(back)UBS, SDIC Will Form Fund Management JV In China
UBS AG (UBS) Tuesday said it will form a fund management company with China's largest investment company State Development Investment Corporation by buying a 49% stake in Shenzen-based China Dragon Fund Management Ltd.
The fund was previously owned by a subsidiary of SDIC and has $386 million assets under management.
The joint venture is subject to approval by China's security regulations commission.
Financial details weren't disclosed.
"This is an important step in our strategy to build a major presence in China's asset management industry," Chairman and Chief Executive of UBS Global Asset Management John Fraser said.
The new China Dragon fund will launch new mutual funds and with the ongoing market liberalization, targets new opportunities in the Chinese investment market, UBS added.
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(back)China's Small Cos Voted Most Competitive In Asia - Survey
China's small companies were voted the most competitive in Asia by regional business owners, outranking those from Hong Kong and Japan, according to a business survey released Tuesday.
Chinese small businesses, defined as having less than 250 employees and turnover of under US$40 million a year, were ranked first by 73% of respondents in the UPS Asia Business Monitor survey.
Firms from Hong Kong, Japan, South Korea and Taiwan were also considered relatively competitive, while Philippine and Indonesian small businesses ranked the least competitive.
The study, commissioned by the parcel delivery company and prepared by research agency Taylor Nelson Sofres, surveyed 1,200 business owners and managers in 12 Asian economies between Aug. 16 and Sept. 28. It wasn't immediately clear why the results weren't released sooner.
Business leaders in China were less enthusiastic about their own standing, ranking small companies in Hong Kong, Japan, Korea and Taiwan above their own.
Commenting on the results, Patrick Turner , director of the International Center of Entrepreneurship, INSEAD, said that it will be difficult for regional businesses to compete with China on a "pure price level."
"But you can rely on other areas like customer service and dependability, for example, improving the quality of your product," Turner said.
Responses were mixed about China's emergence as a manufacturing center for the world.
Some 43% of business leaders saw that as a positive development, while 27% saw a negative impact, 17% saw both positive and negative aspects, and 12% saw neither.
The availability of qualified staff was rated the most important factor for business competitiveness by survey respondents. Lack of innovation and access to funding and working capital were considered the biggest obstacles.
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(back)Survey: Gap Between China's Rich, Poor Widening Sharply
Incomes have risen substantially since the late 1990s for urban residents in China, a country rapidly growing into an international center of manufacturing, a Gallup survey released Monday found.
The development has widened the divide between the haves and have-nots in China.
The Gallup project found that urban incomes have increased by almost 75% between 1997 and now - to an annual total equivalent to almost $3,000 - but that amount buys much more in the Chinese economy than it would in the U.S.
Rural incomes have increased only modestly during that time.
"There are job opportunities in the cities and that's where people are moving, that's where manufacturing for export is centered - China is the factory of the world," said Richard Burkholder, director of international polling for Gallup. "The gap between rich and poor has widened dramatically."
While those who move from the countryside to China's cities find their earning potential increase sharply, their satisfaction with living in the city hasn't kept pace with the satisfaction of those who live in rural areas, the poll found.
Residents of rural and urban communities in China were about equally likely to say they were satisfied with their own community as a place to live a decade ago. But now, 65% of those in rural areas say they are satisfied with their own communities, compared with 52% in urban areas.
The mass migration of rural residents to Chinese cities has placed huge pressure on cities to provide social services, say those who closely watch China's development.
The Gallup polling found that China's increased economic earning has been accompanied by dramatic changes in the everyday lives of many Chinese. The latest survey indicates color televisions (in 82% of homes) and landline phones (in 63% of homes) have become a normal part of most Chinese households. Half of the nation's households (48%) have at least one mobile phone.
The Chinese were more likely to express satisfaction than dissatisfaction with their lives generally - 63% to 37%. There was no significant difference between levels of general life satisfaction expressed by the urban Chinese and the rural Chinese.
For the last 25 years, China's economy has been undergoing a rapid transition, the result of a move toward a mix of free and state-owned enterprise.
The growing income disparity in China is causing friction between rich and poor, said Richard W. Bush, director of the Center for Northeast Asian Policy Studies at the Brookings Institution.
"People from poor rural areas are migrating to richer urban areas," Bush said. "Poor migrants are providing the cheap labor for products produced in the East Coast factories."
The differences between rich and poor inevitably cause tensions, said Drew Thompson , a China specialist at the Center for Strategic and International Studies.
"Anytime you have wealth disparities, you have social unrest," Thompson said.
"These events you hear about are sparked by a traffic accident or a perceived injustice by one group to another. There have been reports of civil unrest that relate to layoffs. Another source of friction is people being moved from their farms or homes."
Thompson added, "The growing gap highlights the unfortunate situation of a few who don't have good options."
Gallup has conducted its China survey since 1994, repeating it in 1997, 1999 and 2004, for the poll released Monday.
The poll of in-home, face-to-face interviews with 3,597 adults was conducted in June, July and November and has a margin of error of plus or minus 2 percentage points.
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(back)Auto Makers Aim to Continue Sales Drive in China
A rocky sales stretch hasn't dimmed foreign optimism for what executives say is still the world's fastest-growing major automobile market: China.
At the motor city's North American International Auto Show this week, global car companies are unveiling monster four-door family trucks, polished aluminum sports cars and tiny two-seat clean vehicles. All are seeking, in essence, to capture the imagination of the American consumer.
But it is China, with its explosive sales, that continues to fire the imagination of auto executives. In the next few years, China's total light-vehicle sales are expected to surpass those of Japan. In a decade or so, they could even pass those in the U.S., industry executives say. "China has a lot of growth left -- a lot of growth," says Troy A. Clarke, president for Asia Pacific at General Motors Corp.
Slowing sales in China have bruised GM and other multinationals. The Chinese government has tightened bank loans, squeezing credit for both auto dealerships and consumers. And shoppers have held off buying cars as prices drop.
Some experts say the downturn has provided a needed dose of reality for a volatile market. "So many people have been hyper and overly bullish about China," says James D. Power IV, executive vice president of auto-consumer-research company J.D. Power and Associates.
China's car sales grew at a rate faster than 50% in both 2002 and 2003. In 2004, sales grew about 15% -- still extremely fast among major markets. But they slowed sharply at year end.
Now auto inventories are rising while production and prices fall. The slowdown has hit corporate profits, too. GM said its third-quarter Asia-Pacific profit shrank 38% from a year ago, in large part because of a slowdown in the Chinese market. GM has since eased production in some areas, including its popular Buick Regal.
But GM and others still see plenty of room to grow. Underpinning future sales is a middle class that is emerging in big cities. Meanwhile, urban congestion and new roads have created another encouraging phenomenon: the car commuter.
As part of its plan to invest $3 billion over three years, GM is rolling out 20 new vehicles in China. Japan's Honda Motor Co. is building new plants in the southern city of Guangzhou and in central Wuhan, in a bid to double production over the next two years. Ford Motor Co. recently obtained approval for a $400 million passenger-car plant to be built in eastern Nanjing. The aggressive expansions are posing challenges for market leader Volkswagen AG. VW has announced a major expansion of its own, but GM and Honda are grabbing big chunks of the China car market and the competition has eviscerated earnings.
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(back)Harvard Dropouts: Endowment's Chief To Leave With Others
Jack Meyer, overseer of Harvard University's $22.6 billion investment portfolio, is leaving the school to start his own firm, taking four of his best money managers with him.
Mr. Meyer's move after nearly 15 years at Harvard underscores a dilemma facing colleges, which are under pressure to build endowments by hiring top money managers -- who command premium pay -- while at the same time seeking to keep compensation under control and internally palatable.
Mr. Meyer chalked up above-average returns as president and chief executive officer of Harvard Management Co. But he faced perennial criticism from some alumni and others about the big paychecks the operation handed out. At the same time, many colleagues abandoned Harvard during his tenure for the richer fields of private money management.
"It's time for a new chapter," Mr. Meyer said in an interview. "It will be somewhat of a relief to drop out of the public spotlight."
He added: "Harvard is a very visible fund. It's no secret that every single year compensation is a thorny issue."
Verne Sedlacek, the chief executive of CommonFund in Wilton, Conn., which selects outside managers for university endowments, said Mr. Meyer's departure represents the end of an era. Few universities can afford to pay the big paychecks demanded by top money managers -- and the few that do, such as Harvard, end up getting criticized for it, he said. As a result, most turn to outsiders for management. Mr. Sedlacek, a former Harvard Management employee, called Mr. Meyer's accomplishments "absolutely spectacular."
In the fiscal year ended June 2004, the two top paid managers at Harvard Management , David Mittelman and Maurice Samuels, each received about $25 million. In the prior year they earned more than $35 million each. Both men will join Mr. Meyer at his new firm. Mr. Meyer made $7.2 million last year.
Harvard's endowment, by far the richest of any U.S. university, had a 21% investment gain in the year that ended in June 2004, when it stood at $22.6 billion. That compares with a median 17% growth for the 25 largest university endowments, according to the school.
The multimillion-dollar pay levels rankled university employees facing layoffs and alumni, who threatened to boycott fund-raising campaigns. William Strauss, an author and Harvard alumnus who lives in McLean, Va., said a group of 11 alumni from the class of 1969 are drafting a new letter asking that the entire compensation process be re-evaluated.
"Our basic point is the endowment should be for the benefit of current and future students, not for the benefit of current and future fund managers," Mr. Strauss said. "The bonuses that have been paid to fund managers are unnecessary, inappropriate and contrary to the values of a great university."
Mr. Strauss said he believes it would be wrong for any portion of Harvard's endowment to be invested in Mr. Meyer's new firm, a practice the university has followed with several other managers who left to start their own funds.
Mr. Meyer, a 1969 graduate of Harvard Business School and former chief investment officer of the Rockefeller Foundation, defended the pay system, arguing that world-class managers must be paid top dollar. He said his bond managers outperformed the bond-index benchmarks against which they are measured. Harvard has said the endowment is $1 billion richer because of benchmark outperformance last year.
The university said Mr. Meyer decided on his own to resign, leaving in about six months. The school added that it would be open to alumni and other views about managing the endowment going forward.
About 85% of Harvard's assets were once managed internally, but the percentage shrank to 50% under Mr. Meyer. "With Jack and his colleagues leaving, I guess it will drop lower than that," Harvard treasurer James Rothenberg said, although he said no decision had been made about hiring the new firm.
"We think we have gotten excellent results from the compensation we've paid," Mr. Rothenberg said. A committee seeking Mr. Meyer's successor, he added, would deal with questions about compensation as well as a range of other issues, including whether the in-house system that Harvard has used to manage its endowment should continue.
Only a handful of the 45 academic institutions with endowments over $1 billion have an in-house system of money managing like Harvard, according to Damon Manetta with the National Association of College and University Business Officers.
Under Harvard Management's current pay system, managers earn contingent bonuses based on each year's performance, but payouts are calculated from performance over several years. Harvard said its top six managers earned contingent bonuses totaling $61.5 million in fiscal 2004, but all received higher cash payouts based on their performance in prior years.
In addition to Mr. Mittelman, manager of Harvard's domestic-bond portfolio, and Mr. Samuels, who runs Harvard's foreign-bond investments, two other managers, Edward DeNoble, manager of emerging-market bonds, and Michael Pradko, chief risk officer, will join Mr. Meyer at the new fund.
Louis Morrell, vice president for investments and treasurer at Wake Forest University in Winston-Salem, N.C., said multimillion-dollar pay packages for in-house managers inevitably anger parents, students and staff. "It's my conviction personally" that such high pay for money managers "is not acceptable in higher education. The culture doesn't support it."
Wake Forest uses outside managers for its $900 million endowment, which returned 17% in the year ended June 30. Mr. Morrell, whose annual salary is $240,000, said the university paid about $4.5 million in fees to the managers.
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(back)Lehman's Talks To Acquire GLG Of Britain Stall
Lehman Brothers Holdings Inc.'s talks to buy British hedge-fund firm GLG Partners have stalled, according to people familiar with the matter.
Lehman has been negotiating for months to buy GLG, but the talks have come to a near standstill in recent weeks, leaving some Wall Street executives and investment professionals skeptical the deal will happen. To be sure, the discussions could be jump-started at any time, these people say. The Wall Street Journal reported in September that the two firms were in negotiations. Both a Lehman Brothers spokeswoman and GLG declined to comment.
Hedge funds can be lucrative to run because they command high investment-management fees, and they often trade heavily, generating big commissions for Wall Street trading desk s. But securities firms' interest in them also comes at a time when questions are beginning to be raised about whether hedge-fund returns have lost their luster.
Moreover, many hedge-fund managers feel there is already a trade-off between the size of the funds they have garnered and their ability to produce outstanding returns. Hedge funds now have a total of $1 trillion under management.
GLG is considered attractive by many because, with about $13 billion under management, it has significant scale, yet has managed to sustain its investment performance. GLG offers many kinds of hedge funds. Most of its "long-only" funds -- those that buy stocks, rather than make bearish bets against them -- were up between 12% and 20% last year, while most broad stock-marke t indexes were up less than 10%.
Given its huge size, GLG generates commissions that one securities broker who deals with it estimates may total as much as $500 million annually.
The lack of progress in the talks between GLG and Lehman was previously reported by Reuters News Service.
Lehman isn't the only Wall Street firm to have recently considered buying a hedge-fund firm. Earlier this year, J.P. Morgan Chase & Co. agreed to buy a majority stake in Highbridge Capital Management, which has about $7 billion in assets, in a deal valued at about $1.3 billion.
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(back)Small Firms Add Workers, But Average Pay Falls
Small businesses increased the number of employees by 4.4% in 2004, and cut the average paycheck by 4.8%, according to data from SurePayroll Inc., a Skokie, Ill., payroll firm serving more than 14,000 companies nationwide.
Average pay for employees at companies with 100 or fewer workers moved downward throughout the year, according to the firm's records, but results differed by geographic region.
The West topped the list for both an increase in workers for small businesses, at 6.3%, and for a drop in average pay, with a decline of 7.6%.
One reason, according to SurePayroll's president, Michael Alter , is that California was hit hard when the economy faltered, so there are jobs to fill now, but at wages lower than those that were "a little out of whack" with historical norms during the late 1990s technological boom.
Although the Northeast recorded a 3.1% drop in employees for the year, since July it has had monthly increases in workers. The Midwest had a 0.9% increase in workers and a 4.2% drop in pay, and the South, an increase in both number of workers, 1.9%, and average paycheck, 0.9%.
With the number of workers increasing and average pay decreasing last year, Mr. Alter says that for small businesses we shouldn't characterize the improved economy as jobless, but rather as payless.
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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.
(back)China to Attend G-7 Finance Forum
China will send representatives to the finance-minister meeting of the Group of Seven leading industrial nations next month, the U.K. Treasury said.
The Chinese delegation will attend the meeting in the same capacity as it did during the last meeting of G-7 ministers in October, a Treasury spokesman said. Then, the delegation was present at a meal at the conclusion of the G-7 meeting, but it didn't take part in the group's official discussions.
The U.K. will be hosting the meeting of finance ministers in London Feb. 4-5, in its capacity as president of the G-7 for 2005.
The presence of the Chinese is likely to give rise to further speculation about whether the government is preparing to float China's currency, the yuan, away from its current peg to the dollar.
Over the past several months, China has come under pressure from European countries and the U.S. to allow the yuan to float. The European Union, in particular, would like to see China bear some of the brunt of the recent fall in the dollar's value, which has caused the euro to reach records.
But Chinese officials, while expressing their intent to float the yuan eventually, continue to stress exchange-rate stability.
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(back)China 2004 Steel Imports Dn 21.2% To 29.3M Tons -Xinhua
China's steel imports fell 21.2% to 29.3 million tons in 2004, the official Xinhua News Agency reported late Tuesday, citing General Administration of Customs data.
The country's auto imports rose 2.1% to 176,000 units in 2004, according to the report.
In December, local media cited Huang Hai, an assistant minister of commerce, as saying China's steel demand would slow in 2005, due to government measures to rein in major steel-consuming industries like construction and automobiles.
Huang said China's steel imports were declining in 2004 due to the country's expanding domestic production capacity.
The government's macroeconomic control measures - launched from mid-2003 to temper the country's economic growth - dramatically slowed the domestic auto market's growth last year from the above-50% growth rates in 2002 and 2003.
In November, China's passenger car sales rose just 3.7% on year to 202,800 units, the China Association of Automobile Manufacturers said in December.
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(back)China's Sinopec: Won't Appoint New Independent Directors
China Petroleum & Chemical Corp. (SNP), or Sinopec, Wednesday said it won't appoint two new independent directors.
The company issued the statement after a newspaper report Tuesday said it would appoint two new independent board members
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(back)BOT-M'bishi Gets OK For Yuan Deposits, Loans In Beijing
Bank of Tokyo-Mitsubishi Ltd. said Wednesday it has obtained approval from the Chinese government to handle yuan-denominated deposits and loans in Beijing.
The approval follows the Chinese government's announcement in December that it has opened five new cities, including the capital, to foreign banks to allow them to conduct yuan business with local and overseas companies as part of a gradual opening up of the domestic banking system.
Demand for funds in yuan from Japanese companies operating in Beijing is expected to grow as they will likely expand their operations there ahead of the Beijing Olympics in 2008. The latest move will allow those companies to smoothly procure the local currency.
The core unit of Mitsubishi Tokyo Financial Group Inc. (8306.TO), one of Japan's four major banking groups, will become the first Japanese bank to start yuan-denominated operations in Beijing.
The Japanese bank will start those services as early as mid-March, a spokesman at the bank said.
Since joining the World Trade Organization in late 2001, China has eased the geographical restrictions that previously limited foreign banks to branches in Shanghai's Pudong district and Shenzhen, a southern boom town bordering Hong Kong.
As part of an agreed five-year schedule, China is to gradually widen the geographical area open to foreign banks before throwing open the local banking market to full competition by the end of 2006.
By that time, foreign banks will also be able to expand their business scope to include offering yuan services to retail customers, a lucrative area of business still restricted to domestic commercial banks, most of which are state-run.
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(back)China Finds Widespread Shortcomings In Company Reports
China's inspection of audits of 181 major state companies' financial reports found widespread cases of incomplete reporting, serious asset losses and outright fabrications, official media reported Wednesday.
China has been boosting oversight of state-controlled enterprises - some of which are among the country's biggest corporations - following scandals over unauthorized dealings, theft of state assets and other matters.
Inspection results, reported Wednesday, said that 13 of the companies had lied in financial reports and that 120 had submitted incomplete reports, the official Xinhua News Agency said.
It did not name the suspected companies.
Meng Jianmin, an official with the State-owned Assets Supervision and Administration Commission, blamed most of the losses of state assets on "intermediaries" hired to handle financial dealings.
"The key troublemakers are those financial intermediaries," Xinhua quoted Meng as saying. He added that a "great proportion of these intermediaries are actually not acting on their duties, some are even helping the state-owned enterprises to conceal facts, as they are paid by them."
The audit investigation followed a series of corporate scandals that have accentuated concerns over mismanagement and other abuses by executives.
Singapore authorities began investigating China Aviation Oil (Singapore), a state company that supplies most of China's commercial jet fuel, after it recently declared losses of $550 million from speculative trades.
On Tuesday, troubled dairy giant Inner Mongolia Yili Industrial Group Co. reported a loss of CNY12.2 from sales of government bonds after prices fell sharply. The company had set aside provisions to cover the loss.
Earlier this month, Yili said that five of its senior executives, detained in December, had been formally arrested on suspicion of embezzlement.
Late last year, the government began requiring state-owned companies' presidents to sign performance contracts with the state assets agency as part of an effort to tighten controls on wayward or inept managers.
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(back)China To Attend G7 Fin Mins Meeting Feb - UK Treasury
China is to send representatives to the Group of Seven meeting of finance ministers in February, the U.K. Treasury confirmed Tuesday.
A spokesman for the Treasury said the Chinese delegation would attend the meeting in the same capacity as it did when it attended the last meeting of G7 ministers in early October last year. Then, the delegation was present at a meal at the conclusion of the G7 meeting, but it didn't take part in the group's official discussions.
The treasury spokesman said there were no confirmed details yet of any further talks that the Chinese delegation would take part in, nor who would lead the delegation.
The presence of the Chinese is likely to give rise to further speculation about whether the government is preparing to float China's currency, the yuan, away from its current peg to the dollar.
In recent times, China has come under pressure from European countries and the U.S. to allow the yuan to float. The European Union, in particular, would like to see China bear some of the brunt of the recent fall in the dollar's value, which has caused the euro to reach repeated record highs.
If the yuan were allowed to float, it would probably appreciate rapidly against the dollar. In December, the Chinese monthly trade surplus reached $11.1 billion - its highest level in a decade.
But Chinese policymakers, while expressing their intent to float the yuan eventually, have so far refused to be rushed, saying the country's domestic foreign exchange markets first need to become more sophisticated.
-By Andrew Peaple, Dow Jones Newswires; +44 207 842 9270;
andrew.peaple@dowjones.com(This updates an item published from 1337 GMT with a further detail on the G7 meeting in February.)
LONDON (Dow Jones)--China is to send representatives to the finance minister meeting of the Group of Seven leading industrial nations in February, the U.K. Treasury confirmed Tuesday.
A spokesman for the Treasury said the Chinese delegation would attend the meeting in the same capacity as it did when it attended the last meeting of G7 ministers in early October last year. Then, the delegation was present at a meal at the conclusion of the G7 meeting, but it didn't take part in the group's official discussions.
The treasury spokesman said there were no confirmed details yet of any further talks that the Chinese delegation would take part in, nor who would lead the delegation.
The U.K. will be hosting the meeting of finance ministers in London Feb. 4-5, in its capacity as president of the G7 for 2005.
The presence of the Chinese is likely to give rise to further speculation about whether the government is preparing to float China's currency, the yuan, away from its current peg to the dollar.
In recent times, China has come under pressure from European countries and the U.S. to allow the yuan to float. The European Union, in particular, would like to see China bear some of the brunt of the recent fall in the dollar's value, which has caused the euro to reach repeated record highs.
If the yuan were allowed to float, it would probably appreciate rapidly against the dollar. In December, the Chinese monthly trade surplus reached $11.1 billion - its highest level in a decade.
But Chinese policymakers, while expressing their intent to float the yuan eventually, have so far refused to be rushed, saying the country's domestic foreign exchange markets first need to become more sophisticated.
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(back)Steel Stocks Sink After CIBC Downgrades Sector
Shares of steel stocks were down Tuesday after CIBC World Markets downgraded the industry and said that gains in 2004 are unlikely to be repeated this year.
Analyst Robert LaGaipa said in a research note to clients that while companies are likely to post strong fourth-quarter results, investors should look beyond the present when making decisions about the group.
"It has become clearer that steel pricing actually peaked this past fall and pricing is unlikely to rebound to prior peak levels," the analyst said. "With a clear relationship between steel stock price performance and pricing, the strongest performance in our universe is likely behind us."
LaGaipa formally lowered the firm's rating of the entire sector to underweight from market weight.
The report affected most names in the sector, which on Tuesday was the worst-performing industry out of the 100 that Dow Jones tracks.
Shares of AK Steel Holding Corp. (AKS) were off 81 cents, or 5.9%, to $12.91. Shares of Steel Dynamics Inc. (STLD) were down $2, or 5.6%, to $33.29.
United States Steel Corp.'s (X) stock was off $2.23, or 4.6%, to $46.76; Allegheny Technologies Inc.'s (ATI) stock was down $1.01, or 5.3%, to $18.14; and Nucor Corp.'s (NUE) stock was down $1.42, or 2.8%, to $48.50.
CIBC's LaGaipa said that the sequential earnings-per-share growth for steel companies that occurred throughout 2004 is likely over. Managing raw materials costs will be one of the biggest pressures, he said.
Steel inventories increased steadily during 2004 and the shortage conditions that were present now no longer exist. Higher domestic mill production and high imports have led to better supplies, LaGaipa said.
He noted that China has turned into a net exporter of still in recent months, which will put pressure on the industry this year and may cause oversupply.
"China's goal is to be self sufficient in steel, which displaces steel product from other regions," he said.
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(back)China Govt Bonds End Mixed;Muted Reaction To Record Drain
China's government bonds ended mixed Wednesday, with initial reaction muted to a record weekly money market drain by the central bank. On the Shanghai Stock Exchange, 14 of 29 treasury bonds ended higher, nine fell and six settled unchanged. The benchmark seven-year treasury bond fell slightly to 101.04, from 101.05, while its yield closed flat at 4.68%. On the exchange market, the rate of the benchmark seven-day repo fell to 2.2%, from 2.5% in the previous session. China's central bank will offer CNY30 billion in three-year and CNY10 billion in three-month bills in Thursday's open market operation, the People's Bank of China said shortly before the stock exchange market closed. China's central bank Tuesday executed its biggest-ever single-session withdrawal of money market funds, some CNY95 billion worth on a gross basis. However, CNY30 billion in one-year bills it sold had an extended settlement, meaning the funds won't actually be absorbed from the market until after the Chinese New Year holiday next month. With CNY5 billion in repos maturing this week, the PBOC's open market operation this week takes the weekly net drain from the banking system to a record CNY100 billion. Some dealers said the muted reaction to the big liquidity drain could relate to a lot of paper maturing in the next two weeks, which will offset the effect of this week's operations. About CNY110 billion in bills alone are slated to mature during January, all of which are due later this month. That means on a monthly basis, the net drain from the system may not be large and liquidity will still be ample, said traders. They said the weekly central bank operations are expected to become milder with the approach of the Chinese New Year on Feb. 9. In the meantime, some profit-taking Wednesday limited upside for bond prices after they had risen for five straight sessions, traders said.
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(back)MARKET TALK: BOCI Keeps Jiangxi Copper As Outperform
STOCK CALL: BOCI keeps Outperform on Jiangxi Copper (0358.HK), given upbeat outlook for industry; this as uptrend in treatment charges/refining (TC/RC) charges for Chinese copper smelters continues, says BOCI; also expects TC/RC to rise further due to 'enhanced availability of copper concentrates and strong demand for copper metal.' Stock flat at HK$4.075. (RLI) Contact us in Hong Kong.
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(back)China Shenhua Plans US$3B IPO In HK, Shanghai - Source
Major China coal-mining company Shenhua Group is aiming to raise around US$3 billion from a simultaneous initial public offering in Hong Kong and Shanghai in June or July, sources familiar with the situation said Wednesday.
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(back)MARKET TALK: Kim Eng Ups China Merchants To Buy
STOCK CALL: Kim Eng lifts China Merchants' (0144.HK) FY05 earnings forecast 9.8% to HK$2.10 billion, FY06 9.1% to HK$2.45 billion to reflect profit contribution from SPIG, which CM bought 30% of last month; ups stock from hold to buy, new target HK$17.64 on 18X FY05 PER. Higher valuation justified as SPIG buy 'allows CM to expand beyond its Pearl River Delta stronghold into the less mature, less congested Yangtze River Delta.' Stock down 1.4% at HK$14.50 midday
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(back)MARKET TALK: DBS Ups Shanghai Petrochem To Buy
STOCK CALL: Shanghai Petrochem (0338.HK) down 1.8% at HK$2.68 after rising 2.8% yesterday on bargain hunting, but may renew rise. DBS Vickers finds SP's 'valuation has reached undemanding level' after recent correction in sector shares. Given SP's 'well-diversified and highly vertical-integrated' operations, DBS reckons SP 'better positioned' than petrochem peers to weather possible industry downcycle; ups stock to buy from hold, target HK$3.275.
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(back)AWSJ(1/12) Hong Kong To Propose Sales Tax To Aid Budget
The Hong Kong government said that it will introduce to the public in coming months specific proposals for a new, broad-based sales tax. The announcement is perhaps the clearest indication yet of the government's intent to overhaul Hong Kong's famous low-tax system. But many question whether the city's administration can muster enough support to make the change, or satisfy the public that the sales tax, also called a goods-and-services tax, or GST, is the best solution to Hong Kong's fiscal woes. Laurie Lo, spokesman for Financial Secretary Henry Tang, said the government was trying to broaden the tax base 'to provide a more steady source of income,' and ensure that there was enough revenue to cover operating costs in lean economic years. Mr. Lo said Mr. Tang will lay out the tax agenda when he presents the coming fiscal year's budget in March, and start the public consultation shortly afterward. Few would argue that the structure of Hong Kong's budget -- which has only occasionally been in the black since it returned to Chinese rule in 1997 -- needs improvement. By official estimates, less than 0.05% of the city's seven million population shoulder 85% of the tax burden. Still, many question whether a sales tax is the best response. Aside from fears that a GST tax could damp the tourism and retail industries -- key factors in Hong Kong's recent economic revival -- many also question whether the government has overlooked other solutions, such as cutting expenditure through reducing the city's bloated civil service. 'They're not thinking about tax reform, they're thinking about raising revenues,' said Christine Loh, chief executive of local think-tank Civic Exchange. Public trust in authorities is low after the government failed to push through several major initiatives over the past year, most recently when its effort to bring the world's largest real-estate investment trust to market as part of a US$3 billion property-privatization plan stumbled on a politically embarrassing legal roadblock. Guy Ellis, a tax partner at PricewaterhouseCoopers, said the government in coming months should provide a detailed economic analysis of how much needs to be raised, demonstrate that it has done its utmost to cut expenditure in other ways and basically 'win hearts and minds.' As part of the public consultation, the government will present various proposals for reducing the effect of the sales tax on vulnerable groups. Analysts say possible concessions could include exemptions on food or necessities, or making compliance optional for small retailers. Mr. Lo said that a sales tax isn't a foregone conclusion -- 'it's a genuine consultation,' he said -- but described the process as aimed at convincing members of the public to support the government. 'The coming consultation exercise will focus on discussing why we think there is a need, and why we think a GST is the right answer,' he said. The government is seeking to close Hong Kong's budget deficit of HK$42.6 billion (US$5.46 billion). A GST could raise about HK$6 billion for every percentage point of tax, or about HK$30 billion annually for a 5% tax. Mr. Tang -- whose name has been floated as a possible successor to Chief Executive Tung Chee Hwa when his second term ends -- has estimated it would take about three years to complete the legislation and set up the collection system for a GST, meaning the government wouldn't receive the first revenue until 2008 or 2009. Mr. Tang has pledged to balance the budget by the fiscal year ending March 31, 2009 even without the new tax.
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(back)MARKET TALK: UBS Cuts Huaneng Target, Call To Reduce
STOCK CALL: Huaneng Power (0902) flat at HK$5.55, slightly outperforming H-share index, apparently stabilizing after stock's deep correction since early December. However, sentiment on Huaneng remains cautious; given fears of further rise in fuel costs, UBS slashes Huaneng's FY05-07 profit forecasts by 15-39%; cuts Huaneng's target price to HK$5.05 from HK$6.15, also downgrades call to reduce from neutral
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(back)China's Sinopec: Won't Appoint New Independent Directors
China Petroleum & Chemical Corp. (SNP), or Sinopec, Wednesday said it won't appoint two new independent directors. The company issued the statement after a newspaper report Tuesday said it would appoint two new independent board members
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(back)MARKET TALK: China More Likely To Hike Than Repeg: HSBC
China more likely to pursue another rate hike than adjust FX regime to ensure soft landing this year, says senior China economist at HSBC; Qu Hongbin expects China will raise rates another 27 bps in 1H on lingering inflationary pressure, overheating investment. 'Despite an obvious slowdown in credit growth, China's fixed asset investment still maintained a fast growth, which means inflationary pressure hasn't yet been fully relieved'; this, plus anticipated Fed hikes, would 'provide a good environment for China to raise interest rates
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(back)MARKET TALK: Dec Revenue May Lift Shenzhen Expressway
Shenzhen Expressway (0548.HK) may get slight boost after December toll revenue up 23% on-year, driven largely by higher daily toll revenues at Meiguan Expressway, eastern section of Jihe Expressway. However, given SE, other mainland infrastructure plays were big beneficiaries of CNY revaluation talk, easing of such speculation may continue to weigh. Yesterday, SE down 1.7% at HK$2.875.
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(back)China economist sees inflation pressure continuing in 2005
Chinese economist Fan Gang said he does not expect a significant easing of inflationary pressure in the domestic economy this year.
The noted economist and director of the non-profit National Economic Research Institute China Reform Foundation said that he believes the inflation cycle is not over and that the nation's consumer price index should rise by four to five pct this year.
Officials have highlighted falling grain prices as a sign that inflation might decrease this year but Fan, speaking at a conference sponsored by MasterCard International in Beijing, pointed to the rising price of raw materials as a sign of continuing inflationary pressure.
China's consumer prices appeared to be easing in the last few months after showing strong upward pressure earlier in the year. While consumer prices rose four pct year-on-year in the January-November period they were up 2.8 pct in November alone.
Fan urged a de-pegging of the yuan from the dollar as soon as possible, as a corrective measure, citing concerns over the US currency's weakness.
""We should no longer believe the US dollar is a stable currency,"" Fan said.
The dollar came under considerable pressure last year, and hit an all-time low against the euro, in the wake of rising US current account and budget deficits.
But Fan stopped short of suggesting that the government revalue the yuan, saying this would encourage yuan speculation.
The yuan has been effectively pegged at 8.27 to the dollar and many of China's major trading partners such as the US contend it is undervalued.
Fan stated that although ""major restructuring"" will eventually have to occur, as long as yuan speculation remains high there is little chance of a revaluation.
Yuwa Hedrick-Wong, MasterCard's economic adviser for the Asia/Pacific region, said a significant appreciation of the dollar against the yuan would only ""facilitate the penetration of the American markets by Chinese exporters. ""
(back)Court confirms jail term for ex-oficial of China Southern Securities - report
The Beijing Municipal Higher People's Court has confirmed the sentence of a former senior official of troubled China Southern Securities Co Ltd to 15 years jail for misappropriating more than 50 mln yuan, the Beijing Times reported.
Yang Zenghai, a former deputy manager of the trading department in the brokerage's Beijing branch, misappropriated a total of 50.60 mln yuan in entrusted funds from two construction companies. He invested the money in the stock market for personal use between Nov 1996 and Oct 2001, the paper said.
The Beijing Intermediary Court handed down the original sentence last year.
China Southern Securities, the country's fifth-largest brokerage, was taken over by the China Securities Regulatory Commission and the Shenzhen government in January last year due to mismanagement and financial irregularities.
(1 usd = 8.3 yuan)
