Global Economics

China Opens Up Energy Markets


New legislation allows foreign companies to invest in crude oil and nuclear power. Westinghouse stands to gain from it

New regulations unveiled in early December by the Ministry of Commerce allow foreign companies to invest in crude oil wholesale, storage, wholesale distribution and retail sales. The changes kicked in January 1. Foreign companies have to meet capitalization requirements of US$12.8 million and incorporate locally. However, the country's four major oil and gas firms—China National Petroleum Corp, China National Offshore Oil Corp, China Petroleum & Chemical Corp (Sinopec) and Sinochem Corp—are expected to remain dominant.

Nuclear provider

Westinghouse Electric will provide technology for four nuclear power units in China. An agreement was signed on the sidelines of a meeting of energy ministers from five countries in mid-December. The agreement would "ensure the introduction of technology and the smooth construction of the nuclear power plants," said a statement released by the National Development and Reform Commission.

Dam construction starts

Construction began in late November on a US$3.7-billion dam in southwest China. The 6-gigawatt Xiangjiaba dam on the upper reaches of the Yangtze will displace between 88,000 and 150,000 people by the time it is completed in 2015, state media reported. China plans to build a dozen hydropower stations along the river's upper stages despite criticism about the environmental and social impact of such projects.

China Life buys into grid

The country's largest insurer, China Life, planned to pay US$4.08 billion for a 31.94% stake in China Southern Power Grid to become the utility's second-largest shareholder. China Life officials said on December 7 it would buy 19.2 billion shares from the Guangdong provincial government.

TRADE

Surplus hits US$23.4bn

China's trade surplus came to US$23.4 billion in November, down slightly on the record US$23.8 billion posted in October. Exports rose 27.5% year-on-year in the first 11 months and imports increased 20.5%. The total trade surplus for the year to date is US$157 billion, an increase of more than 50% on the full year figure for 2005 of US$102 billion. The 2005 surplus was three times that recorded in 2004.

Import boost planned

The Ministry of Commerce unveiled a plan to boost China's imports and reduce its huge trade surplus. The new measures include increasing imports of large machinery components, advanced technology and resource-intensive goods. "We will continue to give duty-free status to imports from the least developed countries and expand imports from them," a commerce ministry official told the state media.

Port trade leaps 22%

Trade through Shanghai ports grew 22.2% in the first 11 months of 2005 to US$390.2 billion, Shanghai Customs reported. Exports rose 25.3% year-on-year to US$243.8 billion while imports increased 17.4% to US$146.4 billion. Foreign-invested companies shipped out US$147.2 billion worth of goods through Shanghai, a rise of 27% from last year. They also imported US$103.3 billion worth of goods through the city, up 20.4% year-on-year.

Export barriers to rise

Chinese exports will encounter increasing technical barriers among major trading partners in the coming years because of strict new rules on energy use and chemical content in those markets, said Li Changjiang, minister of the General Administration for Quality Supervision, Inspection and Quarantine (GAQSIQ). Official figures show that the Restrictions on Hazardous Substances (RoHS) directive, which the EU adopted on July 1, affected more than US$60 billion worth of electronic and electrical products exported from China. Li said China would address inappropriate regulations through the WTO mechanisms.

MACROECONOMICS

SOEs to pay dividends

Shao Ning, vice minister of the State-owned Assets Supervision and Administration Commission (SASAC) said the worst performing 161 central state-owned enterprises (SOEs) would be closed and the remainder required to hand over some of their after-tax gains for reallocation. "The goal of the reforms is to reorient state capital away from poorly performing companies in non-critical areas to priority sectors," Shao said.

Bank QDII sales slow

Chinese banks have sold less than 3% of their US$13.1 billion Qualified Domestic Institutional Investor (QDII) quotas, the government said. Since June, banks and fund managers have been allowed to invest in overseas financial products but investors have taken only US$383 million of the nine products offered by banks. The slow uptake is blamed on a limited choice of products—banks can only invest in bonds, money-market products and fixed-income derivatives—and the impact of yuan appreciation on foreign investment returns.

Fund managers named

The National Social Security Fund (NSSF) appointed 10 international institutions to manage overseas investments of its state pension fund. The NSSF declined to unveil the size of individual mandates, but analysts believed managers would receive a combined initial allocation of about US$1.5 billion.

Offshore investment ease

The State Administration of Foreign Exchange (SAFE) deputy director Deng Xianhong told state media the Chinese government was considering allowing individuals to invest overseas. It would also expand the trial scope of overseas investments by securities firms and ease rigid controls on foreign exchange. The QDII (qualified domestic institutional investors) program would be expanded and insurers allowed to invest in more overseas financial products.

Roads, rail windfall

China plans to spend around US$250 billion on expressway expansion projects over the next 30 years and a further US$190 billion on rail network improvements by 2010. The Ministry of Communications wants to more than double the existing expressway network to 84,800 km. Western China would get US$138 billion, eastern China US$39 billion and the central regions US$66 billion. Under the rail development plan, the network will be enlarged by 20%.

TECH & TELECOM

Bloggers up 24%

The number of bloggers in China is on the rise with 19.9 million in early November, up 24% from 2005. Search engine Baidu said 15% of them post at least once a week and 4.6% make daily entries. Most blogs in China are still anonymous but authorities may want bloggers to register leading critics to raise privacy concerns.

3G rumors push shares

The impact of the long-awaited 3G licenses was underlined by Minister of Information Industry Wang Xudong during the ITU Telecom World 2006 in Hong Kong in early December. Wang said the licenses would be given out soon, sending shares in China's two largest fixed-line operators soaring. Observers believe China Telecom and China Netcom will get the first 3G licenses. Telecom jumped 15.6% in a single day while Netcom went up 8.5%.

PCCW sale scuppered

Richard Li, chairman of Hong Kong telecoms operator PCCW, saw his attempt to sell his 23% stake for US$1.2 billion shot down in late November. Minority shareholders in Singapore-listed Pacific Century Regional Developments (PCRD), through which Li holds his stake, voted against the sale. Li owns 75% of PCRD but was not allowed to participate in the sale.

BANKING & FINANCE

Citigroup to incorporate

Citigroup announced plans to incorporate its China operations locally, following in the footsteps of HSBC and Standard Chartered. The move comes in response to the publication of requirements for gaining access to the domestic RMB banking market. Another eight banks, including ABN AMRO and Deutsche Bank, are expected to incorporate locally, according to Chinese authorities. More than 70 overseas banks have set up 238 operating branches in China but by the end of 2005 they accounted for only 0.55% of local currency loans.

Daily benchmark rate due

China's central bank plans to issue a daily benchmark interest rate starting in 2007, state media reported. The move is part of an effort to give market forces more play, according to Wu Xiaoling, deputy governor of the People's Bank of China. Wu said the benchmark interest rate will be based on quotations for various inter-bank lending and borrowing rates offered daily by 16 commercial banks with good credit. The central bank maintains control of deposit and loan rates. Experiments with the inter-bank offered rate quotation started in Shanghai in October.

China Coal set for rise

China Coal Energy jumped more than 12% in its Hong Kong debut on December 19. The company, China's second-largest coal producer by revenue, raised US$1.7 billion in its IPO. Similar frenetic interest saw shares in hotel operator Shanghai Jin Jiang International Hotels jump 73% on its December 15 debut, following its US$310 million IPO.

Spanish bank buys in

One of Spain's largest banks, Banco Bilbao Vizcaya Argentaria SA took a minority stake in two units of China's Citic Group. The US$1.27 billion deal gives the Spanish lender 5% of Beijing-based Citic Bank and 15% of Hong Kong-based Citic International Financial Holding. Meanwhile, Australian bank ANZ said it would pay US$250 million for a 19.9% stake in Shanghai Rural Commercial Bank.

CCCG issues extra shares

Ports builder China Communications Construction Group (CCCG) said it would offer US$309.6 million worth of extra shares as massive interest in the company's US$2.1 billion IPO triggered the overallotment option. Just two trading days after it made its Hong Kong debut on December 15, CCCG shares were up 33%.

AUTOS

World's no. 2 auto market

China was on target to become the world's secondlargest auto market ahead of Japan with sales expected to top 7 million by the end of 2006. The China Association of Automobile Manufacturers said sales in the first 11 months of 2006 totaled 6.45 million units, 25% more than in 2005. The high sales volume powered China to take the number two spot ahead of Japan. In 2005, Japan sold 5.85 million cars to China's 3.97 million.

Auto output jumps

Auto output reached 701,300 units in November, while sales hit 689,000 up 19.11% and 19.54% from October. The figures were reported by state media quoting numbers from China Association of Automobile Manufacturers. Total sales between January and November jumped 25.49% year-on-year to hit 6.45 million. The top three auto producers were Shanghai Automotive Industry Corp, First Automobile Works and Dongfeng Motor Corp.

Daimler seals Foton deal

DaimlerChrysler said it would pay US$104 million for a 24% stake in Beiqi Foton Motor, China's biggest light commercial vehicle manufacturer. Daimler is set to become the company's second-largest shareholder after Beijing Automotive Holdings. Funds generated by the deal will be used to improve facilities, build an R&D center and repay bank loans.


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