The move is seen as the beginning of a new push to consolidate the industry but does nothing for the ambitions of international firms keen to enter the country's brokerage business. The China Securities Regulatory Commission said the suspension is in principle and would not apply to individual cases that help sector consolidation. The announcement made no mention of how long the freeze will last. UBS, which has signed a US$210 million deal for 20%, plus management control, of Beijing Securities, said its agreement was still on track for final regulatory approval.
M&A rules target foreigners
New merger and acquisition rules took effect in September targeting foreign investors and Chinese companies incorporated overseas. Beijing said the new rules aim to "promote and regulate foreign investment in China", while experts claimed the changes might help reduce inflows from companies set up overseas by Chinese investors. Established primarily as a means of chasing tax benefits, these enterprises are said to fuel inflation and hinder efforts to curb rapid investment growth.
Financial futures launched
China launched its first financial futures exchange intended to give companies a variety of tools to hedge financial risks. Mock trading began in September but the exchange is unlikely to trade its first product, futures based on the Shanghai Shenzhen 300 Index, until the end of the year. The futures exchange will ultimately offer other products, including bond index and currency futures. The opening came shortly after futures contracts based on China's top 50 A-shares began trading on the Singapore Stock Exchange (SGX), much to Beijing's annoyance. Legal action is being taken against FTSE Xinhua, which provides the data SGX uses as the basis of the derivatives product. It is alleged FTSE Xinhua violated intellectual property rights by sharing the information.
New rules threaten red chips
Biodiesel producer Gushan Environmental Energy said it would delay a planned US$200 million Hong Kong IPO to await clarification of new rules bringing red-chip listings under closer regulatory scrutiny. The new rules allow the regulators to veto the creation of new red chips, which are often formed by incorporating Chinese assets into shell companies based in tax havens such as the Cayman Islands or British Virgin Islands. Further disruption is feared as a result of changes to the valuation process of companies that want to list shares abroad. It is possible that companies already locked in listing preparations will have to go through the restructuring process all over again in order to comply.
CMB offering raises US$2.4bn
China Merchants Bank (CMB) raised US$2.4 billion in its Hong Kong initial public offering after investors ordered 53 times more stock than was available. The 2.2 billion shares being sold by the bank were priced at US$1.09, the top end of the range, according to agency reports. This means CMB will trade at 2.4 times its book value, compared with Bank of China's 2.26 times. The bank was due to make its trading debut on September 22.
QDII program set to expand
China may add more than 10 banks to the Qualified Domestic Institutional Investor program (QDII) by the end of the year, the Wall Street Journal reported. The goal is to help reduce appreciation pressure on the yuan, according to Li Fu'an, a director at the China Banking Regulatory Commission. Eight banks are currently allowed under the program to offer offshore investment services to Chinese customers by investing in fixed-income products abroad. Six of those banks have a combined US$8.8 billion in overseas investment quotas.
US$60bn in capital exports by 2010
United Nations Industrial Development Organization (UNIDO) Director-general Kandeh Yumkella told September's 2006 International Investment Forum in Fujian province that China's overseas investments are likely to reach US$60 billion by 2010. China is turning from a world major investment importer to a capital exporter, he said. Qiu Xiaohua, director of the National Bureau of Statistics, told the conference China would try to reduce its foreign exchange reserves, signalling an intention to continue the country's drive to pour funds into overseas investment, which a ministry of commerce official said grew 65.6% on average from 2000 to 2005.
ADB raises China growth forecast
The Asian Development Bank (ADB) revised its full-year economic growth forecast for China to 10.4%, up from the 9.4% predicted in April. The bank warned that still-surging investment levels and imports are a threat to China's long-term stability. The bank, which also raised its growth forecast for 2007 to 9.5% from 8.8%, said local government compliance is vital to pegging back investment.
Market-based macro-controls eyed
Vice Premier Zeng Peiyan told the World Economic Forum's China Business Summit in Beijing in September that regulators would rely more on market-oriented and legal measures than administrative macroeconomic controls to cool the economy in the second half of the year. The comments were taken as a suggestion Beijing might prefer raising interest rates or banks' reserve requirements over other tools in the coming months. Zeng said the government would give priority to curbing overly rapid growth in fixed-asset investment, the South China Morning Post reported.
Foreign banks set for rule change
Revised rules affecting foreign bank operations in China are expected to be issued by the State Council in November and may take effect around December 21, the Wall Street Journal reported, citing a foreign bank official. The proposed rules will force foreign banks to incorporate their local operations in China, backed by at least US$125.4 million, if they want to do retail business in the Chinese currency. Foreign banks now own their Chinese branches from overseas headquarters. Under current regulations, the banks can handle loans and deposits in foreign currencies but they can only provide yuan-denominated services to enterprises in 25 cities. Foreign banks that don't want to incorporate their China operations locally would be allowed to offer foreign-currency services to all customers, but their yuan-denominated business would be restricted to companies.
GDB bidding war nears end
The year-long bidding war for Guangdong Development Bank (GDB) was thought to be near to a close at the end of September. Management control at the south China lender is up for grabs, prompting a fierce battle between US-based Citigroup, France's Societe Generale and China's Ping An Insurance. A decision on which party would get control of the bank was set to be made by a six-member committee, comprising two people each from the provincial government, the central bank and the China Banking Regulatory Commission. The State Council would then have to give its final approval.
CCB to buy BOA's Hong Kong assets
China Construction Bank (CCB) said it would enter the Hong Kong banking market through the US$1.24 billion purchase of Bank of America's (BOA) Hong Kong and Macau operations. The news came as CCB announced an 18% decrease in first-half profit. However, the bank pointed out that, if a large tax benefit received in 2005 is excluded, earnings actually rose 13% between January and June. CCB's earnings for the period came to a total of US$2.57 billion, short of analysts' expectations. Bank of China (BOC) posted a 28.3% jump in profits to US$2.49 billion for the first half of the year, putting it on track to meet its full-year target of US$4.14 billion. Bank of Communications saw first half profits rise 31% to US$756.96 million.
Trade surplus hits new high
China's trade surplus hit US$18.8 billion in August, a fourth consecutive monthly record. The total for the first eight months now stands at US$95.7 billion, a 59% rise on the same period in 2005, and comfortably on course to pass the 2005 full year surplus of US$101.9 billion. Exports rose 32.8% in August from a year ago to US$90.8 billion dollars, while imports were up 24.6% to US$72 billion.
Auto parts litigation likely
The US, EU and Canada planned to ask the WTO to set up a dispute settlement panel to solve their ongoing concerns over violations and dumping of auto parts by China. It will be the first time the Western allies have teamed up to seek a formal investigation by the global trade body in a dispute with the Asian giant. The three governments filed a preliminary complaint against Chinese protection of its auto-parts manufacturers in March but China has refused to change its policy, which charges an average 25% levy on imported auto parts. The complaint could result in punitive special tariffs being imposed on Beijing.
Changes to export tariff rebates
Export tariff rebates were adjusted to discourage overseas sales from energy intensive and low-technology industries, boost exports of information-technology goods and heavy machinery, and potentially curb the country's escalating trade surplus. The new rules, issued jointly by several ministries, reduced tariff rebates on steel products to 8% from 11% and on textiles to 11% from 13%. Rebates were also ended for non-metal minerals such as coal and natural gas but were raised on large technical equipment, biomedical products and processed agricultural products to encourage exports in these sectors.
Lamy issues warning on bilaterals
WTO Director-General Pascal Lamy warned during a meeting with Premier Wen Jiabao in Shanghai that separate bilateral and regional free trade agreements would harm China's long-term commercial interests. Beijing is currently negotiating better trade terms with a number of countries and trade blocs but Lamy argued that such agreements only offer a temporary solution. Lamy also encouraged China to get more involved in putting the Doha round of trade negotiations back on track.
High-hopes for Egyptian ties
Egypt's annual trade with China will reach US$5-6 billion in the next six or seven years, from US$2.3 billion now, said Rachid Mohamed Rachid, Egypt's minister of trade and industry, during a visit to China in September. Rachid signed US$2 billion in deals between Egyptian and Chinese companies. The two countries also agreed to set up a US$500 million Chinese industrial zone in Egypt for joint investment in textiles, footwear and pharmaceuticals.
iPod maker drops damages demand
A Taiwanese iPod maker that sued two Chinese reporters for defamation dropped a US$3.7 million claim for damages to a single yuan after strong public criticism. Shenzhen-based Hongfujin Precision Industry, wholly owned by Taiwan's Foxconn, also pulled back requests that courts freeze the assets of two reporters who alleged their staff had to work unusually long hours under extremely poor conditions. Apple, which uses the company to make iPod music players, said it had found employees worked more than the 60 hours a week permitted by its code of conduct, but that it had uncovered no evidence of forced overtime.
NYT researcher convicted
A Chinese researcher for the New York Times was acquitted in late August of charges of revealing state secrets but sent to prison for three years on charges of fraud. Zhao Yan was arrested in September 2004 after the newspaper accurately reported that former president Jiang Zemin would stand down from the key leadership post of military chief. Zhao faced a possible sentence of 10 years or more under the original charges.
Macquarie still eyes PCCW stake
Talks were underway in late August between Macquarie Bank and Francis Leung over a minority stake in Leung's US$1.2 billion move to take control of PCCW. Macquarie earlier saw a US$900 million offer for the telecommunications operator's media and telecoms assets rejected, possibly by the Chinese government on nationalist grounds. State-owned telecom giant China Netcom – which has a 20% stake in PCCW – opposed any plans to sell to foreigners. PCCW chairman Richard Li ended up selling his 23% stake to Leung, with payments to be spread over nearly two years. Former investment banker Leung doesn't have the personal resources to buy the stake so is looking for partners to join his consortium.
Emissions quota in pipeline
Power plants will have to buy rights to emit sulfur dioxide from as early as next year. Wang Jinnan, vice-president of the Chinese Academy for Environmental Planning told the South China Morning Post that the proposal to charge US$79.15 per tonne for the emissions quotas comes as Beijing seeks ways to cut emissions of sulfur dioxide by 10% by 2010. The tradable quotas will be worth around US$879.5 million annually based on current output. China is the world's biggest emitter of sulfur dioxide. Last year it pumped out more than 25 million tonnes, which the State Environmental Protection Administration estimated caused US$62.8 billion in economic losses through acid rain.
China invests in Venezuela oil
China plans to invest US$5 billion in Venezuela by 2012 to help boost the country's oil output. Oil Minister Rafael Ramirez made the announcement after President Hugo Chavez said during a visit to Beijing that he wants to see Venezuela become China's top oil supplier by 2010. The investment could help boost production to 5.8 million barrels of oil per day by 2012. Currently at 150,000 barrels per day, Venezuela wants its oil sales to China to reach 500,000 barrels per day by 2010.
Sinopec posts profits
China Petroleum & Chemical Corp, also known as Sinopec, posted an 8.9% rise in first-half profits to US$2.69 billion at the end of August. High crude-oil prices more than offset losses in refining caused by government caps on oil-product prices and a profit tax on crude sales. The company, Asia's largest refiner by capacity, also outlined growth targets for refineries and natural gas fields as it looks ahead to growing energy demand in China. China raised gasoline and diesel prices twice this year to move closer to global benchmarks but analysts say they are still as much as 20% below international levels. PetroChina posted first half net profit growth of 29.4%, attributing the surge to rising crude prices and demand. Net earnings at mainland China's largest oil and gas producer hit US$10.13 billion in the first half, up from US$7.83 billion, making PetroChina the most profitable Asian company.
State Grid may issue IPO
The larger of China's two power distributors, State Grid Corp, said in late August it aims to raise US$5 billion in a domestic market offering within two years. Quoting people familiar with the situation, the South China Morning Post said regulators prefer to sell shares in the domestic market first but the company may eventually want an overseas IPO.
Minimum wages boosted
At least five provinces, municipalities and cities raised minimum wages in a move many believe is aimed at boosting migrant workers' salaries. The increases kicked in at the beginning of September in Guangdong, Shanghai, Zhejiang, Gansu and Liaoning's capital, Shenyang. State media reported that Guangdong, which has five categories of minimum wages, raised minimums across the board by about 17.8%, and quoted Guangdong authorities as saying pay levels would apply to all firms in the province.
TECH & TELECOM
Baidu considers domestic listing
China's leading internet search engine Baidu held informal talks with the China Securities and Regulatory Commission (CSRC) over a domestic listing. But Baidu CFO Shawn Wang, said a number of legal barriers stood in the way. The search giant is officially a wholly foreign capital-invested company and such firms are not allowed to list on China's stock markets. However, it has been reported that the CSRC is considering allowing foreign firms to issue Chinese Depositary Receipts.
China Telecom enters Europe
China Telecom, the world's biggest fixed-line telephone provider, launched a European operation in September with offices in London and Frankfurt. The event was timed to coincide with the Premier Wen Jiabao's London visit. The company described the move as key to constructing a trade route linking the knowledge economies of East and West. The new division will initially target corporate customers, particularly those expanding into China.
Home-grown 3G set for 2007 launch
Chinese mobile phone operators and equipment vendors hope to complete a trial of a homegrown third-generation mobile network by October that may lead to a commercial launch by next year, Norson Analysis said. The results of the trials are expected to influence the government when it issues 3G licences, at least one of which will be for the domestic standard.
New TV standard planned
China plans to unveil a digital TV standard and oust from the market any providers that fail to comply, Wang Xiaojie, director of the technology department of the State Administration of Radio, Film and Television, told state media. The new standard for terrestrial digital TV transmission will be promoted for a year before it is fully implemented, Wang said. After this grace period, broadcasting systems with other standards will be forced to embrace the new system.
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