Irregularities found at ABC
China's National Audit Office alleged criminal conduct at the Agricultural Bank of China (ABC) involving US$1.1 billion. The irregularities, which relate to its 2004 financial statements, were discovered in an examination of the troubled bank's books. The chief auditor said the criminal conduct involved 51 different cases and 157 individuals. Irregularities in deposits worth US$1.79 billion and illegalities in the bank's lending business, including loans for cars and poverty reduction, worth US$3.45 billion, were also uncovered.
China may liberalize banks
Beijing may soon raise the cap on foreign investment in smaller banks, according to former US Commerce Secretary Don Evans, now head of the Financial Services Forum. Speaking in Beijing, Evans said it was his "belief" that restrictions could be eased in coming months. The cap for a single investor in a Chinese bank is 20%, while the maximum overall foreign investment in a single bank is 25%. Evans said caps on smaller banks are likely to be raised before any changes are made to the Big Four state banks.
ICBC reports 12% profit hike
Industrial and Commercial Bank of China (ICBC), which is expected to issue a Hong Kong offering in September, announced net profits for 2005 of US$4.21 billion, 12% higher than 2004. The results were audited by Ernst & Young LLP, marking the first time the bank's books were reviewed by an international accounting firm. The results, and the audit, may reflect Beijing's efforts to clean up the bank ahead of an offering later this year. ICBC is expected to raise around US$12 billion, which would make it China's largest ever IPO.
Higher stakes for branch chiefs
Bank branch chiefs will have to resign if major criminal cases occur on their watch, state media reported. New measures also call on banks to set up accountability systems that allow executives and auditors to take responsibility for problems. At the same time, top branch managers whose operations face frequent irregularities will not be allowed to take similar jobs at other branches. The China Banking Regulatory Commission announced 11 new such measures to fight corruption and frauds in banks, cooperative credit unions, trust firms and asset management companies.
SDB on capital hunt
Shenzhen Development Bank (SDB) plans to raise capital through a private placement of shares and the issuance of debt, bank chairman Frank Newman told the Wall Street Journal. SDB, the only Chinese bank run by foreign investors, is managed by US private-equity firm Newbridge Capital, which has a 17.89% stake. The bank wants to boost its capital through a private placement with domestic or international investors, followed by the issue of US$375 million in subordinate debt. It wants to raise its capital-adequacy ratio from 3.83% closer to the 8% regulatory requirement.
MEDIA & TELECOM
Media scrutiny intensified
The General Administration of Press and Publication warned its branches to keep a close eye on sensitive content around several key anniversaries this year. The warning was carried in a circular issued late June which appeared on the media watchdog's website several weeks later. The directive specifically referred to the 85th anniversary of the establishment of the Chinese Communist Party, the 70th anniversary of the Long March Victory by the Red Army, the 30th anniversary of the death of Mao Zedong, Zhu De, Zhou Enlai and other party leaders, the 40th anniversary of the commencement of the Great Cultural Revolution and 30th anniversary of its ending, and the 30th anniversary of the Tangshan earthquake.
Censors block search engines
The search engines of two of the most popular Web portals on the mainland, Sina and Sohu, were closed for two days after an on-the-spot censorship test found they had failed to filter certain keywords deemed politically harmful. The two portals were given three days to "rectify their mistakes", industry sources in Beijing told the South China Morning Post. In China, searches on terms such as the banned religious group Falun Gong, the Dalai Lama, Tibet or Taiwan Independence typically yield results only favorable to the government's position on the issues. Western Internet firms such as Microsoft, Google and Yahoo, which have self-censored their content in China, have been criticized by human rights groups. China has roughly 111 million Internet users.
China Mobile chases added value
Mobile value-added service providers saw their share prices fall after China Mobile issued new rules to protect subscribers. China Mobile will now send subscribers two notices before charging subscription fees, following a directive by the Ministry of Information Industry. Customers will also get free trial periods of up to 41 days. The company also plans to cancel numbers that are inactive for four months. Early in its history, China Mobile offered generous terms to value-added providers but with revenues from those services growing to 20% of the company's total, the country's biggest mobile operator has started looking at offering its own services.
Millicom bid falls flat
China Mobile's US$5.3 billion bid to take over Millicom International Cellular, a telecoms investment company focused on developing markets, was called off by Millicom's parent company, Kinnevik Investment of Sweden. The Luxembourg-based company said it decided to end all discussions because the "purchaser will not be in a position within an acceptable timeframe to make a binding offer that is suitably attractive." China's lack of diplomatic relations with five of the 16 countries where Millicom operates, mostly in South America, complicated the deal.
SK Telecom buys into China
South Korea's largest mobile phone operator SK Telecom Co purchased US$1 billion in bonds from China Unicom that can later be converted into a 6.67% stake in the company. The Korean group said it wanted to generate overseas earnings to make up for a slowdown in subscriber growth in its domestic market, following a similar strategy to the one used by Singapore Telecommunications. China Unicom said the deal will help to optimize its debt structure and reduce finance costs.
Alleged IPO manipulation probed
The Shenzhen Stock Exchange opened an inquiry into CAMC Engineering, the first company to issue shares after a moratorium on new listings was lifted at the end of May. It is alleged the company's share price was manipulated during the first day of trading. Shares in the medium-sized company quadrupled from US$0.92 to US$4 during their trading debut, hitting a peak of US$6.25 an hour before close. In the five trading days afterwards, shares dropped by the maximum 10% every day, closing at US$2.35 on June 26.
Yingli Solar plans NASDAQ offering
Mainland solar power equipment Yingli Solar is expected to raise about US$400 million from a NASDAQ IPO before the end of 2006 or early 2007. The South China Morning Post reported the plans early in July, citing market sources early in July. Fund managers said Yingli's offering would be twice the size of Focus Media Holding's mainland record US$197 million IPO on NASDAQ last year. Like other mainland solar companies, Yingli needs fresh capital to buy high-grade silicon needed for photovoltaic cells.
Coke producer plans US$1bn float
One of China's largest coke-making companies, Shanxi Coking Coal Group, hopes to raise at least US$1 billion in Hong Kong next year. The company appointed Morgan Stanley, JP Morgan, Deutsche Bank and BOC International to handle the share sale, according to newspaper reports. But before any new listing hits the boards, it needs to restructure a complicated corporate system that includes seven main subsidiaries, assets of US$4.8 billion at the end of 2004 and 150,000 employees. Shanxi Coking Coal has an annual production capacity of 65.8 million tonnes and annual washing capacity of 45 million tonnes of raw coal. It supplies more than 20 cities in China as well as shipping to Japan, South Korea, Brazil, Germany and India.
Dymatic set for mainland listing
Guangdong-based Dymatic Chemicals placed an initial public offering of 34 million shares on the Shenzhen Stock Exchange's small and medium-sized enterprise board. It priced the offering at US$0.77 a share, the top of its indicative range. Dymatic focuses on research and development, production and sales of textile printing and dyeing auxiliary agents. It had revenues of US$67 million in 2005.
Beijing Jingkelong wins approval
Beijing Jingkelong, whose proposed initial public offering was rejected by the Hong Kong stock exchange earlier this year, won an appeal and plans to list this month. The Beijing-based supermarket operator won approval in principle from the exchange's listing committee in March, but the application was subsequently rejected following complaints the firm did not fully disclose a loan from employees. Sources told the South China Morning Post that the decision to overturn the rejection was made after the company showed the lack of full disclosure was unintentional.
Greentown IPO eases concerns
Greentown China Holdings priced a Hong Kong offering halfway through its indicative range, selling for US$1.05 and raising the value of the deal to US$344 million ahead of its July 13 trading debut. The strong interest in the Zhejiang-based property developer was underpinned by spreading opinions that US interest rates were close to their peak when the share price was announced on July 7. Concerns also seemed to ease about any negative impact from Chinese government measures to slow down the property market.
Trade surplus hits new high
China's global trade surplus rose to a record monthly high of US$14.5 billion in June, the Ministry of Commerce said. Exports rose 23% from a year earlier to US$81.3 billion while imports climbed 19% to US$66.8 billion. The previous record surplus for a single month was US$13 billion in May. The trade surplus has soared since hitting an historic high of US$102 billion in 2005, more than triple the US$32 billion surplus in 2004. The surplus for the first half of the year stands at US$61.5 billion, a 55% jump over last year's first-half surplus of US$39.7 billion.
Mandelson issues ultimatum
China must open its doors to European business or face a protectionist backlash, European Union Trade Commissioner Peter Mandelson warned Beijing at an EU-China trade conference in Brussels. Mandelson is particularly concerned about the protection of European intellectual property rights in China, and the access of EU companies in sectors such as construction, banking and insurance. Separately, Mandelson announced plans to place a 15.2% tariff on plastic bags from China, which are worth an estimated US$300 million a year. He claims bags are being dumped illegally in Europe, but critics accused him of turning to protectionism.
High-end exports grow quickly
The nature of China's exports is changing rapidly, a Deutsche Bank report showed, with overseas sales of low-end goods stagnating due to already high market penetration, while exports of telecoms equipment, auto parts software and ships have grown between 30% and 150%. The change means China is moving up the economic ladder and competing in more demanding industries where not long ago it was a small player. The change is being driven by a number of factors, the report said, including rising wages, increased policy support and a growing private sector.
China tightens textile controls
The Ministry of Commerce plans to revise rules on textile export quotas in a fresh push to streamline the market and prevent quota speculation following last year's disputes with the US and Europe. A number of problems have been reported with the Provisional Management Method for Textile Exports approved by the ministry in July 2005. Some companies boosted profits by speculating with their quotas while others left theirs untouched. The ministry is currently looking for input from industrial associations and textile companies. No timeline was offered for the revised rules.
Sinopec close to Iran oil deal
Oil giant Sinopec was close to a deal with the Iranian government to acquire a 51% stake in the Yadavaran oilfield and import 10 million tons of liquefied natural gas (LNG) per year from Iran. The countries signed a MOU in Beijing in October 2004 under which Sinopec would be allowed to participate in the development of the Yadavaran oilfield, which has more than 30 billion barrels of proven oil reserves.
CNPC buys Russian energy shares
China National Petroleum Corp (CNPC), the unlisted parent of the mainland's largest integrated oil company, PetroChina, acquired US$500 million of Rosneft shares as the Russian oil firm went public with a US$10.4 billion initial public offering last month. CNPC and three other investors snapped up 50% of the offering.
First direct oil pipeline opens
Crude oil from Kazakhstan began flowing into northwest China's Xinjiang Uygur Autonomous Region, marking the beginning of the commercial operation for China's first direct oil import pipeline. The oil will be piped to Dushanzi in Karamay where the country's largest oil refinery plant will become operational in 2008 to produce 5.5 million tons of refined oil a year. The 960-kilometer pipeline was jointly developed by the China National Petroleum Corporation (CNPC) and Kazakh state energy company Kazmunaigaz.
Coal forces electricity prices up
The retail price of electricity was lifted an average US$0.0032 a kilowatt-hour to ease pressure on power producers facing higher coal prices and requirements to clean up their plants. It is the first adjustment since May 2005 and was made under a government-set mechanism pegging the cost of power to the market price of coal.
Energy productivity baseline set
China's western regions use energy up to five times less efficiently than coastal areas in the southeast, a report jointly produced by the National Bureau of Statistics, the National Development and Reform Commission and the Office of the State Energy Leading Group showed. Average energy consumption across the country last year was 1.22 tonnes of coal equivalent for every US$1,250 of GDP, but rates varied from 4.14 tonnes in the poor region of Ningxia to 790 kilograms in Guangdong. It is the first time the government has published the report, expected to provide a baseline for future energy consumption plans. A consumption target of 976kg of coal equivalent per US$1,250 has been set.
Coal-to-oil may cut crude imports
A deal between Chinese and South African companies that includes cooperation on coal-to-oil technology may help reduce China's dependency on crude imports. The agreement was signed during Premier Wen Jiabao's seven-nation tour of Africa. The technology was developed by the global leader in producing synthetic fuel from coal, Sasol.
Xinjiang energy open to foreigners
PetroChina will open nine exploration blocks covering 110,000 square kilometers in Xinjiang's Tarim Basin to foreign investors. It is set to unlock potential resources in the under-explored area and bolster supply for the 3,800-km Xinjiang-Shanghai gas pipeline. The cooperation will be in a profit-sharing structure, foreign firms footing the exploration bill with output and revenues shared after all the expenses are recovered.
Yuan gains on the dollar
The renminbi closed at 7.9859 to the dollar on July 7, its highest level since being unpegged last year. Down from 7.9925 on July 6, the yuan reached as low as 7.9850 during the day. Although traders expect the Chinese currency to appreciate in the long term, the dollar's weakness against other major currencies may have been a factor in the hike. Economists say an undervalued currency is behind the mainland's excessive liquidity and runaway credit growth.
Forex reserves hit US$925bn
China's foreign exchange reserves jumped 5% in two months to US$925 billion, up US$30 billion in May and US$19.9 billion in April. In February, China overtook Japan as the largest holder of foreign exchange in the world. The country's growing trade surplus, which hit US$61.5 billion in the first half of 2006, was likely to push the country's reserves beyond the US$1 trillion mark, state officials said.
Money supply curbs kick in
Year-on-year growth in the M2 money supply, a broad measure that includes cash in circulation and all deposits, slowed for the first time this year. The M2 supply grew 18.4% cent year-on-year in June, down from 19.1% at the end of May. The slowdown suggests that attempts by the People's Bank of China to curb money supply may be paying off. The central bank's full-year target for M2 money supply growth is 16%. However, new bank loans rose to US$45 billion in June, up from US$26.2 billion in May. This took total loans for the first six months of the year to US$267.5 billion – 85% of the central bank's US$312 billion loan growth target for 2006.
More clamps on investment
Beijing upped the ante on its push to slow down growth in fixed-asset investment, announcing restrictions on industrial projects that do not meet policy goals. The State Council has called upon regulatory authorities that approve new projects and the banks that finance them to examine investments closely. Fixed-asset investment grew 30.3% in the first five months of this year over 2005, according to National Bureau of Statistics figures. It accounts for about 40% of China's economic growth.
FDI falls by nearly 8%
Foreign direct investment (FDI) in China fell 7.86% to US$4.5 billion in May compared to the same month in 2005, according to Ministry of Commerce figures. FDI was up 2.78% for the first five months of the year and hit US$23 billion. The FDI announcement coincided with reports that the State Council plans to set up an interdepartmental committee to investigate large-scale foreign mergers or acquisitions of state-owned enterprises.
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