Still the direction is up. China’s factory and property spending rose 24.3% in January and February. At some point it has to stop and the government will have to hose down the world’s fastest-growing major economy. It is overheating.

The worst snowstorms in half a century did not cool it: real estate development promptly jumped by a third. No one is willing to guess what would have happened if the weather had stayed clement.

The govenment has some options: hasten gains on the renminbi, raise interest rates; increase banks’ reserve requirements.

Fixed-asset investment in urban areas rose to RMB812.1 billion ($115 billion) from a year earlier. That was more than the 24% median estimate of 21 economists surveyed by Bloomberg News and the 23.4% pace in January and February 2007.

Sherman Chan, an economist at Moody’s Economy.com in Sydney, said, ‘China’s economy is still very strong. The biggest challenge for policy makers this year is to cool inflation and at the same time to sustain growth and employment.’

A Bloomberg News survey of economists this week suggests rates and reserve requirements will rise this year.

The remininbi will gain 12% versus the dollar in the next 12 months, compared with a 7% increase in 2007, forward contracts indicate. Currency appreciation cuts import costs.

Premier Wen told lawmakers last week that monetary policy is intended to tackle ‘the strong possibility of a resurgence in fixed-asset investment.’
Source: Bloomberg

China’s factory and property spending rose 24.3% in January and February which means the government has to do something to prevent the world’s fastest-growing major economy from overheating.

The worst snowstorms in half a century failed to prevent a 33% jump in spending on real-estate development. Options are now to hasten gains on the renminbi, raise interest rates and increase banks’ reserve requirements.

Fixed-asset investment in urban areas rose to RMB812.1 billion ($115 billion) from a year earlier, the statistics bureau said today. That was more than the 24% median estimate of 21 economists surveyed by Bloomberg News and the 23.4% pace in January and February 2007.

Sherman Chan, an economist at Moody’s Economy.com in Sydney, said, ‘China’s economy is still very strong. The biggest challenge for policy makers this year is to cool inflation and at the same time to sustain growth and employment.’

A Bloomberg News survey of economists this week suggests rates and reserve requirements will rise this year. The renminbi will gain 12% versus the dollar in the next 12 months, compared with a 7% increase in 2007, forward contracts indicate. Currency appreciation cuts import costs.

Premier Wen told lawmakers last week that monetary policy is intended to tackle ‘the strong possibility of a resurgence in fixed-asset investment.’

The government is concerned that untamed investment will lead to excess industrial capacity and too large a toll on the environment and natural resources.

The People’s Bank of China lifted borrowing costs six times in 2007 and has pushed banks’ reserve requirements to 15%, the highest ever. The key one-year lending rate is 7.47%.
Source: Bloomberg

Top Chinese e-commerce firm Alibaba.com full-year 2007 profit grew 340 percent, boosted by a buoyant Chinese economy, increasing Internet access in the country and healthy growth in the firm’s number of paying members. And the genius of Jack Ma.

Alibaba.com, an online business-to-business site connecting companies looking to import and export Chinese goods, was founded in 1999 as a bulletin board for businesses to post trade leads.

Last year, Alibaba had a 57.3% share of China’s RMB3.9 billion business-to-business market.

Alibaba, in which U.S. Internet company Yahoo is a key investor, reported a profit of RMB967.8 million ($136.7 million) for the year to the end of 2007, compared with RMB219.93 million a year earlier.

Our illustration shows Alibaba.com founder Jack Ma giving the thumbs-up at the Hong Kong stock exchange on a previous occasion. He is damn well entitled to. The fact that the share prices go up and down is due to the vagaries of the stock market, not the soundness of the business.
Source: Reuters

L & L Financial Holdings said it plans to apply for listing on the NASDAQ stock exchange. The Seattle company is currently listed on the over-the-counter bulletin board exchange. It was found by Dickson Lee, shown here, who you might like to consider an Old China Hand.

Mr. Lee was an executive of KPMG (New York) and Director of Finance for NYNEX (now Verizon) Asia Pacific operations in 1993. Dickson served as a judicial member of the Hong Kong SEC Insider Dealing Tribunal (a trial court) for six years.

According to the company’s website, L & L serves ‘as a bridge to connect business between the U.S. and China.’ It has offices in Seattle and in Shenzhen, Kunming and Liuzhou in China and has 400 employees.

According to the web site: ‘The company is aggressively acquiring established growing energy entities and coal mines, using its American management skills, U.S. accounting and finance knowledge to take advantage of growing China markets.’ The Company recruited Kong Ling-Min, Senior Geological Engineer, to strengthen its mining operations. Mr. Kong is to supervise the Tian-Ri Coal Mine in Yunnan Province of China.

The Tian-Ri Coal Mine has a government exploration permit and with a coal reserve of an estimated 53 million tons of high grade coal and an estimated $7.3 billion value.
Source: Puget Sound Business Journal

There may be a downturn in the United States but it is, at the moment, difficult to see a knock-on effect in China. China’s factory and property spending rose 24.3 percent in January and February, maintaining pressure on Premier Wen Jiabao to prevent the world’s fastest-growing major economy from overheating.

Fixed-asset investment in urban areas rose to RMB 812.1 billion yuan ($115 billion) from a year earlier, the statistics bureau said today. That was more than the 24 percent median estimate of 21 economists surveyed by Bloomberg News and the 23.4% pace in January and February 2007.

The worst snowstorms in half a century failed to prevent a 33% jump in spending on real-estate development.

China may hasten gains by the renminbi, raise interest rates and increase banks’ reserve requirements after inflation in February accelerated to an 11-year high.

Sherman Chan, an economist at Moody’s Economy.com said, ‘China’s economy is still very strong. The biggest challenge for policy makers this year is to cool inflation and at the same time to sustain growth and employment.’

A Bloomberg News survey of economists this week suggests rates and reserve requirements will rise this year. The renminbi will gain 12% versus the dollar in the next 12 months, compared with a 7% increase in 2007, forward contracts indicate. Currency appreciation cuts import costs. (You could write this another way. The dollar will lost 12% compared to the yuan. This would seem damned near certain.)

The acceleration in property investment from the 30.2% pace for all of 2007 is even after the government tightened land-use rules, raised mortgage costs and increased down payments.

No one nows what the goverment will have to do next in order to control these increases. Something quite drastic would be needed. Probably involving boiling oil.

China’s economy, the world’s fourth largest, grew 11.4% in 2007, the fastest pace in 13 years.

The People’s Bank of China lifted borrowing costs six times in 2007 and has pushed banks’ reserve requirements to 15%, the highest ever. The key one-year lending rate is 7.47%. What is there left to do with what could only be thought of as a runaway economy?

Our illustration is of two confused investors. We know the feeling well.
Source: Bloomberg

China’s economy in 2008 will maintain a robust and stable momentum despite uncertainties ahead.

This comes from the country’s top legislative and political advisory sessions where the opinions voiced pretty much reflected this.

Liu Shucheng, a political adviser and director of the Economic Research Institute of the Chinese Academy of Social Sciences (CASS), believes it is almost impossible for China to score 10% of gross domestic product (GDP) growth this year.

He said, ‘China’s economy has maintained a long period of continued and stable growth, which is unprecedented since the founding of New China (in 1949).’

Justin Yifu Lin, a deputy to the National People’s Congress (NPC) and the World Bank’s chief economist, shown in our illustration, holds a similar view, saying China’s economy would be affected little by the U.S. subprime crisis.

Justin Yifu Lin said, ‘The demand by the United States, China’s second largest trade partner, would not decrease by a large margin as most of Chinese exports to it were low- and middle-end.’

China’s GDP in 2007 reached RMB24.66 trillion, an increase of 65.5% over 2002 and average annual increase of 10.6%. However, the consumer price index (CPI) in 2007 rose 4.8% year-on-year, the highest since 1997 and well above the 3% target, mainly due to rises in food and housing costs.

In January this year, monthly CPI rose 7.1%, the highest monthly surge in the past 11 years. Most of this was due to rises in the cost of food, especially pork.

In general, the impact from U.S. subprime crisis on global economy is not clear. And there is no consensus on how international oil price and price hikes would impact on inflation.

Indeed, Premier Wen Jiabao’s report showed strong concern on the issue of prices, and came up with nine measures, short- and long-time, to increase effective supply and curb unreasonable demand.

These measures include expanding production, especially the production of the basic necessities of life such as grain, vegetable oil and meat as well as other commodities in short supply, speeding up improvement of the reserve system, promptly improving and implementing measures to aid the low-income sector of the population and to make sure that the prices of the means of production, particularly agricultural supplies, do not rise rapidly.
Source: China View

The obscure China Development Bank is to be transformed from policy lender to international player.

The China State Council’s plan to turn the China Development Bank into a commercial institution should transform what has been an obscure policy bank into a global financial player. It is also an indication of how China, besides routing investments through its sovereign investment fund, intends to use some of its massive US$1.4 trillion in foreign exchange reserves.

Approval should come soon for the 14-year-old bank to list on the stock market in the first half of this year.

Even before the change, the bank has been aggressively carving out a foreign presence.

As an indication of its ambitions, it acquired a stake in Barclays Bank last July, has invested in six overseas funds, including two worth a combined US$10 billion in Africa and Venezuela, and was about to bid for a stake in Citibank in January when the State Council vetoed the idea.

Its governor, Chen Yuan, seens in our illustration, is the only bank chief in China who is a full minister and member of the ruling State Council.

Chen, 62, is the son of Chen Yun, a leading revolutionary organizer in the 1920s and 30s and one of the ‘Eight Immortals’ of the Communist Party who was a senior policy maker for 50 years until his death in April 1995, at the age of 89.

The CDB was created in March 1994 to provide policy loans to major projects designated by the government, especially transport, communications, basic industries and infrastructure. These projects included the Three Gorges Dam and Shanghai Pudong airport. It does not take retail deposits and has only about 32 branches and four representative offices across the country.

CDB will be the first of three policy banks to list, probably in the first half of this year. The other two are China Everbright Bank and Agriculture Bank.
Source: Asia Sentinel

The Beijing Times reports sovereign wealth fund China Investment Corp will suspend investments in overseas financial companies due to high investment risk, citing Wang Jianxi, a CIC executive vice-president, pictured here.

Wang Jianxi said, ‘As sovereign wealth funds have low risk tolerance, investment in overseas financial assets, such as Blackstone and Morgan Stanley , will be suspended.’

He said the CIC had invested less than half of the money it planned to invest abroad. After all planned investments are made, the ratio of high-risk financial assets will be diluted, accounting for a small portion of overall investment.

The CIC paid $3 billion for a 10% stake in the Blackstone Group in May ahead of the private equity group’s initial public offering at $29.605 per share. Those shares, which are still locked up, are now around $15.

Wang Jianxi said the CIC does not pay much attention to short-term price fluctuations as the company has made a long-term financial investment into Blackstone and Morgan Stanley. WHich, given the prices, is just as well.

He added, ‘We can make a gain not only from the stock price. And we can also achieve investment gains from dividends.’ The fund has started to pay interest on bonds issued by the Ministry of Finance to fund its start-up.
Source: CNN Money

After Chinese Premier Wen Jiaobao pledged, in his policy address to the opening of the National People’s Congress (NPC) session, to ensure the healthy and steady development of the country’s securities market, market analysts are increasingly optimistic about the market outlook this year despite the current downturn pressures.

Analysts believe an imminent measure the government could take is to the cut stamp duty on stock transactions.

Some Chinese economists and media commentaries have already been urging the Ministry of Finance to consider a cut to the stamp duty to bolster investors’ confidence. This nine months after the tax was tripled to 0.3% from 0.1% in an attempt to cool speculation that had sent shares to record highs since the beginning of 2007.

The Ministry of Finance’s announcement of the higher stamp duty rate had an immediate effect and the Shanghai Composite Index dropped about 13% in the following week.

The 0.3% stamp duty is applicable to both buyers and sellers of stocks.

Looking to boost investor sentiment, He Qiang, a member of the National Committee of the Chinese People’s Political Consultative Conference, said he will submit a proposal calling on the government to change its bi-directional stamp tax to one way.

He Qiang, a professor at the Central University of Finance and Economics, said that action on his proposal, in addition to boosting investor sentiment and stimulating stock turnover, would be good for the healthy development of China’s stock markets.

He said, ‘Cutting the stamp tax from bilateral [on purchases and sales] to unilateral not only stimulates stock turnover, but also encourages retail investors to play the stocks as a long-term investment rather than for short speculative gains. If the stamp duty is applicable only to sellers of stock, buyers will be taught to see beyond just making a short-term profit.’

Government income from stamp taxes reached RMB200.5 billion in 2007, a 10-fold increase from 2006, and surpassing the dividends of RMB180 billion distributed by listed companies.

Australia is the only other country that levies such a tax bilaterally. Our illustration is of a small investor immediately after the introduction of the bilateral stamp tax.
Source: Asia Times Online

Edinburgh-based Scottish Widows Investment Partnership — sadly known as Swip — is to launch a commercial property fund in China over the next two years.

The company itself is renowned in Britain for the way it ran an advertising campaign. The advertisements showed the Scottish Widow, plainly having been widowed at an untimely young age, looking positively scrumptious in her widow’s weeds. The latest model to don the cloak is Hayley Hunt, from Virginia Water in Surrey.

There is no suggestion that this epic campaign will be used in China, more’s the pity. Instead fund management group Swip, which already has about $14 billion of its $194 billion assets invested in UK and overseas property will be investing in China.

Leading the drive will be Malcolm Naish who joined Swip as head of property last year from DTZ Investment Management.

Swip’s plans are at an early stage, with the company talking to potential partners, including developers and investors who have a knowledge of the local market in China.

Malcolm Naish said: ‘I suspect we’ll invest in more developed markets on the Eastern seaboard of China, such as Shanghai, but that depends on which partners we find.

‘When you go into a market such as China you need access to the right people who understand how the system works. . . .

‘We’re currently assessing what cycle in the market China is at.

‘We’re more likely to launch institutional funds in the first instance, but we’re open minded about retail funds.’

He added: ‘Some property fund investors took fright last year but those who have ridden through this storm should see sensible returns over the longer term.

‘The current downturn looks different from those in the mid 1970s and 1989-90. The economy is more stable, for example.’

Swip is drawn to China include its growing and urbanizing population and high GDP, 9% per annum between 1995 and 2005, compared with 2.7% in the UK.

Not many UK fund managers have commercial property funds investing in China.
Source: The Scotsman