People’s Congress – Committee urges central govt to put a lid on bank lending.
Opinion – Qiao Xiaohui (Caijing): Guilin Sanjin Pharmaceutical has IPO problems. Irregularities and frauds in its prospectus. Informer reported that management took money from the fin dept to purchase stocks. Same at Zhejiang Wanman Cable. Law firm and guarantor that investigated both matters had also prepared the prospectus, with the blessing of the regional govt.
Yuan – Another failed auction. PBoC has bee trying to push up MM rates to choke off stock and RE speculation. Appoints head of China’s forex regulator SAFE to head Monetary Policy Dept II which will be in charge of yuan internationalization policy. Hu Xiaolian is an expert on hot money. Shanghai release in April was delayed to unexpected complexities. Supervision and review is necessary for opening new accts, receipts, acct balance management, and customs supervision. Other issues include arranging yuan settlements inside and outside China, bank transactions, and tax rebates for foreign trade. Govt wants certain i&e transactions to no longer need forex receipts and verifications by the state; supervisory risk will increase among taxation administrations. The new program’s settlement rule will call for tracking export data to help determine export tax rebates. Wang Yongli (dep gov at BoC) suggests using two acct currencies for internal and cross-border yuan transactions. Provincial govts in pilot areas will be reponsible for recommending enterprise candidates. PBoC, Min of Comm, Gen Admin of Customs, State Admin of Tax, and CBRC will examine candidates and make a final list of several hundred pilot participants. BoC shall act as clearing bank in HK and Macau. Domestic agent banks may sign yuan agent settlement agreements with overseas participating banks. They may also open inter-bank fund transfer accts, denominated in yuan for overseas banks and cross-border trade. Comm banks should provide yuan financing. Foreign enterprises that use HK banks must open a yuan corp acct first; that bank then clears with the BoC. BoC (HK) will conduct settlements with a domestic bank where the other trading partner has an acct. Alternatively, an enterprise can open an acct with a domestic agent bank, which will clear trade with the other enterprise’s domestic settlement bank, eliminating the HK clearing need. Worry about foreigners paying with foreing currency when buying Chinese products if the yuan appreciates during the pilot program. Importers may also want to pay only in yuan. Both actions could cause yuan outflows while the country’s forex reserves increase. Lian Ping notes that this may cause a current acct deficit but a capital acct surplus; RESERVE CURRENCY BITCHES. Wang Ziwu believes that opening of domestic cap markets would necessarily result from this. Yuan exchange rate adjustments include increasing IRs or tightening credit. For example, greater foreign inflows would result in a richer yuan and force the govt to raise IRs to stop inflation. This might result in loose credit, excess liquidity, and inflation.
Mengniu Dairy – Since its HK listing in 2004, it has maintained a dispersed shareholding structure with a 25% stake cap for major shareholders. On July 7, it announced that COFCO and Hopu Inv Man had jtly purchased 20% of the Mengniu’s shares in a deal worth HK$6.1B. To protect the co from hostile takeovers. Lockup of 3yrs. Still reeling from the toxic milk scandal. COFCO is state-owned and thus likely to come with potential bailout strings. Mengniu and COFCO will each have 3 seats on the board; management will serve as exec directors, COFCO’s as non-exec directors. COFCO is engaging in a risky proposition: Mengniu’s share price rates a 25 PE ratio. In the past 6yrs, Mengniu has grown from 1M yuan in capital to 10B yuan in annual sales rev as sales surge due to rising consumer demand. Building dairy farms is time-consuming and cap-intensive for a limited-capacity asset.
CSRC – Ends 10mo moratorium on issuance of exchange-traded bonds by giving Shanghai Yuyuan Tourist Mart permission to sell 500M yuan worth of 5yr bonds. 12 brokers have won reg approval to inv directly in unlisted cos. Suspended approval for trusts to apply for securities investment accts; trust with multiple accts would reduce the probability for small investors to be chosen in IPO biddings.
Shanghai Chaori Solar Energy Science & Tech – IPO app was rejected for record of enviro penalties. Imported banned photosensitive semiconductors. Wanted to issue A-shares to fund a solar battery plant in Henan. Also concerns about few operating assets and tangible assets.
Shanghai – Holds its own World’s Fair from May 2010 to October. Mostly Chinese attendees. Should help CTRP, LONG, and Priceline’s Agoda hotel reservation service. Chinese hotels face lower growth due to global recession and Olympic overbuilding.
CTRP – Raised stake in HMIN in May by $50M. 48% of its 2008 rev came from hotel reservations. 76% of its competitor LONG’s rev came from hotel reservations. Should expect higher turnout than for the Olympics as there is less protesting.
CNPC – state-owned producer/supplier has been buying banks, trusts, and leasing businesses. Assets Supervision and Admin Comm (SASAC) has benn encouraging non-fin cos to make similar investments. Bought Ningbo Goden Harbor Trust and renamed it Kunlun Trust. Bought in April a Xinjiang bank, Kelamayi City Comm Bank and renamed it Kunlun Bank. SASAC is trying to ofset mounting losses among China’s SOE tied to fin derivatives bets gone wrong.
SASAC – So far, 80 industrial cos have set up independent fin firms and conducted transactions through them. CBRC is worried that fin affiliates will be used for equity inv, but instead SOEs should upgrade the affiliates to holding cos. Fin cos should improve governance structures and make decisions through Boards of Dirs. Cos should be listed publicly and open to investment by small and mid-sized investors, along with sound reporting and auditing practices to offset the influence of industrial firms.
Guangdong Dev Bank – VP Wang Xin was arrested in June on corruption charge; he allegedly accepted a 8M yuan bribe in connection with disposal of bad loans and NP-assets during the bank’s restructuring from 2005-2006. Also detained were Lei Da, deputy head of bank Asset Man Dept and Zhou Bao, GM of the asset dept. Chairman Li Ruohong resigned and was replaced by Dong Jianyue, former director of the Beijing branch of BoC. Shakeup began with a probe of the GM of the logistics dept of the bank and a businessman surnamed Hou who worked at a RE affiliate and was involved in the bank’s restructuring. The bank was unusual in that it solicited inv concurrently with its disposal. 4 major investors received 20% stakes each. The bank write-off NP-assets by auctioning and transferring bad loans to other institutions. 1 loan was issued to Guangzhou Zhonghi Dadao RE with a parking lot as collateral (obviously too small). Bank auctioned the collateral; only 1 bidder (Shenzhen Hanguo) submitted an offer. An HK co simultaneously bought Zhonghu for 28M yuan; as it turned out, both cos were owned by the same person, Li Xiaoping. Dong was elevated to party secretary as well as the chairmanship; currently, he is in the CP School for training leaders. Dong plans to eliminate internal struggle issues.
CCL.TW – Chong Hong Construction in Taiwanese comm and res RE.
China State Construction Eng – Approved to list in the A-share market.
Anhui Xinlong Electrical – Gets initial approval to list by CSRC. 1st to receive preliminary IPO approval since Sept suspensions.
China Pacific Ins – earnings down 1H yoy due to falling inv returns.
NAFMI – National Association of Fin Market Inst Investors. Researching creation of a national bond insurer for SMEs.
Orient Securities – Must wait until 2012 to list and record 3 consecutive yrs of profit. It registered a 922M yuan profit H12009. It lost 887M yuan in 2008. 500M yuan fair value gains on its stock holdings vs 2.4B losses a yr earlier. Inv returns were 474M yuan. Brokerage profits were flat at 754M yuan, inv banking fell 85% yoy to 7.8M yuan, asset man 6.1M yuan (down 96%). Held tradable fin assets of 1.59B yuan, down 53% yoy. Brokerage business was helped by rising daily turnover in the stock markets, should receive greater inv banking profit due to resumption of IPOs.
Indicators – Exports fell 21.4% yoy in June, 8th monthly decline. 6.2pp of GDP growth was investment, 3.8pp consumption. Exports -2.9pp. Huge gains in fixed-asset urban inv (33.6%, 7.81T yuan) and infrastructure. Urban fixed-asset inv growth will continue into H2 2009. Auto and prop sales made up the bulk of the consumption gains. Trade surplus declined 60% yoy in Jun, US surplus down only 1.3% yoy. Industrial output increased 10.7% yoy in June, 1.7% among SOEs. Power output and consumption up for June.
ING Capital Life Ins (Sino-Dutch JV) – raised capital by 200M yuan to 900M.
Yuan – 3rd bond auction failure. KEEP IT UP GUYS. Despite doubling yields from last successful auction. Yields on similar bills have increased as inflation worries begin to appear. Money-market rates have also risen.
SAFE – Eases restriction on overseas investment, will help SMEs by allowing them to declare the sources of funds and registering the remittance with SAFE. Prior procedures required prior approval. Cos can use their own forex deposits, apply for loans in foreign currencies, and buy forex from Chinese banks to fund overseas investment.
Guoyuan Securities – Approved by CSRC to invest in unlisted cos up to 15% of net cap.
CNPC – Starts shipping oil from Caspian Sea through Kazakhstan to China. 3000km pipeline is a JV btw CNPC and KazMunaiGas. Will carry 10M tons and double to 20M tons in the future. Has signed a supplemental agreement with Costa Rican Oil Refinery (RECOPE) worth $1B on a JV refinery to increase Costa Rica’s refining capacity to 60K barrels a day. Requires review by comptroller’s office.
Sichuan Tengzhong Heavy Ind – Reviewing GM Hummer purchase application over enviro effects. Deal would be financed by internal funds and bank loans, manufacturing base to be built in Sichuan capital of Chengdu.
CNMIM – China Nonferrous Metal International Mining. Buys 19.9% of gold miner Chaarat Gold Holding, making it the largest shareholder. Will explore a gold mine project in Middle Tien Shan Mt in Kyrgyzstan.
Suntech – Invests 30B yuan in solar energy plants in Shaanxi, Qinghai, Ningxia, Sichuan for a production capacity of 1.8 Gw.
TCL – Major TV maker. Invests 100M yuan in LCD panel production.
COSCO – Cancels orders for 8 freighters worth $299M due to overcapacity. None of the freighters had started being constructed.
BYD – Will issue 100M A-shares on Shenzhen Exchange to help fund development in its battery and auto businesses.
Petrochina – Refineries book record profits in H1 due to costcutting and changes in govt pricing caps.
Trade – Dairy product importers must apply for licenses.
China Merchants – Submits bid for operating a container terminal at Colombo, Sri Lanka.
CBRC – Instructs banks to end special discounts on mortgage rates for 2nd home buyers and require 40% downpayments and lending at 110% benchmark rate. Banks were offering 70% discounts on loans.
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