Glut in output may hurt steel industry

Glut in output may hurt steel industry

Excess production may hit profi t margins. [China Daily]
China’s steel output may rise 10 percent this year, aggravating the steel sector’s oversupply problems and clouding the 2010 iron ore talks that are ready to kick off soon.
The country’s steel lobby, the China Iron & Steel Association (CISA), said yesterday at a media briefing that steel output would rise by 50 million tons to 550 million tons this year.
“Oversupply problems have weighed heavily on steel prices and squeezed profit margins. This could lead to a more difficult situation in the fourth quarter and extend to the next year also,” said Luo Bingsheng, CISA vice-chairman.
Luo said the industry’s production capacity would rise by 58 million tons this year, from 660 million tons in 2008.
“The oversupply situation will take a long time to sort out, given the fact that some steel mills are expanding capacity in the name of modernization or increasing it without necessary approval,” he said.
Steel output rose 7.5 percent to 420 million tons in the first nine months of the year, according to official data.
He admitted that Chinese steel mills are at a disadvantage in annual iron ore negotiations due to their low industry concentration, while the three global iron ore miners are in an advantageous position due to their monopoly.
“There are a few people saying that the iron ore price would increase in the next round of the negotiations, but that is only a reasonable speculation, based on the weak US dollar,” he said. “However, the basic fact of iron ore supply outstripping demand is not going to change. There will be little room for prices to rise at next year’s talks,” he said.
This year’s iron ore price negotiations hit a deadlock in June after CISA insisted on a better discount on 2008-09 prices after a 33-percent cut in benchmark iron ore prices had been set with other Asian steel mills.
Chinese steel prices have fallen 20 percent since early August as oversupply weighed on steel prices.
Seventy large- and medium-sized domestic steel enterprises posted a combined net profit of 30 billion yuan ($4.39 billion) in the first nine months of this year, down 78 percent from a year earlier, according to the CISA.
Operating revenue from their core business was nearly 1.56 trillion yuan in the first nine months, down 24.4 percent from a year earlier.
CISA also reported that stockpiles of steel at 26 Chinese cities grew 5.3 million tons to 11.1 million tons in the first nine months.

Blowing up a property bubble

Blowing up a property bubble

A bidder enters the race for a property during a sale at an auction house in Lanzhou, capital of Gansu province. [China Daily]

When China announced its massive stimulus plan, the package was aimed at putting the economy back on a long-term growth trajectory – not stoking another property boom.
But fears are growing that the 4-trillion-yuan ($586 billion) financial boost is being siphoned to inflate an unsustainable property bubble.
For many potential homebuyers, house prices were already too high when the package was launched in November last year. Yet the gap between salaries and house prices could widen even further if the record sums now being spent at land auctions are any indicator.
Across the country, property plots known as di wang, or “land kings”, are fetching unprecedented amounts in bouts of frenzied bidding.
What has surprised many seasoned analysts, though, is that most of the bidding is being done by State-owned enterprises (SOEs), which have access to vast amounts of cheap financing thanks to the stimulus package.
Of the 10 most expensive land purchases in China’s major cities this year, six were made by SOEs.
Last month, Poly Real Estate Group Co Ltd, a leading Chinese property developer and subsidiary of State-owned conglomerate Poly Group, paid 1.79 billion yuan – almost 7,000 yuan per sq m – for a plot in Nanjing, capital of Jiangsu province, making it the city’s most expensive piece of land for commercial development.
China Overseas Land and Investment, a development firm listed on the Hong Kong Stock Exchange and a subsidiary of State-owned China State Construction Engineering Corp, in September purchased land in Putuo district of downtown Shanghai for 7 billion yuan, more than 22,000 yuan per sq m. Part of the plot attracted no bidders when it was put up for sale at 1.6 billion yuan in July last year.
The deals are causing consternation among Chinese government officials, including Li Rongrong, chairman of the State-owned Assets Supervision and Administration Commission, who said recently that SOEs should focus more on core activities.
Despite concerns over the stimulus money, however, the situation has presented the bosses at SOEs with a dilemma as the quick returns on property ensure enterprises meet the government-set performance targets.

“Because of the speed in which property can be developed in China, SOEs can get a return from real estate development in just one year. Returns from investments in research and development or a new manufacturing process take much longer,” said Bing Zhang, of Shanghai-based management consultants A.T. Kearney.
However, Pan Shiyi, chairman of Soho, a major non-State commercial developer, said the behavior at land auctions of some State-owned bidders defies logic.
One of his company’s competitors, Franshion Properties, a wholly owned subsidiary of State-owned Sinochem, successfully bid 4.06 billion yuan for land in Beijing in June.
“It was far higher than what other bidders were offering,” said Pan. “Most SOEs have easy access to bank loans, and many are turning to real estate because they are reluctant to invest in manufacturing while there is still a problem of over-supply after the downturn.”
Many people operating in the property sector are worried that SOEs have had the major share of 4-trillion-yuan stimulus fund.
If so, it puts private companies at a disadvantage, according to Ren Zhiqiang, chairman of Huayuan Property Co Ltd in Beijing, who said: “State-owned enterprises have an edge in fundraising and the cost of their fundraising can be a lot lower than for private companies.”
The big question is, what will be the impact of the inflation of land prices on property down the line?

Regulator to keep track of realtors

Regulator to keep track of realtors

An eye-catching property ad along a street in Nanjing which reads “Do you want?” At the end of August, liabilities exceeded 90 percent of assets at more than 160 developers that have borrowed at least 50 million yuan each from banks, sources said. [China Daily]
China’s banking regulator plans to review debt levels at some real estate developers on concern that the companies’ borrowings are fueling excessive gains in property prices, a person familiar with the matter said.
China Banking Regulatory Commission (CBRC) wants to reduce leverage at developers that bought land at inflated prices and at large State-owned companies that have entered the property market, the person said, declining to be identified because the plans haven’t been made public.
Some developers have borrowed too much, threatening to cause an increase in delinquent debts should property prices collapse, the person said. China’s home prices rose at the fastest pace in a year in September as government stimulus spending drove a recovery in the world’s third-largest economy.
“Should lending be tightened, the impact on the property market would be huge,” said Liu Xihui, a Shenzhen-based analyst at Ping An Securities Co. Restrictions on second mortgages imposed after June 30 “had a big impact” on demand both among property investors and people looking for new homes, he said.
 
At the end of August, liabilities exceeded 90 percent of assets at more than 160 developers that have borrowed at least 50 million yuan ($7.3 million) each from banks, the person said. New loans for real estate development surged 121 percent from a year earlier in the first half to 403.9 billion yuan, according to the People’s Bank of China’s latest quarterly report.
New credits for home purchases more than doubled to 479.3 billion yuan in the period. A gauge tracking 24 real estate firms traded in Shanghai has climbed 120 percent this year, the best-performing group on the benchmark Shanghai Composite Index.
Some banks loosened mortgage down payment requirements this year to boost market share, and some paid commissions to developers and real estate agents for referring borrowers, the person said. Almost 10,000 mortgages defaulted in the first eight months of 2009, taking the total to 140,000 at the end of August, the person said.
The CBRC’s Shanghai branch in July ordered lenders to obey rules on mortgages for second homes and step up scrutiny of approvals. On Oct 28, the regulator said it plans to tighten rules on personal loans to prevent them from being used for speculation. 

Battle breaks out over game approval

Battle breaks out over game approval

In a rare turf war between regulatory agencies, the Ministry of Culture (MOC) yesterday opened fire on the General Administration of Press and Publications (GAPP), saying its decision to pull the plug on a popular online game was “an act out of bounds”.
The firefight broke out after GAPP decided Monday night to suspend its approval of the World of WarCraft online game. The game has more than 1 million players on the Chinese mainland.

In effect, the GAPP decision ran against a State Council circular issued last July that declared the MOC was in charge of regulating the multi-billion dollar online gaming industry.
GAPP had previously overseen the industry.
It has ordered NetEase.com, China’s second-largest Internet games operator and the company with the license to run World of WarCraft in China, not to charge users. GAPP has also told the company to power off its servers and refuse to accept new account registrations.
GAPP is responsible for reviewing and approving “publications” and the department contends that online games are a form of “online publication”.
The MOC insists online games are within its portfolio.
The MOC called an emergency press briefing yesterday afternoon in Beijing to respond to GAPP’s decision to suspend approval on the popular online game.
Li Xiong, head of the MOC’s department of cultural markets, insisted the ministry had the sole right to regulate online games.
“As long as they’re online, these online games and publications are fully subject to administration by the MOC,” Li said.
Nasdaq-listed NetEase is “complete in its paperwork and the content of its game is legitimate”, Li said, insisting that GAPP should not have become involved and blocked the game.
GAPP had earlier threatened to cut NetEase’s Internet service, something that Li said it was not authorized to do.
The MOC will report relevant matters to the State Council, added Liu Qiang, chief of its Internet culture division.
GAPP allowed NetEase to begin testing World of WarCraft on July 30 on the condition that it did not charge gamers and did not allow the registration of new accounts. But NetEase allegedly began to break those conditions on Sept 19.
GAPP responded on Monday evening by saying it had pulled approval of the game.
In a written statement, NetEase yesterday said it had not been officially notified of GAPP’s decision. The company said it was “currently seeking clarification” from the relevant authorities.
Officials from GAPP could not be reached for comment yesterday.
Experts have described China’s online gaming industry as one of the nation’s most promising sectors. The nation’s online gaming industry took in around 2.7 billion yuan last year, according to official statistics.
China had 217 million online gamers by June.
The battle between the two regulatory agencies over who controls online gaming has left many players anxious.
Zhang Chao, 28, who has been a World of WarCraft player for five years, said the dispute was “a show of the intensity of conflict between government agencies whose roles have not been clearly defined”.
“Of course, players like us wouldn’t want to see the game suspended. This looks as if they’re just messing around with things over a conflict of interest,” Zhang said.
A 29-year-old worker at an online advertising agency, who would only give her cyber name, Xiaoyun, said she plays for around four hours a day. She said many online gamers will play via servers in Taiwan, where they will have to spend about twice as much.
“I don’t care which government agency is overseeing online games. But whoever it is, they never come to us for our opinion,” she said. “The players are the biggest victims.”

Air China to hold 51% in cargo deal with Cathay

Air China to hold 51% in cargo deal with Cathay

Air China will hold 51 percent of a cargo venture with Cathay Pacific which it hopes to finalize in the first half of next year, a Chinese airline executive said on Monday.
An industry newsletter sent to Reuters said the two carriers will provide 10 Boeing 747-400 freighters to their Shanghai-based venture which will take off before the Shanghai world expo in May 2010. It did not say where it got the information.
An Air China spokesman said discussions for the tie-up were on-going between the two carriers and no financial details, including the total investment of the venture nor size of its fleet, had been decided.
Air China in August bought a further 12.5 percent stake in Cathay, lifting its interest in the Hong Kong-based carrier to 29.99 percent.
The venture could give Air China and Cathay a foothold in Shanghai, a major air hub in the country, and help them better compete with China Eastern Airlines, which will have rough half of the Shanghai market after its planned merger with Shanghai Air.

Agricultural hi-tech fair opens, highlighting innovation

Agricultural hi-tech fair opens, highlighting innovation

China’s most influential agricultural high-tech expo opened Sunday in Xi’an City, capital of northwest China’s Shaanxi Province, highlighting agricultural innovation and high-tech advancement.
More than 5,000 new agricultural technologies and projects of over 1,100 companies from home and abroad are showcased at the 16th China Yangling Agricultural Hi-Tech Fair, said Liang Hongxian, deputy director of Yangling hi-tech zone’s administration committee.
Addressing the opening of the fair, State Councilor Liu Yandon gurged efforts to develop modern ecological agriculture with high yields, high quality and high efficiency through science and technology advancement.
It is imperative to push for the agricultural innovation to achieve development, to settle the “double restrictions” China’s agriculture faces, namely the resources environment and market supply and demand, Liu said.
China welcomes foreign agricultural companies to invest and setup R&D branches in the country and encourages domestic hi-tech agricultural companies to explore the overseas market, she added.
The fair is jointly hosted by the provincial government of Shaanxi and the ministries of science and technology, commerce, education, agriculture and 14 other ministries.
The previous 15 fairs attracted more than 13 million business people and visitors from home and abroad, recording a combined transaction volume of 160 billion yuan and bringing benefits to more than 300 million farmers, Liang said.

China probably not to extend favorable measures in property sector

China probably not to extend favorable measures in property sector

With a solid recovery in the real estate market, the Chinese government would probably not continue the measures unveiled last October to boost the property sector amid the global financial crisis, the China Business newspaper reported Sunday on its website.
The Newspaper quoted an unnamed source close to the Ministry of Housing and Urban-Rural Development (MHURD) said, “Those policies were effective for one year. The MHURD will not propose to extend them.”
Late last October, Beijing rolled out a series of favorable measures to boost the falling property sector amid the global economic downturn.
These measures, which took effect on Nov. 1 last year, included cutting the mortgage rates by as deep as 30 percent, lowering the stamp tax on house purchases from 3-5 percent to 1 percent for first-time home buyers acquiring an apartment of less than 90 square meters, and reducing the down payment requirement to 20 percent from 30 percent.
These measures, implemented by the Ministry of Finance, the central bank and the State Administration of Taxation, had been largely proposed by the MHURD, the newspaper quoted the source as saying.
Thanks to these policies and rising demand, China’s property market has seen price and sale hikes after February this year. Net profit of China Vanke, the country’s largest property developer by market value, jumped nearly 30 percent year on year to about 3 billion yuan (439 million U.S. dollars) in the first three quarters of this year.
Figures from the National Bureau of Statistics indicated that housing price in 70 of China’s large and medium-sized cities rose 2.8 percent in September compared with the same month last year. On a month-to-month comparison, it was 0.7 percent higher than in August, and it was the seventh straight month of price increase of housing price.
Real estate investment is one of the largest contributors to China’s urban fixed-asset investment, which has been an important driver of China’s double-digit economic growth of recent years.

Smartphone wars heat up

Smartphone wars heat up

Mobile operators are competing with each other in the 3G segment by offering new smartphones. [China Daily]

In China’s 3G-market arena, China Mobile has always been the front-runner. It was the first carrier to launch 3G services, the first to run an online application store, and the first to release its own mobile operating system.
But the world’s largest cellphone operator now seems likely to lose the numero uno status for launching the first 3G handsets.
Even as the second largest carrier China Unicom plans to launch the much talked about iPhone today, China Mobile has delayed the launch of its first 3G Ophone, the Lenovo Mobile O1.
Wang Yan, general manager of Lenovo Mobile, confirmed to China Daily yesterday that the carrier has deferred the online purchase of the 3G Ophone, which was originally sold at 4,999 yuan, the same as China Unicom’s iPhone.
Wang said since China Mobile had not yet finalized the final subsidy plan for the handset, it put on hold last week’s plan to launch 3G Ophones.
The company will now start rolling out the handsets as early as next week, he said.
“As it is an important product for both companies, we want to make the product as appealing as possible to consumers,” he said. Wang said the Lenovo Mobile O1 would be sold through China Mobile’s own distribution channels in the first three months after the product is launched and the price could be as low as free, on condition that consumers choose specific subscription packages.
China Mobile yesterday declined to confirm Wang’s remarks.
As the first handset to support China Mobile’s 3G network, Lenovo Mobile O1, dubbed the iPhone killer, is expected to be one of the most important products that would help China Mobile fend off competition from China Unicom.
Although China Mobile has a dominant position in China’s 2G market, its advantage has been challenged in the 3G segment. China Mobile’s TD-SCDMA standard has got less support from handset vendors than the WCDMA standard that China Unicom has adopted.
During the past few months, China Unicom has aggressively pushed its 3G service and introduced Apple’s popular iPhone, which has a huge fan base in the world’s largest mobile population. Industry experts estimated that there are 700,000 to 1 million unauthorized iPhone users in the country.
Pang Jun, an analyst from research firm GfK China, said iPhone and Ophone actually do not have direct competition. “China Unicom regarded iPhone as a perfect marketing logo to promote its 3G services and does not want to make it affordable to ordinary users,” he said.
“But the success of Ophone is critical to China Mobile, which means it has to be affordable,” Pang said.
China Unicom, the country’s second-largest mobile operator by subscribers, said earlier this month that it would offer eight iPhone subscription packages costing between 126 and 886 yuan a month. The company also provides stand-alone handsets, with the cheapest at 4,999 yuan, about 25 percent higher than the same handset sold in Hong Kong.
Wang Yuquan, a senior consultant at research firm Frost & Sullivan, said compared with the competition between iPhone and Ophone, the biggest challenge actually comes from the smuggled handsets.
“For starters, China Mobile cannot make the Ophone as cheap as its current 2G handsets while China Unicom is not willing to reduce the iPhone pricing,” he said. “In addition, considering both China Mobile and China Unicom made compromises on the Ophone and iPhone such as WiFi functions and the App store, I think the winner is likely to be the ’smuggled phone’.”

China retail sales may grow 16% in 2010

China retail sales may grow 16% in 2010

China’s retail sales will grow around 16 percent in 2010 as boosting domestic demand will remain the focus of policy, a newspaper cited a commerce official as saying on Thursday.

Wang Bin, an official in the market operation department of China’s Ministry of Commerce, said consumption had not yet recovered to the rapid expansion path seen before the global financial crisis, and there was still plenty of space to expand demand in the country, the China Securities Journal reported.
The 16 percent growth rate in retail sales is largely in line with what China posted in the first quarters of this year.
He said though it was not certain whether all stimulus polices like promoting car sales to rural consumers would continue next year, expanding domestic demand was poised to be a key note of macro policy.
Wang made the remarks at a forum held by the National Bureau of Statistics.

Geely, up on Volvo bidder tag, faces uphill task

Geely, up on Volvo bidder tag, faces uphill task

Geely Automobile, whose shares soared yesterday after being named the “preferred bidder” for Ford’s Volvo unit, could win a valuable brand if the bid succeeds, but could take years to see profits from the loss-making Swedish carmaker.
Home-grown Geely, which means “lucky” in Chinese, is hungry for modern and innovative technologies that can upgrade its cars to tap the growing affluent auto market in China, the biggest in the world.
“I think the market is still divided on the Geely deal,” said Chen Qiaoning, an analyst with ABN AMRO TEDA Fund Management.
“If its parent indeed gets Volvo and the deal serves it well, the listed firm would benefit tremendously. But if they are unable to handle Volvo… the listed company will suffer.”

Market watchers have been hopeful that Geely, which used to make China’s cheapest cars, would reap benefits in better brand recognition and new technology if its parent, Zhejiang Geely Holding, can buy Volvo and turn the company around.
Investors have bid up Geely’s stock more than four-fold this year, sending it to a record high yesterday, even as the broader market slipped.
Ford Motor named Zhejiang Geely Holding Group as a preferred bidder for its loss-making Swedish unit Volvo Car Corp late on Wednesday, bringing the long-running sale process closer to a conclusion.
“That for sure will shorten the technology development time for Geely,” said Vivien Chan, auto analyst with Sinopac Securities Corp.
Geely shares rose as much as 4.5 percent to HK$3, the highest since the company was listed in 2004 after buying a shell company. The stock ended yesterday up 2.1 percent.
Zhejiang Geely said its bid is supported by Chinese banks and it will now embark on further detailed discussions with Ford.
“We have made a great effort and are well prepared. But whether the deal will go through depends entirely on the negotiations,” Yuan Xiaolin, a spokesman for Zhejiang Geely told Reuters.
Media reports suggested the price tag for Volvo could be closer to $2 billion than the $6.45 billion Ford paid for the Swedish carmaker in 1999.