National Australia Bank bought 20% in Union Trust and Investment Limited, making it the first foreign investment in China’s trust sector.

The investment by nabCapital, NAB’s capital markets and institutional banking division, makes the bank the third largest shareholder in UTI. Neither party revealed the price for the transaction.

nabCapital’s CEO John Hooper said, ‘With UTI’s focus on property this deal represents an opportunity for NAB to bring our expertise in structured financing to China’s burgeoning market.’

NAB is one of the largest listed financial institutions on the Australian Stock Exchange and has strong experience in structured property finance, which brings together property, finance, equity capital markets and cooperative finance.

John Hooper said, ‘Our cooperative venture will concentrate on developing new products, particularly in infrastructure and construction - two tremendous growth areas in China. The bank will have a chair on UTI’s board and several other top management members in charge of risk management.

John Hooper is still quite optimistic about the country’s real estate sector, but shows little interest in investing in China’s banking sector.

He said, ‘For the time being, we have no plan to buy a stake in China’s commercial banks’ although he added NAB would like to be a more ‘active’ investor in the banking sector.

One of the largest attractions of UTI, according to John Hooper, is the company is relatively small, with high growth potential and sound corporate governance.

According to Wang Xichao, UTI chairman, the partnership will help the company explore creative businesses in QDII, infrastructure trusts, pension products, REITs and real estate trust funds.

In 2006, the company was one of two trust companies approved by the central bank to run REITs, on a pilot basis.
Source: China Daily

The official Shanghai Securities News reports, citing sources, that the China Development Bank, one of the country’s three policy banks, is planning to invest over RMB7 billion in Shenzhen Financial Leasing, taking a 90% stake in the latter.

The capital injection will make SFL the largest financial leasing firm in China.

Shenzhen Financial Leasing currently has registered capital of RMB716 million, with Hainan Airlines Group the largest current shareholder with a 21.66% stake.

Xi’an Aircraft Industry, the parent of Xi’an Aircraft International, also owns 18.16% of Shenzhen Financial Leasing.

In October 2007, State Grid, one of China’s two state-owned power transmission firms, said it was selling its 3.21%t stake in Shenzhen Financial Leasing for a minimum of RMB16.10 million.

State Grid said in a statement to the Shanghai United Assets and Equity Exchange that Shenzhen Financial Leasing reported a 2006 net profit of RMB11 million, compared with RMB1.26 million a year earlier.

In January 2007, China’s banking regulator issued new rules permitting qualified local and overseas-incorporated commercial banks to apply to set up directly-controlled lease finance companies. Leading domestic lenders including Industrial and Commercial Bank of China , China Construction Bank and Bank of Communications all of which have since established lease financing units.

China Development Bank has reportedly won central government approval to restructure itself into a commercial bank. The bank is expected to bring in strategic investors ahead of going public.
Source: Forbes

Computers crash. The computers of banks crash. It happens all over the world. The writer has been involved in one such crash when, after the code was dumped and inspected, at about the millionth line was the epic reminder phrase: ‘Something important must go here.’ A programmer had put it in as a reminder and then forgotten about it.

Banks strain the limits of IT and a rough rule of thumb is that the average utilization rate of host computers should not exceed 60%. The figure on the business systems at five major commercial banks in China stands at 67%.

When the Olympics open on August 8 there will be a surge of foreign visitors and they will be using their credit cards.

Beijing is expected to have 800,000 visitors from abroad and 900,000 domestic tourists during the Olympics. The city government has announced plans to install point of sale (POS) terminals at 90% of the retail outlets at or near the Olympic venues by the end of June.

Which could easily lead to a melt down.

Guo Ligen, vice-chairman of the China Banking Regulatory Commission (CBRC), in a statement on the commission’s website warned that a combined surge in card use and stock trading could overload the country’s electronic payments system. He Guo urged banks to have trial runs, beef up equipment and expand the operating capacity of their IT systems. He announced that the CBRC would inspect major banks’ IT systems between February and July.

Guo Ligen said, ‘We can’t bring the problems to the Olympics and spread hazards outside the banking industry.’
Source: Window of China

The China Banking Regulatory Commission (CBRC) reports the assets of China’s banking sector rose to RMB52.6 trillion yuan ($7.32 trillion) in 2007 from RMB43.9 trillion in 2006.

According to CBRC the state-owned Bank of China, China Construction Bank, the Industrial and Commercial Bank of China, the Agricultural Bank of China and Bank of Communications make up 53.2% of the total assets.

Twelve joint-stock commercial banks, including China Everbright Bank, accounted for 13.8%, while city commercial banks accounted for 6.4%. The remaining 26.6% were covered by other financial institutions.

CBRC figures showed China’s banking sector had total liabilities of RMB49.57 trillion in 2007, up 18.8% from the previous year.

State-owned commercial banks owed RMB26.43 trillion of the total debt, up 15.5%, and joint-stock commercial banks had RMB6.91 trillion, a rise of 31.5%. The remaining RMB16.22 trillion was owed by city commercial banks and other kinds of financial institutions.
Source: Window of China

Italy’s shipowners have tied up a ground-breaking accord with China that could open up an important new source of funding and help make the Export-Import Bank of China into a force on the European ship-financing scene.

Nicola Coccia, president of shipowners association Confitarma, said the agreement under which China Exim Bank would help finance Italian shipbuilding in Chinese yards was one of separate but related accords.

He said, ‘The first is a political/economic agreement, the necessary precursor to any significant involvement in China, with the Shanghai Federation of Industrial Economics, which oversees the Shanghai economic zone.

A second agreement, between Shanghai Maritime University, Confitarma and classification society Rina, concerns technical cooperation.

The Chinese institution will focus on areas of study valuable to the two Italian organisations, and the latter will train and use technicians from the university in certain shipbuilding disciplines rather than transferring expertise from Europe.

Nicola Coccia noted that of 240 ships ordered or now under construction for Confitarma members, 70 were at Chinese yards for a total investment of around $3.5bn.

Vessel orders aside, a number of Italian shipping- and transport-related businesses have growing interests in China, including Rina, which has close ties with the Chinese shipping registry.

For Italy’s shipowners, the China connection is a neat response to the increasing constriction of the credit environment.

In our illustration is Nicola Coccia and Zhu Wengen, president of the Shanghai branch of Exim.
Source: Lloyds List

Yes, there was somewhat bad news. China uncovered RMB860 billion ($118.6 billion) in financial irregularities last year. This was reported on the China Banking Regulatory Commission Website. 117 bank managers had been removed from office.
Now for the good news:

Profits for Chinese banks grew to RMB298.7 billion at the end of 2007, up from RMB36.4 billion 2002, when the CBRC started operating.
Irregularities were down 58.4% from a year ago.
The average bad loan ratio for major Chinese banks dropped to 6.7% at the end of 2007 compared with 23.6% five years ago.
The total assets of Chinese banks’ topped RMB52.6 trillion at the end of 2007, from 2002’s RMB23.7 trillion and up on the previous year’s RMB43.95 trillion.
At the end of 2007, five Chinese banks have control or hold stakes in overseas financial players.
Seven Chinese banks have 60 overseas outlets with overseas assets topping $167.4 billion.

The regulator said it will draw lessons from the U.S. subprime crisis to improve its overseeing of new, innovative finance products.
Source: China View

Individual investors will be able to buy stakes of 2% in rural lenders, up from the existing 0.5%, as the government tries to boost rural financing.

Zang Jingfan, a senior official with the China Banking Regulatory Commission (CBRC), said the policy is part of new guidelines for the reform and opening of its rural cooperative fund associations — currently the lowest-level organizations in China’s financial system.

The regulator will also allow cross-provincial investment in rural cooperative fund associations as part of efforts to boost the development of rural lending.Investors from outside rural areas will be encouraged to invest in the cooperative fund associations.

According to the central bank, loans from county and village cooperative fund associations, the country’s main channel for rural financing, account for 12.3% of China’s total outstanding loans balance.

According to China’s Law on Commercial Banks, the lowest registered capital for establishing a national commercial bank is RMB 1 billion while that for a city commercial bank is RMB100 million. To start up a rural commercial bank, it calls for only RMB50 million.

Under new rules:
If you have RMB3 million, you can establish a village and township bank at a county seat.
If you have only RMB1 million, you may set up a village and township bank in a town or a township.
If you have less than RMB1 million but you still want to be a banker, you may go to a village to open a credit cooperative with the same functions as a bank.

She Minhua, an analyst with CITIC China Securities, said, ‘These new policies are expected to encourage more investors to set up rural cooperative fund associations, which are extremely lacking in funds.’

Jiang Dingzhi, vice chairman of CBRC, said the regulator is supporting qualified lenders in rural areas to introduce strategic investors and get listed.

Fifteen rural commercial banks have been established based on the reform of rural cooperative fund associations. Four of those, located in Zhangjiagang, Changshu, Wujiang and Jiangyin, all in Jiangsu Province, plan to launch initial public offerings.

CBRC also launched a pilot program last year to encourage community and foreign funding for financial institutions like village banks and loan companies.

Chinese farmers and rural companies have few financing channels for their businesses. According to the Xinhua News Agency farmers rarely obtain loans above RMB5,000.
Source: China Daily Review

BusinessWeek has a serious and well-balanced article by Ken DeWoskin, senior advisor to PriceWaterhouseCoopers, professor emeritus at the University of Michigan and a co-founder of the Wharton International Forum in Shanghai, on China’s investments overseas.

Setting the scene the article reminds us that in 2007, China will surpass the US as the world’s second-largest exporter, and in 2008, it will surpass Germany, the largest. By the end of September, China had exported nearly US$900 billion in goods.

All of this has happened in about 30 years: then China was entirely disengaged from the global trading system. Now it is all on an upward climb.

Between October 2006 and June 2007, China’s reserves soared US$330 billion to reach US$1.33 trillion, and now stand at nearly US$1.5 trillion.
As export growth rate reached 28%, the current account surplus expanded to 9% of GDP.
The pressure in China is growing, both to drain liquidity from the domestic economy and find more profitable uses for its forex reserves.

The China Investment Corporation (CIC), was formally launched October 1 with US$200 billion in assets.

It will follow in the footsteps of Singapore’s two sovereign funds and also learn from the experiences of other domestic entities like China Development Bank (CDB) and the CITIC conglomerate.
For the full article click on Source.
Source: BusinessWeek

For the 10th time this year China will order banks to raise the amount of reserves they keep on hand in order to curb inflation and prevent the economy from overheating.

The central bank said it had ordered banks to increase the reserve ratio by a full percentage point, to 14.5%, in an effort to curb lending. It was the largest single increase in the reserve ratio in four years.

Analysts said the move showed that Beijing was growing increasingly worried about growing inflationary pressure and the threat of a meltdown before next summer, when Beijing is set to hold the Olympic Games.

This year, a fast-growing economy has taken flight, growing by as much as 12% with China piling up another year of record trade surpluses with the rest of the world, particularly the European Union and the United States.

China is under mounting pressure to appreciate its currency, which some economists say may help ease those trade gaps and better balance the global economy. But China has largely resisted that pressure, saying it has already allowed its currency to gradually appreciate, up about 10% since 2005.

Over the past few years, Chinese stock prices have risen more than 300%, investor frenzy has turned mad and initial public offerings have created more than 100 new billionaires, at least on paper.

In a report, Hong Liang, an economist at Goldman Sachs, said the larger-than-usual increase in the reserve ratio should strengthen the credibility of the central bank but could also hurt share prices.
Source: International Herald Tribune

Chinese officials held a high-profile meeting in Beijing to review economic strategies for the next year. Window of China reported that the primary concerns of Chinese people with the future economy are reflected in the following catchphrases:

CPI. China’s consumer price index, an inflation indicator, was pushed up to 4.4% in the first ten months. Monthly CPI was above 6% for three straight months from to August to October. The National Bureau of Statistics has forecast the annual CPI at 4.5 to 4.6% this year.
Energy conservation and emission reduction. China has earmarked RMB23.5 billion (US$3.18 billion) to save energy and reduce emission. Concrete measures are paying off, as the energy consumption per GDP unit fell by 3% in first three quarters.
Low rent housing. The housing prices of 70 large and middle-sized cities in China surged 9.5% year-on-year in October alone.
Interest rate rises. China raised the benchmark interest rates by 27 basis points to 3.87% and 7.29% respectively for deposit and loan from September 15, the fifth time the country has done so this year. The move did not end China’s negative real interest rate, but it helped to offset the influence of high inflation on people’s money in bank.
Renminbi appreciation. The Chinese renminbi hit a new high of 7.3872 against the U.S. dollar on November 27.
Shanghai Composite Index.China’s benchmark Shanghai Composite Index rocketed to over 6,000 points by October this year from below 3,000 points in January.
Property income. Property income refers to the capital gains from bank deposits, securities, real estate, automobiles and collections. Currently, China’s per capita property income contributed only 2% to the country’s per capita disposable income on average after it rose 26.5% to RMB240 (US$32) last year.
Unified company income rate. The enterprise income tax law, adopted by Chinese legislature on March 16, set unified income tax rate for domestic and foreign companies at 25%. The new tax on foreign firms is still a moderate one compared with many other countries.

The editor for this splendid piece was Yan Liang. Click on Source to read a much fuller version.
Source: Window of China