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

Country Garden, one of China’s biggest property developers, has postponed a planned $1bn-plus global bond issue.

The company, which was getting money from international debt markets for the first time, was offering 10-year US dollar-denominated bonds at a yield of 10% and 5-year bonds at 9.25%. Asian and European investors responded positively, and $1.1 billion in commitments was secured by the end of the first day negotiations were possible.

But the sub-prime problem — read shonky mortgages given by daft lenders — keeps getting bigger. In the United States, at the end of the first day only an additional $100,000 in orders had been secured, prompting Country Garden to cancel its offering.

One comment was, ‘It was probably the worst environment in five years.’

Country Garden was planning on using funds raised to fund new projects and repay short-term loans, but it is probable that will now not happen until next year.

Our picture is of Yang Guoqiang, Country Garden’s founder and chairman, in happier times.
Source: Financial Times

Fixed-assets investment is showing no sign of slowing, with year-on-year growth of 26.7% from January to August.

The National Bureau of Statistics said RMB6.6 trillion was pumped into new projects in the period, and more than one-fifth of the money was channeled into real estate.

Fixed-assets investment growth has slowed from around 30% last year to the current 26.7% in the previous eight months.

But it is still higher than the 25% set by economists as the warning line.

Property developers and local governments are still driving fast-paced growth. The central government has listed curbing fast investment, the trade surplus and high inflation as its major targets for macroeconomic control.

Meanwhile, property prices are still going up. The National Development and Reform Commission said the average housing price in 70 major cities had increased by 8.2% in August compared with the same period last year.

Property developers poured RMB1.42 trillion into the economy in the first eight months, 29% more than the same period last year.
Source: China Daily

Sino-Ocean Land Holdings is the first of three Chinese developers expected to go public in Hong Kong in the coming month. It will also be the largest of the three and with a size of between $1.3 billion and $1.5 billion, the biggest IPO in Hong Kong since investment holding company Fosun International’s $1.48 billion IPO.

The initial plan was to do a deal of only about half the current size, but a combination of the company’s growing land bank and rising valuations at other property developers, pushed the size up.

This large an offering might seem something of a challenge but initial feedback from investors has been extremely positive.

To instill confidence among institutional investors and help create some early momentum in the book, 10 cornerstone investor groups have been signed up, although they will only take up between 16% and 18.5% of the total deal.

Among them are the Government Investment Corporation of Singapore, Henderson Land Development, China Life Insurance and hedge fund Och-Ziff, which will each invest $30 million. The other six will each buy $20 million worth of shares which gives $240 million to give it a running start.

Sino-Ocean has a strong position in the Beijing market, but investors are interested in its movement into the so called Pan-Bohai Rim. This area includes Beijing as well as major second tier cities Tianjin, Dalian and Shenyang in the northeast of the country.

This is expected to become the next zone in China to see substantial economic growth thanks to extensive government support.

The illustration? It comes from the Sino-Ocean site and is a sculpture/decoration in one of the company’s developments. I think. Am almost sure.
Source: FinanceAsia.com

Sino Ocean Real Estate Development, partly owned by China’s largest shipping firm, COSCO International, will make an initial public offering, an IPO, worth up to $1.3billion on the Hong Kong stock exchange.

The Chinese property company will start pre-marketing next week (What does pre-marketing mean? Letting the big players in early for a slice of the pie) and aims to raise somewhere around a billion dollars. In doing it this way — no formal announcement — it is testing the water after weeks of world stock market turmoil.

Hong Kong stocks have galloped 17.6% since China allowed mainland individuals to invest in Hong Kong stocks. This, in turn, encouraged Chinese companies to move forward with plans to list on the Hong Kong exchange. In a sense it gives access two worlds of money — China and Hong Kong.

Y.K. Chan, a strategist at Phillip Capital Management in Hong Kong said, ‘After recent stock market volatility, investors will be more selective about investing in IPOs, as they are not willing to lock up the money for buying IPOs. Instead, they will prefer investing in the secondary market.’
Source: The Star Online

Three of China’s biggest blue-chip companies will probably press ahead with domestic stock market listings which could raise a combined $17 billion.

China Mobile, China Construction Bank (CCB) and PetroChina are all examining share offerings on the Shanghai Stock Exchange, each of which individually would rank as the world’s largest so far this year.

Last week’s slump in the world’s markets had little effect on Shanghai. It appears the three companies will continue to monitor market conditions and perhaps delay the IPOs if need be.

Preparations for the flotations come amid a debate about China’s exposure to the sub-prime mortgage crisis that has helped trigger the contagion in international stock markets in recent days. So what is the sub-prime crisis and how did it happen? What follows is a step-by step description.

It starts in the United States and has a knock-on effect elsewhere. The question will be how far it will go. This crisis was caused in a series of linked stages. This is it, stage by stage:

In the US millions of sub-prime mortgages were granted to borrowers with poor credit records. These mortgages were sold aggressively, not wisely granted.
Major US banks then packaged them into new instruments called CDOs which sliced up the risk and these were sold in pieces to investors around the world.
Big buyers are hedge funds which see these as low risk investments.
Investment banks set up off-balance sheet vehicles — it does not show on their accounts — called structured investment vehicles which buy into the CDOs.
That is the pyramid. Now the first part collapses. Home owners, who have lousy credit records, start defaulting on their loans. Which makes the constructed investment vehicles high instead of low risk instruments.
Hedge funds, caught between a rock and a hard place, go bust. Banks get the serious wobbles. Suddenly there is a liquidity freeze.
Confidence is eroded and this spreads from the United States to Europe and Japan. Emergency funds are used to maintain liquidity.
As companies go to the wall there is a worry that this is the start of a global recession.
This may mean in many places that property markets will crash in the United States, and perhaps Europe, as liquidity dries up.

Media reports in Hong Kong quoted Yi Xianrong, a finance expert at the Chinese Academy of Social Sciences, as saying the underlying quality of home loans in China was worse than in the United States.

There seems no doubt the effect in China will be far, far less than in, say, the United States.

Lan Xue, an analyst at Citi in Hong Kong, said fears China would be heavily impacted were overblown. He said: ‘China is growing in importance globally, but its economic growth is still heavily dependent on domestic factors. We believe the US sub-prime crisis will have only a limited impact on China’s economy.’

Last week’s slump in markets around the world seems to have had little effect on Shanghai. So it is all a worry but the knock-on effect in China will probably be very small.
Source: Daily Telegraph and research.

Although the vast amount of comment around the world is that China is the boom economy and that, while there may be adjustments, it has such large foreign reserves it is insulated against the sort of financial crisis that rocked Asia about ten years ago.

Nevertheless all economists love playing a game which is ‘what if’ and they tend to be on the gloomy — which is to say the safe — side with their predictions.

The questions are asked: What if China’s export engine suddenly seized up? What if the resulting overcapacity exposed a new crop of bad bank loans? What if share and property prices plunged, sapping confidence and triggering capital flight that rattled banks and hit the renminbi?

This is a most unlikely scenario but economists love dabbling in this area.

One dramatic view: Stephen Jennings, head of the Russian investment bank Renaissance Capital, said in Moscow that China’s double-digit growth and soaring equities could drop so hard that it would make the 1998 emerging markets crisis look like a storm in a teacup.

He said, ‘The 8.5 earthquake on the Richter scale that will affect all of us — to me it’s China.’

Economists agree that the longer imbalances and liquidity build up because of the renminbi’s semi-fixed exchange rate, the greater the risks.

Nouriel Roubini, head of Roubini Global Economics and a New York University economics professor, suggests that if in the United States there is a a hard landing this could act as a trigger for a possible China crisis.

The ensuing slowdown in China’s growth could lead to a surge in bad loans, while a slump in share and real estate prices could wipe out enough wealth to dent residential construction.

He said, ‘The risks are that these things at some point — not in the very short term — get out of hand and then become a serious macro and financial problem to manage.’

China has spent as much as $500 billion since 1998 beefing up its banks, and its public finances are strong enough to rescue them again.

Nouriel Roubini agrees with this. He said recently in Beijing, ‘Of course fiscal resources could be used to help the banks. But at that point the risk is you get a credit crunch that has negative effects on the financial system and on the real economy regardless of the ability of the government to bail out the banks.’

Eswar Prasad, a professor at Cornell University in Ithaca, New York, argued that China’s ‘dysfunctional’ financial system might not be robust enough to withstand a big shock.

Prasad, a former International Monetary Fund researcher, identified a sudden reversal of capital inflows — caused perhaps by a loss of confidence in the banking system or social instability generated by rising inequality — as a vulnerability.

Monetary policy is a country’s first line of defense in the event of an economic shock. But Eswar Prasad said, ‘It’s a potential risk. One wouldn’t want to overstate the case. But, in terms of thinking of scenarios, it’s illustrative of the fact that even a small change in people’s preference for holding banking deposits could, because of the fragilities of the system, become something much larger.’
Source: International Herald Tribune

China Properties Developments recently announced results for the fiscal year ended December 31, 2006.
Through its majority owned subsidiaries, is primarily engaged in the acquisition and development of land holdings, and the development, sale, rental, and management of mixed-use residential, commercial and office properties in the City of Xi’an, the capital of Shaanxi Province in the People’s Republic of China.

— For the year ended December 31, 2006, revenue was $4,733,773 compared to $4,510,328 for the year ended December 31, 2005.
— Gross profit for the year ended December 31, 2006 was $1,439,912 compared to $1,127,582 in the comparable period in 2005.
— Net loss for the 2006 year period was $124,487 or $0.01 per share, compared to net income of $420,129 or $0.02 per share, in the comparable period of 2005.
— Comprehensive loss for the 2006 year period was $209,790 or $0.01 per share, compared to comprehensive income of $347,962 or $0.02 per share, in the comparable period of 2005.

Ping’an Wu, Chairman, President and CEO of China Properties Developments, Inc. said, ‘We are pleased to announce our financial results for 2006. 2006 was another milestone year in the development of China Properties as during the year we completed development of the Yangming International Tower, announced the acquisition of Shaanxi Xinyuan Real Estate Co. Ltd and their Yan-Ta Shopping Mall property, and engaged Sandler O’Neill Mortgage Finance introducing broker. We are very excited about plans for the rest of 2007.’

In Xi’an the company has completed development of the Jiahui Office Building, Oufengyuan Office Building, Jixiang Garden Residential Project and Yangming International Tower. Currently there are three specific projects that are in various stages of negotiations and planning, they are: Garden Villa, Bali Village and the Great Tang Hibiscus Garden.

The Company recently entered into an agreement to acquire Shaanxi Xinyuan Real Estate, developer of the Yan-Ta Shopping Mall.
Source: Business Wire