(back)China's CITIC to wait 2 years to merge unit with troubled Huaxia - report
China's CITIC Group will wait at least two years after the planned acquisition of heavily-indebted Huaxia Securities Co Ltd before consolidating the securities firm with its own brokerage unit, CITIC Securities Co Ltd (SHA 600030), the China Business News reported.
Citing an unidentified source at Huaxia, the report said a merger of that size would need two years, partly to give Huaxia employees time to adapt to the acquisition.
CITIC Securities is China's largest listed brokerage while Huaxia Securities ranked fifth among brokerages in the country in terms of total assets at the end of 2003.
State media reported earlier this week that CITIC Group was considering taking over all of Huaxia Securities or buying a controlling stake in the company from the government.
The reports said the deal, valued at five to six bln yuan, will be jointly funded by CITIC Group and the Beijing government. But it remains uncertain how much capital each party will inject.
CITIC's last attempt to buy a securities firm, GF Securities Co Ltd, fell through in September last year after GF employees opposed the takeover and stopped CITIC from buying a big enough stake.
The Huaxia source said in the report that CITIC Securities may have learned its lesson after its past failure.
Beijing-based Huaxia Securities, like many other local securities firms, is reported to have conducted illegal trading in treasury bonds and may have misused customer funds.
Media reports also said Huaxia Securities suffered a net loss of some 2.6 bln yuan in 2004, after its problems were exposed last summer. But analysts said the actual figure is higher.
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(back)China's Tsingtao Brewery to compete head on with rival Yanjing on home turf
China's largest beer maker Tsingtao Brewery Co Ltd (SHA 600600; HK 0168; ADR TSGTY) said it has rolled out a massive marketing campaign in Beijing to compete head-on with Beijing Yanjing Brewery Co Ltd (SZA 000729) on its rival's home turf.
Tsingtao Brewery, based in the eastern city of Qingdao, dominates markets in southern and northwestern China, but holds a less than 10 pct share of the market in the nation's capital, where Yanjing Brewery dominates.
Sui Zhanping, general manager of Tsingtao's northern branch, told reporters that the firm is now focusing more on Beijing, aiming to acquire up to a 40 pct market share within three years.
""By 2008, we hope to have 20-30 pct of the low and medium sector and 30-40 pct of the higher end,"" Sui said, referring to the different quality grades of beer sold by brewers in China.
Tsingtao, with some 50 subsidiaries nationwide, has since 2001 acquired three local brewers in Beijing and neighboring Hebei province -- Five Star Brewery, Sanhuan Brewery and Langfang Beer Plant -- with a combined annual capacity of 400,000 tons.
Beer output by the three units totaled 300,000 tons last year, but their sales in the capital city stood at merely 50,000 tons as most products were shipped to Hebei and surrounding areas.
But beginning this year, Sui said sales in Beijing will pick up significantly.
To reach that goal, Tsingtao has beefed up its sales force and put together a 1,000-strong team to deliver products to various retail outlets, including convenience stores. The number of delivery personnel is expected to triple in the coming spring and summer.
Sui added that Tsingtao will not sacrifice profit for market share, and still prices it products slightly higher than Yanjing, given its status as a household national brand.
Yanjing deputy general manager Ding Guangxue told local media that the company is not worried about losing market to an ""outsider,"" due to the popularity of the ""Yanjing"" brand among the capital's consumers.
""It will be an uphill battle for Tsingtao to push up sales in a market where we have been a front-runner for years,"" Ding was quoted as saying.
Yanjing has produced and sold some one mln tons of beer annually in Beijing for three consecutive years, and output and sales will continues to rise, he added.
However, industry analysts said they are more optimistic about Tsingtao's expansion in Beijing, as consumer loyalty for food and beverages shifts constantly.
Dairy firm Beijing Sanyuan Foods, which used to dominate the capital, has lost a significant share of the market to its more aggressive peers -- China Mengniu Dairy and Inner Mongolia Yili Industrial Group -- an analyst with China Securities said.
""And who knows if Yanjing will lose out now that Tsingtao is closing in,"" the analyst added.
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(back)China's Hengfeng Paper 2004 net profit 74.58 mln yuan vs 69.71 mln
Mudanjiang Hengfeng Paper Co Ltd (SHA 600356) said it posted a net profit of 74.58 mln yuan for 2004 against 69.71 mln a year earlier.
The company published the following unaudited financial figures, calculated under Chinese accounting standards:
Figures are in yuan
2004 2003 Core Revenue 566.48 mln 503.50 mln Net Profit 74.58 mln 69.71 mln EPS 0.53 0.50 NAV/shr 4.59 4.27 Return on Net Assets (%) 11.57 11.66 Div (per 10 shrs held) 1 yuan (pre-tax) 0.5 yuan (pre-tax)
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(back)China think-tank proposes national fiscal policy commission - report
The Chinese Academy of Social Sciences (CASS) has suggested that the central government should set up a national fiscal policy commission to control the drafting and implementation of policy, the China Business News reported.
""China has large fiscal revenues and strong economic growth but fiscal spending has proved unable to reach its objectives in terms of macroeconomic controls,"" Wang Baoan, a senior MoF official told the paper.
""A national fiscal policy commission would strengthen macro control on the economy,"" he said.
China currently has no department which coordinates fiscal spending on a national level, the report on China's physical policies for 2004/2005 said.
""Related central government agencies are discussing the establishment of the commission, and the Ministry of Finance (MoF) has put it on its working agenda"", Wang said.
CASS has proposed four plans for the establishment of such a commission, including setting it up under the State Council, and merging it with the existing monetary policy commission.
Jia Kang, director of the Institute for Fiscal Science Research under the MoF, said setting up such a commission will not be an easy task, as China's fiscal, decision-making and administrative systems are incomplete.
The newspaper also quoted Xiao Mingzheng, a management professor at Peking University, who said it is unnecessary to set up a national fiscal policy commission, as the Chinese government has many issues to deal with and if an agency was set up for each issue government bodies would be too big.
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(back)China's Shanghai Electric to launch 4 bln yuan Hong Kong IPO in March - report
Shanghai Electric Group hopes to raise four bln yuan through an initial public offering (IPO) in Hong Kong in March, the Beijing-based National Business Daily reported, citing unidentified sources.
The paper said the company will use the proceeds of the public share offering to improve its production lines and to expand its production capacity.
Credit Suisse First Boston will underwrite the IPO, the paper added.
Shanghai Electric Group, which has a registered capital of nine bln yuan, will inject the assets of its power generation unit, mechanical equipment unit and transportation equipment unit into a listing vehicle, the paper said.
No further details were provided.
Shanghai Electric, the largest state-owned manufacturer of power generation equipment and mechanical equipment in China, declined to comment when contacted by XFN-Asia.
Its mainland-listed arms include Shanghai Electric Co Ltd (SHA 600835; SHB 900925), Shanghai Power Transmission & Distribution Co Ltd (SHA 600627) and Shanghai Diesel Engine Co Ltd (SHA 600841; SHB 900920).
The company's total assets stand at over 70 bln yuan, according to the company's website.
It also has over 100 joint ventures with international companies including Westinghouse Electric Corp, Siemens AG, Mitsubishi Electric Corp, Alcatel SA and Nokia Corp.
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(back)China's SAIC holding co says 2004 passenger car market share 24.7 pct
Shanghai Automotive Group Co Ltd, a shareholding company set up recently by Shanghai Automotive Industry Corp (SAIC), said its passenger car market share in China hit 24.7 pct last year with 617,000 units sold.
It did not provide comparative figures.
Total vehicle sales, including passenger cars, minivans and other vehicles were 843,000 units, up 7.8 pct year-on-year.
Shanghai Automotive Group expects to have a 17 pct market share in China for total vehicle sales. It did not provide further details.
In a statement, the shareholding company said sales of its subsidiaries - Shanghai VW, a joint venture between SAIC and Volkswagen AG; and Shanghai GM, another joint venture between SAIC and General Motors Co, ranked first and third, respectively, in China last year.
Shanghai VW sold 355,000 passenger cars last year with for a market share of 14.2 pct while Shanghai GM sold 252,000 units for a market share of 10.1 pct.
By way of comparison, state media reported at the end of 2003 that Shanghai VW's market share was 19.1 pct and Shanghai GM's market share was 9. 8 pct.
SAIC's minivan subsidiary - SAIC GM Wuling Automobile Co Ltd - sold 225, 000 minivans last year, up 25 pct year-on-year, Shanghai Automotive Group said.
The shareholding company also said that South Korea-based Ssangyong Motor Co, in which SAIC holds a controlling 48.9 pct stake, sold 137,000 vehicles in South Korea last year with revenue of 3.3 bln usd.
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(back)China's Shenhua wins CSRC approval for Hong Kong listing - report
Shenhua Group, China's largest coal producer, has received approval from the China Securities Regulatory Commission (CSRC) to list in Hong Kong, the Shanghai Securities News reported.
Citing an unnamed official, the newspaper said Shenhua Group submitted an overseas listing application at the end of last year and received approval earlier than anticipated.
It said the company also expects to list in Shanghai in the first half of this year.
State media reports said earlier that Shenhua Group is planning a simultaneous initial public offering in Hong Kong and Shanghai to raise up to two bln usd in Hong Kong and one bln in Shanghai.
The Shanghai Securities News said today that the group expects to raise 12 bln yuan from a domestic A-share listing, and plans to sell a 25 pct stake through the dual listing.
In November last year, Shenhua Group underwent an asset restructuring and set up a listing arm -- China Shenhua Energy Co Ltd -- incorporating 13 subsidiaries involved in the coal, power, railway and port sectors.
Last May, citing Shenhua Group's president Chen Biting, state media said the group expected to produce 130 mln metric tons of coal last year, up 30 pct year-on-year from 100 mln metric tons in 2003.
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(back)PetroChina cuts retail gasoline, diesel prices in Chengdu - report
China's top oil and gas producer PetroChina has cut its retail gasoline prices by up to 5.6 pct in the southwestern city of Chengdu, following similar moves in other areas by its rival, China Petroleum & Chemical Corp (Sinopec), the Beijing Times reported.
The newspaper said PetroChina has lowered the retail price of No 90 gasoline to 3.37 yuan per liter from 3.57. It said PetroChina cut the price of No 93 gasoline by 0.1 to 3.71 yuan per liter, No 97 gasoline by 0.17 to 3. 99, and diesel by 0.05 to 3.62.
Last week Sinopec, PetroChina's main rival and Asia's largest refiner, cut its retail gasoline prices by less than two pct in Hainan province.
Neither company was available for comment, and it is not clear whether PetroChina will extend its price cuts to other regions.
Benchmark retail rates of refined oil products in China are controlled by the government, but oil majors, such as Sinopec and PetroChina, can adjust the selling price within an eight pct range.
They are also allowed to cut or raise ex-factory rates in accordance with fluctuations on the international crude oil market.
China's top economic planning body, the National Development and Reform Commission, raised the benchmark rates of oil products three times last year on strong crude prices, but has not imposed any cuts so far this year, despite the recent downward trend in oil prices.
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(back)Hong Kong-listed China Power Intl raises tariffs 7 pct for Jiangsu plant
China Power International Development Ltd said it implemented, effective June 15, 2004, a 7 pct rise to 300 yuan per megawatthour (mWh) in tariffs for its Changshu Power Plant in Jiangsu province.
The power utility said the hike followed a notice from China's National Development and Reform Commission approving the increase.
The company did not elaborate.
China Power, which listed on the Hong Kong main board in October, operates power stations with a total capacity of 3,610 megawatts.
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(back)China's Sinotrans Air in talks to buy stakes in 3 domestic airlines - report
Sinotrans Air Transportation Development Co Ltd (SHA 600270) is in stake-acquisition talks with Sichuan Airlines, Yangtze River Express and another unspecified airline, the National Business Daily reported.
Citing unidentified sources, the newspaper said the talks ""have entered a key phase,"" with Sichuan Airlines seen as the most attractive partner.
But Cui Jianqi, a spokesman for Sinotrans Air, told XFN-Asia that he is not aware of the reported negotiations.
Sinotrans Group Company, Sinotrans Air's parent, has a long-term goal to become China's fourth-largest airline after Air China, China Eastern Airlines and China Southern Airlines, the report said.
It cited Huaxia Securities Co Ltd analyst Li Lei saying that, as a logistics services provider, Sinotrans Air is keen to fully own and operate a fleet of its own, to further expand its service chain.
But the company has no experience in operating a commercial airline directly, and cannot take controlling stakes in all three airlines under consideration, Li said.
China Southern Airlines holds a 40 pct stake in Sichuan Airlines, and Yangtze River Express is a subsidiary of Hainan Airlines.
Sinotrans Air's net profit for the first nine months in 2004 was up 3.02 pct year-on-year to 282.86 mln yuan. Its total assets increased to 3.70 bln at the end of September last year while total liabilities rose to 1.02 bln.
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(back)Shanghai Electric Power raises price for power generated over annual quota
Shanghai Electric Power Co Ltd (SHA 600021) said it is raising the pre-tax price for power generated above the annual 5,500-hour quota to 280 yuan per 1,000 kWh from 260 yuan.
The power generator said in a statement to the Shanghai Stock Exchange that the move is based on a ruling by the National Development and Reform Commission requiring power plants in Shanghai and the eastern provinces of Jiangsu and Zhejiang to raise prices of electricity exceeding the annual quota.
Shanghai Electric Power normally charges between 0.3 - 0.4 yuan per kWh.
The company statement did not explain the move but several regions around the country, particularly eastern China, have been facing power shortages.
The price of coal, the major source of energy for the nation's electric power plants, has also been rising sharply.
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(back)China Aviation Oil says US suits to hurt restructuring - Xinhua
Class action lawsuits filed by investors against China Aviation Oil (Singapore) Corp (CAO) will affect the revamp of the troubled jet fuel trader, the official Xinhua news agency reported, citing CAO officials.
""CAO is working on a restructuring plan. We hope that investors will refrain from class action lawsuits against us at this critical moment, as they can only affect the restructuring and hurt investors' interest,"" a company official told Xinhua.
CAO has been in talks with creditors and will come up with a restructuring plan that will satisfy them all, the official was quoted as saying.
So far three US law firms -- Christopher J. Gray, Lerach Coughlin Stoia Geller Rudman & Robbins and Murray, Frank & Sailer -- have launched class action suits in the US against CAO, according to media reports.
The three suits revolve around the failure of CAO and its Beijing-based parent, China Aviation Oil Holding Co, to disclose its massive derivatives losses.
CAO has filed for court protection from creditors. It is now under investigation by Singapore regulators for alleged irregularities after declaring derivative trading losses of more than 550 mln usd late last year.
Its parent had stated earlier that any financial support for its Singapore-listed subsidiary would be conditional on creditor approval of the restructuring plans.
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(back)China Vanke expects 2004 net profit growth of 50-65 pct
China Vanke Co Ltd (SZA 000002; SZB 200002), one of the country's largest property developers, said its 2004 net profit is expected to increase 50 to 65 pct after strong sales in the fourth quarter.
The company said in a statement filed to the Shenzhen bourse that the net profit growth projection is unaudited.
China Vanke posted a net profit of 542.27 mln yuan in 2003, up 41.8 pct year-on-year.
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(back)China's HiSense wins 200 mln usd in orders for flat panel TVs
Qingdao HiSense Electric Co Ltd (SHA 600060) said it won orders for 200 mln usd worth of flat panel televisions from distributors in the US and Europe during the Consumer Electronic Show in Las Vegas last weekend.
The Shanghai-listed company presented over 40 models of plasma TVs and liquid crystal display (LCD) TVs at the show. Eight customers placed orders, 70 pct of which are for plasma TVs, HiSense said in a statement on its website.
No further details were provided.
HiSense, one of China's major producers of TVs, refrigerators and mobile handsets, said TV sales rose 21.55 pct year-on-year to 4.23 bln yuan in the first nine months of last year, accounting for 91.36 pct of its total revenue of 4.63 bln yuan.
HiSense had a leading 11.93 pct share of the domestic flat panel TV market, figures from the National Bureau of Statistics show.
It is due to report its earnings for 2004 on April 22.
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(back)China's Hengfeng Paper 2004 net profit up 6.99 pct on increased sales
Mudanjiang Hengfeng Paper Co Ltd (SHA 600356) said its 2004 net profit rose 6.99 pct year-on-year to 74.58 mln yuan on the back of increased sales.
The Heilongjiang-based paper maker is the first listed firm to issue its 2004 annual report this year.
Hengfeng Paper's total revenue rose 12.51 pct year-on-year in 2004 to 566. 48 mln yuan or up 62.97 mln yuan.
Earnings per share stood at 0.53 yuan for 2004, up from 0.50 yuan a year earlier.
The gross sales margin rose 19.74 mln yuan in 2004, boosted by increased production capacity.
The company put into operation an upgraded tissue paper production line in September 2003, which expanded the paper maker's production capacity last year.
The company did not make any earnings forecast for 2005, but said it will enhance its core competitiveness this year and promote the development and research of new products.
The paper maker paid a pretax dividend of 1 yuan per 10 shares held for 2004, up from 0.5 yuan for 2003.
Accounts receivable totaled 121.29 mln yuan at the end of 2004, up 11.53 pct from the end of 2003, and accounts payable rose 7.78 pct to 60.84 mln yuan.
Total assets were valued at 1.16 bln yuan at the end of last year, up 22. 15 pct from a year earlier, with total liabilities increasing 46.73 pct to 512.5 mln yuan.
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(back)CSRC reprimands China Euro employees over Well Medicine case - report
Two employees of China Euro Securities have been reprimanded by China's securities regulator for failing to disclose irregularities in fund use by Guangdong Well Medicine Science & Technology, listed in Shenzhen under China Euro's sponsorship, the South China Morning Post reported.
The two China Euro bankers received verbal warnings from the CSRC, the first such disciplinary action to be taken for a case of insufficient post-listing supervision, the newspaper said.
""Under the new sponsorship system, whether or not the sponsor has done anything wrong, if a company it sponsors does something wrong, the sponsor is reprimanded,"" the newspaper quoted an investment banker close to China Euro as saying.
Citing the China Securities Regulatory Commission (CSRC), the newspaper said Guangdong Well Medicine Science & Technology, misused over 31 mln yuan of listing proceeds to repay bank loans without proper prior consultation with the Shenzhen stock exchange.
Mainland listing rules forbid stock market issuers from changing the intended use of share sale proceeds declared in prospectuses without prior regulatory approval, the newspaper said.
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(back)China's Dynasty Fine Wines Group to launch IPO next wk - report
Dynasty Fine Wines Group, a joint venture between red chip Tianjin Development Holdings and Remy Cointreau of France, will launch next week an initial public offering (IPO) to raise about 414 mln usd, the South China Morning Post reported, citing sources.
The roadshow and 3-1/2-day public offer for retail investors will kick off on Monday. Pricing is expected towards the end of next week, with shares expected to be listed on the main board on Jan 26, market sources told the paper.
ABN Amro, which is leading the listing, has started marketing the company with fund managers, but declined to comment, the paper said.
Dynasty, which produces 80 varieties of red and white wine, sparkling wine and brandy, will be the first mainland vineyard to launch a global IPO. Proceeds will be used to expand production and its sales network, the paper said.
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(back)China to step up tax evasion campaign in 2005 - report
Beijing will step up its fight against tax evasion this year, after a successful drive which helped to recover nearly 70 bln yuan in 2004, the South China Morning Post reported, citing Xie Xuren, the director of the state administration of taxation.
The central government identified more than 30 bln yuan in under-reported tax liabilities last year, while another 40 bln yuan in delayed tax payments was also retrieved, the newspaper said.
China's total tax revenue for 2004 was a record 526 bln yuan, up 25.7 pct from the previous year, the newspaper added.
Citing Xie, the newspaper said that the increase was due to the pace of China's economic growth and more efficient tax collection.
The newspaper added that the same rate of increase was unlikely to be repeated this year however, as most serious offences had already been dealt with and the rate of economic growth is likely to slow.
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(back)China's Hunan Valin Steel in talks with Mittal Steel over state-owned shares
China Hunan Valin Steel Tube & Wire Co Ltd said it is in talks with Mittal Steel Co NV over the transfer of state-owned shares to the Dutch-listed, UK-based company.
Further details were not provided in the brief statement to the Shenzhen stock exchange.
Last month, the Shanghai and Shenzhen bourses and the China Securities Depository & Clearing Corp Ltd issued new regulations that would require transfers of non-tradable shares to be conducted on China's stock exchanges from Jan 1.
Transactions of non-tradable shares must involve blocks of shares with a value of at least 1 pct of the listed company's market capitalization, unless the company's market cap is more than 1 bln yuan.
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(back)China's Hengfeng Paper 2004 net profit 74.58 mln yuan vs 69.71 mln
Mudanjiang Hengfeng Paper Co Ltd (SHA 600356) said 2004 net profit was 74.58 mln yuan, up from 69.71 mln a year earlier.
The company published the following unaudited financial figures, calculated under Chinese accounting standards:
Figures are in yuan
2004 2003
Core Revenue 566.48 mln 503.50 mln
Net Profit 74.58 mln 69.71 mln
EPS 0.53 0.50
NAV/shr 4.59 4.27
Return on Net Assets (%) 11.57 11.66
Pretax div (per 10 shrs) 1 yuan 0.5 yuan
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(back)China Govt Bonds End Mixed; Muted Reaction To Drain -2-
On the interbank market, the cross-listed benchmark seven-year treasury bond remained untraded for a third straight session. It last closed at 100.95, to yield 4.69%. The rate of the benchmark seven-day repo on the interbank market ended at 1.8300%, down from 1.8340%.
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(back)Bureaucracy Hampers China Netcom's PCCW Investment-Source
China Network Communications Group Corp.'s (CHNET.YY) attempts to complete its planned acquisition of a stake in Hong Kong's fixed-line phone operator PCCW Ltd. (PCW) has been delayed again, hampered by bureaucratic snags, a source familiar with the transaction said Wednesday. China's second-largest fixed-line operator is now expected to announce its US$1 billion acquisition of a 20% PCCW stake sometime next week, and not this week as earlier expected, he said. 'At the eleventh hour there are always ticks and tacks (that need to be sorted out), with all the different constituents (including the stock exchange, the regulators) and the board,' he said. But the financial terms of the transaction between Netcom and PCCW have been decided and remain unchanged, he said. 'There's nothing that has anyone concerned the deal is not going to happen. There's no risk to that,' he said. Netcom's planned acquisition has been beset by delays stretching back to last May when the companies first disclosed they were in discussions. PCCW closed down 2.1% at HK$4.775 in Hong Kong. Netcom's Hong Kong listed unit, China Netcom Group Corp (Hong Kong) Ltd. (0906.HK), closed up 1.4% at HK$11.00.
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(back)Nine-year peak in Chinese trade
China's monthly trade surplus hit a nine-year high in December increasing pressure on Beijing to revalue its currency. The country recorded a trade surplus of $11bn in December, up 33 per cent, and $32bn for the whole year, the highest full-year balance since 1998, according to JP Morgan.
The figures coincided with the arrival in Beijing of Don Evans, the outgoing US commerce secretary and came as a US report blamed trade with mainland China for the loss of nearly 1.5m American jobs between 1989 and 2003. China's trade surplus with the US is now running at more than $100bn a year.
Robert Scott, the trade economist who wrote the report for the union-backed Economic Policy Institute, said the impact was felt across a range of industries. “The assumptions we built our trade relationship with China on have proved to be a house of cards,” he said.
“Everyone knew we would lose jobs in labour-intensive industries such as textiles and apparel, but we thought we could hold our own in the capital-intensive, high-tech arena.”
However, US analysts said it was unlikely that the commerce secretary's visit signalled a more aggressive approach to China from the US.
“The Bush administration has taken a very co-operative and conciliatory approach to China - generally turning down petitions from domestic industry for more protection,” said Dan Griswald, head of trade research at the Cato Institute, a Washington-based think-tank.
The detailed breakdown for December has yet to be released by China's commerce ministry, but the overall figures are consistent with strong export growth to the US, Europe and Japan the country's three main markets.
China's total exports hit $593bn in 2004 while imports rose 36 per cent to $561bn. Imports regained momentum towards the end of the year after a slump in some commodities purchases earlier in 2004 triggered by Beijing's credit-tightening measures.
Economists said China's global trade surplus would probably narrow over the coming year as export growth was tempered. “Exports will probably slow while imports should be pretty stable,” said Frank Gong, the China economist for JP Morgan.
But more balanced trade with the world will not necessarily translate into a smaller surplus with the US because of the structure of the bilateral economic relationship.
Chinese textile exports to the US in particular are expected to surge this year with the removal of decades-old quotas restricting trade in garments and apparel.
China is also increasingly the sourcing country of choice for large US retailers because of its cheap labour and efficient ports system.
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(back)China's Currency Reserves Surge Amid Foreign Inflows
China's foreign-exchange reserves jumped more than $200 billion in 2004 to reach $609.9 billion at year end, as speculators betting on a rise in the local currency's value added to the effect of a widening trade surplus.
Last year's huge increase was the biggest surge in China's reserves in any single year -- indeed, it was bigger than China's entire reserves until 2001. The gain of $206.7 billion, almost half of which was registered in the last three months of the year, almost certainly will add to pressure on Beijing to let its currency appreciate, even though much of the increase was the result of speculative inflows betting on just such an outcome.
The figures, disclosed to Dow Jones Newswires by a Chinese central bank official yesterday, would have been even higher had China not used $45 billion in reserves to recapitalize two huge banks last year. China's foreign reserves constitute the second-largest such stash in the world behind Japan's.
Adding steadily to Beijing's money pot are China's robust exports. Yesterday, China's Ministry of Commerce reported exports rose 35.4% to $593.36 billion in 2004. That, in turn, pushed the country's full-year trade surplus to $31.98 billion, up 26% from 2003, despite rising import costs. Foreign direct investment, a further source of reserves, reached $57.55 billion in the first 11 months of the year, surpassing the $53.5 billion recorded for all of 2003. The full-year investment figure hasn't been announced.
Much of the additional reserves, some $95 billion, came from so-called hot-money inflows, says Dong Tao , chief Asia economist for Credit Suisse First Boston. These swell the reserves because China, to maintain its currency peg to the U.S. dollar, buys foreign currency that enters the country in exchange for yuan.
The resulting flood of local currency is "sterilized" through bond issues. In one such action, China's central bank yesterday drained 95 billion yuan ($11.5 billion) in cash from the banking system through debt issues, its biggest such operation ever in the money markets.
Investors have poured money into China in anticipation that Beijing will be forced to revalue its currency, allowing them to make an easy profit on the rise in the dollar value of their holdings. Chinese leaders are adamant they won't reward speculators by allowing the yuan to appreciate under pressure.
Much of the hot money has gone into the Chinese property market, particularly in Shanghai, fueling rapid price increases and causing concern about economic overheating. "The rise in hot-money inflows is consistent with the property market's surge in Shanghai," Mr. Tao says.
To help cool things down, Beijing last year ordered banks to freeze loans for property and related industries, including steel and cement.
The U.S. and other Western nations argue that China is unfairly subsidizing its exporters by keeping the yuan weak. They are urging Beijing to relax its grip on the exchange rate.
Some economists believe China's widening trade surplus will force China's hand, even though the surplus accounts for just over 2% of China's $1.4 trillion economy. While China runs a huge trade surplus with the U.S., it has deficits with many of its neighbors because a large part of Chinese exports consists of imported raw materials and parts, which come from places like Malaysia, Taiwan and South Korea.
Grace Ng, a Hong Kong-based economist with J.P. Morgan Chase, says heavy capital inflows will put pressure on the yuan. "Pressure is definitely on the upside," she contends, predicting the currency will strengthen by 7% during 2005.
To try to relieve the pressure, Beijing has been engineering capital outflows, for example by allowing tourists to take more cash out of the country and encouraging companies to buy up assets overseas.
Still, Beijing so far has resisted the political pressure to devalue, and it may do so for some time to come. "I do not see Beijing making a currency move while the whole world is talking and speculating about that," says Mr. Tao of CSFB. And DBS Bank economist Chris Leung says he thinks the trade pressure on the yuan will shrink as China's strong import growth outpaces exports, narrowing Beijing's trade surplus in 2005 -- and possibly even leading to a deficit.
There are fears that an outflow of hot money could destabilize the Chinese economy, even though strict capital controls would slow the kind of rush for the exits that sparked the Asian financial crisis in 1997. More worrying for Beijing is that hot-money inflows make it hard for China to use interest rates to regulate growth: Increasing rates to curb overheating risks attracting more floods of speculative cash.
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(back)Deal Marks a Big Bet On Banking in Korea
Standard Chartered PLC's agreement to buy Korea First Bank boosts its presence in the key Asian market and casts a vote of confidence in South Korea at a time of economic uncertainty.
In purchasing Korea First for $3.3 billion, London-based Standard Chartered trumped larger rival HSBC Holdings PLC in a closely fought contest. Korea First, the nation's seventh-largest lender, has $41.9 billion in assets and more than 400 branches. The transaction, if completed as planned, would be the largest-ever foreign investment in Korea.
Meanwhile, the Korea First acquisition could make Standard Chartered itself a prime acquisition candidate in a deal that could exceed ￡10 billion ($18.69 billion), says Simon Adamson, an analyst at research firm CreditSights in London. "It will dampen the speculation for the short term" but not beyond that, he says.
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Standard Chartered, which derives about two-thirds of its revenue from Asia, will acquire all of Korea First's shares, including a 48.56% controlling stake held by Newbridge Capital LLC, a Fort Worth, Texas-based investment fund. Currently, the remaining shares are held by the Korea Deposit Insurance Corp. and the Ministry of Finance and Economy. The purchase will be funded through cash and a ￡1 billion ($1.87 billion) placement of new shares of Standard Chartered.
Newbridge Capital will reap a tidy profit from its investment in the bank, which the Korean government nationalized in early 1998. The U.S. investment fund, which acquired its stake in late 1999 for $416.7 million, is now selling it for $1.62 billion.
Once widely seen as a takeover target, spread across dozens of markets but lacking the depth of a Citigroup Inc. or HSBC, Standard Chartered lately has hit the acquisition trail. In October, it bought a 51% stake in Indonesia's PT Bank Permata for $305 million, and in November, it purchased a 20% stake in China's Bohai Bank, a deal that basically gave it a license to open branches across China.
Standard Chartered has tried several times to enter the Korean market, most recently through a failed bid to buy KorAm Bank, a midsize lender. In February 2004, Citigroup bought KorAm for $2.71 billion.
In a conference call yesterday, Standard Chartered executives declined to comment on rumors that the British bank is in talks to acquire a stake in one of South Africa's major banks, First National Bank, a division of banking-and-insurance group FirstRand Holdings Ltd.
Standard Chartered entered the running for Korea First late, and near the end of 2004 HSBC was seen by many as the likely winner. But Standard Chartered edged out its rival with a higher bid, people familiar with the deal said.
The transaction, which is subject to Korean regulatory approval, represents a big boost to Standard Chartered's Asian operations. Korea accounts for less than 1% of Standard Chartered's revenue, but bank executives expect the purchase to raise the country's share of group revenue to 16%.
Risk Rises
"It does raise the risk profile for Standard Chartered quite substantially," said Sunil Garg , regional banking analyst at Fox-Pitt, Kelton in Hong Kong. "Nearly a quarter of the balance sheet will be from Korea."
Now isn't a great time for the banking business in Korea, where the economy is caught between sluggish growth and rising inflationary pressures. After dealing with the problems it suffered when loans to the nation's conglomerates soured during the 1997-98 Asian financial crisis, Korea's banking sector has struggled with smaller lending bubbles involving consumers and small businesses.
"We see very stagnated growth" for Korean banking, said Wonny Kim, analyst at Hyundai Securities in Seoul. "This is mainly due to the sluggish economy and limited loan demand for investment."
It isn't clear how well Korea First is positioned to operate in the current environment. Mr. Garg estimated Korea First Bank is achieving a return on equity of about 7%, compared with 15% to 16% for KorAm.
Yet the premium that Standard Chartered is paying for Korea First, 1.87 times net-asset value, is roughly the same that Citigroup paid for KorAm.
Mervyn Davies, Standard Chartered's chief executive, defended the offer as "fair." Peter Sands, the bank's executive director, added that Standard Chartered anticipates double-digit growth in revenue and earnings from Korea First. During an analysts meeting, he admitted Korea First's recent earnings have been "a little unexciting" but said Standard Chartered would be able to accelerate growth by introducing new products, management systems and distribution channels. Standard Chartered said it expects the deal to add to its earnings starting in 2006.
Yesterday, Mervyn Davies, the group chief executive of Standard Chartered, said his bank beat out rivals because it was "speedy" and "nimble."
Mr. Davies dismissed talk that his bank remains a takeover target. "We've got a franchise that is very special and now we're making it work," he said.
The deal with Standard Chartered marks a victory for the Korean government, which has been trying to dispose of billions of dollars of bad assets that it absorbed in the wake of the Asian financial crisis. The eventual sale of Korea First, and of state-owned Seoulbank, was a condition attached to the International Monetary Fund's $58 billion bailout of the Korean economy.
Newbridge's takeover of Korea First was seen as a major step toward an overhaul of Korean banking. The sector was on the verge of collapse in 1998, and Korea First, before being nationalized, was a symbol of some of the industry's worst practices, such as lending, at the government's directive, to debt-laden conglomerates. Newbridge transformed the bank by cleaning up bad loans, improving credit-risk management and adding retail lending.
HSBC, for its part, was left to answer whether the London Bank was hurt by its conservative nature. The deal marks yet another swing and miss for HSBC, which has been interested in nearly all of the banks that have been for sale in Korea -- and has been beaten each time.
HSBC competed for Korea First in 1998. That time, it lost to U.S. private-equity firm Newbridge Capital, which is now profiting from the sale to Standard Chartered. HSBC also pursued Seoulbank at the time but didn't reach a deal. During the next few years, despite occasional pledges to pursue an acquisition in Korea, HSBC watched as several other banks were snapped up.
To be sure, HSBC has grown to such a size that acquisitions of lenders in places like South Korea now look small. And the bank last year made a $1.74 billion purchase of a 19.9% stake in China's Bank of Communications, which many people say was a key acquisition that other banks would have liked to win. HSBC also is considering a big U.S. purchase.
"HSBC obviously is the most visible [bank] by their absence in Korea," said Alistair Scarff, a banking analyst at Merrill Lynch & Co. in Hong Kong who has a "neutral" rating on the stock. Korea Exchange Bank, he noted, is one of the few assets available now for HSBC to buy.
Gareth Hewitt, an HSBC spokesman in Hong Kong, said the bank had no comment on the Korea First deal. "As a general observation, however, we would point out that HSBC's strategy does not depend on acquisitions," he continued, adding that when HSBC believes the terms of a possible acquisition "are stretching to the returns we require, we are quite prepared to stand aside."
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(back)Dollar Slips Against Euro, Yen As U.S. Reaffirms Currency View
The dollar fell modestly against the euro and the yen, suffering its second day of losses after last week's strong gains.
Some upbeat economic news from the euro zone, a reiteration of the Bush administration's dollar policy and comments by a senior European Central Bank official pushed the dollar lower and also lifted the yen against the euro.
In late New York trading, the euro was at $1.3114, off its session high of $1.3171, but up from $1.3085 late Monday. The dollar was at 103.37 yen from 104.21 yen, and at 1.1829 Swiss francs from 1.1818 francs. The pound rose to $1.8779 from $1.8765. Meanwhile, the euro fell to 135.56 yen from 136.31 yen late Monday.
There were no major U.S. data releases yesterday. The dollar fell overnight after German think tank ZEW said its economic-sentiment index rose for the second straight month to 26.9 points in January from 14.4 points in December. That was well above economists' forecasts of 17 points. The data came after a long slew of disappointing German and euro-zone statistics, which have rendered many pessimistic about growth prospects in the region.
The dollar also was pressured after Treasury Secretary John Snow said late Monday that the administration still believes in a strong-dollar policy and continues to believe currency values are best set by the market.
It may seem counterintuitive, but Mr. Snow's reiteration of the policy refocused the market's attention on the administration's hands-off approach to the dollar, countering a sense sparked last week that the U.S. had become more concerned about the dollar's recent decline.
During New York trading yesterday, the dollar was further dented after ECB Chief Economist Otmar Issing criticized Asian countries, and China in particular, for not contributing enough to the reduction of global imbalances stemming from the large U.S. current-account deficit.
"China is still putting off its contribution, but it will no doubt at some stage act," he said. Mr. Issing said Europe already has made a contribution to reduce global imbalances, and has even gone further than necessary.
U.S. and euro-zone policy makers want China to move to a more flexible foreign-exchange-rate regime from its current system that effectively pegs the value of the yuan to the dollar.
Market watchers said it comes as no surprise that European officials are concerned with the double-edged strength the euro has been experiencing against the dollar and yen.
"Most people feel we need an adjustment of the Asian currencies, since they have been bearing a disproportionally smaller load of the dollar's decline," said John McCarthy, director of foreign exchange at ING Capital Markets in New York.
Euro-zone officials have complained euro strength, particularly against the dollar, has stunted growth prospects there. But strength against the yen has also been a looming threat to growth. In late December, the euro rose to a record 141.64 yen.
The market seems cautious about where to take the dollar next, with good reasons for it to move both higher and lower in the coming weeks. The currency is being supported by U.S. economic strength, promises of dollar-positive policies from the Bush administration and increasing U.S. interest rates. Yet the currency is being pressured by the massive imbalance in U.S. trade and concern about the sustainability of funding the U.S. current-account deficit.
The focus could switch back to dollar pressures today, when the U.S. reports the November international trade deficit, which is expected to have narrowed slightly to $53.6 billion from $55.46 billion in October. The trade gap is the key component of the current-account deficit that has convinced many that the dollar is set for more losses.
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(back)ECB's Issing: China Must Help To Reduce Global Imbalances
European Central Bank chief economist Otmar Issing said Tuesday that it is China's turn to contribute to the reduction of global imbalances stemming from the large U.S. current account deficit.
"China is still putting off its contribution, but it will no doubt at some stage act," he said, speaking at a conference about liquidity organized by the Swiss National Bank.
Issing said that Europe has already made a contribution to reduce global imbalances, and has even gone further than necessary.
U.S. and euro zone policymakers want China to move to more flexible foreign exchange rate regime from its current system that effectively pegs the value of the yuan to the dollar.
This has prompted accusations that China is keeping the yuan's value artificially low to improve its trade competitiveness.
Because it is a free-floating currency, the euro has largely taken the burden of the weaker dollar.
At 1745 GMT, the euro was trading at $1.3124, up from $1.3087 late Monday in New York.
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(back)Singapore To Allow Chinese Visitors To Use Bk Debit Cards
In a first, Chinese visitors will be able to use their bank debit cards in Singapore, thanks to an agreement signed Tuesday between Singapore electronic payment company NETS and China's China Union Pay.
The agreement makes Singapore the first country in the world to accept debit cards issued by Chinese banks for purchases and cash withdrawals outside the country. It follows a rapid increase in the numbers of Chinese coming to Singapore - now more than 600,000 per year.
Chinese who come into Singapore can now use their debit cards at 31 merchants and 700 automated teller machines island-wide.
NETS Chief Executive Officer, Poh Mui Hoon, said Singaporeans will also be able to use their debit cards in China by the second half of the year. Poh told reporters NETS expected to conclude similar agreements with other foreign partners by the end of the year, but gave no details.
The agreement with China also provides NETS with access to a cardholder base of more than 300 million people - 75 times the size of the Singapore market.
"It is widely recognized that China is a country with greatest potential for the bankcard industry," said Xu Luode, director-general of the payment department of the People's Bank of China.
