Fears Of A Housing Bubble In China Are Without Merit

There has been much reporting in Western media recently that China’s real estate market may be entering a bubble. Indeed, the market is strong right now – prices of commercial and residential property in China’s 70 largest cities rose by 10.7% year-over-year in February.  But when one considers the data and structure behind China’s real estate market, it becomes clear the market is quite far away from a bubble.

First, to put the numbers in perspective.  The recent rises in real estate prices are not that large considering China’s GDP grew by 8.7% in 2009 while average urban disposable income grew by 8.8%.  Average housing prices in China have actually decreased relative to incomes in the past 10 years, compared to a massive increase that even now still persists in the US.
One must also consider the assets available for Chinese to invest. There are currency controls in China that prevent Chinese from freely investing in assets of any class outside of China and the available investment products / assets are quite limited.  Real estate is a hard asset that is easy for the Chinese to understand and trust.  For many of them, it is either put their assets in the volatile domestic equity exchanges or in real estate.

The most cited evidence of a bubble is the ratio of average home prices to average annual household incomes. This is almost ten in China; in most developed economies it is only four or five. However, Chinese homebuyers do not generally come from the average income bracket but from the wealthiest 20-30% of the urban population. Using this population segment’s average income, the ratio is well in line with developed world levels.

Chinese homes carry much less debt than Japanese properties did 20 years ago or US properties did leading up to the financial crisis.  One-quarter of Chinese buyers purchase properties fully with cash, and the average mortgage covers only about half of a property’s value.

Home owners who intend to live in their new home must make a minimum deposit of 20%, with most putting down much more.  Investors have to make a minimum deposit of 40%. Chinese households’ total debt stands at only 35% of their disposable income, compared with 130% in Japan in 1990 and 138% in the US pre financial crisis.

China’s property boom is being financed by savings, not bank lending. Only about 20% of the cost of new construction is financed by bank lending. Loans to homebuyers and property developers account for only 17% of Chinese banks’ total versus 56% for American banks. A bubble occurs when highly leveraged speculators are forced to sell, which pushes prices lower and causes more borrowers to default.  This simply is not the way that China’s real estate market is structured.

If fear of a real estate bubble in China prevents some investors from allocating capital here, it will be to the benefit of investors who are more informed and are able to invest at better valuations in the meantime. 
 
Adam Roseman,
Founder & CEO
ARC China


China's Foreign Trade Up 45.2% In February
China's foreign trade posted a 45.2 percent year-on-year growth in February, the General Administration of Customs (GAC) announced.

Exports in February stood at $94.52 billion, up 45.7 percent, in a new indication of a rebound in global demand, while imports rose 44.7 percent to $86.91 billion.

Exports grew 8.2 percent compared with the same month in 2008 before the global financial crisis, while imports increased 9.8 percent.

The administration explained that February in 2008 and in 2010 had fewer working days due to the Lunar New Year holiday.

It also combined data from January and February which could show a more accurate picture of trade conditions as trade figures can be distorted by China's seven-day Lunar New Year holiday falling at different times in January and February.

Exports surged 31.4 percent to $204 billion in the first two months over the same period last year. Imports stood at $182.3 billion, up 63.6 percent.

The trade surplus contracted 50.4 percent in the first two months to $21.76 billion.
The European Union and United States remained China's two largest trade partners. Trade with the EU grew 34.5 percent to $65.53 billion, and with the US, it rose 25.1 percent to $49.32 billion.

Trade with the Association of Southeast Asian Nations (ASEAN) surged 66 percent to $39.12 in the first two months.

ASEAN overtook Japan as China's third largest trade partner in January after the China-ASEAN free trade area was launched on Jan 1.

Exports of machinery grew 29.4 percent to $40.73 billion and exports of appliances and electrical products added 32.4 percent to $46.05 billion. The two sectors accounted for 58.3 percent of total export value in the first two months.
Source: China Daily


Jan-Feb Loans Hit 28% Of Yearly Target
The new yuan-denominated loans extended by China's banks in the first two months of 2010 hit RMB 2.09 trillion ($306.17 billion), accounting for 28 percent of the nation's lending target of RMB 7.5 trillion set for this year.

The central bank will continue to ask lenders to tighten lending in the following months.
The market has worried about possible tightening measures since early this year, despite authorities' repeated assurance that "a moderately loose monetary policy" will stay.

According to statistics released by the People's Bank of China, new yuan loans in February decreased by half over January to RMB 700 billion. M2, the broadest measure of money supply, rose 25.52 percent in February year-on-year to RMB 63.6 trillion, but the rate was 0.56 percentage point lower than January's level.

"The current increase in exports has mainly resulted from exporters' absorbing inventory before the financial crisis (amid rising overseas demand)," said Ma, head of the Guangzhou branch of People's Bank of China. "A moderately loose monetary policy was still needed to sustain growth." Earlier, Liu Mingkang, chairman of the China Banking Regulatory Commission, had denied market rumors that the banking regulator was banning commercial banks from lending. The credit growth cap was set at RMB 7.5 trillion for 2010, according to him.

Su Ning, deputy governor of the central bank, also said raising the deposit reserve ratio does not necessarily mean a tightening of policy. He said he hoped the RMB 7.5 trillion new credit would accelerate the construction of existent projects and a control should be put on new projects.
Source: China Daily


China's Retail Sales Top RMB 2.5 Trillion In First Two Months
China's retail sales rose 17.9 percent year on year in the first two months to RMB 2.51 trillion ($367.5 billion), fueled by Lunar New Year consumption and the nation's stimulus measures, according to the National Bureau of Statistics (NBS).

The figure was 2.7 percentage points higher than the same period last year, and was 2.4 percentage points higher than the figure for 2009.

Urban consumption totaled RMB 2.07 trillion, up 18.4 percent year on year, while rural residents spent RMB 430.4 billion, up 15.5 percent, according to the NBS.

The catering sector generated RMB 280.6 million, a rise of 17.3 percent from a year earlier. Commodities retail sales leaped 17.9 percent to RMB 2.22 trillion, the NBS said.

Spurred by a string of stimulus policies, consumption has made a larger contribution to economic growth, as the nation attempted to switch from an export-relied to a demand-driven economy.

Consumption contributed 4.6 percentage points, or 52.5 percent, to last year's 8.7 percent GDP growth. The figure was 0.2 percentage points higher than that in 2007, according to the NBS data released in February, but the NBS did not provide the 2008 figure.

The government has stepped up its efforts to prop up consumption since early 2009, including government subsidies and tax breaks for home appliances and cars, to offset the economic downturn brought by falling exports.
Source: Xinhua Net


Home Inns Sees Expo Boosting Shanghai Room Rates
Home Inns & Hotels Management Inc, China's second-biggest budget hotel operator, said this year's World Expo in Shanghai will boost room rates by as much as 20 percent, and it's adding up to 200 hotels nationwide.

"We're positive about demand during the Expo," said David Sun, chief executive officer of Home Inns. "We may see full occupancy at our hotels in Shanghai" during the fair.

Nasdaq-listed Home Inns has 61 hotels in the eastern Chinese city, which plays host to the World Expo May 1 to Oct 31. A total of 192 countries, including the UK, France and Japan, and 50 international organizations will participate, and organizers are expecting 70 million visitors.

The company expects to add between 180 and 200 hotels this year. That's up from 145 new hotels last year, when the slowing economy forced the company to miss its forecast of more than 200 hotels, said Sun. Home Inns' shares have declined 8.7 percent this year in US trading, compared with a 1.6 percent gain in the USX China Index, which tracks US companies that derive a majority of their sales from China.

The company had 616 hotels in operation in 120 cities in China at the end of last year. The price for a standard room ranged between RMB 169 and RMB 299 ($25-$44) in different cities, he said.

At the depths of the economic crisis, China's expansion slowed to 6.1 percent in the first quarter of 2009 compared with the year earlier, its lowest level in a decade. Growth rebounded to 10.7 percent in the fourth quarter, the fastest pace since 2007, on government stimulus measures and record bank lending.

Home Inns' 2009 profit rose to RMB 256 million from RMB 101.2 million from the previous year. Fourth-quarter profit dropped 40 percent to RMB 68.4 million from a year earlier.
Sun said he expects the development of high-speed rail services and rising incomes to boost travel demand.

"High-speed rail will revolutionize domestic travel and we're seeing bright opportunities," he said.
Source: China Daily


Air China Hit 2-Year High On M&A Hopes After Fundraising
Investors bid up Air China shares to a two-year high on expectations the world's largest airline by market value will use its new $950 million war chest to fund acquisitions at home and abroad.

Air China announced that it would issue new A and H shares to its parent and other individual investors to raise about RMB 6.5 billion ($952 million). "The new funds will strengthen the company's balance sheet and the other catalyst for the stock price is M&A potential," said Kelvin Lau, an analyst at Daiwa Capital Markets.

Besides the widely expected acquisition of Shenzhen Airlines, Air China could buy strategic stakes in other Asian airlines, he said.

Air China, the biggest of the country's three major airlines including China Southern and China Eastern Airlines, already has a 25 percent stake in Shenzhen Airlines as the second-largest share-holder. Shenzhen Airlines recently appointed Air China Vice-President Fan Cheng as acting president, raising the chances for a takeover of the privately-run airline.

Air China's announcement said the proceeds of the share sale would be used for working capital, but could also help fund Air China's potential plan to lift its stake in Shenzhen Airlines in our view, JP Morgan said in a research report.

Air China chairman Kong Dong said that the carrier was keen on mergers and acquisitions at home and abroad.
Source: China Daily


Steel Mills Head Home For Ore Stocks
Surging spot prices of iron ore are forcing steel mills to look for more domestic supplies, something that would also reduce their dependence on costly imports.

Beijing Ye-Steel Trading Co, a private steel mill that buys ore from the spot market, has stopped buying imported iron ore after prices surged to above $130 per ton in February.
"We are now buying domestic iron ore with a 66 percent iron content priced at RMB 1,080 ($158) per ton including tax, much cheaper than imported ore," said a sales manager from Ye-Steel. The company is one of several steelmakers choosing domestic iron ore sources more often.

Industry analyst Xu Xiangchun from consulting firm Mysteel said that since the spot price of imported iron ore is higher, many steel mills have increased offtake from domestic sources, especially from Hebei province where most of China's mines are located. This should help to keep rising imported iron ore prices in check, he said.

The price of 66 percent content ore from Iran rose to $144 per ton including freight on March 11 - more than double the 2009 benchmark price reached by Australia's Rio Tinto, BHP and Brazil's Vale.

That price is 7 percent higher than domestic ore, and if taxes are included, the price is nearly $168 per ton.

Ye-Steel's sales manager said domestic ore accounted for a mere 5 percent of the company's raw material consumption in 2009, as the global financial crisis weighed on imported ore prices.

But after spot prices of imported iron ore rose to a record high this year, he expects domestic supplies to account for 30 percent of the company's raw material usage in 2010. Since the domestic ore has a lower percentage of iron, it comes with higher mining costs attached to it.
Domestic iron ore production stood at 200 million tons in 2009 and is likely to rise by 20 percent in 2010, he said. Chinese steel mills are at a disadvantage in the annual iron ore price talks due to the large number of steel firms scattered across the nation, and their high dependence on imported iron ore.
Source: China Daily


JPMorgan Eyes Share Of China "Green IPO" Rush
U.S. bank JPMorgan will expand its 'new energy' team in China to win more business from what it sees as a trend to increasingly popular "green IPOs," its China chief said.
Fang Fang, JPMorgan's China CEO, predicts that more new energy and natural resource companies will go public as they seek to fund their rapid expansion, and there could be more consolidation among wind and solar power suppliers, creating a potentially lucrative advisory fee stream for bankers.

"This year, we see lots of opportunities in new energy, natural resources and construction material sectors," Fang said.

"I think such 'green IPOs' will be the trend for the next few years and some industry consolidation may take place, too. Technology, property and consumer sectors remain active," said Fang, who is a delegate to the CPPCC, China's top political advisory body.
In December, China Longyuan Power Group Corp, the world's fifth-largest wind power generator, raised $2.2 billion via a Hong Kong listing, the biggest wind power IPO in 2009, and Xinjiang Goldwind Science & Technology Co, a wind power producer, plans to raise $1.5 billion this year via a Hong Kong IPO, Reuters reported in January.

Fang, who joined JPMorgan in 2001 and was appointed to his current post in 2007, said the bank placed "a very significant focus" on China and was looking to grow its business there on several fronts.

"We want to provide multiple lines of services, not just investment banking but also something like corporate banking, asset management, commodities and carbon trading," he said.
"We're building up our deal pipeline nicely, and I expect deal volume to increase from last year," he said.

Fang submitted a proposal to Beijing last week that China should set up a domestic carbon trading exchange.

China has pledged to cut the amount of carbon dioxide produced for each unit of economic growth by 40-45 percent by 2020, compared with 2005 levels.

Fang added the bank was looking also to establish a securities joint venture in China as soon as possible, joining other investment banks such as Goldman Sachs and UBS that have already set up China securities joint ventures in recent years.

Under Chinese rules, foreign institutions must team up with local partners to form investment banking joint ventures to underwrite shares and conduct other securities business in domestic capital markets.

"The securities venture will provide us a very good platform to expand into more and new business," said Fang. "For example, serving domestic investors and issuers and helping foreign investors and issuers access Chinese domestic capital markets."

In China, JPMorgan already has joint ventures in fund management and futures business. A securities venture would help it tap China's growing innovative financial business such as the landmark stock index futures scheme due for launch next month.

JPMorgan is also hiring at its locally incorporated bank in China, which provides commercial and corporate banking, and Fang said the bank would add more branches to the five it currently has in big Chinese cities.

"We see lots of growth opportunities in the traditional investment banking business and that still has a long way to go in China," he said.

"At the same time, we see big potential in many other areas. For example, our local incorporated bank can help us reach more domestic enterprises and provide them with trade finance, treasury management and other corporate banking services."
Source: Zero2IPO


AES Closes Stock Sale To CIC
Global power company AES Corp said it raised $1.58 billion by selling a portion of the company to a subsidiary of China Investment Corp (CIC).

AES announced in November that it would raise the money by selling a 15 percent stake in the company. Late March 15, the company said that deal had closed.

CIC bought 125.5 million AES shares for $12.60 each. On March 16, the shares rose 21 cents to $11.78 in morning trading.

The AES deal also gives CIC a seat on the company's board of directors.
AES provides power in 29 countries, with more than two-thirds of its revenue generated outside the US.

CIC, with about $300 billion in assets, along with other state-controlled companies have been buying assets around the world, including oil and gas companies and stakes in financial companies.
Source: China Daily


Blackstone In $600m China Agricultural Deal
A consortium led by Blackstone Group has agreed to invest about $600 million in a Chinese agricultural company ahead of its planned Hong Kong listing.

China Shouguang Agricultural Product Logistic Park, one of the country's largest agricultural market operators, will sell a roughly 30 percent stake of the company to the group led by the US buyout giant for about $600 million.

The investment marks Blackstone's first pre-IPO type deal in China as Shouguang plans to raise about $700 million in a Hong Kong initial public offering (IPO) in the middle of this year after receiving investments from the Blackstone-led consortium.

It also became the second major investment in China for Blackstone, which agreed in September 2007 to buy a 20 percent stake in the major chemical maker China National BlueStar (Group) Corp for up to $600 million. The BlueStar deal was approved by Beijing in early 2008.

The consortium includes Capital, Atlantis Investment and Warburg Pincus, said the sources, adding Blackstone is the lead investor with the biggest portion.

"This will be the last round of private capital-raising before the company goes public," said one of the sources with knowledge of the deal. "Blackstone is apparently interested in this type of Pre-IPO deal with private company as well as investment in state enterprise like BlueStar," he added.

Shouguang is a family-owned business and it has hired investment banks including UBS and BOC International, the investment banking arm of Bank of China, to advise on its Hong Kong listing, said the sources.

The company is named after Shouguang, the Chinese city known as the "Home of Vegetables" -- a center of trade in vegetables and other agricultural products, not only for major domestic customers but also for international agricultural markets.

Shouguang won approval in 2009 to expand its logistic park project, after which trading volumes of vegetables, fruits and agricultural by-products are expected to reach 10 million tons annually, according to a company statement at that time.

Blackstone became aggressive in China business after it hired Anthony Leung, a former Hong Kong financial secretary as its Greater China chairman.

Leung has said the US buyout would not slow its investments in China despite the global financial crisis, as high economic growth and low valuations promised good returns.
Blackstone currently is raising a local currency yuan-denominated fund with a target size of about $750 million, purely for China deals.
Source: China Daily


Shanghai May Allow Foreign Investment In Yuan Funds
Shanghai's financial district may begin trials for allowing foreign investment in yuan-denominated private equity funds, the Oriental Morning Post reported, citing an unidentified person familiar with the situation.

Foreign capital may be allowed to invest in the funds through a qualified foreign limited partnership scheme, the Shanghai-based newspaper reported. The trials would be set in Shanghai's Pudong district, according to the report. 
Source: China Daily


HSBC Ready For Float In Shanghai
HSBC Holdings Plc, Europe's biggest bank by market value, is ready to list its shares on the proposed international board in Shanghai, Chief Executive Officer Michael Geoghegan said.
He said the lender will use the proceeds from the initial public offering (IPO) for investments in China.

"It's a matter for the government to decide when to allow the international floats in Shanghai. HSBC is ready when China is ready," said Geoghegan, who moved to Hong Kong from London recently to increase the lender's focus on emerging markets. He said the bank is yet to appoint advisers for the proposed float.

China plans to set up an international board this year to allow foreign firms to float shares in Shanghai. The move will not only open up more investment channels, but also fuel Shanghai's ambition to become a global financial center by 2020.
 
The Shanghai bourse has already finished drafting the rules for the international board, and will put them up for public comments soon, Shanghai Stock Exchange Chairman Geng Liang said earlier this month.

Apart from HSBC, Standard Chartered and Bank of East Asia are also keen on listing their shares in Shanghai.

The HSBC CEO said the lender was committed to participating in the rights issue of the Bank of Communications (BoCom). 

HSBC currently holds an 18.6 percent stake in BoCom, China's fifth largest lender by assets. Last month BoCom said it will raise up to 42 billion yuan through a rights offer in both Hong Kong and Shanghai.

"Network expansion is an integral part of HSBC's China strategy. In 2010, we shall continue our efforts and hope to provide more services in the mainland," said Richard Yorke, CEO, HSBC China.
Source: China Daily


Savers Switch To Equities
Investors opened the most accounts to trade Chinese stocks last week in three months as households shifted funds into equities to protect against faster inflation.

Individual investors opened 352,203 accounts, data from the nation's clearing house showed, the most since the week ended December 11 and a third straight gain.

Consumer prices jumped 2.7 percent last month, government data showed, exceeding the 12-month household savings deposit rate of 2.25 percent. The number of households expecting inflation to accelerate in the next three months increased, the central bank said.

"Real deposit rates have now fallen into negative territory, so it would not be surprising if Chinese savers decide to chase better returns elsewhere," said Brian Jackson, an emerging-market strategist at Royal Bank of Canada in Hong Kong.

The introduction of stock-futures trading may also be attracting investors. The first stock-index contracts, based on CSI 300 Index, may begin trading in mid or late April, Shang Fulin, chairman of China Securities Regulatory Commission, has said. The regulator said index traders will have to keep at least RMB　500,000 ($73,239) in their brokerage accounts.
Source: China Daily


China's SSF Yields RMB 84.9　Billion In 2009
China's national government pension fund, the Social Security Fund (SSF), yielded RMB 84.9 billion ($12.44 billion) on its investments in 2009, with a return rate of 16.1 percent, the 21st Century Business Herald reported, citing the National Council for Social Security Fund (NCSSF).

The SSF reported its first annual loss in 2008 since its founding nine years ago, losing 6.79 percent on its investments.

Realized gains on its investments stood at RMB 42.6 billion in 2009, NCSSF said.
The SSF's investment yields had amounted to RMB 244.8 billion as of the end of 2009, with an average annual return rate of 9.75 percent. It had total assets of RMB 776.5 billion, an increase of 38 percent from the previous year.
China's SSF is to reach RMB 1 trillion in 2010, said Dai Xianglong, chairman of the NCSSF.
Source: China Daily


BOC, Temasek Join Hands
Bank of China Ltd (BOC) and Temasek Holdings Pte may invest as much as RMB 20 billion ($2.9 billion) to build a rural-banking business in China.
The companies are in talks about setting up as many as 400 rural banks. Bank of China, the country's third-largest lender by market value, would own a controlling stake in the joint venture.
 
Bank of China, which pulled out of rural banking in the late 1990s, is returning to a market that has attracted HSBC Holdings Plc and Citigroup Inc as the government pushes to improve the living conditions of China's 700 million rural dwellers. The majority of the 118 countryside lenders set up since 2006 had become profitable by June 30.

Zhang Jianping, a spokesman for Bank of China, said the Chinese lender is in talks with Temasek to expand into rural-banking services.

Temasek, Singapore's $123 billion investment company, would own more than 20 percent of the venture. Setting up a rural bank in China requires approval from the banking regulator.

Temasek bought a 4.8 percent stake in Bank of China in August 2005 and has provided the company with expertise in lending to small- and medium-sized businesses.

China plans to set up a total of 1,027 rural banks, 106 loan companies and 161 rural credit cooperatives in the three years ending 2011.
Source: China Daily


Canadian Enterprises Seek Cooperation with Nanning
A delegation of officials and entrepreneurs from Canada's British Columbia and Alberta provinces is in south China's Nanning city to seek cooperation opportunities.

They are holding events to promote trade, investment, education and tourism resources of their home provinces in this capital city of Guangxi Zhuang Autonomous Region.

Attracted by Nanning's ecological environment and its core position in exchange with the Association of Southeast Asian Nations (ASEAN), the delegation also aims to explore the ASEAN market by using Nanning as a platform, delegation members said.

China and the Association of Southeast Asian Nations (ASEAN) launched the China-ASEAN Free Trade Area (CAFTA) on Jan. 1 this year, with an aim to boost trade cooperation and two-way investment between China and the 10 ASEAN nations.

In the CAFTA, the average tariff on goods from the ASEAN countries to China is cut down to 0.1 percent from 9.8 percent. The six original ASEAN members, Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand, will slash the average tariff on Chinese goods from 12.8 percent to 0.6 percent.
Source: Xinhua Net


Qinghai Province To Invest RMB 500 Million To Explore Mineral Resources
Northwest China's Qinghai Province will invest RMB 500 million (about $73.2 million) to explore mineral resources in the region's Qaidam Basin, according to the province's Land and Resources Bureau.

Qaidam Basin, which locates in the north of Qinghai Province, is one of China's four biggest inland basins.

So far, a total of 57 kinds of mineral resources, have been detected, with an estimated economic value of RMB 16 trillion (about $2.3 trillion).

The bureau says the RMB 500 million (about $73.2 million) will be mainly used to detect mineral resources within the region from 2010 to 2012.
Source: Xinhua Net


China's Switching Economic Growth Pattern Makes Global Economy More Stable: PWC Chief Economist
China's efforts of switching economic growth pattern would help to make an overall more stable world economy, said John Hawksworth, head of macroeconomics of PriceWaterhouseCoopers (PWC), one of the world's four largest accounting firms.
He told Xinhua that this would also ultimately be good for China in the long term. There will be a reduction in the global trade imbalances in the long run with China's efforts of shifting economic growth pattern.

Hawksworth said that China plays its part in making these adjustments, which is important for the long-term stability of the world economy. That is because China is a very important player, the world's biggest economy after the United State.
Meanwhile, he emphasized that other economies should also make adjustments and play their parts for the world economy.

"It will remain a very strong growing economy and I'm optimistic that it will meet challenges and will continue to increase its relative importance in the world economy over the next 10 or 20 years," he said.

With regards to the main reasons for China to shift its economic growth pattern, Hawksworth said that in the long run China wants to promote consumer spending as a big driver of growth.

China has been quite reliant on exports and investment in the past, he said. "Ultimately as China becomes a bigger part of the world economy, it can't continue to grow exports as fast as before. Also opportunities for more and more investment will be increasing."

However, he said that China can not suddenly switch to consumer spending. "It has to be a long-term process and would also depend on other types of policies."
He also said that it might be encouraged by gradual move towards an increase in the Chinese exchange rate which would tend to reduce the price of imports and therefore boost consumption and boost the household spending power.

At the same time, Hawksworth said China is facing some short- and long-term challenges in the process of shifting its economic growth pattern.

As for the short-term challenges, he said that China has obviously put a lot of emphasis on government spending and investment to stimulate the economy during the global financial crisis.

He said that is a short-term problem which really requires a gradual tightening of monetary policy. Some restrictions on bank lending are also needed to avoid this asset price bubble getting out of control.

In his view, the long-term challenge is about moving towards an economy that is more driven by household spending.
Source: Xinhua Net


China Drawing High-Tech Research From U.S.
For years, many of China’s best and brightest left for the United States, where high-tech industry was more cutting-edge. But Mark R. Pinto is moving in the opposite direction.

Mr. Pinto is the first chief technology officer of a major American tech company to move to China. The company, Applied Materials, is one of Silicon Valley’s most prominent firms. It supplied equipment used to perfect the first computer chips. Today, it is the world’s biggest supplier of the equipment used to make semiconductors, solar panels and flat-panel displays.

It is hardly alone. Companies — and their engineers — are being drawn here more and more as China develops a high-tech economy that increasingly competes directly with the United States.

A few American companies are even making deals with Chinese companies to license Chinese technology.

The Chinese market is surging for electricity, cars and much more, and companies are concluding that their researchers need to be close to factories and consumers alike. Applied Materials set up its latest solar research labs here after estimating that China would be producing two-thirds of the world’s solar panels by the end of this year.

China has become the world’s largest auto market, and General Motors has a large and growing auto research center in Shanghai. The country is also the biggest market for desktop computers and has the most Internet users. Intel has opened research labs in Beijing for semiconductors and server networks.

Not just drawn by China’s markets, Western companies are also attracted to China’s huge reservoirs of cheap, highly skilled engineers — and the subsidies offered by many Chinese cities and regions, particularly for green energy companies.

Now, Mr. Pinto said, researchers from the United States and Europe have to be ready to move to China if they want to do cutting-edge work on solar manufacturing because the new Applied Materials complex here is the only research center that can fit an entire solar panel assembly line.

On the other side of Xi’an from Applied Materials sits Thermal Power Research Institute, China’s world-leading laboratory on cleaner coal. The company has just licensed its latest design to Future Fuels in the United States.

The American company plans to pay about $100 million to import from China a 130-foot-high maze of equipment that turns coal into a gas before burning it. This method reduces toxic pollution and makes it easier to capture and sequester gases like carbon dioxide under ground.

Future Fuels will ship the equipment to Pennsylvania and have Chinese engineers teach American workers how to assemble and operate it.

Small clean-energy companies are headed to China, too.

Locally, the Xi’an city government sold a 75-year land lease to Applied Materials at a deep discount and is reimbursing the company for roughly a quarter of the lab complex’s operating costs for five years, said Gang Zou, the site’s general manager.

The two labs, the first of their kind anywhere in the world, are each bigger than two American football fields. Applied Materials continues to develop the electronic guts of its complex machines at laboratories in the United States and Europe. But putting all the machines together and figuring out processes to make them work in unison will be done in Xi’an. The two labs, one on top of the other, will become operational once they are fully outfitted late this year.
Source: New York Times

T. Rowe Price Mulls Citic Securities Stake
US fund house T. Rowe Price is in advanced talks to buy a stake in China's biggest asset manager from Citic Securities Co, two sources with direct knowledge of the deal said.

A deal would give T. Rowe access to China's fast-growing $400 billion mutual fund market and accelerate its Asia expansion, while bringing Citic Securities into compliance with domestic rules to avoid regulatory penalties.

T Rowe has been in talks with Citic Securities for months to buy a stake in China Asset Management Co and has completed due diligence on the target company.

Citic Securities, China's biggest listed brokerage, has been told by regulators to sell a 51 percent stake in the wholly-owned fund unit, one of the sources said, in a deal that could be worth more than RMB 9 billion ($1.32 billion).

It was not clear how big a stake T Rowe would eventually buy or what other buyers may be in talks with Citic Securities, although no single entity can own more than 49 percent of a Chinese fund house.

"China Asset Management is a leading fund house which has been a cash cow for Citic Securities," said Chen Jiantao, analyst at China Jianyin Investment Securities Co, who expected the stake sale to be negative for the brokerage.

Citic Securities said on March 13 that it would sell part of its holdings in China Asset Management and China Securities Co, a brokerage unit, to bring it in line with regulatory requirements, as it seeks licenses for potentially lucrative new businesses such as margin trading and short selling of shares.

T. Rowe and other Western fund houses are ramping up expansion in Asia, where rapid economic growth has been boosting investment returns and driving demand for fund products from a rapidly growing middle class.

T. Rowe last year entered the Indian fund market and last month kicked off business in China's Taiwan province. It is also planning to build a much larger hub in Hong Kong as it steps up hiring in Asia.

Buying a stake in China Asset Management would give T. Rowe a foothold in the mainland, where the mutual fund market is expected to triple to $1 trillion in five years.
Source: China Daily


Chinese Companies To Bid On U.S. High-speed Railway Projects
Chinese companies plan to bid for contracts of building high-speed railways in the United States as China is willing to share its advanced technologies.

U.S. President Barack Obama pledged in January to spend $8 billion for rail projects including the high-speed systems in California, Florida and Illinois.
China currently has about 3,300 kilometers of operational high-speed railways, the world's longest, on which bullet trains gallop at an average speed of 350 kmph, and it plans to expand the network to 13,000 kilometers by 2012.

During Obama's visit to China last November, MOR signed a memorandum of strategic cooperation with the General Electric Company on technology research.

In addition to the United States, Wang Zhiguo, vice minister of railways said dozens of countries including Russia, Brazil and Turkey have shown willingness to cooperate with China on high-speed railways. Some projects are under construction.
MOR has reached agreements with Russia and Brazil on collaboration. Further preparation and research is underway, he said.

"China wants to share our advanced and mature technology with other countries to promote the world's high-speed railway development," Wang said.
Source: Xinhua Net


Starbucks To Enter China's Tea Drinks Market
American coffee retailer Starbucks has announced in Shenzhen that it has formally launched nine kinds of tea drinks in China, marking this coffee shop chain's entry into the huge Chinese tea drinks market.

These nine tea drinks include three original-leaf Chinese-style tea drinks, four original-leaf foreign tea drinks, and two handmade special tea drinks. Apart from these tea drinks, Starbucks has also launched related accessory products such as tea cups and teapots.

Huang Limin, the vice president for market, product, and communiations in Starbucks Greater China, told local media that the launch of tea drinks is in response to the demands of local consumers. After a long period of market investigation, Starbucks decided to first launch the nine kinds of tea products and it expects to expand its tea drinks product line in the future.

By the end of 2009, Starbucks had opened over 700 coffee shops in Greater China, including over 360 in mainland China.
Source: China Retail News


L'Oréal Seeks Acquisition In China
L'Oréal may acquire local Chinese brands in 2010 after the country has become its largest Asia-Pacific market and fifth largest global market, CEO Jean-Paul Agon told the National Business Daily.

The world's number one cosmetics and beauty company saw its sales in China jump 17.65% to RMB 8.18 billion last year lifting its local share by 0.7 percentage points to 11.7%. Its revenue in China have increased 14 fold since 2001.
Source: China Perspective


Subway To Open 500 Stores Across China In Next 5 Years
Subway, the US-based sandwich-shop chain, plans to open 500 stores in the Chinese mainland during the next five years as it tries for a bigger share of the fast-food market there, said co-founder Fred DeLuca.

Subway, which now has 144 stores in the mainland, will add another 50 restaurants this year, DeLuca said.

Subway's competitors, including McDonald's Corp and Yum! Brands Inc, are also adding outlets in the Chinese mainland as growing wealth in the world's third-largest economy fuels demand for their products. McDonald's this week said the Chinese Lunar New Year holiday in February helped the world's biggest restaurant company post monthly sales that beat analyst estimates.

"There are a lot of Chinese people to feed," DeLuca said. "We are right now in the beginning phase of our development in the Chinese mainland, hoping to have more expansion in the years."

In addition to adding stores, Subway may tweak its menu for Chinese consumers, DeLuca said. Yum's Kentucky Fried Chicken, or KFC, restaurants offer rice porridge and Peking duck flavored chicken wraps in the mainland.

"We are trying some localized flavors," he said.

Subway's sandwiches now cost an average of RMB 20 ($2.93) each, which is "a little bit higher" than its competitors, DeLuca said. A regular McDonald's cheeseburger costs RMB 6 in the mainland.

The restaurant chain is "working to get the price more competitive" as it increases the volume of stores in the mainland, DeLuca said.
Source: China Daily


China Targets Battery Pilot Project For Renewable Energy
China's State Grid is building a massive demonstration project for integrated renewable energy and power storage in the provincial city of Zhangjiakou in Hebei.
The ability to store large amounts of energy is critical to the development of renewable power because of the intermittency of energy sources like solar and wind. Industry players at companies such as Suntech Power Holdings Co. call storage an integral piece of the renewable-energy puzzle.

The project in Zhangjiakou will be developed by China's State Grid, Ministry of Science and Technology and Ministry of Finance. It will be developed in at least two phases. Bidding already has begun on the first phase, which includes 100 megawatts of wind power, 50 MW of solar and 25 MW of energy-storage capacity.
There are no disclosed technology requirements for the type of battery the project will use, and companies supplying anything from lithium-ion batteries to large-scale flow batteries, which use a different chemistry, may be among the bidders.
An analyst report by Min Li at Yuanta Securities (Hong Kong) Ltd. said that the total cost of the project would be approximately RMB 20 billion ($2.9 billion). Min said the bulk of the costs would come from energy storage, which represented $1.9 billion of the project's total cost. The rest would come from the construction of wind and solar power.

Companies involved in China's renewable energy market are positive about the steps the government is taking on renewable-energy development.

"If this goes forward it would be a pretty big project in terms of integrating renewable energy and creating smart management of renewable energy for the grid," said Rory McPherson, spokesman for Suntech Power.
Source: Zero2IPO


Yingli Green Energy To Start 300 MW Silicon Project
Yingli Green Energy Holding Co Ltd announced that it plans to start a monocrystalline silicon project in Baoding, Hebei Province designed to have an annual output of 300 megawatts.

The project will include a monocrystalline silicon production line, ingot casting and production of "Panda" solar cells. This kind of solar cell was jointly researched and developed by Yingli Green Energy Holding, the Energy Research Centre of the Netherlands and solar firm Amtech.

The Hebei branch of Bank of Communications will provide two loans totaling RMB 1.75 billion to the 300-MW project.

The solar cell developer's gross profit margin for 2010 is predicted to be between 27% and 29%.
Source: China Mining


China Moves To Boost Energy Saving
The Chinese government will adopt stricter measures to boost energy conservation this year to meet the goal set by an important five-year plan, Xie Zhenhua, vice minister of the National Development and Reform Commission said.

Under the 11th Five-Year Plan ending this year, China pledged to cut energy consumption per unit of gross domestic product (GDP) by 20 percent, or four percent each year, but consumption fell by a margin much smaller than the set target during the past four years.

Xie said the Chinese government will enact a series of measures this year to boost energy conservation, including the introduction of an accountability mechanism for provincial governments and tight control of projects of high energy consumption and high pollution.

China announced in November it aimed to reduce the intensity of carbon dioxide emissions per unit of GDP in 2020 by 40 to 45 percent compared with 2005 levels.
Source: China Daily


Geely Secures Financing To Buy Volvo
The parent of China's Geely Automobile has secured financing to buy Ford-owned Volvo cars for about 15 billion Swedish crowns ($2.10 billion).

Dagens Industri, said that Chinese financial institutions and regional government bodies had provided the money for Geely to complete its purchase.

The paper quoted its source as saying that the money was already "in the bank account" of parent Zhejiang Geely Holding, (ZGH) which would also have offered guarantees to Ford about the financing of its business plan for Volvo.
Earlier this week, ZGH said it had yet to sign an agreement in its ongoing bid for Volvo cars, though its plan to buy the brand for $2 billion was proceeding on track.

The company, China's largest privately owned carmaker, had been aiming to reach a formal deal last month and complete its purchase by May.
Geely plans to nearly double Volvo's annual global production with a new factory in Beijing to pull the Swedish automaker out of the red by 2011, according to a plan put together by the company.
Source: China Daily


Legend Chairman Confirms Buy In BOC International
Liu Chuanzhi, chairman of Legend Holdings, confirmed that the Chinese conglomerate had purchased equities of Shanghai-based BOC International (China) Ltd.
Liu, a deputy to the National People's Congress, said the move represents a new direction in Legend Holdings' future investments to the financial industry, including securities. The company will consider buying more high-quality securities assets in the future, he added.

Previously, media reports had speculated that Legend, the parent of Chinese computer maker Lenovo Group, might have paid RMB 900 million ($131.84 million) for a 12 percent stake in BOC International, but Legend refused to comment.

Earlier this year, Legend closed a deal with central China's Wuhan-based Hankou Bank to become its largest shareholder. City commercial banks have been more prominent in public offerings since last year, but Liu said Legend has no plan for listing Hankou Bank so far.
Source: Zero2IPO

COLI Begins Taking Over Shell Electric
China Overseas Land & Investment Ltd (COLI), a developer controlled by the country's construction ministry, will begin to take over appliance maker Shell Electric MFG (Holdings) Co.

Industry insiders said the purpose of the takeover is to get the quality assets and land reserves owned by China Everbright Real Estate Development Ltd, as Shell Electric held a 70 percent stake in Everbright.

After the takeover, the property developer will get land reserves of 1.7 million square meters from Everbright as it attempts to expand its property businesses.
According to Shell Electric's annual report of 2008, Everbright owned high-quality parcels in China's first- and second-tier cities including Beijing and Guangzhou, and was involved in 10 property projects of 3 million sq m.

As of December 31, 2009, COLI achieved revenue of HK$47.8 billion ($6.16 billion), up 79.6 percent from a year ago, with its sales reaching 4.77 million square meters, up 76 percent year-on-year, according to statistics released by the company.
Source: China Daily