The timing was perfect. March 27th, the day China International Trust and Investment Corporation (CITIC) chairman, Rong Yiren, was made vice president of the PRC, the China Daily announced that the country's major investment arm's plans to take over Daxie island off the Ningbo coast in the East China sea.
There, the corporation is to shape an autonomous free trade and economic development zone designed to build deep water ports, develop shipbuilding, transport, real estate, high tech export processing and other industries. The project would reduce the burden on the state to provide port infrastructure and give a strong push to the reformist Chinese leadership's pet project?the Pudong development zone in close by Shanghai. The infrastructure on the island 40km off downtown Ningbo city alone would need funds of US$350 to US$520 million. Much of this would go into rail and road links across the sea and a pipeline to supply water from the continent.
The takeover of 30 square kilometre Daxie island, although a major acquisition even to CITIC standards, is only a fraction of the ever more dynamic action by the corporation. Four days after his elevation to the post of vice-president of state, viewed by the local media as a boost in the entrepreneurial spirit in China, Rong announced his retirement from the chairmanship. On the same day, another two major deals of the corporation came to light.
Firstly, CITIC Hong Kong together with British Swire Properties bought a 222,434 Tare foot commercial site for $2.85bn dollars at a Hong Kong government land auction. This first-ever participation of CITIC in a Hong Kongestate auction surprisingly comes on top of the Chinese British row over governor Chris Patten's reform package for the colony. "Temporary disputes should not affect the future prosperity of Hong Kong," commented Larry Yung Chi-kin, managing director of CITIC Hong Kong, chairman of CITIC Pacific and son of Rong Yiren.
Secondly, CITIC is to acquire a 10 per cent stake in Yaohan International, a major Japanese retailer with large ambitions on the mainland. The recently opened CVIK Yaohan shopping centre is the hottest address among Beijing Changan Avenue. The Yaohan Group late fast year announced its intention to have 1,000 supermarkets on the mainland by 2010.
Earlier this year CITIC Hong Kong, in the biggest corporate deal in the colony since 1990, bought part of Hong Kong Telecom.
Ever since reform architect Deng Xiaoping 14 years ago arranged for a government handout of US$5m and entrusted the Shanghai and US educated "red capitalist" long Yiren with raising foreign money to finance his huge modernization programme, CITIC has grown into a powerhouse. It owns major domestic subsidiaries in Shanghai, Shenzhen, Tianjin, Ningbo and other cities branching out into trading, banking and real estate. Major affiliates include CITIC International Contracting, China Leasing, Poly Technologies and China Southwest Resources United Development.
In Hong Kong, CITIC has become one of the main investors. In the United States, it has invested in steel and forests. In Canada, it owns a pulp plant, in Australia, an aluminium smelter. Other major overseas subsidiaries are based in Europe and Mexico. Altogether
there are about 65 joint or wholly-owned CITIC projects in more than 15 countries, mainly in the raw materials sector.
On April 8th, China's State Council appointed a new team to lead the corporation. Wei Ming, until then president of CITIC, took over as chairman of the board. Like his predecessor he seems to be on intimate terms with party chief and newly appointed state president, Jiang Zemin. Wei was educated in the United States, later served as vice minister of electronics industries and joined CITIC in 1985.
Wang Jun, son of the recently deceased hardliner Chinese vice-president Wang Zhen and until now deputy general manager, succeeded Wei Mingyi.
There is every indication that the change of guard will not stop CITIC on its acquisition trail. On the mainland, there is a huge demand for power stations, automobiles and electronics. Potentially more important is the shift of priorities towards trading, financing and real estate.
Not everything looks rosy, however. Some experts hold that CITIC is growing too fast and that its choice of ventures has been too indiscriminate. Also, CITIC had to take over some heavily indebted state enterprises denting the gains of the corporation. Moreover, competition is becoming stronger. An ever growing number of enterprises, companies and local government is after the perks which were, until recently, reserved for CITIC.
One of those to succeed is the Capital Iron and Steel Works. With an annual steel production capacity of 5.7m tons and 250,000 workers, the company has become a "national model of reform" for large and medium sized state-owned enterprises. Like CITIC it branches out not only into production but into mining, shipbuilding, financing, properties and tourism. The company also aims to develop into a first rate transnational outfit with a sales value of US$8 billion.
CITIC has also to watch out for the mushrooming enterprise groups and financially sound newcomers in the eastern and southern part of the country. Also, there is insider talk about a drain of managers to the fast expanding private sector, where payment and promotion prospects are better than in the state-owned CITIC.
Still, CITIC is poised for further growth. For the coming years, the new chairman expected an annual growth of 10 per cent. His immediate concern, he told the China Daily is the approval of the central bank for CITIC to become one of the first to open a joint venture insurance company. His corporation said he had already identified ''international influential" foreign insurance firms as potential partners.
Beijing based observers point to not only the fast expanding Chinese economy but also to CITIC's expertise, connections and the acumen of its leaders. He was "unwilling" to quit, said Rong Yiren, when he left the money making dynasty. But he made it clear that he "would continue to be concerned with the company's development". The vice-presidency of PRC might prove to be an advantage. *
CITIC raises funds on Singapore market
CITIC is seeking increased foreign capital by issuing bonds on the overseas money market. The first stage has been for the Citic Industrial Bank to issue US$150m worth of floating-rate notes in Singapore.
Eight financial institutions have signed on as ,joint lead managers for the bond issue. Tjhere are: ABN Amro Securities (Far East) Ltd of Holland, the Development Bank of Singapore, Goldman Sachs (Asia) Ltd, J.P. Morgan Securities Asia Ltd and Merrill Lynch International Ltd of the US and Japan's Nomura Singapore Ltd and IBJ Asia Ltd.
The notes, with a coupon rate of London Interbank Offered Rate (Libor) plus 50 basic points, will mature in 1988, the bank's president, Hong Yuncheng is reported by the China Daily to have said. The IBJ sold out all its underwritten bonds within half an hour, he said.
The corporation will "cautiously" consider tapping the US market, and according to the president, many US companies have stated that Citic could conduct private placements and public offerings in the US market. The money raised is expected to help CITIC's considerable investment in industry.
It is expected that the move will encourage more Chinese financial institutions.
Citic Pacific rise in profits
Citic Pacific, CITIC's Hong Kong conglomerate, has posted a 200 per cent rise in net profits to HK$1 bn (US$129m) from HK$8.3bn, up from HK$118m. The directors declared-a final dividend of 22 cents a share making 30.2 cents for the year up 25 per cent on 1991.