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

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

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

China received $74.7 billion in foreign direct investment in the non-financial sectors last year, ahead of all developing countries for the 15th successive year.

The Ministry of Commerce said the figure reflects a year-on-year increase of 13.59%.

Total foreign direct investment (FDI) — including capital flows to the financial sectors such as banking, insurance and securities — was $82.7 billion in 2007, up 13.8 % from a year earlier.

Wang Zhile, director of the Multinational Enterprise Research Center affiliated to the Ministry of Commerce, said, ‘The growth is higher than my expectations. It shows China’s role as a crucial link for multinationals’ global manufacturing, purchasing and research.’

This year may well be a bit different.

Income tax rates for domestic and foreign companies were unified at 25% from the beginning of 2008. Prior to this, domestic companies paid 33% income tax while foreign companies, which benefited from tax waivers and incentives, paid an average of 15%.

The effect will be considerably muted by the fact that foreign companies registered before the new rates took effect will pay tax at the preferential rate for another five years.

It is true that foreign investors are also paying more for labor and material costs, such as oil, plastics and steel, and face tighter policies on polluting and resource-intensive industries. On the other hand, China has, by a considerable margin, a more attractive manufacturing climate — not using that in the weather sense — than any country in the west and this is likely to last for many more years. It is expected that China will continue to be a magnet for foreign development and investment as Beijing’s policies to woo foreign investors and open up continue.

Wang Zhile said, ‘The Chinese leadership assured foreign investors at the 17th Party congress late last year that China will stick to its reform and opening-up policies. It is taken as a good opportunity by many foreign investors.’
Source: China Daily

Taiwan and the mainland have taken a big step towards dismantling one of the biggest remaining barriers to cross-strait economic ties by reaching an initial agreement to allow Taiwanese banks to buy stakes in mainland banks through subsidiaries in Hong Kong.

Taiwanese companies are among the biggest foreign investors on the Chinese mainland, with more than $150 billion in assets but Taiwan law bans banks from investing in the mainland.

Banking regulators in Taipei and Beijing have now agreed that Fubon Bank, one of Taiwan’s largest lenders, can take a 20% stake in Xiamen Commercial Bank through Fubon’s Hong Kong subsidiary.

The Hong Kong Monetary Authority (HKMA), the territory’s central bank, will act as an intermediary for supervisory information. People close to the agreement said the Fubon investment would act as a ‘case study’ for future possible tie-ups.

It is not clear when the mainland will signal its final agreement although there is a suggestion it could come in late March.

Fubon bought Hong Kong-based International Bank of Asia in 2003, but has failed to get approval from Beijing for its subsidiary to acquire a stake in a mainland bank.

The illustration has  nothing to do with the story, although it is a role playing character called ‘Fubon’. Better looking than a bank any day.
Source: Financial Times

The Australian government is closely watching both domestic and international developments surrounding takeover interest in Australian resources company Rio Tinto although the Finance Minister Lindsay Tanner refuses to speculate on any outcome.

The government led by Prime Minister Kevin Rudd has released guidelines for foreign government-related investment proposals, indicating it will look more favorably on proposals from entities that have clear commercial objectives and operate at arms length from their country’s government.

The release of the guidelines comes after Aluminum of China, also known as Chinalco, and Alcoa recently complicated BHP Billiton’s bid for Rio Tinto by buying up a 12% stake in Rio Tinto’s London-listed stock, representing 9% of the whole group.

The Chinese group has submitted a voluntary application to Australia’s Foreign Investment Review board for approval of its investment in Rio Tinto, although Chinalco President Xiao Yaqing said earlier this month his company has no plans to increase its stake in Rio Tinto.

Earlier this month, BHP Billiton made a bid for its mining giant rival that values Rio Tinto at $163 billion.
Source: Sydney Morning Herald

The Ministry of Finance said adjustments to import and export duties have ‘played a positive role’ in containing the country’s expanding trade surplus. In a statement posted on its website, the ministry said China’s trade surplus growth slowed markedly the second half as a result of the measures taken.

The ministry said that from August to October, China exports’ year-on-year growth was 6.1 percentage points lower compared to the first seven months of the year, while trade surplus growth decreased by 50 percentage points.

Since November 2006, China has cut import duties several times on products the country needs urgently while beginning to levy or increase taxes on exports of natural resources or products whose manufacture is energy-intensive or highly polluting.

China — previously a net coal exporter — became a net importer in the first 10 months this year, due to lower import taxes, the ministry added.

The General Administration of Customs said earlier this month that China recorded a trade surplus of $26.28 billion in November, up 14.7% year-on-year. The figure was up 52.2% to $238.13 billion in the first 11 months.

Exports rose 22.8% year-on-year to $117.62 billion in November and 26.1% in the first 11 months to $1.1036 trillion. The illustration ciomes from China Venture News which probably had the same problem finding an appropriate illustration as we did.

Beijing has agreed to allow foreign firms to issue RMB-denominated securities in China.

China has pledged, under the securities agreement, to allow foreign invested companies to issue RMB-denominated stocks and bonds.

US Treasury Secretary Henry Paulson, seen here, told reporters after the close of the semi-annual Strategic Economic Dialog, ‘There is clearly demand for . . . any company doing business in China and be able to finance yourself in renminbi.’

Henry Paulson provided no timetable for introducing the change, saying only he expected it to be ‘rolled out gradually.’

Other agreements that were reached:

China has agreed to tighter supervision of manufacturers of food and drug products following a spate of product safety scares in recent months.
China has raised the investment quota for foreign institutional investors in China to US$30 billion from US$10 billion.
The two sides will embark on a 10-year period of intensive cooperation on energy issues and the environment.
China and the US pledged greater cooperation on developing biofuels, low-sulfur fuels and other low-pollution fuel sources.
Cooperation on combating illegal logging of timber worldwide to help protect forests and aid the fight against climate change, as trees help to absorb harmful carbon dioxide emissions.

Source: China Confidential

Lou Jiwei, Chairman of CIC said in London that China’s sovereign assets fund, China Investment Corporation (CIC) will serve as a stabilizing factor in the global financial market with its long-term investment strategy.

Lou Jiwei, who controls a US$200 billion investment fund, said, ‘We will adopt a long-term and prudent investment principle and a safe, professional portfolio strategy that adapts to market changes, which will put emphasis on a rational match of returns and risks.

‘Judging from our investment strategy and scale, we are unlikely to present a major impact on the international market.’

That is because one-third of CIC’s US$200 billion was used to purchase Central Huijin Investment Company while another third is being put aside to be invested in state-owned banks that are to be restructured into joint-stock companies. The remainder of the capital, some US$70 billion, is available for overseas investing, Lou told the London City’s financial leaders at a banquet given in his honor. The new sign of the City of London is shown in our illustration.

He said, ‘Even the 70 billion dollars must be invested by batches, in a wide range of portfolios, over which we do not seek control.’

He said CIC is more than happy to learn the managerial expertise and best practices of financial institutions, including those in the City of London, particularly the proven experiences concerning sovereign wealth funds.

Lou Jiwei said, ‘As a manager of sovereign wealth funds, I do not expect the over-use of national security as a pretext for investment protectionism and financial protectionism to damage the stability of international economy and finance.’

Lou is leading a six-member delegation on his three-country tour. After his three-day Britain visit, he will go to France and Singapore.
Source: China View