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

Chinese oil rig manufacturer Honghua Group plans to raise up to $480 million in a Hong Kong initial public offering. Honghua, which had pushed back its IPO in January due to poor market conditions,is offering 833.36 million shares, or 25% percent of its enlarged share capital.
If it happens as planned Honghua will be the first company to tap the Hong Kong market with an IPO since the Lunar New Year.

At the same time, China Railway Construction (one of its products is the illustration) is marketing its Hong Kong and Shanghai IPO, which is expected to raise a combined $4 billion in what would be the world’s biggest IPO this year.

Although the market is still down 14.6% this year, a successful Honghua or China Railway Construction listing would encourage other firms that had postponed IPOs to relaunch their deals.

A warning note was struck by Adam Tam, fund manager at Pacific Sun Investment Management, who said, ‘Market sentiment has not fully recovered yet. Fund-raising activities are still difficult, as investors are very selective.’

Other forthcoming IPOs include food and beverage producer Want Want Holdings, which is premarketing for a $1 billion IPO.

Chinese department store Maoye International is expected to relaunch its IPO after Goldman Sachs added UBS and HSBC as sponsors for a deal that was set to raise up to $905 million before it was pulled in January.
Source: Reuters

Chinese share prices closed about 7% lower as investors dumped stocks after last week’s sell-off on Wall Street amid lingering fear of a US recession.

On Friday, the Dow Jones Industrial Average fell 1.38% to 12,207.17, ending a two-day rally boosted by the US Federal Reserve’s emergency federal funds rate cut of 0.75 percentage points.

China’s main stock index plunged 7.19%, its fourth biggest drop this decade, because of sliding global markets and heavy snow across central and eastern China, which is disrupting food and energy supplies.

The benchmark Shanghai Composite Index, which covers both A and B shares, plunged 342.39 points. The fall neared last Tuesday’s 7.22%drop, the highest percentage points loss in 7.5 months.

A Bohai Investment analyst said the once isolated domestic market was now more influenced by other world markets.

He added there was little buying interests as investors expected the US subprime mortgage crisis wouldn’t be tackled in a short time.
Source: China Daily

The National Development and reform Commission (NDRC), China’s top economic planning body, has urged local authorities to watch out for the effects of inflation.

Bi Jingquan, deputy minister of NDRC at a national meeting on the price supervision held Friday in this capital of south China’s Guangdong Province, said, ‘When the price of a certain product increases sharply, measures should be made immediately to curb its spreading effects. The rising margin of the price should be strictly controlled, when it surpasses the increasing range of its cost.’

He said that the combination of price rises on the global market and the exorbitant money supply on the domestic market will make it difficult to totally contain inflation next year.

Yao Jingyuan, chief economist of the National Bureau of Statistics and seen here, said the consumer price index, a major gauge of inflation, is likely to climb 4.7% in 2007.

Bi Jingquan said price supervision by market regulatory authorities will be one major way of stabilizing market prices.

He warned local price regulatory authorities to watch out for situation which might encourage inflation such as the Spring Festival (China’s Lunar New Year, which will start on Feb. 6, 2008), the Olympic Games in August and the National Day holiday in October.

He asked local authorities to check irregular price rises,
Source: China View

In The Economist there is a quite fascinating and somewhat doom-laden article on the risks presented to China by the dollar falling further in value.

William Buiter notes that:

If the dollar falls by another twenty or thirty percent, which is certainly possible, the Chinese and Japanese authorities would each be presenting their tax payers with a further $200bn to $300bn capital loss. That’s a heavy price to pay for access to US markets for your exports, especially for a poor country like China. . .

He continues:

The bind they’re in is an impossible one. If China (and other dollar holders) do not adjust their currencies, they can expect no relief from the inflation that’s recently attacked their economies. At the same time, continued depreciation of the RMB against the Euro may soon anger European nations, which are beginning to absorb many of the Chinese imports once destined for American shores.

If China and other dollar-heavy nations do allow for adjustments, even minor ones, then the dollar could plummet, instantly slashing the value of their foreign exchange portfolios. Neither option is particularly appealing.

This may well be called a rock and a hard place economic theory.
Source: The Economist

China’s world-beating rally might be a “bubble” ready to burst, said Alan Greenspan, the former U.S. Federal Reserve chairman, and he is supported in this view by Li Ka-shing, Asia’s richest man. The billionaire investor Warren Buffett, chairman of Berkshire Hathaway, last month urged investors to be ‘cautious.’

Tim Leung, a fund manager at IG Investment in Hong Kong, said, ‘If there is a slump in China, the risk of investing in some companies whose earnings are closely linked to the market will increase. When there is a slump in the market, retail investors do much less trading.’ Tim Leung said he did not own China Finance shares.’

All this because China Finance Online may lose its rank as the best-performing foreign company listed in the United States.
American depositary receipts for the company, China’s biggest provider of online financial data, have dropped more than 30 percent this month, as the nation’s benchmark CSI 300 index fell 12%.

Li Ka-shing, chairman of Hutchison Whampoa, said in May that the Chinese stock market ‘must be a bubble.’

Asked if China was in a state of ‘irrational exuberance,’ Greenspan told a conference of insurance executives in Boston on Oct. 30: ‘I think so.’
Source: International Herald Tribune

There are various ways of measuring the size of a company and one is market capitalization. On that basis PetroChina is now the biggest company in the world. It is also the first trillion US dollar business.

This came about because the stock was part of an IPO, an initial public offering, on the Shanghai Stock Exchange. The shares were oversubscribed about 50 times and the price immediately soared to 2.6 times the initial offering. (The thought arises that someone should seriously inquire how the stock came to be put on the market at such an under-valued price. And whether there were any major stock sales made before the public offerings were made.)

This is all part of an astounding surge on Chinese stocks where, in a year, share values in Shanghai and Shenzhen have risen 170%.

Using this as a guide the top ten companies in the world now include five corporations owned by the government of China and only three firms from the United States. The two others are the Russian Gazprom and Royal Dutch Shell which is Dutch-British.

However, this is not the time to break out the champagne. If you use another way of measuring you come to different figures.

You work on the number of times earnings in order to find a company’s worth. In publishing, the figure used is typically eleven times although allowances are made for special circumstances. The American Standard and Poor’s measurement. which is widely used although thought by some to be a tad conservative, uses an average of 16 times annual profit.

The leading Chinese index of the top 300 listed corporations has them valued at 43 times earnings.

Or you can look at a seriously canny investor, Warren Buffett. He is always in the top five richest people in the world and is big mates with Bill Gates. He sold out all of his PetroChina holdings. And, not incidentally, made 800% from his initial investment which was around US$488 million. He was attending a conference in Dalian last week and warned that the Chinese share market had become ‘too hot’ even for him.

Although one knew of the growth and growth of China and its exports it comes as a surprise to read that China Life Insurance has passed AT&T in market value, giving China five of the world’s 10 largest companies. The United States only has three.

Allowance must be made for the fact that many, most?, of the world’s financial analysts says China’s stock is overvalued but it it nevertheless astounding to see that in the area by which the United States judges the rest of the world — the stock market — China reigns supreme.

China’s stock rally has almost tripled its benchmark index this year. China’s households are pouring more of their $2.3 trillion savings into shares to beat inflation, which exceeds the return on bank deposits, and to profit from the world’s fastest growth among major economies.

Beijing-based China Life, the nation’s largest insurer, gained 1.1% in Hong Kong and added 6.7% in Shanghai valuing the company at RMB1.94 trillion yuan, or $259.1 billion.
China Life, PetroChina Co., China Mobile, Industrial and Commercial Bank of China and China Petroleum and Chemical are now in the list of the world’s 10 biggest companies by market value.
However, as an indication to the skew in valuations only two of those are in the top 50 by sales.

The CSI 300 Index, which tracks shares traded on the Shanghai and Shenzhen stock exchanges, has risen 170% this year, the best performance among 90 global benchmarks tracked by Bloomberg. Hong Kong’s Hang Seng Index, which is dominated by Chinese companies, has gained 58%.

Only China Petroleum and Chemical, or Sinopec, and PetroChina are among the world’s biggest 50 companies by revenue.

Investors pay 78 times estimated full-year profit for China Life in Shanghai and 42 times in Hong Kong. That compares to 9.3 times for New-York-based American International Group, the biggest U.S. insurer, and 8.4 times for Europe’s largest, Munich-based Allianz.

China’s CSI 300 benchmark is valued at 43 times estimated earnings, compared with the average 29 times for Chinese companies on the Hang Seng China Enterprises Index, according to data compiled by Bloomberg. In the U.S., home to the world’s biggest stock market, the S&P 500 Index is valued at 16 times.

Fraser Howie, co-author of the book Privatizing China: The Stock Markets and Their Role in Corporate Reform, said, ‘Chinese companies are far too expensive from any rational measure. It’s a bubble and in a bubble things are priced wrongly.”

Leslie Phang, who helps manage $1 billion at Commonwealth Private Bank in Singapore, said, ‘It’s pretty unnerving. It’s all building into one big bubble. The Chinese companies are trading on euphoria.”

On the other hand Marc Faber, who manages $300 million at Marc Faber Ltd. in Hong Kong, said, ‘European countries were also surprised at the beginning of the 20th century when American companies overtook European companies. The world better get used to it.’

Source: Bloomberg

China has its own problems with an over-heating economy. But it is also concerned on a global scale.

Wu Xiaoling, deputy governor of People’s Bank of China said at the 16th meeting of the International Monetary and Financial Committee, said ‘Activities in the major advanced economies slowed in the second quarter of 2007, posing significant downside risks to global growth.’

She warned that credit market retrenchment in the United States may further dampen the housing market, suppressing consumption and investment, giving rise to potential risks of recession with a spillover effect on other countries.

Wu Xiaoling said, ‘It is all the more urgent a priority to strengthen surveillance of the systematically important advanced economies in order to safeguard global financial stability and economic prosperity.

‘This round of adjustment has not yet come to an end. Despite the major central banks’liquidity injection, credit conditions are unlikely to be restored within a short period of time.’

As to Chinese economy, Wu Xiaoling said a major task for the Chinese government is to prevent overheating.

She said, ‘The Chinese government has taken measures to strengthen macroeconomic management, improve investment structure, increase fiscal expenditure in social sectors, boost domestic demand, and speed up reform in the financial sector.’
Source: China Daily

Credit risk is the biggest concern facing China’s domestic banks. This according to China Banking Regulatory Commission chairman Liu Mingkang, seen in our illustration, who said it is essential to solve the biggest concern — credit risk — faced by the banking industry.

Domestic bank loans have reached RMB3.36 trillion in the first three quarters, which is more than total bank lending last year.

The People’s Bank of China has said banks’ reserve requirement ratio will be raised for the eighth time this year, aiming to further reduce liquidity in the market. The rate, effective as of this week, will reach 13% from the current 12.5%.

Liu Mingkang said during the Chinese Communist Party’s 17th National Congress in Beijing, ‘Though banks may lose some customers because of the government’s cooling measures, banks in the long run will benefit.’
Source: Standard