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Economy set for ‘stable growth’ this year

Thu, 01/18/2018 - 17:01
CHINA’S economy is likely to experience stable growth this year, although continuing deleveraging efforts, regulatory tightening and subsequent liquidity concerns are the key challenges, says investment management services firm Fidelity International. The stock market recorded one of its longest rising runs as it entered 2018, leading investors to the question whether the momentum can be sustained or whether a decline is due. “The A-share market (shares listed on the Chinese mainland) hit the bottom in 2016 and since then it has experienced a continuous rebound. I believe the trend is likely to last in 2018, as valuation is still attractive in global content,” said Lynda Zhou, Fidelity’s equity portfolio manager. She said that China’s ongoing supply-side reform will benefit cyclical sectors such as coal, steel and cement by fostering a more robust market with a better supply-demand balance. In terms of sectors, a number of domestic brands in the automobile and home appliance industries have grabbed market share from foreign players in recent years. “Domestic automobile brands captured 40 percent of market share in China in 2017, compared to the 20 percent back in 2003,” Zhou said. Also, high-end manufacturing is a market set to expand, as China is leading the way in surveillance and communication technology industries. “China is on track to further accelerate innovation over the long term. All of these driving forces will propel the economic growth in 2018 and beyond,” Zhou said. Corporate earnings are expected to remain strong this year despite an expected slowdown compared with 2017. The overall valuation for A-shares is still below the global average, which is a chance for investors, while some overpriced stocks with high growth can expect a correction that will lead to additional market volatility. As for the bond market, Freddy Wong, Fidelity’s fixed income portfolio manager, believes the authorities will step up further on regulatory tightening. He added that inflation and the expected looming interest rate rise by the central bank can bring additional risks that might also drive the yield curve upward. “Banking, property, consumer and infrastructure will be the major sectors dominating China’s bond market,” Wong said.

Smartphones get all-clear for take-off in China

Wed, 01/17/2018 - 17:01
CHINA Eastern and Hainan airlines will allow passengers to use their smartphones on planes from today — but not to make actual phone calls. The two airlines announced the move yesterday after the industry regulator issued a guideline to lift the ban on mobile phones. Spring Airlines, a Shanghai-based carrier like China Eastern, said it will allow passengers to use phones in the air from “early this year.” From today, passengers on China Eastern flights are able to use their smartphones as well as laptops, iPads, e-books and other small-size portable electronic devices throughout the whole flight, the carrier said. Previously, the use of phones was banned on flights by Chinese carriers. However, intercoms, remote-control toys and other devices with remote-control or radio transmitting equipment remain out of bounds on aircraft. Flouting the rules can mean a fine of up to 50,000 yuan (US$7,610). According to the new rule on the use of portable electronic devices released yesterday, smartphones must be shifted to flight mode and the communication function must be turned off, China Eastern said. That means passengers will merely be able to take pictures or use in-flight Wi-Fi services on their devices rather than make phone calls in the air. Phones with no flight mode facility still have to be turned off throughout the flight, according to the airline. Demands from passengers Furthermore, earphones or chargers must be detached during taxiing, take-off, descending and landing. Spring has launched an evaluation and will apply to the Civil Aviation Administration of China soon, said the budget carrier’s spokesman Zhang Wu’an. He noted “passengers must obey the order of the crew to turn off the devices once any inference was noticed.” There have been increasing demands from passengers to be allowed to keep their smartphones switched on throughout their flights, the CAAC said in the guideline released on Tuesday. “The administration has made technical tests to conclude that the condition has been mature to lift the ban on portable devices in the air,” the CAAC said in the evaluation guideline. It allows domestic airlines to evaluate the impact of portable electronic devices on flights and come up with their own management policies. Airlines will have to first carry out an evaluation, submit an application and get agreement from the administration before allowing passengers to use phones on flights, a CAAC official said. The carriers must issue specific rules on the category of devices to be allowed and when they must be switched off. For instance, smartphones and other portable electronic devices must be turned off when the airplanes are flying in low visibility weather conditions or if any interference is being caused, according to the guideline. ‘Cabin will be far noisier’ “I don’t think it is necessary to use mobile phones on planes, and I am more concerned about flying safety,” said Georges Billard, a French freshman from Bordeaux at Shanghai’s Fudan University. “The regulator should focus more on the security angle, rather than to allow the usage of phones,” he added. “I prefer to be free from the endless WeChat messages and e-mails on phones and take some rest in the air,” said Zhao Yun, a civil servant working for a government body. “I’m afraid the cabin will become far noisier when passengers can make video communications or play games on their phones.” According to an online survey about the usage of smartphones on airplanes, more than half of the respondents said they “don’t want the ban to be lifted” or that they “don’t care.” Nearly 80 percent of the respondents said they feared smartphones could affect flying safety. Many foreign carriers have allowed the use of smartphones during flights in the wake of the popularity of in-flight Wi-Fi services. At present, in-flight Wi-Fi services are available on a majority of airlines in the United States, Europe, Singapore and China’s special administrative region of Hong Kong. More than 78 percent of overseas flights feature Wi-Fi functions. That compares with only about 2 percent of airlines in China, the world’s second-largest air-travel market. The new regulation will boost the development of in-flight Wi-Fi services among Chinese airlines, Spring’s Zhang said. He added that Spring Airlines has equipped two aircraft with Wi-Fi facilities and will launch an Internet service soon. China Eastern has opened Wi-Fi services on 74 of its aircraft. All its long-distance international routes have been equipped with Wi-Fi services, according to the airline.

Petrochemical sector gushes in profit

Wed, 01/17/2018 - 17:01
PetroChina’s logo is seen at its petrol station in Beijing. Profit of China’s petrochemical industry in 2017 grew at the fastest pace in six years, the China Petroleum and Chemical Industry Federation said yesterday. The sector’s 2017 profit is estimated to exceed 850 billion yuan (US$132 billion), an increase of 30 percent. Revenue from core operations totaled 14.5 trillion yuan last year, up 12.5 percent. The petrochemical industry has been hindered by overcapacity along with security and environmental constraints. A State Council guideline issued in August 2016 said China must increase the competitiveness of the industry.

Saturation hits mobile phone sales

Wed, 01/17/2018 - 17:01
CHINA’S mobile phone sales fell 27.1 percent last year as the market became saturated after several years of rapid growth. In 2017, China’s mobile phone sales totaled 491 million units, down 27.1 percent from a year earlier. The number of newly released models also fell 12.3 percent from a year ago to 1,054, according to the China Academy of Information and Communications Technology, a research arm of the Ministry of Industry and Information Technology. In December alone, China’s mobile phone sales tumbled 32.5 percent year on year, signaling a more sluggish market, said CAICT. On Tuesday, ZTE, China’s biggest listed telecom equipment maker, became the first major Chinese smartphone vendor to release a foldable dual-screen smartphone, Axon M, which will be available from Saturday at a starting price of 3,888 yuan (US$600). It’s time to bring consumers “tech-savvy” products to create a new market space when the whole market is close to saturation, said Cheng Lixin, chief executive of ZTE’s mobile devices. Smaller Chinese smartphone vendors, including 360 and Meizu, have also unveiled high-end and innovative products and planned to expand overseas to seek opportunities amid the “tough” domestic market environment. Xiaomi, which is reported to launch an initial public offering this year, aims to double overseas revenue in 2018 by expanding in India and Europe. It’s also “seriously preparing” to enter the US market, Xiaomi Chairman Lei Jun said last month.

Foreign banks see assets gain 13% in 2017

Wed, 01/17/2018 - 17:01
THE assets of foreign banks in Shanghai saw year-on-year growth of 13 percent in 2017, while their bad-loan ratio stood below the industry’s average, the banking regulator said yesterday. Overseas banks in Shanghai recorded 1.56 trillion yuan (US$243 billion) in assets at the end of 2017, accounting for 10.6 percent of the city’s entire banking sector, according to the Shanghai Office of the China Banking Regulatory Commission. The non-performing loan ratio of foreign banks in Shanghai stood at 0.34 percent at the end of last year, below the industry’s average of 0.57 percent and down 0.17 percentage points from the first half of 2017. Overseas banks and their Chinese counterparts jointly launched 13 projects worth 89.5 billion yuan last year to deepen their cooperation. The city’s foreign banks have also seen 671.7 billion yuan in outstanding loans to Chinese clients involved in the Belt and Road initiative. Meanwhile, they backed the development of local science and technology firms. Data from the regulator showed these banks had served 440 such firms by the end of the third quarter of 2017, up 43.8 percent from the start of the year. The outstanding loans to these clients topped 14 billion yuan at the end of September, up 53.9 percent from the start of 2017. Shanghai was home to 230 foreign banking institutions from 29 countries and regions at the end of last year, the regulator said.

Volkswagen sells record 10.7m vehicles

Wed, 01/17/2018 - 17:01
Volkswagen said yesterday that it sold a record number of vehicles in 2017, putting it on track to hold on to the title of world’s largest carmaker two years after its “dieselgate” emission scandal.Some 10.7 million vehicles from VW or its subsidiaries ranging from Porsche and Audi to Skoda and Seat rolled out of dealerships last year — an increase of 4.3 percent over the previous year, the carmaker said.“We are grateful to our customers for the trust these figures reflect,” Chief Executive Matthias Mueller said.VW’s sales look likely to outstrip Japanese rival Toyota’s, which is expected to stand at around 10.35 million units.Nevertheless, the Wolfsburg-based group is still facing a growing challenge from the Renault-Nissan-Mitsubishi alliance, which also laid claim to the top spot yesterday.Its chief Carlos Ghosn told the French national assembly that, excluding trucks, Renault-Nissan-Mitsubishi sold 10.6 million vehicles worldwide last year.“The alliance is the world’s biggest carmaker, that’s just been confirmed,” Ghosn said, arguing that the VW figure included 200,000 heavy trucks, which shouldn’t be included in the total.VW’s strong performance underlines its recovery from the blow it was dealt two years ago, when it admitted in September 2015 to cheating regulators’ emissions tests on millions of diesel cars worldwide.It has since begun to rebuild its reputation in some of the world’s most important markets, with Chinese sales adding 5.1 percent to 4.2 million vehicles last year and US sales rising 5.8 percent to 625,000 vehicles.Growth was more spectacular in South America, at 23.7 percent, but sales only reached 522,000 units in absolute terms.Meanwhile, sales in Central and Eastern Europe including Russia increased by 13.2 percent to 745,000 vehicles.But growth in Western Europe was more sluggish, with shipments up 1.4 percent at 3.6 million units.Looking to the group’s different brands, generalist VW booked an increase of 4.2 percent to 6.2 million units, while Skoda added 6.6 percent to 1.2 million and Seat 14.6 percent to 468,000 units.Luxury Porsche shipped 246,000 cars, up 3.6 percent year on year, while Audi fell behind high-end rivals BMW and Mercedes-Benz, with 0.6 percent growth to 1.9 million vehicles sold.Truckmaking units MAN and Scania both grew 11.6 percent.

Luxury market to continue growth

Wed, 01/17/2018 - 17:01
CHINA’S luxury market is expected to grow by low double digits in 2018 after posting the highest expansion in the past five years in 2017, with market momentum still vibrant. Bain & Co said in its 2017 China Luxury Report yesterday that new consumers — those aged between 20 and 34 — were major contributors to the luxury market’s growth last year. Chinese spending in the domestic luxury market grew 20 percent to 142 billion yuan (US$22 billion) last year, outpacing purchases overseas. Luxury spending from China contributed to 32 percent of the global luxury market over the past year, with renewed consumer confidence and narrowing price gaps for luxury goods between overseas and domestic markets contributing to the spending boom. Compared with mature consumers, millennials start purchasing luxury goods at an earlier age and buy more frequently. They purchased an average of eight times last year, compared with five times for other buyers. Cosmetics, women’s wear and jewelry were the top categories, and sales of them surged over 20 percent annually, surpassing the growth of other categories. “In response to the booming appetite of millennials, we’re seeing luxury brands repositioning themselves to better reach this influential demographic group, particularly through digital media that we know plays an influential role in shaping younger consumers’ opinions about luxury and fashion,” said Bruno Lannes, partner at Bain’s China office and author of the report. Although they saw a high growth rate, online channels only contributed to 9 percent of overall sales. That’s expected to continue to pick up in the future, with more brands planning to open their proprietary websites. The report said creating “newness” and offering innovative ideas will be important if brands hope to capture the new generation of consumers. Brands should also consider partnering with fashion icons and keep a “trendy” image, the report said, to cater to the individualism of millennials.

Wall Street on a roll since Trump elected president

Wed, 01/17/2018 - 17:01
THE bronze sculpture of a bull that stands near the New York Stock Exchange serves as a symbol of Wall Street’s power perhaps this year more than ever. Since US President Donald Trump took office a year ago, the principal US stock indexes have gained by leaps and bounds, hitting a record string of records. “I have not seen such enthusiasm on Wall Street since Ronald Reagan,” said Peter Cardillo of First Standard Financial, who has seen nine US presidents come and go since 1971, when he started working at the heart of global finance. In 2017, the S&P 500 soared 19.4 percent while the blue-chip Dow Jones Industrial Average gained 25 percent and the tech-heavy Nasdaq added 28.3 percent — the strongest performances since 2013. Only two other presidents, Democrats Barack Obama and Franklin Roosevelt, saw higher gains in the broad-based S&P 500 during their first years in office. Analysts say euphoria over the tax overhaul that slashed corporate rates, which Trump signed last month, fed Wall Street’s buying frenzy, along with rising prosperity and job creation after a decade of slow economic recovery. “We got a very generous tax cut and of course it favors corporate America and so basically that means that we’re going to see capital investments rise at a hefty pace, and that could create more jobs,” Cardillo said. After the tax package was enacted in December, some companies wasted no time in announcing pay raises and rosy earnings — including automaker Fiat Chrysler, commercial banking giant Wells Fargo and global retailer Wal-Mart. But many companies have said the windfall will go to increased payments to shareholders and share buybacks rather than more investments and job creation. In addition to the Christmas present of tax cuts, Trump’s pro-business attitude has comforted investors. ‘Not related to Trump’ “Around him, the people in charge of the American economy come directly from Wall Street and Goldman Sachs,” said Gregori Volokhine, president of Meeschaert Financial Services. That includes senior White House economic advisor Gary Cohn and Treasury Secretary Steven Mnuchin, among others. “It’s a team of insiders. Donald Trump lets things happen and what happens is market friendly.” Those welcome signals from the White House come against the backdrop of steady economic expansion, with the US economy growing every year since 2010, fueling the good mood on Wall Street. Trump and his team are seen as having given the economy a “boost,” Cardillo said, noting that “the US economy and job creation were already robust before him.” But the healthy US outlook is also part of a bigger, global picture. The International Monetary Fund estimates the world economy will grow by 3.7 percent this year after expanding by 3.6 percent in 2017, further lifting demand for US exports. And as Volokhine noted, “last year, the most successful financial markets in the world were Argentina, Nigeria and Turkey. “It was obviously not related to Donald Trump.” Underscoring the impact of global conditions on the US economy, he noted that the 55 percent of American companies on the S&P 500 that are export-dependent have become even more competitive due to the weakening of the US dollar, which fell nearly 10 percent last year. Meanwhile, individual investors, who are cautiously dipping their toes back into American stock markets after suffering so heavily in the financial meltdown of 2008, seem largely unconcerned by Trump’s penchant for controversy. “Everything he does is not perfect but Donald Trump does what he promised,” said Steven Kinney, who has been investing on Wall Street for four years.

Shanghai stocks hit new high as HK breaks record

Wed, 01/17/2018 - 17:01
HONG Kong stocks hit an all-time high yesterday, breaking a record that had been in place for more than 10 years, while the Shanghai Composite Index ended higher for a second day, refreshing a two-month high and extending the strong performance since late December. But most other major Asia markets fell into the red with energy firms hit by a dive in oil prices. The US dollar rebounded from morning losses to extend Tuesday’s recovery though Bitcoin was well down following what one analyst called a “cryptocalypse” that saw digital currencies take a hammering. Hong Kong’s Hang Seng Index spent most of the day in negative territory after ending at a record-high close on Tuesday. But late buying saw shares stage a recovery to finish up 0.3 percent at 31,983.41 — overtaking its previous high seen on October 30, 2007. The HSI surged by a third in 2017 and has continued its stellar run at the start of the new year, with a record 14-day winning streak only ending on Monday. Analysts now expect the index to press on with its advance to as high as 34,000 by the end of the year. The Shanghai Composite hit the highest level since the end of 2015 during the morning session, but later edged down to 3,444.67, the highest close since November 13, 2017, and up 0.24 percent from Tuesday. The strong rally from December 28 has sent the index higher by 5.2 percent. Large caps listed in Shanghai led the gains as 36 of the 50 largest listed companies by market value rose. However, most other markets in the region tracked losses on Wall Street, where investors returned from a long holiday weekend to political horse-trading as Washington lawmakers struggle to avert a crippling government shutdown. While a deal to fund programs is expected to be met by tomorrow’s deadline, the uncertainty provided an opportunity to cash in after all three main indexes hit peaks last week. The retreat also comes after a blistering start to the year for equity traders, and Hartmut Issel, head of Asia-Pacific equity and credit at UBS AG Wealth Management in Singapore, told Bloomberg Television that “it’s more of a healthy correction” in stocks. “The last two and a half weeks have been very strong and in some cases we were really wondering if you extrapolate this another three or four weeks we would have exhausted the potential we saw for the entire year.” Tokyo shed 0.4 percent on a stronger yen, while Sydney fell 0.5 percent, Singapore slipped 0.4 percent and Seoul fell 0.3 percent. However, there were gains in Manila and Wellington. Among the big losers were energy firms after both main oil contracts sank more than 1 percent as expectations of falling US stockpiles were overshadowed by worries that Russia is considering ending its role in an output freeze with OPEC. PetroChina, CNOOC and Sinopec in Hong Kong all lost more than 1 percent while Japan’s Inpex was 1.2 percent lower. Rio Tinto tumbled more than 3 percent in Sydney, where Woodside Petroleum lost 0.5 percent. On forex markets the dollar pressed on with a small recovery against its major peers after falling to a three-year low against the euro. But analysts say a move globally toward tighter monetary policy could keep pressure on the greenback. “Expectations are increasing that other ... central banks are readying to enter a path of interest rate normalization, with the European Central Bank and Bank of Japan joining (the Federal Reserve) spearheading the shifting central bank narrative for 2018,” said Stephen Innes, head of Asia-Pacific trading at OANDA. ‘Cryptocalypse’ However, Bitcoin was down almost 8 percent at US$10,900, according to Bloomberg data, having slumped around 15 percent on Tuesday as the volatile cryptocurrency market continues to suffer broad losses. The selling spread to other alternative digital units, with Ethereum, Ripple and Litecoin all losing about a quarter of their value on Tuesday. Bitcoin is down from record highs approaching US$20,000 in the week before Christmas, having rocketed 25-fold over the year, hit by concerns about a bubble and worries about crackdowns on trading it. “It’s been a Cryptocalypse overnight with Bitcoin and other virtual currencies coming under heavy selling pressure,” said Greg McKenna, chief market strategist at AxiTrader. But Shane Chanel, equities and derivatives adviser at ASR Wealth Advisers, sounded a slightly positive note, saying: “Not all hope is lost. The cryptocurrency market is privy to these wild swings and seasoned veterans in this space have seen this happen many times previously. “Not saying that it couldn’t be different this time but every major correction has been followed up by a rally more powerful than the last.”

In pursuit of blue sky, carbon trading looms

Wed, 01/17/2018 - 17:01
China, the world’s largest emitter of greenhouse gases, wants to shed that unwelcome status by becoming the world’s largest market in carbon trading.The process began with pilot projects in 2013, leading up to a trading start in 2020. The initial trading will be limited to the power industry.Under the program, power companies will be given carbon quotas, or credits. Those who emit below their quotas can sell unused credits to companies that pollute beyond quotas.The 1,700 power plants included in the first round of trading emit an aggregate 26,000 tons of carbon dioxide a year, the equivalent of burning 10,000 tons of coal, said Li Gao, director of climate change at the National Development and Reform Commission.In the future, the trading system will be expanded to include steel, chemicals, building materials, papermaking and nonferrous metals.Coal power plants were the first to be targeted because they account for a third of all carbon emissions. Coal burning has been fingered as a prime culprit in blanketing northern cities in smog every year. The number of coal plants in China fell to 7,000 by the end of 2017 from 10,800 in 2015 amid industrial restructuring that closed the most inefficient plants. Still, new coal plants are being built because “the business is still profitable because of relatively low coal prices,” said James Zhou, an employee at a state-owned power plant.But day by day, plants like that will “face higher costs, especially after carbon trading starts,” said Li Chen, operational director of Shanghai Carbon Favor New Energy Technology Development Co. “They have to pay more every year because carbon trading won’t end.”Li Chen specializes in carbon management. He welcomes the advent of carbon trading. “It has finally come!” he said. “The government has shown its serious ambition to create the world’s largest carbon trading market.”Pilot projects in the carbon-trading scheme began in 2013 and concluded at the end of last year. Nearly 3,000 companies and public institutions in China traded 197 tons of carbon valued at 4.5 billion yuan (US$700 million) through last September 30. The Shanghai municipal government, which was part of the pilot program, expanded the number of companies included in the project to 279 last year from 197 in 2013. It is now urging all listed companies to include carbon emission data in their annual reports.Though actual carbon trading is still two years away, its specter looms large. Many companies are beginning to realize they will have no choice but to adapt.Li Chen recalls the time five years ago when a materials company asked his firm to calculate its carbon emissions to see how it compared with other industries on environmental protection. But the interest was short-lived.“They quit us soon after,” he said. “At that time, the calculation was meaningless to most clients as the trading hadn’t started. They would say to us, ‘Even if I can prove the new product saves more carbon, so what? I can barely make profit from it.’”But Li Chen said more companies are coming to his offices nowadays seeking information on carbon trading as the start year approaches. He said his firm did a carbon assessment for a Zhejiang-based nonferrous metals company, which resulted in the installation of solar panels and turned losses into profits. “Companies are realizing that that they will have to pay for their carbon footprint in the future,” he said. “And we are not talking about a one-year cost. It will have to be part of their long-term business strategies.”Carbon trading is expected to give a big boost to renewable energy industries and create new jobs.Xu Liang, who earned a master’s degree in environmental governance in Germany eight years ago, said he switched to the recycling industry from carbon emissions management in China because he didn’t see much progress in that industry at the time.“But now,” he said, “I would urge people to study environmental engineering because the time is ripe for change.” Good as it all sounds, reducing carbon emissions has not proven easy worldwide.Carbon prices in the European Union’s cap-and-trade system dropped to about five euros (US$5.29) at the beginning of 2017 after years of trading stagnation. Experts said the price of carbon dioxide should be about US$30 a ton, and they blamed an excessive issuance of credits for damping the market. In China’s carbon-trading pilot cities, the price of carbon has ranged from 60 yuan a ton in Beijing to 5 yuan in Chongqing.Jiang Zhaoli, deputy director of the climate change division at the National Development and Reform Commission, said the ideal carbon price in the future should be between 200 and 300 yuan a ton.“Below that,” he said, “companies won’t feel the pressure and will have little motivation for trading. China must develop standards for issuing quotas.”Li Chen said the mechanics of the carbon trading market changes are complex and more refinement is needed to ensure smooth implementation. But he remains optimistic.“This step toward blue skies,” he said, will “spur market players to speed up preparations for the coming changes.”

Germany adds yuan to reserves

Tue, 01/16/2018 - 17:01
GERMANY’S central bank has said it will include the Chinese yuan in its reserves, giving another boost to China’s drive to internationalize the currency. The Bundesbank said its board had decided in July to invest in the yuan to take account of its growing importance globally, though it did not say when it would begin to include it or how much it would purchase. “The decision to accept the yuan is part of a long-term diversification strategy and reflects the growing role of the Chinese currency in the world financial system,” Bundesbank board member Joachim Wuermeling said. The German central bank regularly reviews the composition of its currency reserves “by weighing risks and benefits,” Wuermeling said. “In addition to dollars and yen, (the bank) has invested in Australian dollars since 2013 and seeks to invest in other currencies.” The move comes after the European Central Bank in June converted 500 million euros’ worth of its US dollar reserves into yuan. China was Germany’s top trade partner in 2016, ranking first in the European country’s imports and fourth as an export destination. The Bundesbank’s currency reserves totaled some 170 billion euros (US$210 billion) in November. The yuan has increased its global clout in recent years, and in September 2016 it joined the US dollar, pound, yen and euro in the IMF’s elite “special drawing rights” reserve currency basket.

Shenzhen to abolish border around SEZ

Tue, 01/16/2018 - 17:01
SHENZHEN will remove the barrier that was set up more than three decades ago to mark the boundary of the Shenzhen Special Economic Zone. The State Council has approved the removal of the barbed wire fence that runs more than 80 kilometers around the core of Shenzhen, in a move to foster the city’s integration. In a guideline, the State Council urged the city government and the provincial government of Guangdong to take the opportunity to optimize the city’s layout and land use, improve its public transport and better protect the environment. Analysts say the decision to scrap the boundary indicates further integration of Shenzhen and sends a positive message on regional development. In 1980, Chinese authorities carved out a 327-square-kilometer special economic zone from Shenzhen and implemented preferential economic policies there in a bid to attract foreign investment and boost exports. Two years later, a boundary line and several checkpoints were set up around the zone. Residents outside the zone had to apply for a special permit to enter the area. However, the role of the boundary line faded over time as two sides of the border became more integrated. In 2010, the central government expanded the special economic zone to the whole city, making the line existing in name only.

Political pressure hits AT&T-Huawei deal

Tue, 01/16/2018 - 17:01
US lawmakers are urging AT&T, the No. 2 wireless carrier, to cut commercial ties to Chinese phone maker Huawei and oppose plans by telecom operator China Mobile to enter the US market over so-called national security concerns, two congressional aides said. China calls for a fair operating environment for its companies. Earlier this month, AT&T was forced to scrap a plan to offer its customers Huawei handsets after some members of Congress lobbied against the idea with federal regulators, sources said. The lawmakers are also advising US firms that if they have ties to Huawei or China Mobile, it could hamper their ability to do business with the US government, one aide said, requesting anonymity. One of the commercial ties senators and House members want AT&T to cut is its collaboration with Huawei over standards for the high-speed next-generation 5G network, the aides said. Another is the use of Huawei handsets by AT&T’s discount subsidiary Cricket, the aides said. Chinese foreign ministry spokesman Lu Kang said yesterday that he did not know anything about the details of the commercial cooperation cases, but added China hopes other countries would provide a fair operating environment for Chinese companies. “We hope that China and the United States can work hard together to maintain the healthy and stable development of trade and business ties. This accords with the joint interests of both,” Lu said in Beijing. Huawei said earlier this week that it sells its equipment through more than 45 of the world’s top 50 carriers and puts the privacy and security of its customers as its top priority. In 2012, Huawei and ZTE, a Chinese telecom equipment maker, were the subject of a US investigation into whether their equipment provided an opportunity for foreign espionage and threatened critical US infrastructure — a link that Huawei has consistently denied. US lawmakers do not want China Mobile, the world’s biggest mobile phone operator, to be given a license to do business in the US, the congressional aides said. China Mobile applied for the license in 2011, and the application is pending before the Federal Communications Commission. Huawei and Chinese telecom firms have long struggled to gain a toehold in the US market, partly because of US government pressure on potential US partners. Two Republican lawmakers, Michael Conaway and Liz Cheney, unveiled a bill this week that bars the US government from using or contracting with Huawei or ZTE.

ODI falls but rational sentiment wins

Tue, 01/16/2018 - 17:01
CHINA’S non-financial outbound direct investment dropped nearly 30 percent in 2017 from a year ago but the decline signaled a more rational investment sentiment, the Ministry of Commerce said yesterday, adding that economic cooperation with Belt and Road countries deepened. Chinese mainland investors injected US$120 billion in 6,236 non-financial enterprises in 174 countries and regions last year, the ministry said. That compared with a record US$170 billion investment in 2016, when the authorities warned of “irrational tendency” and started to impose stricter rules on overseas investment. The State Council, China’s Cabinet, in August clarified that overseas investment in real estate, hotels, cinemas and entertainment would be limited, while that in sectors such as gambling would be banned. Investment in countries involved in the Belt and Road initiative totaled US$14.4 billion in 2017, the ministry said. Belt and Road deals accounted for 12 percent of total investments in 2017, up 3.5 percentage points from a year earlier. The ministry said investment mainly flowed to leasing, commercial services, retail, manufacturing and information technology sectors. The ministry did not report new investment in property, sports or entertainment. Chinese companies sealed 341 merger and acquisition deals valued at US$96.2 billion across 49 countries and regions last year. The commerce ministry also said foreign direct investment in China totaled 877.56 billion yuan (US$136.3 billion) last year, up 7.9 percent year on year. The business environment for foreign companies has improved last year after measures, including wider access, financial support, greater protection of foreign companies’ rights, and better government services, were implemented, the ministry said.   FDI in the high-tech and service sectors grew strongly and the increase was rapid in China’s western regions, the ministry added. It said FDI in China is expected to be stable this year.

HKEx ponders rule change

Tue, 01/16/2018 - 17:01
Two bull statues are situated outside the Hong Kong stock exchange building in the city. Hong Kong Exchanges & Clearing Chief Executive Charles Li said yesterday that HKEx is preparing for a market consultation, expected to start after the Spring Festival, on a rule change, which will allow biotechnology companies without revenue and other new-economy companies with dual-class shares to list in Hong Kong in the second half of this year. After the consultation is completed, HKEx plans to announce the new rules in early June and start to accept applications for listing from new-economy companies by the end of the month, Li said.

Realty, brewer shares boost key index

Tue, 01/16/2018 - 17:01
REAL estate companies and brewers boosted Shanghai shares yesterday as investors were buoyed by new property policies and investments in brewers. The Shanghai Composite Index gained 0.77 percent to 3,436.59 points, the highest since November 13. Real estate developers Greenland Holdings Corp and Shanghai Ya Tong Co both jumped by the daily limit of 10 percent to 10.13 yuan (US$1.57) and 10.92 yuan respectively. Real estate companies benefited from news that China would allow non-real estate enterprises and villages to build houses on the land they own to boost housing supply. Shen Meng, director of domestic investment bank Chanson & Co, said the policy would continue to bolster the shares of real estate firms in the coming months on expectations that the industry would be energized in the long term. There was also investor interest in brewers after conglomerate Fosun became the second-largest stakeholder of Tsingtao Brewery Co by buying its Hong Kong-listed shares. Investor sentiment was further fueled on news that Shanghai Chongyang Investment Co bought shares of Beijing Yanjing Brewery Co. Shares of Chongqing Brewery Co surged 7.08 percent. Shen expected brewers to be one of the most stable sectors in the Chinese mainland food and beverage market amid capital inflows.

GAC to scrap name sounding like Trump for US market

Tue, 01/16/2018 - 17:01
Chinese automaker GAC Motor will scrap the brand name it uses in China when it enters the US market next year because it could be confused with US President Donald Trump’s surname.For the past eight years, GAC has sold cars and SUVs under the brand Trumpchi in its home market, but is now researching new names before the company’s expected US debut in the fourth quarter of 2019.“We want to provide the best service for American customers, so we want to not be closely linked with politics,” Wang Qiujing, president of GAC Engineering Institute China, said through an interpreter in an interview at the Detroit auto show. “This is the reason we want to rename the brand.”GAC, which stands for Guangzhou Automobile Group Co, picked the Chinese name Trumpchi in 2010, well before Trump was elected. The similarity to Trump is just a coincidence, Wang added. GAC will continue to use Trumpchi in China, where the word means legend and good fortune.GAC’s first vehicle in the United States will be the GS8, a loaded-out full-size SUV that will cost US$35,000. Two more vehicles are being researched for US sales, but have not been selected yet.The company showed seven different models on a video and unveiled two more at the Detroit show. One is a gull-wing compact electric SUV called the Enverge, which is still in the concept phase. The automaker says it will go nearly 600 kilometers on a single charge. Also unveiled was the GA4 midsize sedan that will go on sale in China later this month.The GS8 would be comparable to a big luxury SUV, many of which go for above US$60,000. Wang said he didn’t know what the brand’s lowest-price vehicle would be in the US.GAC sold just over 500,000 automobiles in China last year, up 37 percent from 2016.The company says it is negotiating with partner Fiat Chrysler about possible distribution of vehicles. Wang said GAC is the top-ranked domestic brand for initial quality in China in JD Power and Associates surveys, and it ranks fourth or fifth when joint ventures with foreign automakers are included. He says the company’s vehicle quality will be ready for US buyers, and it will work with US partners to meet stricter US safety standards.Chinese automakers are advanced and have expertise in mass production but the American market may not be ready yet to accept GAC, said Jake Fisher, Consumer Reports’ director of auto testing.“There will be Chinese automakers at the top of the market and at the bottom of the market, and it will be very interesting to see how they are received,” he said.GAC already has a research center in Silicon Valley and is working on another one in Detroit, as well as a Los Angeles design center. Initially it will import vehicles from China but depending on sales, plans to build a factory in the US.

Yunnan Capital secures funds to repay trust loans

Tue, 01/16/2018 - 17:01
A state-owned investment company in Yunnan that defaulted last month on two trust loans has secured financing to repay those loans and is set to get 2 billion yuan (US$311 million) in additional equity capital from the provincial government.Yunnan State-Owned Capital Operation Co, fully owned by the provincial government’s state asset regulator, obtained the cash to repay the loans through one-month loans from three institutions, Liu Gang, the company’s chairman, said in a telephone interview.Liu declined to name the institutions providing the funds.On December 15, Yunnan Capital missed payments of more than 900 million yuan, representing principal and interest, that it had borrowed through two trust products issued by Zhongrong International Trust, two sources said on Monday.In an e-mailed statement yesterday, Zhongrong International said it had received full repayment for the two loans, including principal and interest. The Harbin-based trust company did not provide further details.The missed payments were the first known default of off-balance sheet, or shadow, loans borrowed by local governments, they said.The case is closely being watched by investors and lenders concerned that China may be entering “a year of defaults” for off-balance sheet local government borrowing, one of the sources said.The Yunnan provincial government also is set to inject 2 billion yuan in the state-owned investment company, according to Liu of Yunnan Capital.Those missed payments came amid growing fears that financing vehicles used by local governments throughout China, often for projects that ran up large amounts of debt, may start to default this year.Liu said Yunnan Capital was a platform to manage provincial state assets and carry out reforms at provincial government-owned companies. He said the anticipated capital injection had nothing to do with the loan repayments.But, according to an internal memo from the trust company and two sources with knowledge of the matter, the capital injection promised by the provincial government was to be used to help with the loan repayments.The government capital injection to help the company repay loans, if it moves forward, could also indicate potential violations of the central government’s ban that prevents local governments from providing implicit guarantees for local government financing vehicle debt, they added.Yunnan Capital’s Liu confirmed the government’s capital injection plan but denied any relationship between it and the loan repayments. He said he did not consider his company to be a local government financing vehicle.“Last week, Yunnan held four local governments accountable and punished a bunch of people for providing illegal guarantees — an activity that is not in line with the spirit of the central government,” he said.He said the 2 billion yuan capital injection from the government was aimed at boosting the company’s capital strength and was pending budget approval by the provincial National People’s Congress which will convene later this month.Ivan Chung, head of credit research and analysis for China at Moody’s Investors Service, said he expects the number of defaults by local government financing vehicles to increase in 2018 and 2019.Thousands of financing vehicles have been created by local governments in recent years to fund large state-driven projects and hit economic growth targets.They have taken on trillions of yuan in debt from banks, the bond market and shadow lenders such as trust firms, helping local governments bypass the central government’s limits on borrowing. Much of the debts come with implicit local government backing.China has increasingly cracked down on such debt-raising activities, stressing that it will not bail out local governments that run into financial difficulties.One central bank researcher said recently that some cities should be allowed to go bankrupt like Detroit.Since late 2014, the central government has tried to address the situation of surging local government debt by revising the Budget Law, launching a municipal bond market, and stripping local government guarantees from debts held by local government vehicles.At its annual economic conference in December, China’s top leadership decided to take concrete measures to strengthen the regulation of local government debt in 2018.

Reforms over who can build homes

Tue, 01/16/2018 - 17:01
CHINA will work on plans to allow non-real estate companies to build residential properties on land parcels to which they have acquired rights of use. The government will also no longer be the sole provider of residential plots, Minister of Land and Resources Jiang Daming told a national land resources work conference held on Monday. Trials on building rental housing on rural land, currently being conducted in more than a dozen Chinese cities, will be deepened as the country steps up efforts to put in place a housing system that ensures supply from multiple sources, provides housing support through multiple channels and encourages both house purchases and rental, Jiang said. China has already launched pilot programs in 13 major cities, including the gateway cities of Shanghai, Beijing and Guangzhou as well as lower-tier cities such as Shenyang, Nanjing, Chengdu and Foshan. The aim is to allow collective rural economic organizations to build and rent housing on rural land themselves or through joint ventures, the Ministry of Housing and Urban-Rural Development said in a statement posted on its website in late August. “Different types of land suppliers will likely prompt different types of entities in land development and property operation, as well as different forms of cooperation,” said Zhang Yue, chief analyst with Shanghai Homelink Real Estate Agency Co. “This will help relieve housing supply shortage and leave an impact, particularly on the rental market.” Under the country’s current land administration system, real estate developers can only acquire land plots designated for housing development from the government. Rural land parcels of collective ownership are not allowed to be sold in the public market until they are expropriated by the government and turned into state-owned plots. Yan Yuejin, research director at E-House China R&D Institute, said the statement by the minister suggests that the central government is actively seeking new sources to increase land supply for rental housing that has become a new focus in the country’s building of a new housing system. “The country is exploring new channels to raise land supply for rental units by giving the go-ahead to non-state owned land plots to enter the market,” Yan said. “This will help accelerate the pace of land supply in large cities, particularly in their suburban areas.” In Shanghai, where the local government has earlier announced a target to add 700,000 leasing units during the five-year period through 2020, building rental housing on rural land must be a key channel to ensure future supply, according to Zhang. “It seems almost impossible to achieve the 700,000-unit target if land plots designated for residential leasing purpose are the only source,” Zhang added. From last July to December, the city added or plan to add a total of around 41,000 rental units to supply, including 30,000 apartments to be built on 29 land parcels designated solely for residential leasing purposes, Xu Yisong, director of the Shanghai Planning, Land and Resources Administration, told a municipal press conference this month.

Regulators cast shadow over dubious loans

Tue, 01/16/2018 - 17:01
CHINA’S economy has steadily become more debt-ridden. Governments, households, companies and institutions borrow money to make more money, but concern is mounting that it all may be at a tipping point. The ratio of debt to gross domestic product has grown since the 2008 global financial crisis, prompting a shift in official policy to “bubble deflating,” according to Zhou Hao, a senior economist for emerging markets at Commerzbank. The resulting brakes on debt accumulation have weighed heavily on the banking industry, which relies on lending for profits. Where does that leave banks going into a new year? Financial risk control is certain to remain a priority in 2018. It was listed among the “three tough battles” by the top decision-makers at the Central Economic Work Conference. Regulators have proposed a slew of new regulations to fend off risk. In November, the People’s Bank of China drafted new rules for the asset management industry, aiming to reduce financial leveraging and arbitrage. They prohibit managers in the 60 trillion yuan (US$ 9.3 trillion) asset management market from promising investors a guaranteed rate of return and stipulate that financial institutions must offer yields based on the net asset value of the products they are selling. Against that backdrop, commercial banks have to make changes, said Wei Jiyao, an analyst at financial planning research firm PY Standard. Parts of the asset management sector fall into the country’s “shadow banking” system, which has been largely unregulated. Banks and regulators are now discussing the proposed new rules, and there may be some compromises, according to May Yan, head of China Financials at UBS investment research. “After all, a sharp contraction in the shadow banking system might have a big impact on the economy,” she said. “The government needs to strike a balance.” A reallocation of assets may benefit the insurance sector. Kelvin Chu, director of Asian insurance and diversified financials at UBS, predicts that insurers will have “more space” to compete with banks in the realm of long-term asset management products. The government’s determination to rein in runaway lending practices is beginning to bite. The China Banking Regulatory Commission said in a statement last weekend that long-term efforts are needed to tackle “disorder and chaos” in the industry. Oversight of the shadow banking system and interbank activities sits at the top on its agenda. In January, the watchdog published new measures to increase scrutiny over the shareholdings of commercial banks to rein in abuses related to major shareholders. That was followed by a notice banning banks and other institutions from extending loans via entrusted loan accounts, a popular form of shadow banking. Reducing debt will continue this year, but the pace may slow in the interest of keeping the market liquid, said Raymond Yeung, chief economist of China at Australia & New Zealand Bank. Banks should stick to their core businesses and not get involved in the chaos that has marked sections of asset management, he added. Robin Xing, Morgan Stanley’s chief China economist, predicted that the central bank will raise interest rates on loans and deposits in the third quarter. “The move would at least help divert people from investing in wealth management products and attract money back onto bank balance sheets,” he added. Banks need to strengthen their capital bases via equity and bond issues to meet new regulatory requirements, said Commerzbank’s Zhou. It’s a big challenge for banks to improve their liquidity management, according to Qu Tianshi, a markets economist at Australia & New Zealand Bank (China). Previously, banks used to extend loans without enough consideration toward liabilities, he noted. Now they had better think twice about how to allocate assets. He added that banks should return to their core function as “capital intermediaries.” Looking ahead, Gao Ting, chief China strategist at UBS Securities, predicts that big state-owned lenders will outperform their mid-cap and smaller peers in terms of profitability. “Liquidity tends to be tight in the market, which will push up interbank rates and thus the funding costs of smaller lenders,” he added. Those lenders should concentrate on business aimed at smaller companies and on retail banking, industry observers said. All the banks seem intent on increasing investment in information technologies, according to a recent survey by the China Banking Association and PricewaterhouseCoopers, an accounting and auditing firm. China Industrial Bank, a mid-sized joint-stock lender, recently teamed up with Microsoft China to create smart banking capabilities.