay, will alleviate the gas shortage in northern Xinjiang, according to the company.
With large oil and gas reserves, Xinjiang is of strategic importance to CNPC as well as to China’s energy sector. More advanced technology is needed to develop the rich resources in the region, said analysts.
In September, China started construction of seven energy projects with a total investment of 23 billion yuan in Xinjiang.
The projects include the Dushanzi strategic oil reserve base, which is part of China’s second phase of strategic oil reserve bases. The base has a capacity of 5.4 million cu m and will stockpile crude mainly from Kazakhstan, according to the National Energy Administration (NEA).
China has finished its first phase of strategic oil reserves, which consists of four bases in the country’s coastal provinces. The first four bases have a total capacity of 16.4 million cu m and they were all filled last year, according to the NEA.
Zhang Guobao, head of the NEA, told reporters in September that the country would build more strategic oil reserves, like the Dushanzi project, in inland areas.
Besides the Dushanzi reserve, other under-construction projects in Xinjiang include three plants that will provide electricity and heating to local people, one power transmission line, one coal mine and one liquefied natural gas project.

Chinese firm opens $100m pipe plant in Mexico

Chinese firm opens $100m pipe plant in Mexico

Chinese company Golden Dragon (GD) opened a $100-million copper pipe plant on Wednesday in the northern Mexican state of Coahuila, the biggest investment ever by a Chinese manufacturer in Mexico.
The plant, which covers 200,000 square meters, will bring 900 jobs to Coahuila’s city of Monclova.

At the launching ceremony, GD’s president Li Changjie said that he was confident that Mexico was a good place to invest. He added that the Monclova plant was part of a global strategy which would allow his company to meet the demand in North America and Europe.
The firm currently has an annual capacity of 60,000 tons of copper tubes for air conditioners. It is currently training 300 Mexican workers and plans to boost the annual capacity to 120,000 tons when the new workers are in place.
Also at the ceremony, the head of the Mexican trade promotion body ProMexico, Bruno Ferrari, said the new plant symbolized the confidence that major international firms had in Mexico and its competitive advantages, which included low industrial costs and an attractive exchange rate.
The GD, founded in Xinxiang, China’s Hunan province, has a total workforce of 10,000 and gross sales of more than $2 billion worldwide.