Tim LeeMasterandWong Ka-chun

Tuesday, March 07, 2006

China National Building Material, the country's largest provider of products used in construction, plans to raise up to HK$1.7 billion in a larger-than-expected initial public offering later this month, people familiar with the situation said.
CNBM is selling 654.2 million shares, or 33 percent of enlarged share capital, with an indicative range of HK$2 to HK$2.60 each, sources said. The sale would raise between HK$1.3 billion and HK$1.7 billion, and values the company at 11.8 to 15.3 times forecast 2005 earnings.

CNBM reported net profit of 315 million yuan (HK$304.13 million) in the first nine months of last year on turnover of 3.3 billion yuan, sources said. In 2004, the company made 269 million yuan in net profit on 2.9 billion yuan in turnover.

The company had originally targeted HK$1.2 billion. Morgan Stanley, which is arranging the sale, declined to comment.

CNBM began an investor roadshow Monday and will continue until March 16, sources said. Shares were set to start trading March 23 on the main board of the Hong Kong stock exchange.

http://www.thestandard.com.hk/news_detail.asp?we_cat=2&art_id=13582&sid=6938332&con_type=1&d_str=20060307

Tuesday, March 07, 2006

Efforts to cool down the mainland's property market were working as average real estate prices across the country rose by only 0.6 percent in the second half of 2005, an official said Monday.
"In 35 major Chinese cities, property prices rose 9.7 percent in the first half of 2005, but the growth rate slowed to 7.2 percent in the second half," Zhu Zhixin, vice chairman of the National Development and Reform Commission, told reporters.

He did not say how much the average price across the country rose for the full year.

Zhu added that efforts are being made to increase the supply of lower- end housing.

http://www.thestandard.com.hk/news_detail.asp?we_cat=2&art_id=13556&sid=6937674&con_type=1&d_str=20060307

Dr. Raymond W. Copson, an independent scholar specializing in African affairs and U.S. relations with Africa, gave an excellent talk at the Far East Luncheon Group, in Washington, DC, on China's growing role in Africa.

China’s Growing Role in Africa
March 1, 2006
Raymond W. Copson

China began to pay attention to the region in the 1950s as the colonial era started drew to a close. It was quick to establish diplomatic ties with the newly independent states, and trade and aid soon followed. China built stadiums around the continent, as well as party headquarters and government buildings. Premier Zhou Enlai’s two-month swing through the region in 1963-1964 rang alarm bells in western capitals and Moscow. In southern Africa, where white rule persisted, the liberation struggle turned violent in the 1970s. China was there with assistance for African liberation movements, including Robert Mugabe’s Zimbabwe African National Union in Rhodesia. China has a very close relationship with Mugabe today, and this is a source of frustration in the west, but it is important to note here that the relationship goes back a very long way. The most remarkable project of this period was the construction of the TanZam railroad, a 1,100 mile line from the Zambian copper belt to the port of Dar es Salaam in Tanzania, giving the struggling front line states an alternative to dependence on apartheid South Africa as a supplier and for port access. Thousands of Chinese workers came to the region from 1968 through 1976 to complete this project, which left a legacy of good feeling toward China throughout the region.

In the 1980s and into the 1990s, China seemed less engaged. Perhaps it lacked the resources needed to compete with the western aid agencies during the droughts, famines, and wars that occurred in this period. In the later 1980s, the Sino-Soviet rivalry came to an end with the demise of the Soviet Union, removing one key reason for Chinese involvement in Africa. But China’s engagement intensified once again in the later 1990s as the country’s remarkable rise as a global industrial power gathered force.

Here are just a few indicators:

2002-2004, China’s trade with Africa grew by 142% to $24.4 billion – still well below the US trade of $46.4 billion but catching up – U.S. trade growth over the same period was 87%. In 2004, Chinese exports to Africa exceeded U.S. exports, although U.S. imports continue to exceed China’s by a wide margin due to oil purchases. China’s trade with the region as a whole, including North Africa, was up by well over a third in the first 11 months of 2005.

In October 2000, China launched the China-Africa Cooperation Forum, which includes 45 African countries. At meetings held every three years, the forum brings together foreign ministers and ministers of trade and industry, as well as representatives of Chinese companies and the African business community. The CACF is slated to convene in Beijing later this year. The forum, which has its own website, provides an umbrella for ongoing discussions and interactions between Africa and China on a wide range of issues.

China offers scholarships to more than 1,500 African university students each year, and plans have been reported to expand this number. China deploys hundreds of medical doctors to Africa, providing training to African health workers and earning the gratitude of thousands of African patients each year. China also offers training to African military personnel, and it ranks third, behind western Europe and Russia as an arms supplier in the region. Chinese arms and equipment tend to be simple and rugged, making them attractive in the African market. China has promised 400 peacekeeping troops to the United Nations force in southern Sudan, and hundreds are already serving in the Democratic Republic of the Congo and Liberia, something one never heard of in years past.

In the civilian sector, China is a growing supplier of manufactured goods, often sold in Chinese-owned shops, including motorcycles, cell phones, as well as cheap jeans, jewelry, and videos. China is also investing in Africa – setting up motorcycle and cell phone assembly plants in Nigeria, for example, and promising a rubber processing facility in Liberia. Chinese firms are opening hotels around the region as more and more countries receive approved destination status for Chinese group tours.

China is willing to take on infrastructure projects in Africa that western companies and donor agencies likely would not touch. A Chinese firm is building a 600 foot-high hydroelectric dam in Ethiopia, for example; another company is undertaking a much-needed project to rehabilitate Nigeria’s railways – facilitated by a $2 billion loan from the Chinese government.

There are other surprising areas of involvement. China has just opened an FM transmitter in Nairobi which will deliver 19 hours of programming per day in Chinese, English and Kiswahili. China has put a sumptuous blue tile roof on the home of President Mugabe in Harare, the Zimbabwe capital, giving rise to much wry comment there. A Chinese firm is reconstructing and expanding the State House in Uganda, and a new China-built senate building is under construction in Gabon. The list goes on.

What lies behind China’s African offensive?

Simple business is part of it – Chinese business people see opportunities in Africa that western companies will not exploit due to concerns over political risk, safety, and corruption.

The Taiwan issue and the One China policy are another part of China’s motivation. In October 2005, Senegal finally agreed to adhere to a One China policy, winning itself a visit by the Chinese foreign minister in January 2006, as well as $18.5 million in debt cancellation and funding for hospitals, roads and other infrastructure. Senegal’s decision reduced the number of African countries recognizing Taipei to seven.

I’m sure you’ve been waiting for me to mention access to Africa’s great natural resources, and that of course is the major driver. China’s industrialization requires the resources that Africa has to offer Approximately 27% to 30% of China’s oil imports come from Africa today, and this is expected to increase. Most oil imports are in the form of open market purchases, but China’s oil companies are acquiring a direct stake in Africa’s oil industry – most notably, or most notoriously, in Sudan, which is exporting about 150,000 barrels per day to China. There, the China National Petroleum Company (CNPC) has developed an oil field in the south, and constructed a 900-mile pipeline to the Red Sea – sweetening the deal for the Sudanese government by building an oil refinery in Khartoum, the capital. SINOPEC has launched an exploration program in oil-rich Angola, where CNPC already owns a share in a petroleum production block. In January, CNOOC (China National Offshore Oil Corporation), thwarted in its attempt to purchase Unocal, agreed to pay $2.3 billion for a major stake in a Nigerian oil field. China’s interests extend beyond oil and include timber, coal, and minerals as well as tobacco from Zimbabwe to supply China’s millions of smokers.

Is China’s escalating role in Africa good for Africa?

Africa has been experiencing 5% GDP growth in recent years, and some predict that it will do a little better than this in 2006. The rise in global resource prices driven by China’s rise is a major reason.

To the extent that China is rehabilitating and expanding Africa’s infrastructure – rehabilitating railways, or providing cell phone services where land lines had never reached or rarely worked – that’s got to be a good thing. Educating university students, providing medical assistance and technical advisors – these are all positives.

But there is a downside. Competition from Chinese textiles and consumer goods is a problem for African manufacturers, particularly in South Africa, which has a well-developed industrial sector. The leading business daily in that country has taken to complaining of the “Red Tide,” and the government has had to act to persuade China to agree to temporary voluntary constraints on textile exports.

China’s growing presence means competition for small traders who used to deal in used clothing, for example – in Cameroon, according to a student of mine, Chinese have taken over the baking and sale of beignets – the popular donut heretofore produced artisinally by Cameroonian women.

Exactly how much job creation results from Chinese activity is in question. The management of Chinese enterprises is in the hands of Chinese, and the large Chinese infrastructure projects are being built by temporary workers from China.

What most worries analysts is that the availability of China as a partner is depriving western donor countries and the international financial institutions of the leverage they had been using to press African elites for improvements in governance, greater democracy and respect for human rights, and enhanced transparency. The prime example of this is in Zimbabwe, where the United States and other western countries have been seeking to isolate the regime because of its anti-democratic, economically disastrous policies. China has stepped forward to provide Mugabe with arms, including jet trainers, and has launched a range of business deals probably paid for by exports of resources and tobacco, although we don’t know the details. In July 2005, Mugabe was feted in Beijing as a “much respected friend of the Chinese people,” and made an honorary professor at China’s foreign affairs university. This warm welcome was extended at a time when Mugabe’s government was bulldozing urban slums, whose residents were regarded as sympathetic to his political opposition, leaving an estimated 700,000 homeless.

Another case is Sudan, where China has reportedly built three weapons factories at a time when government-backed militias are carrying out what the U.S. Government has called a genocide in the Darfur region. China is providing Sudan with protection from sanctions at the U.N. Security Council. Angola, regarded as one of the world’s most corrupt countries, has been given a $2 billion line of credit by China enabling the regime to pay much less attention than would otherwise be the case to the concerns of the IMF and western campaigners about accountability in the use of oil revenues.

Is China’s involvement in China good for China?

This question I can’t answer since I am not a China expert. Some I’ve spoken with feel that China is very wisely looking to the long term in Africa, planning for decades or even a century down the road, when they expect there will be large numbers of Chinese people living in Africa managing a substantial and mutually beneficial flow of goods and services in both directions. Others believe that China has made a number of bad investments in Africa – in oil fields that will not yield profits even at high prices; and in billions of dollars of loans that may not be repaid. Africa’s many problems, such as endemic corruption, ethnic and religious conflicts, and crime will inevitably force the Chinese to scale back at some point, in this view.

What should the United States do about China’s growing involvement in Africa?

This is a difficult challenge, because to my mind at least China’s engagement with Africa is being very effectively managed and presented.

China has mastered the package deal: a loan from the government, coupled with an infrastructure project by a state-owned or state-affiliated company, encouragement of trade and investment by Chinese entrepreneurs, and in the oil rich countries perhaps purchase of a production block by a Chinese oil company. This is called tied aid and there are rules against it among the western donor countries – where it is thought as inefficient and wasteful, and likely to lead to white-elephant projects.

Chinese involvement is being managed in a way that is very flattering to African egos, and this is hard for us to match. Every year, the very first trip taken by the Chinese foreign minister is a swing through Africa. Meanwhile, African leaders are courted through high level visits to China – in mid-February the president of Togo visited Beijing with an entourage and was honored by a meeting with President Hu Jintao. There is a steady parade of African leaders through Beijing throughout the year – hard for us to match not only because the President’s time is limited, but also because China welcomes leaders who would not be welcome in Washington – the President of Togo is a case in point. He is the son of the previous strongman and came to power in a violent April 2005 election that the State Department criticized.

In U.S. statements on Africa policy, we tend to emphasize what we want from Africa: more democracy, more governance reforms, more transparency, and cooperation in the war on terrorism. We demand that even friendly African countries, such as Kenya, sign unpopular pledges not to surrender U.S. citizens to the International Criminal Court, and if they refuse they risk a cutoff in military assistance. Such pressures are especially problematic at a time when allegations of human rights violations and anti-democratic practices against the United States itself are much in the news.

The white paper on Africa policy that China issued on January 12, 2006 takes a quite different approach. The paper made clear that China wants its African partners to adhere to a One China policy, but apart from that it simply stated that there should be more cooperation in a variety of fields from health care to the military; more exchanges of all types: high level, legislative; teacher and student exchanges; more trade, more investment; all couched in phrases of considerable humbleness, friendship, mutual respect – the paper said that China and Africa should learn from each other – I don’t recall hearing a U.S. diplomat say that. So there is a tone there that is very appealing to African ears. China constantly affirms that it cooperates with Africa without conditions, whereas our cooperation is replete with conditions.

I’m not suggesting that the United States pull back from its advocacy of democracy, reform, and good governance in Africa. These have been important components of our policy for a long time and they have contributed to positive changes.

But if we don’t give up on conditionality, what can we do?

Some say US businesses ought to become more competitive in Africa in order to meet the Chinese challenge. I think prospects are limited here because we don’t compete with China in the inexpensive manufactured goods the African market demands. The caution of U.S. businesses with respect to Africa is deeply rooted and not likely to change, and in any event there are many opportunities for investment elsewhere.

Some say we ought to explore opportunities for cooperating with China in Africa. Again, I think the prospects are limited here. China has a successful formula with its unconditional involvement and seems unlikely to change it.

But I do think that we could do more to strengthen our soft power in Africa even as China rises: to make it clearer to everyone in the region that the United States is also a friend of Africa, not just a critic; that we too want to cooperate, and to support Africa’s long-term development.

This would be worth doing because China’s engagement in Africa does pose a challenge to U.S. interests. We see authoritarian rulers around the continent from Mugabe in Zimbabwe to President Omar Bashir in Sudan who pay little attention to what we have to say with respect to democracy and human rights, partly because of the availability of China as an alternative partner. U.S. policy makers will tell you that our policy is based on four anchor states: Nigeria, Ethiopia, Kenya, and South Africa, which are to be pillars of regional stability. Yet China is active is all of these, particularly Ethiopia and Nigeria. Indeed, Nigeria has entered into a formal “strategic partnership” with China, and China Aerospace plans to launch a communications satellite for Nigeria in 2007. Thus, it seems reasonable to ask whether these countries will see any particular reason to cooperate with the United States in realizing its policy objectives in the years ahead. It is also interesting that China is active in the countries slated to be participants in the Trans-Sahara Counter Terrorism Initiative (TSCTI), a major Administration effort. China’s foreign minister visited Mali in January, and there seems to be a flirtation with Chad, which still recognizes Taiwan but is newly oil rich. And of course, China’s growing role can mean lost business opportunities for Americans and strong competition in the resource sector.

I have some suggestions on ways to reinforce our soft power in Africa vis a vis China – ways to make it clear that we too are friends of Africa and the African people without enhancing the influence of authoritarian rulers and human rights violators.

In the field of education: let’s get back in the business of supporting higher education in Africa as we did in the post-colonial era We could help develop and rehabilitate African universities through teacher exchange, textbook, and construction programs. We could compete with China in scholarship programs. There is no guarantee that a university student educated here will have a good experience or become a friend of the United States. But overall it seems likely that educating members of the next generation of African leaders in the United States is a good way to build understanding.

We could expand legislative exchanges, bringing members of parliaments in democratizing countries to the United States to observe our state and national legislatures at work, and doing more to support research services and parliamentary libraries in Africa.

In agriculture: what better way to win friends at the grass roots in Africa than by fulfilling our promise to eliminate the trade barriers that discriminate against African growers of cotton and sugar? Our position now is that we will end these programs when Europe does – but why tie ourselves to what Europe may finally do or not do? And for that matter, as former USAID Administrator Andrew Natsios advocates, why not begin to strengthen African agriculture by providing a substantial portion of our food aid in the form of money rather than commodities that compete with African products? We could also support agricultural extension services in Africa as we once did, as well as agriculture programs at African universities.

Infrastructure: the United States largely withdrew from this area because of concerns over expense and the inability of African countries to maintain completed projects. Also, there was a sense that infrastructure tended to benefit those who are better off rather than the poorest of the poor. We need to reconsider this approach and look at possible projects that would provide clear benefits to the poor, such as road rehabilitation or well-drilling.

These are just a few suggestions for reaffirming our friendship with Africa and the African people, and I could give you more. Suffice it to say here that we need to intensify our engagement with Africa if we are to win back some of the influence unnecessarily lost to China.

Dr. Copson retired from the Congressional Research Service last year. Before going to CRS in 1978, he lectured in international relations at universities in Nigeria and Kenya. He holds a Ph.D. in political science/international studies from the Johns Hopkins University, Baltimore. Dr. Copson has traveled widely in Africa as a researcher, with congressional delegations, and as a State Department speaker.

^{The price of apathy towards government is to be ruled by evil men.}

~Plato

Carol ChanandWong Ka-chun

Thursday, March 09, 2006

Hong Kong stocks declined for the second consecutive day to their lowest close in three weeks as investors sold on concern over the interest rate outlook and corporate performance.
The benchmark Hang Seng Index fell 109.27 points, or 0.7 percent, to 15,493.09, its lowest since February 17, while turnover increased 30 percent to HK$41.1 billion.

This reflects larger selling pressure from traditional funds, traders said. Investors are concerned that US interest rates may rise in the near term following hints by senior executives of the Federal Reserve, while some are taking profits following the HSI's recent peak.

There is no obvious indication why there should be further sharp corrections in the coming days, analysts said.

http://www.thestandard.com.hk/news_detail.asp?pp_cat=2&art_id=13784&sid=6968806&con_type=1

General aviation sector to scale new heights
By Xin Dingding (China Daily)
Updated: 2006-03-16 05:41

The general aviation industry is set to spread its wings rapidly with the rising use of small aircraft and a boost from the authorities.

Apart from airlines' scheduled flights and military aircraft, general aviation encompasses almost everything that flies; and ranges from corporate jets, companies which cater to businesses and air taxis to crop-dusting, cloud seeding and aerial photography.

"It has many advantages such as flexibility and efficiency," said Wu Changping, director of the general aviation division of the General Administration of Civil Aviation (CAAC).

"The proper development of the country's civil aviation sector needs a balanced growth of scheduled and general aviation operations."

There is an increasing need for business flights and air taxi services to keep pace with China's growing economy, Wu said.

"More multinational companies are opening branches in China, and more Chinese companies are expanding. They all need flights other than those provided by airlines."

Globally, there are about 340,000 general aviation aircraft, making up 97 per cent of the 350,000 civil aviation airplanes; but in China, the number of general aviation airplanes is less than half of the total aircraft.

CAAC statistics show that at the end of 2005, there were more than 600 general aviation airplanes in China, which chalked up about 80,000 flight hours last year.

In contrast, there are at least 220,000 small airplanes in the United States, which carry 133 million passengers each year to more than 19,000 airports and heliports, according to www.gaservingamerica.org, a US website on general aviation.

Another difference is that 70 per cent of general aviation flight hours in the US are business-related, while a majority of the small airplanes in China are used in agriculture, forestry and industries like offshore drilling and mineral exploration.

The reasons for these are many.

"First, we lack airports and pilots," said Yang Jie, a member of the general aviation expert committee under the Chinese Society of Aeronautics and Astronautics.

Apart from makeshift airstrips where small planes can take off and land, there are only 57 airports for general aviation apart from the 126 airports used for scheduled flights, according to Yang.

There is also a shortage of pilots for small airplanes about 1,000 said Yang, adding that China has only 13 pilot training schools.

Another important factor is availability of airspace.

"General aviation flights need to get approval from the authorities beforehand," Yang said. "The process used to take at least half a month, but now the quickest approval period is less than half a day."

This change makes Yang feel confident about the future of general aviation.

The expert estimates that China would have 10,000 general aviation aircraft by 2020, and general aviation flight hours will be three times more than that in 2005 to reach 260,000 flight hours by 2015.

The CAAC has made general aviation a priority in the 11th Five-Year Plan (2006-10). It expects the sector to grow by at least 10 per cent year on year, and see extensive usage in various fields.

Currently, 70 per cent of general aviation flight hours in China are devoted to agriculture, said Jiao Tianli, an organizer of China's first general aviation industry exposition to be held in Binzhou of Shandong in May.
http://www.chinadaily.com.cn/english/doc/2006-03/16/content_540207.htm

By Jiang Wei (China Daily)
Updated: 2006-03-16 05:56

China's exports of ink cartridges could be hit hard because Japan-based company Epson has filed a petition against Chinese firms over alleged violation of its patents.

Epson filed a complaint last month with the US International Trade Commission against 24 companies, based in China, the United States and Britain.

These firms manufacture, import, or distribute ink cartridges for printers that are for sale in the United States, according to information from the commission.

Epson wants the commission to ban the companies from importing or selling the cartridges in the US.

The commission is scheduled to officially launch its investigation under section 337 of the US Tariff Act this week.

In parallel with this case, the Japanese company has also filed a lawsuit at the US District Court in Portland against the same companies seeking damages for alleged intellectual property infringements.

The claims have caused great concern among Chinese printer makers, as half of the defendants are major Chinese producers and their subordinate trading firms overseas.

Some insiders have warned that the investigation, which they described as a "weapon of mass destruction," could deal a massive blow to the sector.

Section 337 prohibits the import of articles that infringe valid US patents, registered copyrights, or registered trademarks. Experts believe the impact of section 337 is more severe than any other anti-dumping action.
http://www.chinadaily.com.cn/english/doc/2006-03/16/content_540329.htm

By Fu Jing (China Daily)
Updated: 2006-03-18 07:01

Top energy planners are seeking, in the next five years, to raise China's coal output to an unprecedented level and, at the same time, reduce the number of large mining disasters.

China's coal output will be between 2.5 billion and 2.6 billion tons in 2010, as compared with 2.19 billion tons in 2005, according to Guo Yuntao, director of the China Development Research Centre for the Coal Industry, in an interview with China Daily.

The growth rate being forecast by the planning team led by Guo is much slower than in the last five years, when China's coal output rose from about 1.3 billion tons in 2000.

The forecast was based on the belief that the overall economy will become more energy efficient and that demand is likely to rise significantly only in the power sector, Guo said.

His centre is drafting China's coal industry development blueprint for the coming five years, following the national 11th Five-year (2006-10) Social and Economic Development Plan approved by National People's Congress (NPC) deputies at its annual session that closed in Beijing on Tuesday.

The team is providing the final touches to their draft before submitting it, at the end of March, for approval by the National Development and Reform Commission and the State Council, China's cabinet.

Guo said coal will remain China's fundamental energy source, both for production and consumption.

In terms of production, coal accounted for 76 per cent of China's energy needs in 2005, calculated using the Standard Coal Equivalent (SCE) measure. According to Guo, that level has a chance to climb all the way up to 80 per cent after 2010.
http://www.chinadaily.com.cn/english/doc/2006-03/18/content_544384.htm

March 22 (Bloomberg) -- China raised taxes on larger cars to 20 percent and imposed levies on luxury goods such as yachts, a week after Premier Wen Jiabao pledged to increase energy efficiency and close a widening income gap.

The tax on automobiles with engine capacity larger than 2 liters will be raised from 8 percent from April 1, the Ministry of Finance said on its Web site. Yachts, golf clubs and expensive watches will be subject to consumption tax for the first time.

Economic growth that averaged 9.7 percent a year since 1978 has created an estimated 300,000 U.S.-dollar millionaires in China, spurring demand for designer brands and high-end cars such as General Motors Corp.'s Cadillac. It has also strained energy and land resources and worsened pollution, leading to 87,000 cases of protests last year by farmers and workers.

``This is part of the government's strategy of rebalancing growth and reducing energy demand,'' said Ben Simpfendorfer, China Strategist at the Royal Bank of Scotland in Hong Kong. ``The government wants to show it's doing something to increase the tax burden on the rich to reduce the widening disparity between the rich and poor.''

China plans to boost spending on agriculture, rural education and health care to help close the income gap, Premier Wen said at the end of the annual session of parliament on March 14. He pledged to tackle pollution and improve energy efficiency.

GM's Hummer

The government wants to deter people from buying gasoline guzzlers like General Motors Corp.'s 6-liter Hummer H2 truck, whose catalog price of 1.08 million yuan ($134,530) is equivalent to what the average Chinese worker earns in 80 years, based on China's 2005 per capita income of $1,700.

Higher taxes will raise the prices of sedans including GM's 3.6-liter Buick Royaum, Bayerische Motoren Werke AG's 2.5-liter 325i and Ford Motor Co.'s 2.5-liter Mondeo.

``The change will force carmakers to produce smaller cars in future,'' said Wang Zhihui, an automobile analyst at Shenyin Wanguo Research & Consulting Co. in Shanghai. ``Manufacturers will have to raise car prices to cover the increase in taxes.''

Rising income in cities including Beijing and Shanghai have spurred sales of cars, vans and trucks, turning China into the world's third-largest vehicle market after the U.S. and Japan.

Vehicle ownership by individuals more than doubled to 13.65 million units in 2004 from 6.25 million in 2000, according to the China Council for the Promotion of International Trade. As many as 5.76 million new cars, trucks and commercial vehicles were sold last year in China, 14 percent more than in 2004.

http://www.bloomberg.com/apps/news?pid=10000080&sid=aerq9l3E8Jfw&refer=asia

Congressional Research Service  The Library CRS Report for Congress Received through the CRS Web Order Code RL33322

China, the United States and the IMF: Negotiating Exchange Rate Adjustment
March 13, 2006
Jonathan E. Sanford Specialist in International Political Economy Foreign Affairs, Defense and Trade Division

Summary

In recent years, the United States and other countries have expressed considerable concern that China’s national currency (the yuan or renminbi) is seriously undervalued. Some analysts say the yuan needs to rise by as much as 40% in order to reflect its equilibrium value. Critics say that China’s undervalued currency provides it with an unfair trade advantage that has seriously injured the manufacturing sector in the United States. Chinese officials counter that they have not pegged the yuan to the dollar in order to gain trade advantages. Rather, they say the fixed rate promotes economic stability that is vital for the functioning of its domestic economy.

On July 21, 2005, China announced a new foreign exchange system which is intended to allow more flexibility and to permit the international value of the yuan to be established by market forces. The yuan was increased in value by 2% and a “managed float” was introduced. However, the value of the yuan has changed little since then. Despite the publication of many studies, scholars do not agree whether or by what percent the yuan is undervalued. The wide range of estimates suggests that there is no reason to believe that any particular figure is correct.

It is not clear that the U.S. trade deficit would be lower or U.S. manufacturers would benefit if China raised the value of the yuan. In the short run, U.S. producers might be able to sell higher-priced products to U.S. consumers if the inflow of Chinese goods were reduced. In the long run, though, as long as the United States is a net importer of capital, it will have a trade deficit and other countries will ultimately replace China as suppliers of low-cost goods to the U.S. market. The Treasury Department has strongly urged China in recent years to adopt procedures that would allow the yuan to rise in value. Congress is considering legislation that would penalize China if its currency is not revalued.

The United States has pursued the yuan-dollar exchange rate issue as a bilateral U.S.-China issue. Other countries are also affected by the presumably undervalued yuan — some more than the U.S. — but they have allowed the United States to take the lead. There are at least five ways the United States could deal with the yuan exchange rate issue. Some of these would involve other countries more explicitly in the process.

First, the United States could continue pressing China publicly to raise the value of the yuan on the assumption that change will not occur without foreign pressure. Second, it could stop pressing China publicly, on the expectation that China might move more rapidly towards reform if it is not pressured. Third, the United States could restrict imports from China pending action to revalue the yuan. Fourth, the U.S. could ask the IMF to declare that China is manipulating its currency in violation of IMF rules.

Fifth, the United States could refer the issue to the World Trade Organization (WTO), asserting that the United States has been injured by unfair trade practices linked to the undervaluation of China’s currency. The WTO, in turn, could authorize trade remedies (tariffs on Chinese goods, for example) aimed at correcting this abuse. This report will be updated as new developments arise.

^{The price of apathy towards government is to be ruled by evil men.}

~Plato

Japan suspends loans to China
By David Pilling in Tokyo
Published: March 23 2006 13:38 | Last updated: March 23 2006 13:38

Japan has suspended decisions on new yen loans to China in a political statement that marks a fresh low in relations with Tokyo’s biggest trading partner and former wartime adversary.

Japan had already announced last year that it was winding down aid to China from 2008, the year of the Beijing Olympics. However, this is the first time that a reduction or freeze in loans has been explicitly linked with politics.

Previously, Tokyo had argued that China no longer needed aid because of its growing economic might, an explanation that succeeded in muting Chinese protests. Both India and Indonesia are now bigger recipients of Japanese aid.

http://news.ft.com/cms/s/c52cecd2-ba71-11da-980d-0000779e2340.html

By Tom Mitchell in Hong Kong
Published: March 22 2006 18:21 | Last updated: March 23 2006 03:28

The competitiveness of China’s manufacturing industries has suffered serious erosion over the past year, according to one of the world’s largest trade sourcing companies.

Hong Kong-based Li & Fung group, which manages a $7.1bn a year trading business, said price rises crept back into the Sino-US and EU supply chains last year, after at least six years of often “severe deflation”.

William Fung, Li & Fung managing director, reported an average 2-3 per cent increase in the once unbeatable China price its US and European clients were willing to pay. He pointed to a “double-digit” rise in Chinese labour costs, the revaluation of the renminbi and higher oil and energy costs for the shift.

“China’s costs are all going up,” Mr Fung said. “It is no longer the most cost-effective country in the region...Anything [sourced] from China has a higher inflation component than from other places around the world.”

Beneficiaries of China’s rising prices have included textile and garment manufacturers in India, Bangladesh and Cambodia, which were expected to lose orders to China after the quota regime governing textile production expired in January 2005.

They were saved, however, by a combination of anti-surge “safeguards” imposed by the US and EU on selected Chinese textile exports in the second half of last year, as well as rising cost pressures in China. “[The safeguards] stopped China in its tracks in terms of textiles,” Mr Fung said.

“In Bangladesh factories are so overbooked – it’s like China used to be,” added Bruce Rockowitz, the president of Li & Fung’s trading arm, who oversees sourcing operations on four continents.

The inflationary pressure extends to all product categories sourced by Li & Fung, ranging from fashion accessories and furnishings to sporting and travel goods.

Li & Fung, which used to buy 90 per cent of its non-apparel products from China, has seen 25 per cent of this “hardgoods” business migrate to cheaper locations in south and southeast Asia. It sells about 70 per cent of its sourced goods in the US, and another 20 per cent in Europe.

At its results briefing on Wednesday, Li & Fung reported an 18 per cent increase in group turnover to HK$55.6bn ($7.1bn), with net profit up 20 per cent to HK$1.79bn.

The company also recorded a rare up-tick in its “total margin”, which represents the difference between what it pays China-based factories and what it charges overseas retailers. The margin rose to 10.7 per cent from 9.6 per cent.

http://news.ft.com/cms/s/6bc1de9e-b9ce-11da-9d02-0000779e2340.html

(This may finally signal a coming pause in far eastern action.)

HONG KONG (AP) -- Bank of China, the second-largest lender in China, is aiming to list shares in Hong Kong on June 1, a person familiar with the deal said Friday. The bank, which could raise up to $6 billion in a Hong Kong initial public offering, will kick off the road show for the deal in mid-May.

The exact size of the IPO will be determined after the bank decides whether to push through with a domestic A-share listing following the Hong Kong IPO, said the source, who asked not to be named because he wasn't authorized to speak to the media about the deal.

Bank of China will be the second of the country's "Big Four" banks to list shares overseas. In October, China Construction Bank Corp became the first with a $9.2 billion Hong Kong IPO.

http://biz.yahoo.com/ap/060324/hong_kong_bank_of_china.html?.v=3

By Le Tian (China Daily)
Updated: 2006-03-25 07:03

House prices in Beijing surged around 1,000 yuan (US$124.3) per square metre in the first two months of this year, up 17.3 per cent from the same period last year, according to the Beijing Construction Committee.

The rise took place despite the central government's efforts to curb mounting house prices in major Chinese cities.

According to a report of the committee, house prices averaged 6,776 yuan (US$842.8) per square metre. The prices are much higher than many people can afford as per capita income of the city was 17,653 yuan (US$2,195.6) last year,

Zhang Jin, 26, who works for a private company in Beijing with a monthly salary of about 5,000 yuan (US$621.8), said he feels a lot of pressure to buy his own house.

"A 100-square-metre apartment would cost me at least 15 years of accumulated earnings based on my current income," Zhang said.

However, experts predicted house prices in major cities like Beijing, Shanghai and Hangzhou would continue to rise.

"House prices in Beijing will rise steadily this year," Zhai Lujing, a researcher at the Beijing Urban Construction Research Centre, told China Daily.
http://www.chinadaily.com.cn/china/2006-03/25/content_552003.htm

March 26 (Bloomberg) -- China, the world's second biggest energy consumer, raised prices of oil products for the first time in eight months to help refiners cover costs after crude oil prices surged to record levels.

From today, ex-factory gasoline prices were increased by 300 yuan ($37) a metric ton and diesel prices by 200 yuan per metric ton, the National Development and Reform Commission, the nation's top economic planner, said today in a statement on its Web site. Retail prices for gasoline will also rise by 250 yuan per metric ton, while diesel prices will rise by 150 yuan a ton, the statement said.

The central government, which controls diesel and gasoline prices to limit their impact on inflation, is authorizing higher prices to help the nation's refiners cover rising oil costs. Oil reached a record $70.85 a barrel on the New York Mercantile Exchange on Aug. 30 and has risen 17 percent over the past year. China's government last adjusted fuel prices on July 23.

``The wide pricing gap between international oil prices and domestic refined products is affecting market supply and steady development of the economy,'' the commission said in the statement. ``China's economy is growing at an accelerating pace and demand for oil continues to rise.''

http://www.bloomberg.com/apps/news?pid=10000080&sid=aX9Hcq7TaHYU&refer=asia

Many economists speculate that China could become the world’s largest exporter within the next few years and the largest economy within a few decades, provided that the government is able to continue and deepen economic reforms.

Tuesday, March 28, 2006
by CRS Report

Increasingly attention is being focused on China, a country that since the initiation of economic reforms in 1979 has become one of the world’s fastest-growing economies. From 1979 to 2005 China’s real GDP grew at an average annual rate of 9.7 percent, and which grew by 9.9 percent in 2005.

Many economists speculate that China could become the world’s largest exporter within the next few years and the largest economy within a few decades, provided that the government is able to continue and deepen economic reforms, particularly in regard to its inefficient state-owned enterprises (SOEs) and the state banking system. In addition, China faces several other difficult challenges, such as pollution and growing income inequality, that threaten social stability. Trade continues to play a major role in China’s booming economy. In 2005, exports rose by 28.4 percent to $762 billion, while imports grew by 17.6 percent to $660 billion, producing a $102 billion trade surplus. China is now the world’s third-largest trading economy after the United States and Germany.

China’s trade boom is largely the result of large inflows of foreign direct investment (FDI) into China, which totaled $60 billion in 2005. Over half of China’s trade is accounted for by foreign invested firms in China...
http://www.speroforum.com/site/article.asp?idCategory=33&idsub=122&id=3066

Tuesday, March 28, 2006

China's red-hot economy will slow this year with growth of 8.9 percent, the central bank has said, down from the 9.9 percent expansion of 2005.
The growth rate is forecast to slow throughout the year, with gross domestic product to rise 9.2 percent in the first quarter and 9 percent in the second.

Growth will slow further to 8.9 percent in the third quarter before falling to 8.7 percent in the final three months.

The forecast is the first from the central bank since Premier Wen Jiabao told the National People's Congress this month that the economy would grow by around 8 percent this year, a figure widely regarded as overly cautious.

The report, published by the central bank research bureau in the China Securities Journal, also predicted that inflation would rise to about 2 percent this year. China's inflation rate for 2005 was 1.8 percent.

The consumer price index, the main measure of inflation, was expected to rise 1.8 percent in the first half and more in the second due to high costs for non- ferrous metals and oil products. Steps to liberalize utility and gasoline and diesel prices would also be a factor.

http://www.thestandard.com.hk/news_detail.asp?pp_cat=5&art_id=15200&sid=7248118&con_type=1

U.S.: A New Option on Dealing With the Yuan
Mar 28, 2006
from Stratfor
Summary

Now that the U.S. Senate is postponing the vote on a bill proposed by U.S. Sens. Lindsey Graham and Charles Schumer that would impose 27.5-percent tariffs on Chinese imports, U.S. Sens. Charles Grassley and Max Baucus have unveiled their own proposal on dealing with China. This new proposal is likely to pass and will preserve the image of a Congress that is tough on China. However, this bill gives the administration an easy way to continue postponing any action on China. Washington will not make any significant moves on Beijing anytime soon, and sparks are not likely to fly during U.S. President George W. Bush and Chinese President Hu Jintao's mid-April meeting.

Analysis

A U.S. Senate vote on the tough bill proposed by U.S. Sens. Lindsey Graham and Charles Schumer, which would slap 27.5-percent tariffs on all Chinese imports, will be postponed. This news comes after the two senators visited China and claimed to be "optimistic" about China's future and the revaluation of the yuan. On March 28, Senate Finance Committee chairman U.S. Sen. Charles Grassley and U.S. Sen. Max Baucus, the committee's leading Democrat, unveiled a proposal for legislation that would address China's "currency manipulation." The legislation is likely to pass, but despite its tough rhetoric the bill actually will allow business to continue as normal.

The unveiling of the new Grassley-Baucus bill comes prior to Chinese President Hu Jintao's meeting with U.S. President George W. Bush, slated for mid-April. Like the Graham-Schumer bill, it is meant to goad the Chinese into action. However, the new bill does not require the administration to take any immediate steps. Therefore, in the Hu-Bush meeting, current conflicts over currency revaluation will not erupt.

The new Grassley-Baucus bill, while focusing on the revaluation of the yuan, takes a different tack from the Graham-Schumer bill. The Graham-Schumer bill proposed a general 27.5 percent tariff on all Chinese imports if China did not revalue the yuan. Such a move would go against World Trade Organization (WTO) rules of trade. The Grassley-Baucus bill does not propose such sweeping action, and does not go against WTO rules by imposing indiscriminate tariffs. Under the new proposal, if a country is accused of "currency misalignment," retribution will take various forms. Sanctions under the Grassley-Baucus bill would include blocking the country's voting rights at the International Monetary Fund, and limiting insurance and guarantees for U.S. investors given by the Overseas Private Investment Corporation.

The new proposal gets around a problem faced by other bills aimed at China: the U.S. Treasury's reluctance to brand China as a "currency manipulator." Under current rules, the Treasury must show that the country purposely intends to undervalue its currency, which has been difficult. Other bills focused on the title "currency manipulator" as their impetus for action. The Grassley-Baucus bill, however, suggests hinging action on "currency misalignment." Even if a country does not intend to undervalue its currency, a misalignment may still exist, prompting the administration to be decisive. The Grassley-Baucus bill proposes setting up a new assistant secretary position in the Treasury to identify currency misalignments.

This bill maintains Congress' tough China stance -- there is no doubt that Washington will be able to find misalignments in U.S.-China trade and be prompted to action. However, the new proposal would give the United States six months after a misalignment is identified to determine whether the country is making progress toward addressing the misalignment before taking action. The term "progress" is left intentionally vague, allowing the administration considerable room in determining its definition. This strategy allows Congress to keep its tough image while temporary diffusing tension with the business interests that would be undeniably hurt by the Graham-Schumer bill. Furthermore, business interests will likely have more say over what determines "progress" as outlined by the Grassley-Baucus bill.

There is only one catch: If the bill is fast-tracked -- an unlikely scenario, given both its sensitive nature and the entrenched business interests opposed to such a move -- and then passes within the next two months and is acted on immediately, it would affect U.S. congressional elections in November. A new battle focused on Sino-U.S. relations would ensue prior to elections. Based on current trends on similar bills, this one might sit around for a while before reaching a vote.

Regardless, given this new scenario, it is unlikely that the Hu-Bush visit in mid-April will be very confrontational on the revaluation topic; the delay on the Graham-Schumer bill vote and the new proposed legislation have eased the pressure on Bush to be harsh on China. Bush does not have to crack down on China to maintain his own standing within the Republican party. If the Graham-Schumer bill had been voted on and passed, Bush would have had no choice but to address the sentiment and take a hard-line stance against China during his visit with Hu. Polls indicate Bush is facing a legitimacy crisis, and despite the administration's reluctance to act against China, he would have been forced to side with his party. Now, the administration has some breathing room.

Expect a normal diplomatic exchange to take place during the Hu-Bush meeting. Some tough rhetoric may fly around, but there will not be sparks -- yet.

(China Daily)
Updated: 2006-03-30 06:33
Billions of yuan meant for water conservation projects have been mismanaged or misused, according to a national audit report released yesterday.

The findings were based on a 2004 audit of 71.6 billion yuan (US$8.9 billion) in funds allocated for such projects during 2002 and 2003, or 77 per cent of the total amount, according to the National Audit Office.

Among the key findings:

More than 3.5 billion yuan (US$437.5 million) was retained for no sound reason and nearly 1.4 billion yuan (US$175 million) was used improperly.

Nearly 1 billion yuan (US$125 million) was spent on building hotels or given out as subsidies and bonuses to staff members in some projects.

Other government departments involved in the misuse of public funds returned 4.16 billion yuan (US$520 million) to the State coffers.

The departments also turned over 1.18 billion yuan (US$147 million) to the central budget and reallocated 11.76 billion yuan (US$1.47 billion).

The audit also unearthed 114 cases of suspected malpractice in the use of funds, leading to court sentences for 76 officials and administrative punishment for 213.

Ten of the 12 departments accused of falsifying their budgets have transferred 390 million yuan (US$48.75 million) in inflated expense claims to next year's budget.
http://www.chinadaily.com.cn/china/2006-03/30/content_555835.htm

April 8 (Bloomberg) -- China, the world's biggest importer of cotton, agreed to purchase $300 million of the fiber, reaching a record for U.S. sales of the commodity to a single country in one year.

Chinese dignitaries will sign contracts with seven U.S. cotton suppliers today, bringing the country's purchase of U.S. cotton for the year ending July 1 to an estimated 7.5 million bales, or $2.1 billion, said William May, senior vice president for foreign and domestic operations for the American Cotton Shippers Association.

``Any sale to China is important because it is the largest cotton consumer in the world,'' May said in an interview. ``It is the largest maker of textiles in the world.''

Chinese officials were scheduled to sign agreements at a 5:15 p.m. ceremony today in Memphis with seven suppliers -- Allenberg Cotton Co., Cargill Cotton, Dunavant Enterprises, Weil Brothers, Paul Reinhart, Jess Smith and Calcot. All are closely held companies.

U.S. cotton exports will reach a record this marketing year, to 16.8 million bales, up from 16.4 million last year as China imports more cotton. U.S. exports for the new marketing year starting Aug. 1 are forecast to be 17 million bales, the USDA said in February.

http://www.bloomberg.com/apps/news?pid=10000080&sid=aOL6WbQdrRAg&refer=asia

April 11 (Bloomberg) -- China's trade surplus widened to $11.2 billion in March, the second-highest on record, an increase that may heighten tensions before a meeting between President Hu Jintao and U.S. President George W. Bush next week.

Bush said yesterday he wants Hu to explain how the government will allow its currency to strengthen and crack down on counterfeiting of Hollywood movies and Microsoft Corp. software. Hu, set to meet with Bush in Washington on April 20, is seeking to spur imports while protecting exports, which helped the nation's economy grow 9.9 percent last year.

``This is really going to aggravate tensions with the U.S. ahead of Hu Jintao's visit,'' said Ben Simpfendorfer, a currency strategist at Royal Bank of Scotland in Hong Kong. ``Unless there's a dramatic decrease in the coming months, the trade surplus for the year is likely to widen.''

The surplus widened from $2.43 billion in February and was double the $5.7 billion median estimate of 27 economists in a Bloomberg survey. Exports jumped 28.3 percent from a year earlier to a record $78.1 billion, the fastest gain since October, the Ministry of Commerce said on its Web site.

Imports rose 21.1 percent to $66.9 billion. The statement didn't give a breakdown by region. The surplus for the first quarter rose to $23.2 billion, from $16.5 billion a year earlier.

http://quote.bloomberg.com/apps/news?pid=10000006&sid=aNkypbnvDwIQ&refer=home

WASHINGTON - China has agreed to crack down on copyright piracy of American computer programs and lift a ban on US beef as part of an effort to reduce a record US$202 billion trade gap, the Bush administration said on Tuesday.

The agreements were two of several made by China during a high-level meeting designed to reduce trade tensions in advance of next week's US visit by Chinese President Hu Jintao. 'Our message to China has been consistent and clear,' US Trade Representative Rob Portman said at a joint news conference. 'American exporters, workers, farmers and service providers deserve the same access that China has to our markets.'

Chinese Vice Premier Wu Yi said at the direction of top Chinese officials, China has been working earnestly to increase imports from the United States. 'All in all, China welcomes more American products to enter the Chinese market,' she said through a translator. 'The Chinese market is open.'

Ms Wu noted that she is travelling with a delegation of more than 200 Chinese business executives with the expectation that they will sign 107 contracts to buy US$16.2 billion in US products. Included in that is a deal to purchase 80 commercial airliners from Boeing Co, at a list price of US$4.6 billion.

The administration said that in the area of piracy, the Chinese agreed to require that computers use legal software and to step up enforcement of intellectual property rights. They also pledged to close Chinese optical disk plants that are producing pirated CDs and DVDs. -- AP
http://business-times.asia1.com.sg/sub/latest/story/0,4574,191911,00.html?

Amy GuandLee Yuk-kei

Tuesday, April 18, 2006

The mainland's securities regulator, which has banned share sales since last May, has proposed new rules for listed firms seeking to raise funds through the Shanghai and Shenzhen stock markets when the government resumes sales, which is expected next month.
The China Securities Regulatory Commission will gradually allow companies to finance themselves through the stock markets in three steps, the regulator said, without specifying dates for the changes.

"The regulator needs to handle the speed of the three steps properly, so that it will not affect investors' confidence toward the stock market," said Liu Jipeng, a professor at Capital University of Business and Economics.

Listed companies will probably be allowed to sell shares to selected investors through placements in the first half of May before a go-ahead for public sales of additional shares in one or two months and a final move to new initial public offerings in the second half of the year, Liu said.

Fund-raising on mainland stock markets has been paralyzed since last May, when the regulators urged listed companies to convert their nontraded state shares, which accounted for almost two-thirds of the overall mainland stock market value, into exchange-traded shares.

With the ban on equity fund-raising, including IPOs and share placements in the secondary market, the supply of new shares to the stock market ground to a halt.

"It is the time to lift the year-long ban on equity fund-raising after the effort of transforming nontradable shares has yielded some progress," a securities watchdog spokesman said.

The return of the mainland stock markets' financing function will have little impact on the Hong Kong market, where a number of mainland companies raised cash during the ban, according to professionals and academics.

"Hong Kong investors should not worry that much, as the demand of the mainland market is so big that not a single stock market would be enough," Liu said. "Hong Kong investors should set their mind at rest."
http://www.thestandard.com.hk/news_detail.asp?pp_cat=2&art_id=16792&sid=7539497&con_type=1

By Wang Ye (China Daily)
Updated: 2006-04-25 06:26

An expert Monday warned that official figures are seriously underestimating the amount of property currently lying empty in China.

According to a first quarter report released by the National Bureau of Statistics on Saturday, 123 million square metres of space in new buildings was unused at the end of March, a rise of about 24 per cent year-on-year.

In the residential sector, 69.8 million square metres of housing is lying empty, an increase of approximately 20 per cent.

A standard two-bedroom apartment is about 100 square metres in size, so this means there are almost 700,000 apartments unoccupied.

"Our statistics only include the amount of property that has not yet been sold or rented," a bureau spokesman said yesterday.

However, according to Yin Zhongli, a real estate expert with the Chinese Academy of Social Sciences, if the space purchased by speculators but not yet sold on was factored in, the figure might be far higher.

Speculation in the real estate sector is quite common in China, Yin said. "Last year's figures in Shanghai showed that up to half of the new housing sold was not used."

But he could not give exact figures in terms of real vacancy rates, saying it was a hard to get an accurate number.

Yin warned a high housing vacancy rate might disturb the market order and trigger a financial crisis.

Different statistics have shown that the amount of vacant space in residential buildings has been on the rise in recent years, even as ordinary consumers complain they can hardly afford to buy a decent apartment.

In Beijing, for instance, there was 13.7 million square metres of vacant space in residential buildings in 2005, up by 32 per cent from a year earlier.

However, a report released by Beijing Normal University's Finance Research Centre earlier this month said that at least 70 per cent of urbanities could not afford to purchase new apartments.

The report said that buildings with vacant space were mainly in the country's coastal areas, leading property insiders to warn that supply and demand were unbalanced.

The National Statistics Bureau's report stated that, in the first three months this year, investment in apartments aimed at low and medium-income families rose by less than 3 per cent in contrast to the overall 23 per cent growth rate.

The total investment in the property sector reached 279.3 billion yuan (US$35 billion) in the first quarter, up 20 per cent over the same period last year.

Statistics also showed a 4 per cent drop in foreign investment in China's property sector in the first three months of the year, down to 5.2 billion yuan (US$650 million), while the total investment in the same period increased by about 25 per cent, reaching 564 billion yuan (US$70.5 billion).
http://www.chinadaily.com.cn/china/2006-04/25/content_575839.htm

This year, the benchmark Shanghai composite index has risen 20 per cent and the Shenzhen composite index has climbed 31 per cent.

Certainly, it has not gone unnoticed which is reflected not only in the rapidly-growing numbers of new retail investors. An average of 7,000 people have registered with the depository house each day this month, and foreign investors are showing keenness in A shares.

"I have seen more than 200 institutional investors in the United States and Europe over the past two months, and they repeatedly expressed interest in A shares," Gong Fangxiong, director of JP Morgan's China research department, said earlier this month.

The securities regulator has surely sensed the public's surging confidence. As if on cue, it announced on April 16 that it would lift a ban on listed companies issuing additional shares on domestic exchanges.

"We believe that the share conversion plan has gone smoothly and steadily and the issue of non-tradable and tradable classes of equity looks likely to be resolved soon," the China Securities Regulatory Commission said in a statement last week.
http://www.chinadaily.com.cn/china/2006-04/24/content_576582.htm

BEIJING (AP) -- China's central bank said Thursday it will raise a key lending rate by just over a quarter percentage point to 5.85 percent in a move to cool economic growth.
The rate hike of 0.27 percentage points, which goes into effect Friday, was the first by the People's Bank of China since October 2004. The rate is the minimum rate that commercial banks must charge on a one-year loan.

The increase doesn't effect the interest rates bank offer for deposits, the central bank said in a statement.

http://biz.yahoo.com/ap/060427/china_interest_rates.html?.v=5

A total of 1,191 firms listed on Chinese mainland stock markets posted an average profit growth of 5.04 percent in 2005 year on year, compared with nearly 30 percent in 2004, according to the Shanghai Securities News.

But the newspaper did not give the number of combined net profits of those firms.
The listed firms, which exclude a group of firms delisted since 2005, recorded 3.74 trillion yuan in their combined revenues from their major business, up 22.59 percent over 2004, the Shanghai-based newspaper said in its latest edition.

It said soaring prices of raw materials are responsible for the slowdown of profit growth of those firms.
http://www.chinadaily.com.cn/bizchina/2006-05/02/content_581951.htm

May 6 (Bloomberg) -- China's economy may expand 9.5 percent in 2006, ahead of target, indicating the government must do more to cool an investment boom driving down prices for metal and real estate, Vice Finance Minister Li Yong said.

``We have to control investment among local governments'' which have been spending to build factories that guarantee employment and tax revenue, Li said today at the Asian Development Bank's annual meeting in Hyderabad, India.

China's surging investment may lead to excess production capacity, falling prices and result in bad loans, increasing the risk of a sudden economic slowdown, according to the World Bank. The central bank may raise its key lending rate again, after last month increasing it for the first time since October 2004, Li said.

``This shows that China isn't slowing down anytime soon,'' said Joseph Tan, a Singapore-based economist at Standard Chartered. ``This will not be the last interest rate hike we'll see.''

The central bank increased its one-year lending rate by 0.27 percentage point on April 27. It left deposit rates unchanged to spur consumer spending. China's official growth forecast for this year is 8 percent, according to an Oct. 29 commerce ministry report.

Investment in factories and roads in urban areas rose 29.8 percent in the first quarter from a year earlier.

http://quote.bloomberg.com/apps/news?pid=10000006&sid=a245Oh9th_AQ&refer=home

May 8 (Bloomberg) -- Chinese stocks traded in Hong Kong are approaching a record set nine years ago. A commodities boom and government efforts to rein in the economy may help prevent prices from plunging, as they did after the earlier peak.

PetroChina Co. and Jiangxi Copper Co. are surging as oil and metals prices reach records, partly because of demand from China, the world's most-populous nation. Dongfeng Motor Group Co., the country's third-largest automaker, has doubled this year as a 10 percent pace of economic growth lifts spending.

The rally resumed last week after a slump sparked by government plans to restrict investment in factories and real estate. The Hang Seng China Enterprises Index, tracking the so- called H shares of 37 mainland companies, is 4.6 percent away from breaking a record set in August 1997.

``The government is committed to stable and sustainable growth in China, which continues to raise domestic demand and in turn raise company profits,'' said Grace Tam, who helps oversee $81 billion at JF Asset Management Ltd. in Hong Kong. ``All these support the further growth potential of China shares.''

Gains among shares of Chinese companies haven't been confined to Hong Kong. The Shanghai Composite Index, which tracks the larger of the country's two mainland markets, has risen 24 percent. The Shenzhen Composite has added 27 percent. Both markets were closed last week for a national holiday.

The Hang Seng China index climbed 4.7 percent for the week to 7153.17, surpassing a 2.3 percent gain in the Morgan Stanley Capital International Asia Pacific Index excluding Japan. The Japanese market was closed May 3-5 to observe Golden Week.

http://www.bloomberg.com/apps/news?pid=10000080&sid=aEA3mfGA2i20&refer=asia

May 8 (Bloomberg) -- China lifted a one-year ban on share sales, giving publicly traded companies more funding options to expand in an economy that grew 10.2 percent in the first quarter.

Companies must meet 34 criteria to be eligible to sell stock, including three successive years of profit and dividend payments equal to at least 20 percent of income, according to a statement posted yesterday on the China Securities Regulatory Commission Web site. Initial public offerings are still prohibited.

Ending the ban will widen access to capital as interest rates rise and generate underwriting fees for securities firms. Citic Securities Co., China's biggest publicly traded brokerage, said today it will sell as much as 5 billion yuan ($624 million) of stock to investors.

``Companies are hungry for capital,'' said Jiang Jianrong, a Shanghai-based analyst at Shenyin Wanguo Securities Co.

China's government halted sales last May to avoid a glut of equity as it sought to make more than $200 billion of mostly state-owned stock tradable. Listed companies representing 70 percent of China's total market capitalization have already taken such steps.

China's benchmark Shanghai Composite Index rose to its highest in almost two years, climbing 4 percent to close at 1497.1. The index jumped 27 percent this year after falling to an eight-year low in 2005.

http://www.bloomberg.com/apps/news?pid=10000080&sid=ar5g9QR9khG8&refer=asia

May 15 (Bloomberg) -- China's retail sales probably grew at close to the fastest pace in a year in April as rising incomes left consumers with more to spend.

Sales rose 13.4 percent from a year earlier after gaining 13.5 percent in March, according to the median forecast of 21 economists surveyed by Bloomberg News. The Beijing-based National Bureau of Statistics will release April figures at 10 a.m. local time today.

Premier Wen Jiabao has cut taxes and raised minimum wages in a bid to encourage consumer spending and make economic growth less tilted toward investment and exports. Increasing affluence among China's 1.3 billion citizens is luring overseas companies such as Best Buy Co., the largest U.S. electronics retailer.

``China is trying to reduce the pressure on rapid investment growth by increasing consumption,'' said Tim Condon, an economist at ING Bank in Singapore. ``We expect retail sales this year will grow faster'' than in 2005.

March's increase was the biggest in a year, adjusting for distortions caused by the weeklong Lunar New Year holiday, which fell in January this year and in February in 2005. Sales growth peaked at 17.8 percent in May 2004, then cooled as the government introduced curbs on lending and investment.

Per capita disposable incomes in towns and cities increased 10.8 percent in the first quarter, while rural incomes jumped 11.5 percent, an April 20 report showed. The economy expanded 10.2 percent in the first quarter, more than any other major economy.

http://www.bloomberg.com/apps/news?pid=10000080&sid=aS1jT1zTsvJk&refer=asia

May 9 – Dow Jones: “China plans to start building strategic reserves for uranium, iron, copper and other key mineral resources, and accelerate the construction of strategic petroleum and coal reserves as part of the government’s official five-year plan, said the Ministry of Land and Resources. The ministry is targeting adding proven reserves of 4.5 billion-5.0 billion metric tons of oil, 2 trillion-2.25 trillion cubic meters of natural gas, 100 billion tons of coal, 5 billion tons of iron, 20 million tons of copper and 200 million tons of bauxite by 2010.”

http://www.prudentbear.com/creditbubblebulletin.asp

May 18 (Bloomberg) -- Taiwan's economy grew at a slower pace in the first quarter as rising credit-card debt and higher fuel prices damped consumer spending.

Gross domestic product rose 4.93 percent from a year earlier after climbing 6.4 percent in the fourth quarter, the statistics bureau said today in Taipei. That compared with the median 5 percent estimate in a Bloomberg News survey of 21 economists and a 5.1 percent forecast made by the government in February.

A slowdown in consumer spending will make Taiwan, which gets half its national output from exports, more exposed to swings in overseas demand. The economy may grow slower than those of Asian nations including China, Hong Kong and South Korea this year, according to the Asian Development Bank.

``The economy will continue to slow on cooling exports and consumer spending this year,'' said Glenn Maguire, an economist at Societe Generale in Hong Kong. He forecast growth will slow to 3.9 percent this year from 4.09 percent in 2005.

Taiwan is slowing after expanding at the fastest pace in 18 months in the fourth quarter, powered by surging electronics exports. The ADB last month said Taiwan's economy may grow 4.4 percent this year, compared with 9.5 percent in China, 5.5 percent in Hong Kong and 5.1 percent in South Korea.

The statistics bureau raised its forecast for economic growth this quarter to 4.92 percent from 4.56 percent, citing stronger- than-expected exports. It boosted a full-year estimate to 4.31 percent, from a February projection of 4.25 percent.

http://www.bloomberg.com/apps/news?pid=10000080&sid=aFJzntpP8_2I&refer=asia

HONG KONG (AP) -- Office worker Carol Au scurried out of the Bank of China's dazzling skyscraper in central Hong Kong with a subscription form to buy shares in the lender's $9.9 billion initial public offering -- slated to be the world's biggest IPO in six years.

The 28-year-old was like hundreds of thousands of other Hong Kongers who flocked to bank branches during the past week to pick up forms for the June 1 listing on Hong Kong's stock market. They're ready to bet that the No. 2 bank in China's booming economy will be a great investment.

But Au was also aware of the risk of investing in a bank with a history of bad loans and corruption. The bank's former chairman and president Wang Xuebing is serving a 12-year prison term for taking bribes.

"I'll just be buying a little bit at first so it's not too risky," Au said as she rushed off to work clutching the bank's prospectus, as thick as a big city's telephone book.

One of the factors feeding the frenzy for Bank of China is the remarkable success two other big Chinese lenders that had IPOs in Hong Kong last year.

The share price for China Construction Bank, the nation's No. 4 lender, has shot up 50 percent since its IPO in late October. Bank of Communications, the fifth-largest, has nearly doubled since it hit the market in June.

Agnes Deng, investment director at Standard Life Investments in Hong Kong, said the banks look like a good long-term investment.

"Bank of China will benefit from financial reform in China and will benefit from the consumer loan growth as well as benefit from a lot of the foreign investment coming into China," she said.

Launching IPOs for state-owned banks in overseas capital markets is key to China's plan to clean up its financial system. For decades, the big banks have been plagued with poor governance, graft and bad loans to clunky state-owned enterprises that squandered the money as they asked for more.

Bank of China had one of the worst records. To prepare the lender for its IPO, the government pumped $22.5 billion into the bank to clean up bad loans. The bailout reduced the bank's non-performing-loan ratio to 4.4 percent in mid-2005, from a whopping 33.41 percent in 2003, Fitch Ratings said.

At a recent news conference that served as a big pitch for the IPO, the bank's leaders briefly acknowledged that the institution has had troubles. But they said the bank's history, mammoth size and reform efforts gave it the brightest future.

http://biz.yahoo.com/ap/060520/hong_kong_bank_of_china.html?.v=2

By Zhang Fengming (Shanghai Daily)
Updated: 2006-05-22 06:50

As a major player on everyone's lips, China, the world's fastest-growing economy, is set to overtake the United States as the biggest economy globally by 2050, according to a PricewaterhouseCoopers report.
Although China's growth is expected to slow from the current high rate, it will surpass the United States based on purchasing power parity by 2050 and lead seven other emerging countries to overtake the Group of Seven, or G7, as the world's biggest economic bloc, the report said.

Purchasing Power Parity, or PPP, is a currency conversion measure that uses a common currency and equalize the purchasing power of different currencies. In other words, the PPP eliminates the differences in price levels between countries in the process of conversion.

The Emerging Seven economies, or E7 as the PwC coined it, will by 2050 be around 25 percent larger than the current G7 when measured in US dollar terms at the market exchange rates or around 75 percent larger in PPP terms.

The E7 includes "BRIC" - Brazil, Russia, India and China - plus Indonesia, Mexico and Turkey.

In contrast, the E7 is currently only around 20 percent the size of the G7 at market exchange rates and around 75 percent of its size in PPP terms.

"China and India are the two important markets to drive up the E7 economies," said John Hawksworth, head of the macroeconomics unit of PricewaterouseCoopers based in London, and the author of the report, in Shanghai.

China, despite its projected slowdown in market growth, is forecast to be around 95 percent the size of the United States at market exchange rates by 2050 or about 40 percent larger in PPP terms.

http://www.chinadaily.com.cn/china/2006-05/22/content_596360.htm

May 24 (Bloomberg) -- Bank of China Ltd., the second of the ``big four'' Chinese state lenders to go public, raised HK$75.43 billion ($9.73 billion), completing the world's biggest first- time share sale in six years, bankers involved in the deal said.

China's second-biggest lender sold 25.57 billion new shares at HK$2.95 apiece, 5 Hong Kong cents below the top of its target range, the three bankers said, asking not to be identified before an announcement. The Beijing-based bank attracted about $159 billion of demand, they said.

Tumbling stock prices in emerging markets failed to deter investors betting that China's economic growth of almost 10 percent during the past three years will drive profit growth at the nation's lenders. Bank of China's sale paves the way for an October IPO of as much as $12 billion planned by bigger rival Industrial & Commercial Bank of China.

``There's no reason to be downbeat on Chinese banks because their growth always tags along with the economy,'' said Preston Ko, who helps manage $150 million at BCom Finance (Hong Kong) Ltd. and applied to buy the shares. ``I'm not too concerned about short-term price fluctuations caused by the recent global markets slump.''

Bank of China attracted about $121 billion of demand from institutional investors, two bankers involved in the deal said. Individual investors in Hong Kong ordered about $38 billion. Twelve corporate investors took a $2.26 billion stake.

The bank, which earlier marketed the shares at a range of between HK$2.50 and HK$3, may increase the sale by 15 percent after its June 1 stock market debut in Hong Kong to meet demand.

BOC International (Holdings) Ltd., Goldman Sachs Group Inc. and UBS AG arranged the share sale, which comprised 10.5 percent of the lender's enlarged share capital.
http://quote.bloomberg.com/apps/news?pid=10000006&sid=aHC3NR2tNMsc&refer=home

Mark Lee

Saturday, May 27, 2006

Future acquisitions by mainland firms of US assets are likely to face intensified scrutiny by Washington, which is becoming more wary amid increasing public hostility to foreign investment in sensitive sectors of the economy, according to a former US official.
The public furor over the decision in February by the Committee on Foreign Investment in the United States to approve the US$6.8 billion (HK$53.04 billion) acquisition by Dubai-based DP World of British port operator, Peninsular and Oriental, which owns several US container terminals, has made the US government "more cautious," said David Marchick Friday.

"Nobody will want to be held accountable for signing off on the next DP World deal," he said at an American Chamber of Commerce meeting.

He cited a recent opinion poll that suggested 58 percent of Americans opposed the deal. In March, pressure from US Congress forced DP World to agree to give up control of P&O's US assets.

"As long as the [George W] Bush administration is there, we will have a much more cautious environment for foreign investments," said Marchick, who served under former president Bill Clinton.

Marchick's law firm, Covington & Burling, advised Lenovo group in its US$1.75 billion acquisition of the PC business of IBM last year.

In the wake of the DP World saga, there are also "growing concerns in the executive branch about foreign investments by Chinese companies," he said. "With respect to China, there are concerns about the impact [of an acquisition] on strengthening the Chinese military, as well as Chinese government control of companies [that make acquisitions]."

http://www.thestandard.com.hk/news_detail.asp?we_cat=2&art_id=19567&sid=8159631&con_type=1&d_str=20060527

http://agonist.org/20060605/china_court_upholds_pfizers_viagra_patent

Thursday, June 08, 2006

European Union Trade Commissioner Peter Mandelson and mainland officials including Commerce Minister Bo Xilai have failed to resolve a World Trade Organization dispute over auto parts duties after four hours of talks in Beijing.
"We disagree on the remedial action that we believe China must take in order to step into compliance with WTO rules and we hope to see that move taken by China so that we can resolve this issue amicably," said Mandelson Wednesday in the capital.

The United States and EU on March 30 filed a joint complaint at the WTO accusing China of illegally restricting imports in the world's third-largest vehicle market. China's levies force foreign carmakers to buy 40 percent or more of parts used in mainland- assembled vehicles from local suppliers or face double tariffs on imported parts, they say.

A 60-day consultation period has elapsed, meaning the US or EU must decide whether to call a formal panel at the WTO to arbitrate in the dispute. China's vehicle market was worth US$19.1 billion (HK$149 billion) in 2004, according to the US. Canada has filed a similar complaint over the duties.

http://www.thestandard.com.hk/news_detail.asp?pp_cat=5&art_id=20328&sid=8312870&con_type=1

June 12 (Bloomberg) -- China posted a record $13 billion trade surplus in May and inflation accelerated, increasing pressure on the government to allow the yuan to strengthen.

The surplus topped the $12 billion median estimate of 21 economists in a Bloomberg News survey and widened from $10.5 billion in April. A separate government report showed consumer prices rose 1.4 percent from a year earlier, the most in four months.

Last month's 25.1 percent jump in exports is undermining government efforts to control inflation by pumping China's economy with cash. A stronger currency would help reduce the imbalance and appease U.S. lawmakers who want to stem a record trade deficit with China and are calling for tariffs on Chinese goods.

``The government wants to keep a lid on money supply and lending growth to prevent it from stoking inflation and asset price bubbles,'' said Tai Hui, an economist with Standard Chartered Bank in Hong Kong. ``There's a considerable inflow of money into the economy and it's a challenge for the central bank to stop it adding to the money supply.''

Royal Bank of Scotland economist Ben Simpfendorfer forecast the trade gap will widen to $150 billion this year -- almost equal to the gross domestic product of Thailand -- from last year's record $102 billion. Exports reached $73.1 billion in May and imports rose to $60.1 billion, the report showed.

China's money supply jumped 19.5 percent in May, Shanghai Securities News said June 9. That would be the fastest gain since December 2003.

Yuan Weakens

A stronger currency would slow exports, which helped drive China's 10.3 percent economic growth in the first quarter. People's Bank of China Governor Zhou Xiaochuan raised benchmark lending rates in April to cool lending for investment and has pledged to gradually withdraw from the nation's currency market.

The yuan has gained 1.2 percent against the dollar since July's 2.1 percent revaluation. The Chinese currency weakened for a second day today on speculation rising interest rates in the U.S. will lure investors away from Asian assets. It fell to 8.0139 against the dollar as of 1.24 p.m. in Shanghai according to data compiled by Bloomberg.

``It would be to the advantage of the Chinese economy to allow the exchange rate regime they gave themselves last summer to work more fully,'' International Monetary Fund Managing Director Rodrigo de Rato said in St. Petersburg June 10...

http://www.bloomberg.com/apps/news?pid=10000080&sid=a5_gZyt1kM7Y&refer=asia

Friday, June 30, 2006

The yuan closed Thursday at its highest level against the dollar since its revaluation in July 2005, propelled by expectations for yuan appreciation after Thursday's US Federal Reserve meeting, amid calls to restrain expectations of further inclines in the currency.
The yuan ended at its intraday high of 7.9955 to the dollar, up from Wednesday's close of 7.9984. The yuan has now appreciated 1.43 percent since its 2.1 percent revaluation. Its previous peak since the revaluation was 7.9956, reached on June 22.

Dealers said the central bank did not appear to be buying dollars aggressively Thursday.

"There was active dollar-selling interest among both foreign and domestic banks in the last 30 minutes of trading, indicating a strong anticipation of yuan appreciation in the near term," said a Shanghai dealer at a US bank.

The Fed's expected interest rate rise would further widen the rate gap between the yuan and the US currency, which now stands at about three percentage points.

Some dealers said this could provide an opportunity for the Chinese central bank to engineer another controlled leg up by the yuan. The bank is keen to cool the rapidly growing economy, and currency appreciation could help it do so.

Another US interest rate hike "will ease the pressure for speculative funds to flow into China, allowing the PBOC to free the yuan's exchange rate more easily," said a dealer at a European bank.

Dealers forecast the yuan would rise in coming days and could test a psychologically important level at 7.9900 before the end of next week.

The yuan's advance came amid calls that China needs to take measures to dampen expectations of further yuan appreciation.

"We need to take some measures focused on putting an end to expectations of yuan appreciation," said Qiu Xiaohua, head of the National Bureau of Statistics according to the summary of a speech given this week and carried on the agency's Web site.

Qui's comment on the yuan was a part of a number of suggestions he made for improving the overall economic environment. Figures published by local media this week indicated pressure for yuan appreciation remained strong. China's foreign exchange reserves rose by US$30 billion (HK$234 billion) in May to US$925 billion, the semi- official China Business News said Wednesday, the highest monthly increase at least since the start of last year.
http://www.thestandard.com.hk/news_detail.asp?pp_cat=22&art_id=21899&sid=8637835&con_type=1

China is headed for a retirement explosion. The one-child policy imposed decades ago has sharply reduced birth rates, depriving China of young workers to fill the void. The decline in the ratio of workers to retirees will weigh down an already rickety pension system, and spell an end to the ready supply of cheap labor that fueled China's economic boom. "Our labor costs will become less competitive," said Zuo Xuejin, vice president of Shanghai Academy of Social Sciences, "and industries in places like Vietnam and Bangladesh will start becoming more attractive." (The New York Times, free registration required)
http://finance.yahoo.com/columnist/article/business/6945

July 5 (Bloomberg) -- Shares of Bank of China Ltd. jumped as much as 31 percent as they started trading in Shanghai after investors flocked to the nation's largest domestic equity sale.

Bank of China's local currency A shares closed at 3.79 yuan a share today from the 3.08 yuan price set on June 22. China's second-largest lender lured 677.3 billion yuan ($84.7 billion) of bids for a 20 billion yuan sale, four weeks after a global initial public offering in Hong Kong.

The debut suggests the government has succeeded in channeling more of the $1.9 trillion in household savings into equities, after ending restrictions that forced Chinese companies to go public overseas. Bank of China's market value now stands at $116.2 billion, 3 percent more than that of Wells Fargo & Co., the fifth-largest U.S. bank.

http://www.bloomberg.com/apps/news?pid=20601080&sid=aPitsIGMcuEo&refer=asia

George Chen

Tuesday, July 11, 2006

The high-stakes battle for a stake in struggling Guangdong Development Bank may hinge on who takes responsibility for 50 billion yuan (HK$48.72 billion) in bad assets, industry sources said.
Citigroup and France's Societe Generale have been jostling for a stake in the bank for nearly a year, with no resolution yet. Now, new figures showing the bank had such a high level of bad debts at the end of last year may further delay proceedings.

The affair illustrates how incomplete information and disputes over regulators' authority continue to hinder restructuring of the banking sector.

The winning bidder for the stake will be expected to shoulder nearly half of the bank's bad assets, while the local government and the central bank are wrangling over how the remainder would be divided. That issue must be resolved before any foreign investment occurs, the industry sources said.

Guangdong Bank's nonperforming- loans ratio reached about 25 percent at the end of last year, compared with a nationwide average of about 8 percent, a mainland source said Monday, citing information from the bank's external auditing report by KPMG.

"Those numbers are much bigger than market expectations, though both Citigroup and Societe Generale would agree to take 15 billion to 20 billion yuan of the bad assets if either of them won the bidding," the source said.

Another source close to the situation, who confirmed the figures, said the remaining 20 billion to 30 billion yuan of bad assets will be shared by the Guangdong government, the de facto controller of the bank, and Central Huijin, the investment arm of the central bank.

A KPMG spokeswoman in Hong Kong was not available for immediate comment.

http://www.thestandard.com.hk/news_detail.asp?pp_cat=5&art_id=22589&sid=8784584&con_type=1

http://agonist.org/20060710/chinas_trade_surplus_rises_to_record_14_5_billion

July 17 (Bloomberg) -- China's economy, powered by record exports and an investment boom that the government is trying to slow, probably accelerated in the second quarter, a survey of economists showed.

Gross domestic product, the sum of all goods and services produced in China, jumped 10.4 percent from a year earlier after growing 10.3 percent in the first quarter, according to the median forecast of 30 economists surveyed by Bloomberg News. Figures will be released at 10 a.m. in Beijing tomorrow.

Quicker growth may prompt more steps to cool the surge in investment that helped China overtake the U.K. as the world's fourth-largest economy last year, and which is leaving the nation with too many factories. The central bank, which has raised lending rates and the bank deposit ratio, may fail to rein in investment unless it also allows the yuan to strengthen faster.

Measures taken so far ``are like taking a spoonful of water from an overflowing swimming pool,'' said Tao Dong, chief Asia economist at Credit Suisse Group in Hong Kong. ``China's currency needs to appreciate substantially.''

A soaring trade surplus has flooded the economy with cash, providing companies with cheap funding for investment projects. Surplus capacity may cause prices and corporate profits to drop, increasing bad loans at banks and potentially causing a sharp slowdown in the world's fastest-growing major economy, the World Bank says.

Wuhan Iron & Steel Co. on July 13 said it will sell 8 billion yuan ($1 billion) of convertible bonds to finance capacity expansion. The company's profit plunged 84 percent in the first quarter as the price of steel fell.

Rate Increase Imminent

The investment boom also risks fanning inflation by driving up raw material prices, the central bank said in June.

On July 21, 2005, a day after last year's second-quarter GDP report, China scrapped a decade-old peg to the U.S. dollar and began managing the yuan against a basket of currencies. Since then, the central bank has kept gains against the dollar to 1.4 percent.

Currency controls limit the central bank's ability to manage monetary policy because rate increases could attract more capital betting on a stronger yuan. China has raised its benchmark lending rate twice in the past two years; meanwhile, the U.S. Federal Reserve has boosted interest rates 17 times. The European Central Bank has moved three times since December.

The People's Bank of China, which increased the one-year lending rate on April 28 by 0.27 percentage point to 5.85 percent, may tighten again by a similar magnitude within a month, Tao said. Still, the rate would have to climb by 3 percentage points to reach a ``neutral'' level, he said.

http://www.bloomberg.com/apps/news?pid=20601080&sid=aiwGBlsXdS7k&refer=asia

July 18 (Bloomberg) -- China's economy grew 11.3 percent in the second quarter, the fastest pace in more than a decade, and the government said it will clamp down on lending and investment.

Spending on factories and real estate accelerated in June, the statistics bureau said today, helping gross domestic product grow faster than the 10.4 percent median forecast among 30 economists surveyed by Bloomberg News. It was the biggest expansion since 1994, when the economy was a quarter the size.

The figures added to speculation the central bank will raise lending rates for a second time this year and order banks to rein in credit in the world's fastest-growing major economy. China may also allow faster currency gains to curb a trade surplus that's flooded the economy with cash and strained relations with the U.S.

``We are concerned about the overheating situation,'' said Masahiro Kawai, head of the Asian Development Bank's office of regional economic integration. ``There is an even stronger case for a tighter monetary policy and a more accelerated pace of the yuan's appreciation.''

China's economy has grown 10-fold since Deng Xiaoping began free-market reforms in 1978, overtaking the U.K. as the world's fourth-biggest in 2005. The nation had 320,000 U.S. dollar millionaires at the end of last year, according to Cap Gemini SA, and Shanghai's benchmark stock index is up 44 percent this year.

The expansion has been marred by bouts of overheating that forced the government to respond with lending crackdowns at least four times since 1990.

Fixed-asset investment in China's towns and cities jumped 31.3 percent in the first half from a year earlier, accelerating from 30.3 percent in the first five months. Industrial production rose 19.5 percent in June.

`Not Sustainable'

Consumer prices rose 1.5 percent in June, the fastest pace since January.

Spending on factories may create overcapacity, driving prices and corporate profits lower and adding to bad loans at China's lenders, the World Bank said in April. Any slump would rock global commodity prices because China is the biggest consumer of steel and the second-largest oil user.

``An economic model that's based on excessive fixed-asset investments and exports is not sustainable,'' Zheng Jingping, a bureau spokesman, told a press briefing in Beijing today. ``The government will be on guard for inflationary pressures.''

http://www.bloomberg.com/apps/news?pid=20601080&sid=acwh2rGw2umA&refer=asia

July 24 (Bloomberg) -- Asian stocks dropped after China's central bank clamped down on lending for the second time in two months, raising concern the region's second-biggest economy will slow and reduce sales for exporters such as Komatsu Ltd.

Technology companies including Samsung Electronics Co. and Quanta Computer Inc. slid after Dell Inc. said profit will miss analyst estimates. BHP Billiton led a decline in mining companies after metals prices slumped.

``China's intention to cool its economy will weaken the growth momentum for exporters,'' said Choi Chang Hoon, who helps manage about $1.1 billion at Woori Credit Suisse Asset Management Co. in Seoul. ``There is still concern that the earnings recovery at tech companies may take longer than expected.''

The Morgan Stanley Capital International Asia-Pacific Index fell 1.5 percent to 119.76 as of 11:20 a.m. in Tokyo. All 10 industry groups that make up the regional measure dropped.

Japan's Nikkei 225 Stock Average fell 1.5 percent to 14,596.69, while the broader Topix index lost 1.3 percent. Indexes around the region declined, with South Korea's Kospi index sliding 1.6 percent, Asia's biggest drop.

Shares fell in the U.S. following Dell's announcement, sending the Nasdaq Composite Index to its lowest since May 2005.

Komatsu, the world's second-biggest maker of earthmoving equipment, fell 3.7 percent to 2,060 yen. The Japanese company generated more than half of its sales overseas in its last business year.
http://www.bloomberg.com/apps/news?pid=20601087&sid=av.aYG6jWr_U&refer=worldwide_news

BEIJING (AP) -- China's economic reforms could slow or stop once World Trade Organization market-opening pledges are completed this year, leaving the government without explicit goals, a U.S. official warned Monday.Washington is worried about suggestions by some officials that China restrict foreign investment or impose technology standards on mobile phones and other products that might limit competition, said Franklin L. Lavin, the U.S. undersecretary of commerce for international trade.

China will lack a "roadmap for reform" once its five-year WTO accession process, with detailed commitments to lower market barriers, is completed in December, Lavin said.

The end of that process and China's high economic growth "risk creating an atmosphere where not only is the sense of reform fading a little bit, but there is even potential for retrogression," he said.

Lavin said American officials worry about "policy drift" in Beijing and the possible rise of protectionist sentiment. But, he said, Chinese officials assured him the economy would remain open.

Lavin also stressed that Washington regards trade with China as positive overall, with Chinese purchases of U.S. exports rising 20.5 percent last year to $41 billion. He said China could overtake Japan this year as the third-largest U.S. export market. That would rank the country behind Canada and Mexico as buyers of American goods.

Lavin met with officials of China's Commerce Ministry, central bank and economic planning agencies during a weeklong visit to Beijing and Shanghai, the country's commercial center.

He said he pressed officials about Beijing's failure to stop rampant violations of copyrights and other intellectual property, curbs on imports of U.S. beef and market access for American credit card companies.

Lavin said he expressed concern at calls by some officials for foreign investment limits and a campaign to promote China's own standards for mobile phones and other technology, which Washington and other trading partners say could limit market access for foreign companies.
http://biz.yahoo.com/ap/060731/china_us_trade.html?.v=3

Winnie Pang

Thursday, August 03, 2006

Shanghai Pudong Development Bank is expected to name Fu Jianhua, chairman of Bank of Shanghai, as its new president next week, while Bank of Communications is likely to appoint executive vice president Li Jun as president tomorrow, Reuters reported, citing sources.
Bank of Shanghai is expected to promote its president Chen Xin to chairman.

The appointments - part of a major management reshuffle at Chinese financial institutions - are subject to approval by the China Banking Regulatory Commission.

Fu will replace Jin Yun, 59, who was appointed acting president at the bank after former chairman Zhang Guangsheng retired in September.

Both Pudong Development Bank and Bank of Shanghai are affiliates of the Shanghai government.

Though foreign investors are allowed to hold stakes in lenders to help improve corporate governance, the government will keep full control of appointments of top executives at major banks.

Pudong Development Bank is now 4.6 percent owned by Citigroup, while Bank of Shanghai - China's largest commercial bank - is about 8 percent owned by HSBC Holdings.

The reshuffle comes after Bank of Communications' former president Zhang Jianguo was promoted to vice chairman and president of the larger China Construction Bank. His predecessor, Chang Zhenming, left to join his previous employer, the state-owned CITIC Group.

Pudong Development Bank has made an agreement with Citigroup allowing the New York-based lender to quadruple its stake in the mainland bank to 19.9 percent, while the strategic investor will subsequently be able to nominate a deputy vice president and send senior managers to Pudong Bank to enhance its skills in risk management.

http://www.thestandard.com.hk/news_detail.asp?pp_cat=2&art_id=24230&sid=9143778&con_type=1

SHANGHAI¡¡-- Air China on Tuesday slashed the size of its initial public offer in Shanghai by nearly 40 percent because of poor demand -- a bad omen for a host of other share offers planned by Chinese companies in coming months.

Hong Kong-listed Air China Ltd., the country's flag carrier, will now raise $576 million if the offer is completed, much less than the maximum of US$1 billion originally envisaged.

It cut the size of its IPO by 39 percent to 1.639 billion new A-shares from an original plan of as many as 2.7 billion, after weak demand from institutional investors. It set the price for the offer at 2.80 yuan per share, near the bottom of a suggested range of 2.75-2.95 yuan.

And in an extraordinary step to boost investor confidence, Air China promised it would buy back up to 600 million shares before year-end at prices above the IPO level if the shares fell below that level after listing. It aims to list by Aug. 22.

It was the first time in the 15-year history of China's modern stock markets that a company was forced to scale back its IPO so drastically or commit to buying back shares if necessary, analysts said.

http://www.chinadaily.com.cn/china/2006-08/08/content_659839.htm