Indicators: New Loans drop to 600B yuan in Feb. Zhong Qinghou (Hangzhou Wahaha), Liu Yonghang (Hope Group), Zhang Jindong (Sunning Group), BYD (Wang Chuanfu), Li Jiacheng, Li Zhaoji. Consumer retail sales increase by 17.9% YTD. Exports up 45.7% yoy. Chinese SOE profits up 121% yoy. Fiscal rev up 32.9% yoy. FDI will hit $90B in 2010 according to MinComm. Govt wants more telecom, pharma and software inv. IATA announces Feb passenger traffic up 9.5%, 26.5% freight, should reach prerecession traffic in 2-3mo. Bulk of expansion due to invs restocking, which will slow in H2, causing slower growth dep on consumer and world trade growth. PMI above 50 for 13th straight mo at 55.1. OECD CPI rose 1.9% (ann) in Feb, slower than Jan growth. EZ inflation BTE at 1.5%, highest in 15mo, energy price increases. NDRC predicts 2-2.5% CPI in Q1, slight dip in Mar due to lower food prices and warmer weather. Pork prices fell on abundant supply and weak demand. Worries about rice prices over SW drought. Chinese fiscal deficit soared to 3% GDP. CFLP warns of raw mat and energy inflation. US bond holdings by SAFE in decline according to US Treasury. 80% of securities market comes from retail invs. 16 SOEs hold 85% of RE asets, 86% of sales rev, 94% of net I. Steel prices rise on rising cost of iron ore, 150 yuan/ton jumps, speculation. RE devs moving to 2nd, 3rd, and 4th tier cities after SOEs were smacked down. SASAC is trying to restrict supply of land available for dev. Devs have prop reserves in lesser tiers which include regional hubs and provincial capitals. 2nd and 3rd tier reserves take up 81% of total reserves by 10 largest RE firms. 3rd tiers are trying to attract inv and drive up housing. Shijiazhuang City Comprehensive Proj in Hebei by China Metallurgical, 50B yuan. Devs are able to beat satelite checks by bribing MLR insiders.
NPC – Govt plans to continue moderate fiscal deficit, increase social spending by 8.8%. Next 5-6yrs?
CSRC – Futs coming in mid-Apr. Margin trials begin in Mar. Picks Guosen Sec, CITIC Sec, Everbright Sec, Haitong, Guangfa, Guotai Junan Sec. Qualifications include net cap of 5B yuan within past 6mo, good accting disclosure, inadequate tech support. Margin on Mar 31, futs on apr 16.
SASAC – Orders industrial SOEs to leave property market. 200 hotels may be affected and require As transfers of 100B yuan. Govt has been using economic value-added tests (subtract cap costs from after-tax op perofits). Approves State Grid’s request to buy two upstream manus of electrical equ (Xuji, Pinggao). Vertical integration? Fin needed to continue spinoffs?
SARFT, State Council, MIIT – Plans to integrate media networks by 2015.
MinFin – Vice Min warns that China is not ready to withdraw proactive fiscal policy.
MinComm – Chen Deming expects full export recovery in next 2-3yrs, but will continue tax rebates, export credit, and ins programs. Argues trade surplus can’t be used to appreciate yuan. Supports annual pricing system for iron ore. Vice Minister says yuan appreciation will not solve US trade deficit. Predicts trade deficit in Mar. “No corr btw appreciation and reduction of another’s trade deficit”. Believes exports may return to pre-financial crisis in 2-3yrs due to high U and low saving in DM, exports fell 16% in 2009 and domestic C rose 16.9%.
MIIT – Wants a long-term pricing system for iron ore.
NDRC – High inflation unlikely this year due to excess supply and increase food output. 12th Five-Year Plan prep includes urbanization, I redis, shifting to domestic C, low-carbon goals. Last plan missed services growth targets. Public service and pop resource goals were easily accomplished. R&D, hukou barriers, personal I, distribution remain problems. Yang Weimin proposes studying current plan’s shortcomings and establishing specific approaches and policies. Environmental goals remain nebulous and probably unattainable due to weak enforcement. Massive interest groups remain a barrier to reforms. 3rd party needed?
SAFE, PBoC – Yi Gang (vice-gov, head of SAFE) considers investing more forex in gold. 1054 tons, 5th. Produces 300 tons, consumes 400 tons annually.
PBoC – Dep gov Su Ning supports offshore market in HK and Shanghai. Monetary Policy Committee expanded by 2 academics. More influence in ex rate as ordered by State Council?
Yuan – Belarus agrees to use yuan in bilateral trade.
Shanghai – Ministry of Railways approves maglev line btw Shanghai and Hangzhou. Faces speed tradeoff btw noise and energy efficiency.
Chiang Mai – Activated on Mar 25, $120B pool.
IMF – Strauss-Kahn warns that EU will be left behind in 10-20yrs by US and Asia.
APPA – African Petroleum Producers Association. Hopes to increase oil production of members.
InterAmerican Dev Bank – Expect 80% of annual loans for next 3yrs to go to renewable projs as LatAm energy demand will rise 50% over next 20yrs. $1.5B?
France – Budget deficit at record high of 7.5% GDP, economy contract in 09, but Q409 showed signs of recovery. Predicts weak growth in H110.
Brazil – 2010 growth forecast to 5.7, up .5.
Hungary – Cuts rates by 25 to 5.50%.
ICBC – tenders 30.6% offer to Thai bank ACL, currently held by Thai MinFin. April 16 expiration. ICBC has a waiver from the ownership limit. ACL is a small lender. 129B yuan I, up 16%. Will issue 25B yuan convertibles to replenish capital and help CAR move above 12%.
CITIC – Will issue debt this year to rebuild capital. Last mo, shareholders agreed to 25B 15yr subs issue. New lending will be no higher yoy. CITIC has a low subs/total K level among stock-banks.
BoC – Lowers mortgage discount by half for 1st time buyers. Hopes to shore up capital base with 40B yuan convertibles. Applies for H-share plan, doesn’t plan on A-share issue. May need to retain earnings to supp capital, adjust risk assets by reducing risky business (requires full deduction from cap on bal sheets). Holds many foreign assets and hurt by weaker $. 27% 09 earnings yoy. Halved salaries in 09 due to new govt rules and performance-appraisal system based on corr btw salaries and profits and NPL ratios.
CCB – 15% 09 I, assets up 27%, outstanding loans reached 4.82T yuan, up 27%. NPLs fell 14% to 72B yuan, provision rate at 175%.
BankComm – Posts 09 profit 5.59%. 12% CAR, core CAR down 1.39pp to 8.15%. Total As up 23% to 3.31T yuan.
MS – Sells CICC stake for JV with China Fortune Sec. Faces stringent net cap reqs, compliance reqs which hinder biz dev, limited financing due to coordination issues btw Chinese and foreign stakeholders.
GS – refuses to relax compliance reqs.
China Merchants – Raise 17B yuan via rts issue to ease bal sheet pressure and weak CAR since buying Wing Lung Bank. ROE and net I have suffered due to spread tightening. A-shares and H-shares. Wing Lung would fill gaps in its network and satisfy a need for cross-border fin ops (against HSBC, BoC, Hang Seng).
Bank of Nanjing – 09 I grows 6%, hurt by low int margins and risky assets (which require a deduction of profits). NPLs grew to 8.19B yuan (wtf), up 1.55B yuan yoy. Total As reached 149B yuan, up 62%.
Hua Xia Bank, DB – Increases stake in Hua Xia.
China Life – Searching for architects after revised Ins Law in Oct 2009 allows insurers to inv in prop.
New China Life – signs MOU with Zurich Ins for business expansion and tech supp in Chinese markets.
Ping An, Shenzhen DB – Controlling stake deal delayed by regulators, already 4mo late. SDB is planning on a private placement to exploit an expected approval. Ping An wishes to become a fin holding firm. Ping an would acquire the stake through a private placement and a buyout of TPG’s stake. Regors worried about private placement plan and integration issues.
Citic Sec – 23% 09 I, lost market share. Brokerage fees up 46%, op revs up 24%, total As up 51% to 206B yuan, net capital dropped 10% due to cap injections into subs.
Everbright Sec – 106.7% 2009 I, op rev reached 5.59B yuan, mostly from growing brokerage biz and assets.
First Capital Sec, JPM – Securities JV in 2010 planned, 1B yuan capital, First Capital holds 2/3 stake.
China Mobile – Hopes to offer iPad and a 3G iPhone. Wireless music ops head missing, fled corruption charges.
China Mobile, SPDB – Takes a 20% stake in the bank. Bank will issue 2.2B shares at 18 yuan; 39.8B yuan raise which will help CAR. Mobile banking ROFL. Firm wants to expand mobile TV, handset rading material, Internet services. Hopes to forge partnerships with dozens of non-telecom firms willing to accept its tech standards. TD-CMMB mobile TV service JV with China Broadcasting Corp. Alliances w 14 manufacturers for TD-CMMB handsets. Multiplatform dev strategy in conj wih govt directive to merge Chinese media networks. 1st phase is linking broadcast and telecom networks. Controlling standards on multi-party, cooperative dev. Will take over the entire industry chain. Wants to expand agency fee model for wireless, allow business models for mobile phone to take diff path, expand “app store”. Iron out terminal adapters, content enrichment. 12580 platform to collect voice, Internet, WAP, SMS, MMS, location-based services. Mobile comm->mobile info. Fighting against Internet search profit model and voice search. Mobile Internet biz (ring tone music, videos, games, banking-payment services, electronic reading). The 30 local subs have been told to choose 3 segments to focus on for annual dev and assessment. 5 will be in charge of specific segment ops; e-reading by Zhejiang, mobile banking-payment by Hunan, gaming by Guangdong, mobile TV by Shanghai, mobile music by Sichuan. 500M yuan inv’d in mobile reading. Most provincial subs have stopped promoting SIM-card payment systems, while freezing online payment services.
China Unicom – Earnings down 84% in 09, rev down by 3.48%, GSM subscribers up 8.6%, increase to 335 cities, 3G subscribers 2.742M. Good growth in transfering from local phone to fixed broadband. Heavy startup costs for 3G biz. Hopes to add 10M new 3G subscribers in 10, ARPU above 100 yuan, slow decline of fixed lines, maintain steady growth of 2G.
SNDA – Will buyback $300M shares, 09 I up 47%, op earnings up 47%.
Taobao.com – cracks down on counterfeits.
Tencent – I up 85% yoy, rev 73.9% on diversity of businesses. Expects Internet value-added and online gaming to surge this year.
CISA – Refuses to surrender! Industry profit margin in 09 was 2.2%. Steel invs are up 32% yoy in Feb. Wants to coordinated with China Chamber of Commerce of metals, Minerals and Chemicals (CCCMC) to strengthen supervision of licensed iron ore traders and ban resale of imported iron ore; violations would result in revocation of import licneses. 112 firms have been designated as qualified importers. Reselling lower price iron ore on the spot market for huge profits. 10M tons illegally trade on the market every yr.
Jiangsu Shagang – BHP-Value talks pointless as steelmakers will have to accept the higher terms negotiated by Japan. Vale has 97% of global clients agreeing to quarterly price contracts.
Baosteel – Third largest global steel producer, Hebei I&S 2nd. Arcelor Mittal retains #1. Wuhan I&S 5th, Anshan I&S 6th, Sha Gang 7th, Pohang 4th. 09 earnings down 9.95%, rev 25.97%. Trying not to raise steel prices in face of rising ore costs.
Chalco, RIO – Agree to non-binding dev of Guinea iron ore mine, Chalco will get 47% share for 1.35B.
RIO – Trial to start in Shanghai at No. 1 Intermediate People’s Court. Uses Henry Kissinger (ugh) as an advisor to mend ties with China.
CNOOC – Established JV and 50% stake with Bridas Energy (Argentina) for $3.1B. Raises proven reserves by 318M bar and avg daily production by 46K bar. CNOOC only completed 1 international purchase in 09, been slower than PetroChina and Sinopec. Intracompany grumbling over slow pace. Worried about global protectionism, hopes to avoid large purchase but use cooperation and partnerships.
Sinopec – Buys Angolan deepwater asset stake 55% for $2.46. Includes buying a $779M loan. Block adds 102M bar to proven reserves, daily crude production will increase by 72.5Kbd, up 8.8%. Costs $7bar to produce. 09 earnings doubled. Entering E&P?
CNPC, Shell – Signs Sichuan NG JV deal for 30yr production-sharing. 4000 skm in Jinqiu block, will need 2yr of prospecting.
China Railways Group – Earns Indo coal contract worth $4.8B in South Sumatra w Bhakta Hill Pan Pacific Railway.
TM – Pays compensation for recalls.
MRK – Boosts Chinese inv by 300M yuan.
Opinion – Caixin Editors: Gradual yuan appreciation best for stable growth. Each pt of appreciation would hurt labor-intensive industries net profit by 1pp (avg profit margin 3-5pp). Models to evaluate a one-time rise oversimplify effects. A one-time may also be implemented badly, causing the market to expect an additional jump. Will be necessary to relax regulations to expedite dev of non-trade industries, improve U assistance, increase funding for training and re-employment. Ha Jiming (CIC): Not Japan. One-off appreciation would hurt economy, especially w/o rise in IRs to stem hot money into RE. Need ex rate, land, and household registration reforms to help urbanization. Lou Gang (MS China): Policy makers need to keep IR above CPI as Feb CPI goes above the 1yr dep rate of 2.25%. Zhu Baoliang (State Information Center): Believes IR hike unlikely, CPI will peak in Q2, but decline in H2. State Council still prefers moderately loose monetary policy. Private inv needs to be encouraged to maintain steady growth, external demand isn’t coming on like a tidal wave anytime soon. Private firms have decreased inv as expectations for returns declined (like in excess industrial capacity), and shifted to prop. Equal amts of FAs lie in RE and restricted industries; value of industrial output in restricted industries exceeds RE. Private inv would have more channels to flow through if restrictions were removed. Private firms employ 70% of urban residents, 85% of rural. 85% of new jobs in urban areas. Restricted industries face low production efficiency, decreasing competition. SMEs have been forced to inv in low-tech heavily polluting and energy-consuming projs. Value-added ROC of private firms is 50% higher than SOEs, 33% higher than firms in which the state holds a controlling stake, 24% higher in firms with a state stake. Industrial SMEs grew 18.7% in 09, SOEs 6.9%. Open up telecom, fin, petrochem, HC, edu, and others with state-owned monopolies; inv in these industries tends to be too low. Political reforms, reducing admin controls, maintaining supervisory discipline, enforcing laws. Andy Xie: Wages are rising due to labor shortage, rural schools are closing because they have no students. MNCs are depending on Chinese C for profits, which helps Chinese bargaining power. International confrontation won’t help, though china can weather US protectionism shocks.
Education – Wang Yi: Former banking regulator, vice gov of CDB. On trial for bribery (11.9M yuan). Li Tao (HK) gave Wang 5.38M yuan for help in obtaining highway construction loans for Li. Also received bribes to facilitate borrowing for a businessman. Movie star paid to accompany Wang for dept store opening, mortgage for news anchor were influenced? Pre-trial Detention System: Two issues, how and why defendants are detained or released before trial, confinement conds for detained suspects. US presumes innocence, will be tried before neutral judge, can be held for only 24hrs; 1st hearing, the judge reviews, notifies defendant of charges and rts, makes a decision about pretrial release (w possible conds). Detention is harsh and deprives an individual of liberty. False convictions are shunned (lol). Can use regular reporting by suspect or a “pretrial services agency”, custodian, restrictions on travel, injunctions against seeing witnesses or crime scene, monitoring tech, bail bond. Only 14% of released commit serious offenses. “clear and convincing evidence”. Detention is done at a facility not directly controlled by police, jail is run by a special agency, though not pleasant and often overcrowded. Lawyers have access to defendants, interrogations are sub to strict standards, rt to remain silent, speedy trial, habeas corpus against unlawful arrest or detention. Trade Surplus & FDI % of FX Reserves: Has declined from 77% in 2005 to 63% in 2009. IPO Market: Market doesn’t decide wehther shares should be issued or the prices. Futures Reform Restrictions: 500K yuan cap threshold, knowledge of stock index futs, low volume, settlement is not handled by comm banks, but banks not allowed to establish subs in futs or secs. 5 banks (ICBC, ABC, BoC, CCB, BankComm) will handle escrow ops. International Board restrictions: coordination btw Shanghai and HK cap markets, cross-border ETFs, China Dep Receipts, share issues by foreign firms, heavy forex restrictions means yuan needs more internationalization, int arb by foreign firms, heavy admin controls which lead to high PE ratios and heavy profits by firms, issuers, sec firms, and guarantors. Stern Hu: Court adjudicated comm espionage charges behind closed doors. Appeal by early Apr? Private steelmakers bribed the defendants? Du Shuanghua (Rizhao I&S) gave money to Wang for inving in HK stock market; ct refused to call Du to testify but admitted a sorta confession. Du is missing. Shangdong Laiwu Steel head (part of CISA) was also implicated. Some money went to intermediaries who handle ore imports for steelmakers? Bribery and graft from the Australian-Chinese iron ore/steel boom. 3rd parties helped expedite new relationship btw suppliers and steel firms, and pocketed a portion of the profit. Margin btw long-term contract prices and spot. Hu graduated from Peking U before joining CITIC and Hamersley Iron. Born in China. Li Zeyuan: bought Shenzhen Air in 05 with 2.7B borrowed yuan; was previously imprisoned 3 times for economic crimes. Jailed in Nov for using Shenzhen Air as a platform for fin fraud. Changed name in 04. Made friends with the President of Shenzhen Air, businessman Liu Wenbiao, chairman of New China Life Ins Guan Guoliang. Relied on Li Kun to run the firm, had contracts with Modern Group and Bright Oceans Group, blurry firms which helped fin the deal through his Shenzhen Huirun Inv. Bought from Guangdong Dev bank. Made friend with local and provincial govt leaders. Investigators discovered illegal lending. In 2005, he had failed to pay the 2nd installment of his takeover bid. Beat losing bid by 900M yuan (lol). Air China has injected 682M yuan and taken a controlling stake. Private invrs got hosed down to 24%. City of Shenzhen injected 348M yuan to boost its stake. Air China’s revenge for getting one-upped. Li Kun tried to rapidly expand As from 4.4B yuan to 24B, fleet from 27 -> 134 aircraft, 4K workers to 14K. Wanted to link 10 hubs in 6yrs, become a world-class carrier by 2015. Signed a deal with Ryanair and NW Leasing: Ryanair sells planes to NW, NW leases them to Shenzhen Airlines. But the planes weren’t delivered to Shenzhen, Li transferred 1B yuan to NW Leasing and sent the money abroad, even hoped to cancel out Shenzhen debt by arranging a NW BK. Air China eventually found out and called in the auditors who declared it insolvent. Phony leasing contracts were used to obtain bank loans which paid for Li’s initial borrowings. Inflated profits? Local govts provided free land, subsidies; Li hoped to turn the land into RE dev. RE rarely entered the books, but went to Shenzhen RE which was founded in 06. Profitable firm before takeover. Debt ratio went from 87% to 96% in 2yrs. Asked Shenzhen govt for guaranteed loans and subsidies to cover funding gaps. Tried to hit up Guangdong Province for subsidies in 08 after the Earthquake, loan rate discounts. Attempted private fin, foreign bonds, private placements.
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