Companies at a glance, Auto parts deal

Companies at a glance, Auto parts deal

BeijingWest Industries Group, a Chinese investment company led by State-owned steelmaker Shougang Group, said it bought US auto parts giant Delphi Corp’s brake and suspension unit for about $100 million.
Delphi is reorganizing under bankruptcy court protection from creditors. The sale includes brakes and suspension businesses in the United States, Poland, France, Britain, Mexico and China that employ about 3,000 people, BeijingWest said.
“This purchase will allow BeijingWest Industries to enter the premium auto chassis market,” Beijing West Chairman Fang Jianyi said in a statement.
Clean car development
Shanghai Automotive Industry Corp (SAIC) Group plans to invest 6 billion yuan ($879 million) to research and begin making alternative energy cars for the next two years, the group’s chairman, Hu Maoyuan, said.
The investment includes 2 billion yuan to support the research and development of clean energy cars, 2 billion yuan to produce parts for new energy cars and 2 billion yuan to build manufacturing factories, Hu told an industry forum in Beijing last week.
He said SAIC plans to market a series of new energy cars that will use as much as 30 percent less fuel than traditional cars. By 2012, the company plans to manufacture cars that will use at least 50 percent less fuel, as well as electric cars.
China’s automobile production reached 10 million units in October, making it the third country in the world to surpass the annual output mark, according to the China Association of Automobile Manufacturers.
Nuclear equipment
China Guangdong Nuclear Power Group (CGN) signed contracts with 30 private enterprises to purchase 1 billion yuan worth of nuclear power equipment, the company reported last week.
This is the first time that CGN, the only nuclear power enterprise in China, with 129.8 billion yuan in gross assets, purchased equipment from the domestic private sector, said Huang Yicai, manager of the CGN Zhejiang province nuclear power project.
All 30 companies that signed contracts with CGN are based in Zhejiang. Most of the nuclear power equipment in China is manufactured by State-owned enterprises, whose capacity has become inadequate with rapid development of the clean energy industry, Huang said.
Digital deal talks
Digital China Holdings and its affiliates are in talks to invest about 5 billion yen ($55 million) in Japanese systems developer SJI Inc, the newspaper Nikkei reported.
Digital China Holdings is an information technology distributor spun off from PC giant Lenovo Group in 2000. Its parent firm is Chinese conglomerate Legend Holdings, Nikkei reported.
Digital China Holdings and its affiliates are considering buying shares in a private placement or stock warrants, and could ultimately become SJI’s top shareholder with a roughly 40 percent stake, the newspaper stated.
Doubling capacity
China’s Sanmenxia Tianyuan Aluminum Co plans to double its production capacity for secondary aluminum next year to 100,000 tons, a senior executive of the company said.

“Although there is overcapacity for now, aluminum consumption will definitely increase every year,” Xiao Chongxin, deputy general manager of the company, said last week.
“We are optimistic about the primary aluminum market next year, but cautious on the price outlook,” he added.
Xiao said he expected aluminum prices to hover around 16,500 yuan a ton next year.
Sanmenxia Tianyuan currently has a production capacity of 50,000 tons. Part of the secondary aluminum is used as feedstock for its aluminum products.

Local theme parks competes with Disneyland

Local theme parks competes with Disneyland

Dreams of millions of Disney fans in China will come true with the Chinese government’s announcement on Nov 4 that a green light has been given to US-based Walt Disney Co to build a Disneyland theme park in the Pudong New District of Shanghai.
But some observers said the new park will pose one more threat to an already embattled amusement park industry.
The first batch of Chinese amusement parks emerged in the 1980s, but most of them have since closed due to fierce market competition and other factors.
“At that time, the government and operators didn’t have enough experience, and these parks had a lack of integrated and suitable planning,” said Tao Huai, an industry expert and China manager of US-based Premier Rides Inc.
Tao said operators didn’t know how to make their parks focus on themes that would attract more tourists instead of just equipping the parks with standard attractions.
Success stories
The Beijing Shijingshan Amusement Park and Shanghai Jinjiang Amusement Park were two success stories at that time, and they still are in operation today.
But as more Chinese people visited first-class theme parks in Europe and the United States, they cultivated more refined tastes, and many old parks back in China gradually lost their appeal, sources said.
Since the mid-1990s, new generations of theme parks have been built in China, including Happy Valley in Beijing, Chendu and Shanghai, Chimelong Park in Guangzhou, Shenzhen Overseas Chinese Town and Suzhou Amusement Land.
Additionally, two port cities, Shenzhen and Tianjin, each bought a retired Soviet aircraft carrier to transform into theme parks.
“Many of them imported advanced concepts of design and planning from abroad, along with fascinating attractions and a scientific management mode,” Tao said.
“I could say that some of them are able to compete with their international rivals of medium size,” he said.
That is one reason some theme park operators do not feel threatened by another Disneyland in China.

“We take Shanghai Disneyland not as a competitor, but as a foreign counterpart that will inspire us to provide better services,” said Cui Zhineng, general manager of Jin Jiang Action Park in Shanghai.
Operators of Shanghai Happy Valley, which opened to the public on Sept 12, also said they would welcome another park to stimulate the local tourism market.
“As a home-grown theme park, we have more products based on the Chinese culture and cater to Chinese visitors, and we cost less,” said Ren Kelei, chairman of OCT Enterprise Co, which runs Happy Valley.
Parita Chitakasem is research manager of the Singapore office of market research firm Euromonitor International.
“Competition is already hot in China’s theme park industry, so Disney will be up against some very large players,” Chitakasem said about the next Disneyland in China.

Canon bets big on medical equipment sales

Canon bets big on medical equipment sales

Technology firm Canon Inc is hoping to make sizable inroads into the growing medical equipment market in China after enjoying success with its digital cameras and printers.
The company expects to clock a 50-percent increase in medical equipment sales this year, said Yasuhiro Matsuda, general manager of Canon’s healthcare business.
“Demand for healthcare equipment has been increasing in China,” said the general manager. “We expect medical revenue to account for 10 percent of our total revenue in China in the next few years,” he said.
The Chinese government had earlier this year said it would invest 850 billion yuan ($124.5 billion) over the next three years to revamp the medical system. Nearly one-third of the amount would be used to build new hospitals and upgrade existing facilities.
That, Matsuda said, is expected to further stimulate China’s medical equipment market, especially in rural areas.
Canon entered China’s healthcare market in 2007. Last year, its sales of medical equipment, mainly the digital radiography system, increased 100 percent.
Digital radiography system is a new X-ray imaging equipment where digital X-ray sensors are used instead of traditional photographic film. The new system is time efficient as it bypasses chemical processing. Digital radiography system also has the ability to digitally transfer and enhance images.
Matsuda said nearly 40 percent of Canon’s products in China are sold directly to hospitals through the company’s distributors. The balance is part of the whole system set up by other medical solution vendors such as Neusoft and Shimadzu Corporation.
He said the digital radiography system shipments are expected to touch 1,000 units in China this year.
According to research firm Frost & Sullivan, China’s medical equipment market revenue touched 83 billion yuan last year, accounting for one-eighth of the country’s total healthcare industry.
The research firm said China’s ongoing healthcare reform is expected to create a huge demand for basic medical equipment such as X-ray machines, CT scanners and ultrasound scanners, many of which will be procured by the government.
Matsuda said the price of a whole digital X-ray system is about 2 million yuan, whereas Canon’s digital radiography system is sold for 1.5 million yuan.
The company plans to further reduce medical equipment prices to make it more affordable and also intends to launch more products in the Chinese market soon.

Oz govt OKs Wugang investment in Centrex

Oz govt OK’s Wugang investment in Centrex

Shares of Centrex Metals Ltd jumped to a record in Sydney trading yesterday after the Australian government approved Chinese miner Wuhan Iron & Steel Group’s (Wugang) A$271 million ($247 million) investment in the Australian iron ore firm.
Wugang will also acquire a 60-percent stake in the iron ore rights of five Centrex projects in South Australia that could contain up to 2 billion tons of resources, the company said yesterday in a statement to the Australian Stock Exchange.
Centrex shares jumped 10.9 percent to 71 cents on the exchange, the highest since the company began trading in July 2006.
Wugang shares rose 0.66 percent to 7.67 yuan yesterday on the Shanghai Stock Exchange.
Centrex said it has already got approval from China’s National Development and Reform Commission for the deal.
Wugang will buy 15 percent shares in Centrex for A$10.1 million and become the Australian firm’s second largest shareholder, and also have a seat on the Centrex board.
“The cornerstones are now in place to rapidly escalate our iron ore growth on Eyre Peninsula into a billion-dollar business,” Centrex chairman David Lindh said in the statement.
Under the deal, Wugang will also form a joint venture with Centrex to develop iron ore resources in South Australia.
Wugang is also acquiring a 50-percent stake in Centrex’s port development project in South Australia.
The Wugang deal comes close on the heels of Chinese steelmaker Baosteel acquiring a 15-percent stake in iron ore explorer Aquila Resources and Yanzhou Coal Mining Co’s $3.2-billion takeover of Felix Resources.
Wugang had in September sought to invest in South Australia, but faced roadblocks for the deal as the mines were near a missile testing range.
Insiders said relations between Chinese investors and Australia have always been complicated. Australian mining companies are welcoming Chinese investors to satiate their capital needs. However, many of Chinese firms are now running into local obstacles.
“It is essential for steel makers to ensure stable raw material supplies,” said Du Wei, a steel analyst at consultant firm Umetal. “The Chinese government is also encouraging domestic investors to look for overseas investment avenues.”
The Australian government, however, does not pose any hurdles for small mining projects. However, for large and mature projects, the situation is different. Since most of these projects do not have cash flow problems, the resistance often crops up when the Chinese investors want to take a controlling stake. 

CNPC, Chevron ink gas field deal

CNPC, Chevron ink gas field deal

China National Petroleum Corp (CNPC) and US oil major Chevron have signed an agreement to jointly develop a gas field in the northeast of Sichuan province, which would be China’s biggest onshore exploration venture with a foreign company, CNPC said yesterday.
The National Development and Reform Commission (NDRC), China’s top economic planning body, on Oct 29 granted approval to the two companies to develop the Luojiazhai field, CNPC said in a statement yesterday.
CNPC and Chevron will accelerate development of the field to ease energy shortages in Sichuan, said the statement.
CNPC holds a 51-percent interest in the project and Chevron takes the rest.
The field is in the Chuandongbei area, which covers nearly 2,000 sq km and has an estimated reserve of 5 trillion cubic feet. That almost doubles China’s 2008 annual gas output.
The regulatory approval came almost two years after Chevron signed a 30-year production sharing agreement with CNPC to develop the area.
To support its gas operation in Sichuan, Chevron opened an office in Sichuan’s Dazhou last year.
Chevron and CNPC plan to build two sour gas plants with a throughput capacity of 740 million cubic feet of natural gas per day, Chevron said last year.
 
China’s natural gas production will be 120 billion cu m in 2011, a three-year plan (2009-11) chalked out by the National Energy Administration has outlined.
Under the plan, production would see a 58-percent increase from last year.
Under the blueprint, China will build some large oil and gas production bases over the next three years. The country will stabilize the output from oilfields in northeast China and the Bohai Sea Bay area, while speeding development of fields in the Tarim, Junggar, Erdos and Sichuan basins.
China will also work to increase its offshore oil and gas production, said the plan.

Toyota planning R&D center in China

Toyota planning R&D center in China

The world’s largest carmaker Toyota Motor Corp is planning to strengthen its research and development capabilities in China to provide better services and cash in on the booming local demand.
Japan’s Nikkei business daily reported yesterday that the company plans to spend 30 to 40 billion yen ($330 to 440 million) to establish a research and development center in China as early as next year.
The newspaper also said that the center, with a full-scale test course, would be set up in Shanghai.
Toyota China’s spokesman Niu Yu told China Daily that the company is focusing on enhancing its R&D capabilities in the country.
“But we still don’t have a set timetable and place, or a solid project,” said Niu.
Toyota has four production bases in Tianjin, Chengdu, Guangzhou and Changchun, in association with Chinese partners.
It has only a 6-percent market share in China, which is set to top the US as the world’s biggest auto market, including vehicles produced at its joint ventures with Chinese firms, according to Nikkei.
“The establishment of a local R&D center is necessary for Toyota, who wants to grab more market share in the domestic market,” said Li Chunbo, an auto analyst with CITIC Securities. “The R&D center is an important part of a company’s localization strategy.”
Other global automakers, like Volkswagen AG, General Motors and Hyundai Corp, have set up R&D centers in China, and tailored their car models closer to local demand. Japan’s Nissan and Honda also have R&D facilities under their Chinese joint ventures.
The Pan Asia Technical Automotive Center, GM’s automotive engineering and design joint venture with SAIC Group, is China’s biggest R&D facility in automobile industry since its establishment in 1997.

Interview: Dell executive sees bright future in China market

Interview: Dell executive sees bright future in China market

Dell Inc., one of the world’s major personal computer (PC) makers, foresees a bright future in China, which is already the second largest market for the company, a Dell executive has said.
“China is expected to become the largest PC market in the world by 2015. Needless to say there are many opportunities to grow,” Amit Midha, president of Dell China, told Xinhua in a recent written interview.
Eleven years after Dell entered China in 1998, the company has established a solid footprint and is enjoying strong growth in the market.
“Dell’s China business has regularly outperformed the overall industry in China as well as our businesses in other parts of the world,” Midha noted.
Last year, Dell increased its units shipped in China four times faster than the rest of the industry, has taken over the No. 1 position in servers with its highest share in recent history, he said.
“We continue to have great momentum within China’s growing data centers. Storage also is showing strong momentum as our Equa lLogic business continues to grow in double digits on a sequential basis,” added Midha.
Speaking to reporters in Hong Kong in October, Steve Schuckenbrock, president of large enterprise for Dell, said China was a “bright spot” for the company amid the information industry’s slump.
All of Dell’s businesses saw “relatively significant” growth in the first half of this year compared with the same period in 2008,Schuckenbrock said.
Midha believed that in addition to Chinese government’s stimulus spending, “our results owe more to investments we have made in China, as well as the region’s overall appetite for information technology.”
Last year, Dell spent 23 billion U.S. dollars in China, becoming one of the largest purchasers of electronic equipment and goods in the country as well as one of the largest exporters.
“We expect that figure to grow significantly this year and for the trend to continue well into the future,” Midha said.
Viewing the consumer business as a key area of its growth in the world’s most populous country, Dell is also expanding deeper into the consumer retail sector with its products now available in more than 6,000 retail outlets across China.
During the past decade, China has evolved into a critical business opportunity for Dell and one that the company has looked to when introducing new solutions and capabilities for its global customer-base, Midha noted.
Looking ahead, he said new efforts taken by Dell such as moving into services are expected to facilitate the company’s success and wellbeing in China in the long-run.
Dell announced this Tuesday that it has completed its offer of 3.9 billion dollars to buy Perot Systems Corp., an information technology service provider. The acquisition has lead to the creation of a new global business unit called Dell Services.
With the strength Dell has developed in China in the last decade as well as the new capabilities the company obtained through the new acquisitions, “I believe we have a bright future for Dell in this part of the world,” Midha said.

Otis sets up elevator plant in Chongqing

Otis sets up elevator plant in Chongqing

Elevator maker Otis is setting up a new factory in the southwestern city of Chongqing to capitalize on the burgeoning growth in the industrial region.
“We want to be closer to our customers and market,” Didier Michaud Daniel, president of Otis Elevator Company, told China Daily after announcing plans to set up the company’s fourth production base. Otis already has three elevator factories in the coastal regions of the country.
Daniel said the high growth of the construction industry in the western region has spurred demand for elevators and escalators.
Construction is mushrooming in Chongqing whose double-digit growth in gross domestic product is dwarfing that of eastern regions during the economic downturn. The city’s property market is estimated to grow 30 percent year-on-year.
Otis has managed to secure large orders from China despite the global economic downturn thanks to the massive infrastructure construction deals financed by the 4-trillion-yuan stimulus package. Some of the new orders include a contract for 334 elevator units at Longtan Headquarter City in Chengdu, the capital of Sichuan province, 198 units for two metro lines in Beijing, 85 units for Xi’an airport and 151 units for the Shanghai 2010 Expo.
Growing market
China’s elevator market as a whole is slated to clock a 20-percent growth from 2008 to 2010, while annual sales are expected to reach $50 billion.
Otis, along with other players in the industry, is also accelerating its investment in the country. Hitachi Elevator opened its third factory in Shanghai earlier this year.
The Chongqing factory, with an annual capacity of 10,000 units, is only the first phase in the company’s blueprint for China. Daniel said Otis was exploring the possibility of another investment plan, but refused to elaborate on this.
The concentration of installed elevators is higher in the Western countries, with about 50 percent of the world’s elevators installed in Europe. But emerging economies in Asia, and particularly China, have taken a clear lead in new installations, according to research by Koncept Analytics.
“One-third of our new equipment bookings comes from China which could be even greater this year considering the depressing situation in the Europe and the US,” said Daniel.
Freedonia Group, an industry research firm, said per-capita elevator use in China remains less than 10 percent of that in western Europe, signaling the large market potential.
Otis, with 25-percent market share globally, considers western China as virgin territory where demand for low-end residential elevators is huge, Daniel said.
Otis had launched its much-vaunted ReGen Drive technology, which could save as much as 70 percent of energy, in China in 2007. The company is now devoting more time and research to develop more energy-efficient technologies.

Sovereign fund plans London arm

Sovereign fund plans London arm

China Investment Corporation (CIC), the country’s sovereign wealth fund, has begun talks on setting up its first international office in London, a leading investment agency has revealed.
The fund, which has $200 billion at its disposal, is known to have been looking for a base outside China for some time, and has been recently very active in the UK capital.
CIC was recently part of a consortium which carried out the $1.3-billion bail-out of Canary Wharf, the London office complex.

Michael Charlton
Michael Charlton, chief executive of Think London, the capital’s inward investment agency, who is on a visit to China, said that he was in talks with CIC.
“Prior to the investment in Canary Wharf we have been talking to them about setting up an international operation in London with a view to acting as eyes and ears and gaining local intelligence and connections,” he said.
CIC is known to be considering New York and Hong Kong as possible alternatives to London as an overseas base.
Charlton said London was the only obvious choice for CIC in Europe but he recognized there were other international rivals.
“It is probably the only choice in Europe, but it is whether or not they choose New York ahead of London. We remain hopeful that when the time is right for them they will choose us,” he said.
Charlton said Think London, which has brought over 1,000 companies from 45 countries to London in the last 10 years, was not involved in the Canary Wharf negotiations.
“In that case, CIC made its own way in the world. They are a very well-connected organization and they found Canary Wharf who were looking to recapitalize themselves. We have a very good relationship with CIC and are hopeful of making the case for their first international investment being in London,” he said.
Charlton, who was in Beijing before going to Shenzhen, Hong Kong and Taipei, says there was now a “window of opportunity” for CIC and for other Chinese investors and corporations to take advantage of the bargain basement prices for assets in the UK as a result of the economic downturn and the fall in value of the sterling.
He said the value of commercial property was down by up to 40 percent in the capital, pointing out that Nomura, the Japanese bank, which took over Lehman’s European business last year, has managed to negotiate a 20-year lease on an 11-story building for $6 a sq m with a four year rent-free period thrown in, compared to $9.85 a sq m it would have paid before the downturn.
This is before the currency effect, which can effectively make London assets up to 70 per cent cheaper.
He added the assets available in London were still high quality even if the prices were lower.
“The fact that you have asset price depreciation does not necessarily mean you have depressed assets. The two are not necessarily the same thing,” he said.
He said there were many opportunities for Chinese companies to profit from the London 2012 Olympics, where $15 billion worth of contracts are available.
Crystal Digital, which produced computer graphics for the 2008 Olympics opening and closing ceremonies, and Honav, a metal badge maker are the two Chinese companies which have already won contracts.
“Chinese companies have recent experience of being involved with the Olympics, but they also face competition from companies from Australia (hosts of the 2000 Games),” he said.
The Olympics is part of $60-billion redevelopment of east London, including the Thames Gateway development, which will change the face of the city over the next 20 years.
Charlton believes these opportunities could only reinforce London as the largest destination in Europe for Chinese investment.
“This creates many opportunities for Chinese and other foreign firms,” said Charlton.

Investment bank keen to exit CICC

Investment bank keen to exit CICC

Global financial services giant Morgan Stanley is yet again looking to sell its entire holdings in China International Capital Corp (CICC), the country’s first and most profitable investment bank, sources in both the US-based financial advisor and CICC confirmed yesterday.
On Tuesday, a report in the Wall Street Journal, citing people familiar with the situation, said that Morgan Stanley had asked potential buyers to submit indicative first-round bids for its 34.3-percent stake in CICC.
The deal could fetch more than $1 billion, it reported.
Two people from the US investment bank and CICC, who did not wish to be identified by name, separately confirmed the news, saying the CICC stake sale was a precursor to Morgan Stanley setting up another local joint venture.
“Chinese regulators won’t approve a new joint venture unless it sells the CICC stake,” said the sources.
Morgan Stanley is planning to form a joint venture securities firm with Shanghai-based China Fortune Securities Co, in which it can have more management say.
Morgan Stanley was the first foreign investment bank to enter the country in 1995 when it invested $35 million to form CICC in partnership with State-owned China Construction Bank.
As China’s leading investment bank, CICC has specialized in sprucing up State-owned firms ahead of initial public offerings.
Morgan Stanley, however, did not have much influence over CICC’s management led by Zhu Yunlai, its president, and had limited role in the operation of the brokerage during the past decade.
The US firm started the process of selling its stake in 2007. Final bidders included several international private-equity firms such as Bain Capital, TPG and a consortium comprising General Atlantic, Starr International and JC Flowers.
But the process came to an end early in 2008 after offers came in below expectations amid the onset of the global credit crisis.
The original offer of more than $1 billion for the stake had dropped to around $600 million by the end of the first round, the Financial Times reported, citing people familiar with the situation.
This followed a due-diligence process when bidders discovered that the CICC management was unhappy with the current shareholding arrangement.
Under the structure, the management had been granted non-voting shares that entitled them to paid dividends and could effectively dilute Morgan Stanley’s shareholding to around 27 percent.
But a source from CICC said yesterday that this time around, Morgan Stanley was very likely to sell its 34.3-percent stake for $1 billion as China’s booming stock market could add considerable bargaining power on the seller’s side.
CICC’s net profit dropped 49 percent to 627.4 million yuan ($91.89 million) last year from 1.24 billion yuan in 2007. Net profit is expected to climb this year amid a rebound in China’s capital markets, one of the few bright spots globally. CICC has taken on little debt and has focused on fee income, leaving it with a strong balance sheet.
China’s sovereign wealth fund, China Investment Corp, became its largest shareholder with a 43.35-percent stake after inheriting the stake originally held by China Construction Bank. Another sovereign wealth fund, Government of Singapore Investment Corp, holds a 7.35-percent stake.