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China Economic Watch

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China's COEs Reap ¥917b Profits
Central government-owned enterprises, the largest of China's state-owned enterprises, posted ¥20.2 trillion in revenues and ¥917.3 billion in net profits in 2011, up 20% and 6.4% respectively from the year before, the State-Owned Assets Supervision and Administration Commission said. COEs had ¥28 trillion in total assets and ¥10.7 trillion in net assets as of the end of 2011, up 14.9% and 11.4% respectively from a year earlier.

China to Step Up Trial of Bonds Backed by Local Governments
China's central government will allow more provincial governments to issue bonds this year in a move to reinvent the way they borrow money, Finance Minister Xie Xuren said. A pilot program kicked off last year in the cities of Shanghai and Shenzhen and the provinces of Zhejiang and Guangdong.

$1 to Buy 6.1 Yuan by Year End: JPMorgan
The Chinese currency's rate against the US dollar will gain 3% to 4%, to ¥6.1 to the dollar, and China's trade surplus will stay steady at $155 billion in 2012, JPMorgan Chase & Co predicted. One dollar is currently buying around 6.3 yuan.

¥193b Micro Loans Made in 2011
China's 4,282 microcredit providers extended ¥193.5 billion in loans in 2011, bringing the outstanding amount to ¥391.5 billion as of the end of last year, central bank figures show.

Mobile Internet Service Revenue Exceeds ¥86b
Revenue from China's mobile Internet services amounted to ¥86.22 billion in 2011 and the market had 431 million users as of the end of that year, according to Analysys International.

$1 = ¥6.3

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Foreign Companies in China Roundup

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Adidas AG expects its revenue from China to grow at a double-digit rate annually until 2015, CEO Herbert Hainer said, adding that revenue from the Greater China region surged to $1.31 billion in 2011 and that the region has become its second largest market after North America. Adidas opened 1,175 stores in China last year.

Honeywell International Inc (NYSE: HON) will launch a series of mergers and acquisitions in China and double its revenue from the country in the next five years, Honeywell China's CEO told Yicai.com. The aerospace product maker's revenue from China has risen 21% annually between 2004 and 2011.

A Shenzhen court rejected Apple Inc's (NASDAQ: APPL) email evidence in its lawsuit against Shenzhen-based display manufacturer, Proview. Apple claimed that emails between a Proview employee identified as Huiyan and an unnamed intellectual property company demonstrate that Proview had transferred its iPad trademark rights to Apple, but the court ruled that there was insufficient evidence to prove Huiyan was a legal representative for Proview.

Ford Motor Co (NYSE: F) expects China's vehicle sales to rise 5% in 2012, the auto maker's regional head said, forecasting a second year of moderate growth in the country after years of double-digit increases. But Joseph Hinrichs, president of Ford Asia-Pacific and Africa, expected the company's own sales to exceed the industry average as it expands production and introduces new models in China.

LinkedIn Corp (NASDAQ: LNKD) founder Reid Hoffman is meeting Baidu (NASDAQ: BIDU), China's biggest search engine, Sina (NASDAQ: SINA), the provider of the nation's most popular microblogging service Weibo, Renren (NYSE: RENN), a leading SNS site and Qihoo 360 (NYSE: QIHU), a leading Chinese antivirus developer, for discussions about making a foray into the Chinese market.

Walmart Stores Inc (NYSE: WMT) said it plans to increase its stake in Yihaodian.com, a leading Chinese online supermarket, which employs 5,400 workers. The deal is pending approval from Chinese authorities.

DreamWorks Animation SKG Inc (NASDAQ: DWA) has struck a deal to set up a production studio in Shanghai as a joint venture with two Chinese media entities and the investment arm of the Shanghai government, the Wall Street Journal reported, citing a company announcement. The new company, named Oriental DreamWorks, will develop and distribute animated films and television programs in China. The studio plans to release its first animated film by 2016.

Nestle SA, the world's biggest food maker, said its revenue from China surged to $5.4 billion in 2011 and the country will be its focus for investment in the years to come.

French hotel operator Accor SA said it plans to open 25 hotels in China this year. It was operating 114 hotels with some 30,000 rooms in the country as of the end of 2011.

 

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China-Japan trade volume hit a record high of more than 344.9 billion U.S. dollars in 2011, up over 14 percent from the previous year, the Japan External Trade Organization (JETO) recently said.

China accounted for nearly 21 percent of Japan's total foreign trade volume last year, and has been the country's largest trading partner for five consecutive years.

The JETO predicts that China-Japan trade volume will hit a new high of more than 350 billion U.S. dollars in 2012 despite slower growth.

This year, Japan's imports of high value-added products from China will continue to increase, but its exports will be affected by China’s economic slowdown and other factors.

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Experts believe that the yuan will be fully eligible to be an international currency by around 2020.

Experts believe that China has made significant progress in internationalizing its currency in recent years, but still needs to foster financial market development, and further improve corresponding supervision and regulation systems.

Yuan is more popular worldwide

Holders of the yuan are becoming diversified as the currency is becoming increasingly popular worldwide in various ways. Tu Guangshao, vice mayor of Shanghai Municipality said that the growing international use of the yuan has brought about some encouraging changes.

The volume of cross-border trade settlement in yuan is growing at a faster pace than on July, 1, 2009 when the pilot program of cross-border trade settlement in yuan was launched. The size and scope of currency swaps between the central banks of China and other countries are increasing steadily. The volume of yuan bonds and deposits in Hong Kong’s offshore yuan market has increased rapidly. In addition, the Chinese government has launched preparatory work for the backflow of the yuan into domestic bond markets.

Major foreign cities compete to become offshore yuan market

All major reserve currencies in the world have a big offshore market. A mature offshore yuan market can effectively promote internationalization of the yuan, and help the yuan become an international currency more easily.

China has made great achievements in building offshore yuan markets in recent years, especially the offshore market in Hong Kong. Statistics showed that as of November 2011, more than 132 Hong Kong-based financial institutions offering yuan services had provided loans of 25.6 billion yuan, and had deposits over 627 billion yuan, accounting for about 10 percent of their total deposits. The yuan has become the third most widely used currency in the region after the Hong Kong dollar and U.S. dollar.

Shen Jianguang, managing director of Mizuho Securities Asia Limited, said that following the establishment of the China Hong Kong offshore center, London and Singapore are both in active consultation with the Chinese government about formally becoming the offshore markets, and the Chinese government is also optimistic. China’s development level is much higher than many Southeast Asian countries.

First Secretary of the British Embassy in economic and fiscal policy Peter Mumford said, “A lot of yuan products are almost simultaneously released in Hong Kong and London. And in London, the offshore yuan products develop so rapidly that there have been hundreds of millions of yuan deposits. We have reasons to believe that yuan offshore market in London will grow faster.”

Yuan qualified to be international currency by 2020

Experts said that internationalization of the yuan is of great significance. Pan Yingli, professor of Antai College of Economics and Management, Shanghai Jiao Tong University, said that China might well become the world’s largest economy around 2020, and that the yuan is absolutely qualified to be an international currency to prevent exchange rate risks during globalization.

Pan also said transactions of overseas products and assets are made in yuan is an important symbol of internationalization of the yuan. An important prerequisite of internationalization of the yuan is to nurture and fortify presence of overseas businesses, that is, Chinese enterprises and financial institutions must gain dominance gradually in the international economic and financial transactions.

Chen Xuebin, professor and executive vice president of the Institute of Finance, Fudan University, said that internationalization of the yuan entails cultivation of the corresponding financial market, improvement of the regulatory and control systems, and transformation of capital flow channels, exchange rate formation mechanism, and economic growth mode. It is necessary for the yuan to maintain a trend of small appreciation in the early period of internationalization. Chen recommended that the yuan should disconnect itself from U.S. dollar, and cling to a basket of currencies in order to form a slight-fluctuation exchange rate mechanism.

 

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After a year largely spent in the United States developing products that use new sources of energy, Wanxiang America, the US subsidiary of the Chinese conglomerate Wanxiang Group Corp, said it is looking toward making a large investment.

During Vice-President Xi Jinping's visit to the US last week, the company signed a $100 million-investment agreement with Smith Electric Vehicles Corp, a producer of all-electric commercial vehicles. The bulk of that - $75 million - is to go into a joint venture between Smith and Wanxiang to develop, manufacture and sell all-electric school buses and commercial vehicles in China, a large step in the company's plan to move into the new-energy business.

Wanxiang Group Corp, headquartered in Hangzhou, Zhejiang province, is the biggest supplier of auto-parts in China. Its US subsidiary owns 28 manufacturing plants in 14 states throughout the US and employs 5,686 people. This past year saw Wanxiang America add hundreds of jobs at its sales and manufacturing operations.

The company became the subject of much attention in January last year when Lu Guanqiu, the billionaire founder of Wanxiang Group, accompanied President Hu Jintao on a state visit to the White House and displayed his company's electric-vehicle dashboards to Chicago Mayor Richard Daley.

Meanwhile, Ni Pin, president of Wanxiang America, has also been making headlines. The company's yearly sales have totaled more than $2 billion, making it one of the most successful Chinese companies to go abroad.

"The auto-parts business for Wangxiang's US operation has been big," Ni said. "One in every three US cars have our products in them. But since last year, we have been putting more emphasis on the new-energy industry."

Since last year, the company has invested heavily in solar panels, electric trucks and school buses, as well as light -emitting diodes, or LEDs. It is one of the first Chinese companies to produce solar panels in the US.

Its investments in new energy started with a JV with the battery company Ener1 Inc to make lithium-ion battery cells and packs for vehicles in China. At the time of the deal, the venture was expected to produce about 40,000 electric-vehicle battery packs by 2014.

According to The Wall Street Journal, Wanxiang paid for most of the venture, including a 168,544-square-meter plant in Hangzhou.
Ni said Wanxiang's success will depend on its ability to "re-allocate resources".

"The differences between China and the US in their systems, in markets, in their economic development, give us a great opportunity to use their respective advantages and to bring down costs and provide products that cannot be made anywhere else," Ni said.

Localization, he said, has also contributed greatly to their success. Only about 10 Chinese people work for Wanxiang America, which he said operates like a US company. "Compared with obeying rules, Chinese companies are better at creating rules," Ni said. "But when it comes to doing business in the US, I think it is important to adjust to the local rules."

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Economic growth is slowing in China and Western markets are a tough sell, so Zhejiang Geely Holdings Group Co. is turning to emerging markets, most recently, Egypt.

Geely and an Egyptian car-assembly company said Wednesday they plan to start assembling Geely cars this year for sale across North Africa. The Chinese auto maker and Egypt's GB Auto SAE plan to produce up to 30,000 cars annually in a few years and eventually hit 50,000 cars a year, a person close to Geely said.

China's economy, while still strong, is well off the 10% annual growth rate that marked recent years. Vehicle sales rose 2.5% last year after logging growth above 30% each of the previous two years. That has spurred China's auto makers to shift excess production capacity toward exports. But skepticism over the quality of Chinese vehicles and stringent regulations have made the U.S. and Western Europe difficult markets to crack.

The West was "way more difficult than we had ever imagined," said Xing Wenlin, a Great Wall Motor Co. vice president.

The Chinese auto makers' export push is gaining momentum, however, in emerging markets such as Egypt, Ukraine and Indonesia.

Chinese exports of cars and trucks reached a record 849,500 vehicles last year, up 50% from 2010, according to the China Association of Automobile Manufacturers. Such exports generally are expected to grow at a similar annual pace over the next few years. Most of the export vehicles are priced well below $15,000, with some selling for as low as $6,000.

Chinese car makers likely will "look for any way possible to unload their built-up capacity," leading to a more aggressive push overseas, said Michael Dunne of Hong Kong consulting firm Dunne & Co. Chinese auto makers also need exports because of growing competition at home from overseas auto makers, he said.

Geely has small-scale plants in Russia, Ukraine, Indonesia, Sri Lanka and South Africa that assemble cars with kits of nearly completed vehicles imported from China. The Hangzhou-based company plans to add more such factories in the Mideast and South America, the person close to the company said.

Geely and GB plan to sell two Geely models in Egypt in the second quarter before branching out in North Africa. The entry-level Panda and the midsize Emgrand 7 sedan initially will be sent to Egypt from China. GB is expected to start assembling Geely cars in Egypt from kits starting in the third quarter.

Geely said it sold about 38,000 cars outside China last year, up 76% from 2010. Thanks in part to its push into northern Africa, the auto maker aims to increase overseas sales more than 50% this year. The company projects roughly a 10% increase in overall sales from 432,000 cars last year.

Geely has said it hopes to sell one million cars annually outside China, roughly half the company's total, by 2015.

Those targets might be a "stretch," according to Frank Zhao, the company's technology and product chief. "Products, manufacturing, brands and sales networks…all those things have to be prepared, and that takes time," he said. "But compared to four or five years ago, we have improved so much, and you can see that in our product."

Chery Automobile Co. and Great Wall also are prominent in China's auto-export drive.

"We need to go beyond the China market to survive," said Great Wall's Mr. Xing. Great Wall has ambitions in the U.S. and Western Europe but for now has its sights set on emerging markets such as Russia and South Africa. The company has set a 2015 target of selling 300,000 cars outside China, one-fourth of its overall target and three times the goal for this year.

Geely hasn't given up on established markets. The company plans to start selling a Chinese-produced midsize sedan in the U.K. through a British wholesaler by year-end.

Beyond contending with slower growth and tougher competition in China, Geely has had other trouble at home. The company on Wednesday said it will establish a 50-50 joint venture with its Volvo unit and create a China-only brand with the Swedish unit. The move was response to regulatory obstacles over expanding the Swedish car brand in China.

Geely said it had sought for its Volvo unit to build two factories in China and run them independently. The company has tried to give Volvo a large degree of autonomy, in part to preserve the brand's cachet.

But Beijing considers Volvo a foreign auto maker, even though it was acquired by Geely in 2010. China's view meant Volvo had to tie up with a domestic manufacturer under government policy.

Opening the Volvo factories quickly is critical to the unit's strategy of investing up to $11 billion, with an aim toward doubling Volvo's global sales to 800,000 vehicles by 2020. Volvo and Geely expect that slightly more than 400,000 of the vehicles will come from China. Volvo sold about 47,000 cars in the country last year, up 54% from 2010.

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China could face an economic crisis unless it implements deep reforms, according to a report by the World Bank and a Chinese government think tank, which urges Beijing to scale back its vast state-owned enterprises and make them operate more like commercial firms.

The recommendation is contained in "China 2030," a report set to be released Monday, according to a half-dozen individuals involved in preparing and reviewing it.
The report, which addresses some of China's most politically sensitive economic issues, is designed to influence the next generation of Chinese leaders who take office starting this year, these people said. It challenges the way China's economic model has developed during the past decade under President Hu Jintao, when the role of the state in the world's second-largest economy has steadily expanded.
"China 2030" cautions that China's growth is in danger of decelerating rapidly and without much warning, as has occurred with many high-flying developing countries once they reach a certain income level, a phenomenon that development economists call the "middle-income trap." A sharp slowdown could deepen problems in the banking sector and elsewhere, the report warns, and could prompt a crisis, according to those involved with the project.

It recommends that state-owned firms should be overseen by asset-management firms, say those involved in the report. It also urges China to overhaul local government finances and promote competition and entrepreneurship.

"China's state-owned sector is at a crossroads," said Fred Hu, chief executive of Primavera Capital Group, a Beijing investment firm. The Chinese government must decide "whether it wants state-led capitalism dominated by giant state-owned corporations or free-market entrepreneurship."

Even ahead of its release, the report has generated fierce resistance from bureaucrats who manage state enterprises, according to several individuals involved in the discussions.

China's political heir apparent, Xi Jinping, now vice president, has given few clues about his economic policies. Analysts expect the high-profile report will help to shape discussions among Mr. Xi and his allies about whether to make changes to a state-led economic model that has alarmed Chinese private entrepreneurs and is becoming a source of growing tension between China and its main trading partners, including the U.S.

The report's authors argue that having the imprimatur of the World Bank and the Development Research Center, or DRC—which reports to China's top executive body, the State Council—will add political heft to the proposals. The World Bank is widely admired in Chinese government circles, particularly for its advice in helping China design early market reforms.

"The report lays out recommendations for a development growth path for the medium term, helping China make the transition to become a high-income society," said World Bank President Robert Zoellick in a statement announcing the report would be released.

Neither the World Bank nor DRC would comment specifically on the "China 2030" findings.

Chinese Vice Premier Li Keqiang, who is expected to be named premier next year, endorsed the Chinese-World Bank project when Mr. Zoellick proposed it during a trip to Beijing in September 2010. Its authors are also counting on the No. 2 official at the DRC, Liu He, who is also a senior adviser to the all-powerful Politburo Standing Committee, to help ensure that its findings are considered seriously by top leaders. Mr. Liu declined to comment.

Among the most contentious areas in the report: how to manage state-owned enterprises, which dominate the nation's energy, natural resources, telecommunications and infrastructure industries and have easy access to low-interest loans from state-owned banks.

U.S. Treasury Secretary Timothy Geithner and other Western officials argue that subsidies to those firms distort international competition. Domestically, critics complain that the firms choke off internal competition, use monopoly profits to expand into other businesses and pay only meager dividends.

The World Bank and DRC argue that asset-management firms should oversee the state-owned companies, say those involved in the report. The asset managers would try to ensure that the firms are run along commercial lines, not for political purposes. They would sell off businesses that are judged extraneous, making it easier for privately owned firms to compete in areas that are spun off.

"China needs to restrict the roles of the state-owned enterprises, break up monopolies, diversify ownership and lower entry barrier to private firms," said Mr. Zoellick in a talk to economists in Chicago last month.

Currently, many state-owned firms have real-estate subsidiaries, which tend to bid up prices for land, and have helped to create a housing bubble that the Chinese government is trying to deflate.

The report also recommends a sharp increase in the dividends that state companies pay, which would boost budget revenue and pay for new social programs, said those involved with the report.

Chinese and U.S. economists say that dividend money from profitable state-owned firms now are often directed to unprofitable ones by the State-owned Assets Supervision and Administration Commission, or SASAC, which regulates the firms and tries to ensure their profitability.

"It's an innovative proposal," said Yiping Huang,a Barclays Capital economist. But others argue that the proposals don't go far enough. Neither the World Bank nor the DRC proposed privatizing the state-owned firms, figuring that was politically unacceptable.

SASAC and the Communist Party's personnel agency name heads of state-owned firms and can replace them, giving the government great sway over the firms' decision-making. It isn't clear whether the report recommends changing that arrangement or proposes how the asset managers should be hired and fired.

How to handle such personnel "was the most contentious issue and was debated until the last hour," said a "China 2030" participant, who added that participants often differed on how much credit should be given to the state for China's economic development and how big a role the government and party should continue to play.

Even so, said individuals involved with the report, SASAC bitterly criticized the proposal in meetings of the "China 2030" group and would strive to block them from coming into being, out of concern it could lose power. Indeed, many of the recommendations are considered so politically fraught that the Chinese insisted that the report be labeled a "conference edition"—meaning that it is subject to change after comments at the Beijing conference where it will be presented Monday.

SASAC didn't immediately respond to a request to comment.

Mr. Liu, the DRC official, was among the top Chinese staffers who drafted the current five-year plan and is considered close to China's current leaders as well as Mr. Xi, the presumptive next head of China's government and party. Mr. Liu, who meets regularly with U.S. officials, has argued publicly that foreign pressure and ideas can help build momentum for change in China.

"Liu decides the flow of information, gives policy makers recommendations and organizes meeting agendas," said Cheng Li, a China scholar at the Brookings Institution in Washington, D.C.

In a signal of the challenges now faced by Chinese businesses, a gauge of nationwide manufacturing activity was slightly higher in February but remained in contractionary territory for the fourth straight month. The preliminary HSBC China Manufacturing Purchasing Managers Index was 49.7 in February, compared with a final reading of 48.8 for January, HSBC Holdings PLC said on Wednesday. A reading below 50 indicates contraction from the previous month.

China now is vulnerable to a sharp slowdown, said Jun Ma, a Deutsche Bank China economist, because it relies too heavily on industries that copy foreign technology and doesn't produce enough breakthroughs of its own, a problem that limits the growth of many developing countries.

South Korea was able to keep growing rapidly after it hit a per capita income level of $5,000—about where China is today—because it pushed innovation. China lags behind South Korea badly in patents produced per capita, he said, an important measure of innovation.

"China 2030" urges a big expansion of early-childhood education and nutrition to make sure that poorer Chinese youngsters don't quickly fall behind wealthier ones, said those involved with the report. While such programs are commonplace in wealthier countries and Latin America, they pose a particular challenge in China because of its system of revenue collection.

Chinese local governments often draw much of their revenue from the sale of land, rather than from taxes. That has led to deep resentment among poorer Chinese as village officials underpay for land on the outskirts of cities and sell at steep profits to real-estate developers. The report urges that Chinese social spending be funded more by dividends from state-owned firms and by property, corporate and other taxes.

"We'll be recommending that all resources be put on budget," Mr. Zoellick said in his Chicago talk, and "that public finance needs to be transparent [and] accountable."

 

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The "grim outlook" for foreign direct investment has prompted the government to consider measures to boost investment from developed countries, a trade official said.

"The outlook for inflows of foreign investment from the United States and the European Union will remain grim during the first half of this year," Liu Yajun, director of the department of foreign investment administration under the Ministry of Commerce, told China Daily.

"We are concerned."

As of late last year China witnessed a decline in FDI from developed nations struggling to keep their economies afloat.

FDI from the US shrank last year by 26.07 percent, from a year earlier, to $3 billion, and investment from the 27-nation EU dropped slightly by 3.65 percent year-on-year to $6.35 billion, according to the ministry. Investment from the eurozone shrank in January by 42.5 percent year-on-year to $452 million.

"We cannot exclude the possibility that US and EU investment will continue to drop, as there are many uncertainties with the global economy," Liu said.

"Studies on reasons behind the decline and measures on how to maintain stable investment from developed economies are being carried out. This will be a priority this year," he said, but declined to disclose further details.

Although it hit a record high of $116 billion, year-on-year FDI growth slowed to 9.72 percent last year, compared with 17.4 percent in 2010.

"The investment from developed economies directly affects the picture of China's FDI in general," Liu said. "And it's not only about quantity, but also about quality," Liu said.

China's main target this year is to "stabilize the scale of its FDI and improve the quality".

High-tech and management experience brought from foreign companies in developed regions will help China transform itself into an innovative economy as pledged in the 12th Five-Year Plan (2011-15), he said.

In guidelines released late last year, the government said it will encourage foreign companies to add or put investment into non-traditional sectors, including advanced manufacturing, high-tech, services and strategic emerging sectors, to transform the growth model.

But while labor costs rise nationwide and countries, including the US, are rolling out preferential policies to attract investment, China is losing its attractiveness as a destination for foreign investors, experts said.

US President Barack Obama announced in June that he is committed to sharpening US competitiveness to attract investment.

A national investment promotion agency, involving 23 government departments, was also set up along with a new "Select US" office.

Companies including Ford, Caterpillar, General Electric and Otis Elevator have announced manufacturing job creation plans in the US in the past couple of years. Some say they plan to bring back to the US production previously done in emerging economies, such as China and Mexico.

"The decline from the developed regions could be attributed to three factors," Liu said.

These are "policies like Select US, unwillingness to invest by companies due to the severe global situation and rising labor costs in China".

But "there could be other reasons and we have to find out."

China is promoting the inflow of foreign investment from developed economies. During a five-day visit to the United States by Vice-President Xi Jinping last week, a trade and investment promotion delegation reached a package of agreements and memorandums with the US worth $38.6 billion, including 25 investment projects by US companies in China.

Xi said in an interview with the Washington Post that China will try to create a fair and transparent investment environment for foreign businesses.

Both countries earlier agreed to start talks on investment agreements this year.

"It's unnecessary to worry too much about the retreat (of investment from the US and the EU)," said Zhang Xiaoji, a researcher at the State Council's Development Research Center.It is not phenomenal, Zhang said.

Despite complaints ranging from market access to rising labor costs, "China's huge consumer market is more attractive for foreign companies", Zhang said.

Recent surveys by chambers of commerce of the US, EU and Japan showed a high proportion of foreign enterprises are willing to increase investment in China.

"The best way for the government to lure investment back is to open the market wider, reduce market interference and do what it promises," Zhang said.

Commerce Ministry spokesman Shen Danyang said last week that he believed China enjoys comprehensive advantages in absorbing investment, citing fast economic growth, increasingly expanding domestic consumption, and maturing laws and regulations.

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A Sany factory in Changsha. Sany announced in January a deal to buy a 90% stake
in the German concrete pump maker Putzmeister.

An increasing number of capital-rich Chinese enterprises are targeting the European market for investment, report the Chinese-language Economic Observer. For example, construction equipment maker Sany Heavy Industry Co and Citic recently agreed to pay €360 million (US$477 million) for Putzmeister, a German manufacturer of concrete pumps, a deal which attracted widespread attention.

In addition, sovereign wealth fund China Investment Corp (CIC) paid €3.187 billion (US$4.223 billion) to *** Suez for a 30% stake in the French utility firm's energy exploration and production business.

China's outbound investments in 2011 grew to US$68 billion, with European shares worth US$10.4 billion being acquired by Chinese firms, more than the corresponding amount for the United States, according to data published by A Capital, a private equity firm based in China and France.

Since 2001, when the World Trade Organization approved China's entry, A Capital has used the Dragon Index to measure China's overseas merger and acquisition activity. The index is calculated by dividing the number of overseas acquisitions in a year by the year's GDP. It stood at 1,000 in 2001 and 2,015 in 2011.

In addition, statistics show that China's GDP in 2001 exceeded 10 trillion yuan (US$1.59 trillion) for the first time, reaching 10.97 trillion yuan (US$1.74 trillion). GDP in 2011 was about 47.16 trillion yuan (US$7.49 trillion).

While China's GDP increased fourfold during the 2001-2011 period, the index in 2011 was double that of 2001, indicating that China's overseas acquisitions are growing at an even faster rate as its economy expands.

The Economic Observer reported that during the implementation of the government's 11th five-year plan from 2006-2010, the Dragon Index surged significantly. Over the five years, China's cumulative direct outbound investment grew to US$220 billion, an annual increase of 30%. The growth in investment also climbed five notches in global rankings.

A Capital predicts that by the time the 12th five-year plan (2011-2015) ends, the index will rise to 4,400 — an annual growth of 16.9%. Outbound investment during the five-year period is expected to grow to US$800 billion.

Chinese enterprises have begun investing in Europe even as debate rages over whether China should provide financial aid for the European debt crisis. The US$10.429 billion invested by Chinese firms in European shares in 2011 accounted for 34% of China's total overseas securities investment that year, compared to the 10% of 2010. In 2011, three of China's 10 top overseas securities investment projects were in Europe.

Europe is becoming increasingly attractive to Chinese investors. This is good news for Europe, which is still plagued by the sovereign debt crisis, according to Andre Loesekrug-Pietri, founder and CEO of A Capital.

Many of these projects have benefited from the advantages of the European market, such as a high degree of openness to foreign investment. Moreover, China welcomes the current model of cooperation, under which it provides capital while European enterprises supply technology and market share.

 

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China's economy is expected to expand by 8.5 percent in 2012, slightly down from 9.2 percent in 2011, the head of a Chinese government think tank said Thursday.

The world's second-largest economy faces relatively significant downward pressure this year due to increasingly complicated domestic and overseas situations, said Li Wei, director of the Development Research Center of the State Council, or China's Cabinet.

China's annual export growth is likely to slow to 10 percent from 20.3 percent in 2011, as the global economic outlook has been darkened by slow economic recovery in the US and Europe's sovereign debt crisis, Li said at a conference held in Guiyang, capital of Southwest China's Guizhou province.

Li projected the country's fixed-asset investment to grow by some 20 percent, down by four percentage points from a year earlier, as the manufacturing and real estate sectors have been hit by slowing exports and curbing policies, respectively.

A moderate economic slowdown will help to curb inflation triggered by excess demand and also encourage more mergers and acquisitions, which will speed up the adjustment of China's economic structure, he said.

Once the potential economic growth rate begins a downward trend, expansionary measures cannot increase the growth rate, but only lead to a "bubble" economy, Li said.

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The students at Far Hills Country Day School (“FHCDS”) were excited to finally be able to open the red packets, or “hongbaos,” that we had distributed before my presentation. They were even more excited to find the Chinese money inside. Most of the packets contained a 1 yuan bill, but a few lucky kids found 5, 10, 20 or 50 yuan bills inside. The really lucky ones, though, were thrilled to find a 100 yuan “redback,” in their packet. They were even more thrilled when they learned that the bill is worth approximately $15, a fortune for almost any kid under 12.

That, of course, raised an interesting question, which even the pre-kindergarten group was astute enough to ask me in the question and answer period that followed. “Where can I spend my Chinese money?” they all asked. Other than in China, I told them, the best place was probably Chinatown in New York.

In another year or so, they and the growing numbers of renminbi holders around the world will likely have even more places to exchange the yuan. The internationalization of the yuan is picking up speed, and this is an evolving story that we have been tracking.

In 2010, “dim sum bonds” were introduced to help recycle the hundreds of billions of renminbi that sit in offshore markets like Hong Kong. Quite simply, a dim sum bond is a Chinese yuan-denominated bond that is issued in Hong Kong by an international company that enables the company to obtain renminbi to fund its operations in China, provided that the issuer receives approval from Chinese regulators to repatriate the yuan that it raises. The issuance of dim sum bonds is increasing rapidly due to the growing amount of RMB that is now circulating in the global economy. At the end of April, there was an estimated RMB 510 billion ($81.0 billion) on deposit in Hong Kong banks.

In November 2010, Russian Prime Minister Vladimir Putin and Chinese Premier Wen Jiabao caused a great deal of discussion in financial markets when they announced that Russia and China had decided to use their own national currencies for bilateral trade, instead of the U.S. dollar. The yuan started trading against the ruble in the Chinese bank market in Shanghai immediately, and in December 2010 began trading on the Moscow Interbank Currency Exchange. This is the first time that the yuan has traded outside of China and Hong Kong. In October 2011, we noted that China is considering a proposal to set up a regional bank to help its small and medium enterprises invest in Southeast Asian neighbors and fund infrastructure projects in an effort to buy goodwill in the region.

The bank will also settle China-ASEAN trade in yuan, another step in China’s long campaign to make the yuan a regional currency. At that time, we also suggested that China might come to the aid of Europe, but if it did, China might insist that its contribution be at least partly denominated in renminbi.

In January of this year, China and the United Arab Emirates signed a three-year currency swap agreement worth 35 billion yuan ($5.54 billion) that the People’s Bank of China said would boost two-way trade and investment. The agreement was signed in Dubai and represents one more in a string of arrangements to facilitate greater use of China’s yuan in international trade.

The latest of these arrangements was put in place on Tuesday between the People’s Bank of China and Turkey’s Central Bank. Chinese Vice President Xi Jinping and Turkish President Abdullah Gul oversaw the signing of a three-year currency swap deal worth $1.6 billion (€1.2 billion) to enable bilateral trade in the local currencies of the two countries.

In its November, 2010 report on the subject, HSBC predicted that at least half of China’s trade flows with emerging market countries could be settled in renminbi within three to five years, from less than 3 percent in 2010. In other words, HSBC was predicting that nearly $2 trillion worth of trade flows could be settled in renminbi annually, making it one of the top three global trading currencies. If the current trends continue, HSBC may have underestimated the extent to which the renminbi will be internationalized by then.

My advice to my new friends at FHCDS: “Hang on to your Chinese money!”

 

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China National Petroleum Corp. (CNPC), China’s largest energy company, is making a play for natural gas assets in Australia, as it scours the globe for resources to satisfy China’s growing energy needs.

CNPC is bidding with rivals from Japan, South Korea and Taiwan for a 15 percent stake in Woodside Petroleum Ltd.’s Browse liquefied natural gas project, Bloomberg reported, citing people with knowledge of the matter.

Citigroup reckons the stake will cost about 1.5 billion dollars.

Woodside is Australia’s second-largest oil and gas producer and owns a 46 percent stake in the Browse gas project.

“CNPC would be interested in Australia because of its political stability and because of its experience in exporting LNG to China,” Gordon Kwan, head of regional energy research at Mirae Asset Securities, told Bloomberg.

The state-owned oil and gas major has been snapping up overseas assets in recent years, as it looks to increase its energy production. It is targeting 5 percent growth in gas output this year to 79.3-82.1 billion cubic meters.

Last week it got the nod from China’s top economic planner for 3 overseas deals, including the acquisition of a 20 percent stake in Canada’s Grounbirch Block and an oil refinery project in Afghanistan.

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Scientific projections indicate that half of the oil resources in eastern china are not yet proven and 75 percent of oil resources in the west and the sea areas are yet to be discovered, according to the results of 2010 oil and gas resources dynamic evaluation.

The State Council recently passed the "Outline of Breakthrough Strategy for Mineral Exploration (2011-2020)”, which proposes implementing breakthrough strategy for mineral exploration.

China is located in the intersection of three metallogenic domains, i.e. Pacific Rim, ancient Asia and Tethys, and has favorable metallogenic conditions. The national mineral resource potential assessment shows that China holds a relatively large prospecting potential of important minerals.

Oil and gas resources have a great potential. According to the dynamic evaluation, China has petroleum geological resource of 88.1 billion tons, natural gas geological resource of 52 trillion cubic meters and coal bed methane resources of 36.8 trillion cubic meters.

As of the end of 2010, the cumulatively proven reserves of oil are 31.28 billion tons, with the rate of proven resources reaching 35.5 percent; the cumulatively proven reserves of natural gas are 9.3 trillion cubic meters, with the rate of proven resources of 17.9 percent; the cumulatively proven reserves of coal bed methane are 273.4 billion cubic meters, with the rate of proven resources of merely 0.74 percent. Half of oil resources in east China and 75 percent of oil resources in west and sea are not proven yet.

Energy and mineral resources, including coal and uranium, have a considerable prospect. According to the coal resources projection and evaluation results, 3.95 trillion ton of coal resource reserves are yet to be proven, with the rate of proven resources being 25.9 percent as of the end of 2010. Regarding these unproven coal resource reserves, the western region has a lower degree of geological work, favorable resource conditions, and good prospect for coal exploration.

At present, the overall rate of proven important mineral resources in China is roughly between one-fourth and one-third. The projected amount of resources of iron, copper, aluminum, gold and potash is two to three times their proven amount. Two-third of the hundreds of thousands of geophysical and geochemical anomalies found in China have not yet undergone verification of class two and above, thus have huge prospecting potential.

Mineral exploration work in the western important metallogenic belt has just started, holding considerable prospecting potential. China's overall exploration depth has been at a shallow level of under 500 meters, therefore there is a great potential for greater depth exploring.

The 1,010 large and medium-sized mines that support more than 80 percent of production capacity in China are mainly located in the eastern region. The mining resource potential survey shows that fully tapping the potential of the old mine resources can bring an additional amount of recoverable reserves, which can be quickly converted to production capacity.

 

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Ford Motor Co. on Friday opened its fourth passenger-vehicle assembly plant in China, as it bets that aggressive expansion and new-model introductions will help it overcome strong competition in a moderating vehicle market.

The new $490 million factory in the southwestern city of Chongqing will initially produce the latest Focus compact model. Able to churn out up to 150,000 a year, it will take the annual capacity of Ford's Chinese passenger-vehicle joint venture, Changan Ford Mazda Automobile, to 600,000 vehicles, and Ford's global capacity in "C-segment" vehicles—the class to which the Focus belongs—to two million.

The opening of Chongqing Assembly Plant 2 is a crucial step in Ford's stated plan to introduce 15 vehicles to the country by 2015. Ford said Chongqing will become its second-largest manufacturing center in the world by production capacity, after Michigan, once two additional plants under construction are completed next year. Ford executives say they also plan to expand production at the newly opened Chongqing assembly plant over time.

On Friday, Ford gave details of those plans for the first time, noting in a statement that the new facility is able to produce six different kinds of vehicles, including the Focus. Joe Hinrichs, Ford's president for Asia-Pacific and Africa, said in an interview last week that production capacity in China will be devoted to the Chinese market.

"That capacity will be serving this market and the opportunity to grow the market share and the business here," Mr. Hinrichs said.

A relative latecomer to the Chinese market, Ford has had to work hard to make up lost ground amid strong competition, particularly from General Motors and Volkswagen AG. Mr. Hinrichs said a drought of new products in China over the past two years had limited the company's growth.

Ford sold 519,390 vehicles in China in 2011, 7% more than the year before. By comparison, Volkswagen's China sales rose 18% to 2.26 million vehicles and GM sales rose 8.3% to 2.55 million.

Competition has also intensified as sales increases have slowed. After growing 46% in 2009 and 32% in 2010, supported by government incentives, China's auto market grew just 2.5% in 2011. With the removal of most government support policies for car sales, Mr. Hinrichs said, he expects slower growth rates to continue.

"We think for the rest of this decade the Chinese market will grow on average about 5%," he said.

Namrita Chow, an analyst at IHS Automotive, said the new Chongqing plant will give Ford a much-needed lift in a tighter market. Increasingly wealthy Chinese consumers, bypassing smaller vehicles, have turned the C segment into the country's largest and most competitive slice of the country's car market.

"Chinese consumers are moving upwards. They want bigger cars," said Ms. Chow. "It's also the biggest-volume segment, which is which is why you need volume production."

Ms. Chow said the new plant will place Ford in a strong position to grow in less-developed interior regions of the country where the brand remains relatively unknown.

"The interior regions are going to have much more growth," Ms. Chow said. The move to the interior "is Ford's plan because it's really aiming to compete with the big players in China."

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While Glencore (GLEN.L) and Xstrata (XTA.L) work hard to get their merger plan past Europe's antitrust body, it is China, the biggest buyer of the materials they mine and trade, whose watchdog might bite hardest.China's Ministry of Commerce (MOFCOM) is the newest and least predictable of the world's heavyweight regulatory bodies.

It also has a broader remit than most, and so could be the one to watch, even though it was Europe that kicked off the global hurdle race this week by flagging its desire to scrutinize a deal that will create the fourth largest miner and a leading producer of zinc, copper and coal.

For China, the deal offers an opportunity to extract reassurances from a key supplier of the raw materials it needs to keep its factories working and its economy growing.

"(China's) MOFCOM is one authority where you can never be quite sure what's going to happen," said Frank Schoneveld, a partner at antitrust law firm McDermott, Will & Emery seconded to Shanghai.

"Other big jurisdictions such as the European Union and the U.S., particularly if it's a big commodity deal, are more predictable. MOFCOM has tended to take longer than everybody else and can come up with rather unexpected undertakings."

China's place as workshop of the world and as a major consumer is central to its concerns about raw material supplies.

"The case is a very sensitive area for MOFCOM because it's related to the...supply of raw materials in (the Chinese) steel industry," Zhan Hao, head of the antitrust department at law firm Grandall in Beijing."This is a very concentrated industry, so the Chinese parties don't have much power to negotiate prices. So when they review the case, MOFCOM will take this situation into account."

China's anti-monopoly laws came into force in 2008. It has blocked only one deal, Coca-Cola's planned $2.4 billion purchase of juice maker Huiyuan in 2009, but has imposed conditions, including price and supply conditions, on almost a dozen cases.

Reviewing the acquisition of Russian potash producer Silvinit by rival Uralkali (URKA.MM) last year, MOFCOM fretted the merged entity, as the second-largest producer of potassium chloride and a key supplier to China, could have excessive weight.

It imposed conditions on supply and ordered the group to maintain its current sales procedures and price negotiations.

Behavioral remedies -- as opposed to remedial disposals -- are far less favored by Western antitrust authorities.

Such conditions are tough to police, with virtually no precedent to go by and plenty of scope for discord down the line, for example, when players seek to renegotiate or raise prices.

As well as being the world's largest thermal coal exporter, Glencore and Xstrata combined would be the largest producer of both zinc and ferrochrome.

In thermal coal, the type used by power stations, it would be the largest exporter, but would still export less than 10 percent of the global total, well below the threshold eyed by most antitrust authorities.

But MOFCOM has other measures. It represents a domestic industrial policy interest that includes protecting the security of commodity supply, as well as traditional competition.

This means they will not offer a green light just because others have done before them, as in the case of the acquisition of car parts manufacturer Delphi by General Motors (GM.N).

That deal last year was cleared by both the U.S. and European authorities.

But Beijing imposed conditions requiring the combined firm to supply Chinese automakers on a fair basis, and prohibited the merger partners from exchanging confidential information about Chinese automakers.

"They are very independent, they don't feel they have to follow the decisions of other authorities, if they feel there is a point to be addressed in China," said one veteran lawyer with years of experience in China. "It is very dangerous to assume European and U.S. norms apply in China."

MUSCLES IN BRUSSELS?

While hardly anyone is betting the deal will be blocked, industry sources and antitrust lawyers say it is also unlikely to be an easy -- or a swift -- win for the partners.

And the $90 billion tie-up, the sector's largest deal to date, will have to jump through competition hoops in all major jurisdictions -- European Union, United States, South Africa, Australia, as well as China.

Glencore, the world's largest diversified commodities trader, already owns a 34 percent stake of Xstrata. For competition purposes, that is potentially enough to exert control -- and it already markets a third of Xstrata's output.

Yet after almost four decades as a private company, Glencore is a juicy target for regulators from all corners of the globe, and Xstrata's own chief executive, Mick Davis, has said he expected a "lengthy" process in jurisdictions especially China.

Even the European Union, which considered Glencore and Xstrata one company for the purposes of the miner's 2006 acquisition of miner Falconbridge, could prove more complex than expected, with steelmakers agitating and one industry source already referring to dozens of lawyers preparing for battle.

"They'll look at the figures and see there are questions to be answered," said Gordon Moffat, director general of steel trade body Eurofer, which has already urged Brussels to look into the effect of the merger on zinc, nickel and thermal coal markets and is preparing a formal submission within weeks.

 

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Urbanization Drives ¥48t for Infrastructure
China will need a total investment of ¥48 trillion in infrastructure construction between 2011 and 2015 as the nation's urbanization rate is expected to rise from 47.5% to 51.5% during that five-year period, according to Liu Yong, a senior official at the State Development Bank.

China Nets $187b Hot Money in 2011
China recorded $186.7 billion of net foreign capital inflow in 2011, equivalent to half of the increase in its foreign exchange reserves, according to the State Administration of Foreign Exchange.

Electronics Revenues to Top ¥10t by 2015
Revenue from China's electronics sales is expected to grow 10% annually to ¥10 trillion by the end of 2015, the Ministry of Industry and Information Technology.

 

[Equation]

F - Found
O - On the
R - Road
D - Dead

LOL..sorry, I'm just not a fan of Fords, I'm more of a GM (Chevy) and Honda (Acura) kind of man. My family once have the Ford Aerostar (one of the first mini-vans) and it was exciting to have in the beginning, but later in about 5 years down the road required too many costly maintenance, the transmission was replaced twice. That left a bad taste in my mouth. I like Chevy trucks for its durability, although I do admit it's not as good looking as the Ford F-150 series or the Toyota Tundra series.

 

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China’s government has published long-awaited regulations allowing millions of migrant workers from the countryside to obtain permanent urban residence permits — and therefore access to public services — in small and medium-sized cities.

But the notice was originally issued a year ago, on Feb. 26, 2011, according to the document and online statements from local governments, raising the question of why authorities took so long to make it public.

The State Council, China’s cabinet, published the regulations in a circular on the main government website,

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, on Thursday night.

There was no immediate explanation for the delay in making them public, but the statements from local governments early last year pledged to comply with the new rules, without giving details of what they actually entailed.

The State Council circular also says “secret work” at the top, suggesting that it was originally issued to local governments but not to the public so they could make the necessary preparations for an anticipated rush of applications.

The Chinese government has come under mounting public pressure in recent years to reform its hukou–or household registration–system, under which all of its 1.35 billion people are divided into urban and rural residents and allocated public services accordingly.

Most of the estimated 200 million migrant workers in Chinese cities are still registered as rural residents, and therefore don’t qualify for access to urban public services including health care and schooling for their children.

City planners have long seen the system as a way to prevent the formation of slums and to avoid footing the bill for migrants’ welfare. Many experts now see it as an impediment to necessary urbanization and a potential cause of social unrest.

The new State Council circular says that people who have stable jobs and residences in small cities–of county-level and below–may apply for permanent residence permits, along with their spouses, unmarried children, and parents.

In medium-size cities, people who have had stable jobs for three years, stable residences, and have paid social security insurance for at least one year can also apply for permits to live in the city permanently, along with their spouses, unmarried children, and parents, the circular says.

“That means many of China’s millions of migrant workers may be formally accepted as urban residents, giving them more access to public services,” said the state-run Xinhua news agency.

At the same time, the circular said the government would continue its efforts to control the population of major cities, many of which are already overpopulated based on their existing infrastructure and public services.

Xinhua said that census data showed the population of Beijing, China’s capital, reached more than 19 million in 2010, already exceeding the target of 18 million that the city had set as a population growth limit for 2020.

There were a total of seven million migrants in Beijing, more than 70 percent of whom moved to the city for work or business reasons, Xinhua said.

At the end of last year, China’s urban population outnumbered its rural one for the first time, with 51.27 percent of the country’s citizens living in its cities.