Finance Markets

June 16, 2005

BofA buys into CCB

Filed under: Companies, Countries & Regions, US, China
BofA buys into CCB

It will be announced in Beijing on Friday that Bank of America has agreed to purchase a 9 percent stake in China Construction Bank for approximately $2.5 billion.

BofA is also expected to invest $500 million more in CCB’s upcoming initial public offering.

In return for its purchase, the largest foreign investment in the Chinese banking sector to date, BofA is expected to receive one seat on CCB’s board.

CCB has been looking for a foreign investor for some time, but the search has been complicated by the reluctance of foreign companies to invest in Chinese banks over concerns about bad debts, corruption, and management issues.

Also at issue has been the large size of investments required, with very little return in terms of having a say in management.
Several international banks are thought to have been approached by CCB about buying into the bank before its IPO.

Bank of America has been looking for further growth opportunities overseas after it bought a 25 percent stake in Mexican bank Grupo Financiero Santander Serfin in 2003. BofA currently generates only 6 percent of its revenues outside the US.

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EBay opens up to China

Filed under: Companies, China

EBay has announced plans to facilitate easier access for manufacturers of Chinese goods to its online auction site.

The announcement on Thursday said that eBay has joined with Singapore-based Global Sources, a business-to-business media company that assists Asian companies in reaching potential customers worldwide.

The plan will let eBay’s most active users - “powersellers” - access to Chinese-made products for resale online.

Powersellers are e-Bay users who sell $1,000 or more worth of goods online every month and who have earned a high satisfaction rating from buyers.

These high-volume sellers will be given access to Global Sources’ suppliers through eBay’s Resellers Market, a wholesale market separate from eBay’s main site.

The first step will be to offer the new service, Global Sources Direct, on EachNet, eBay’s auction site inside China. Then, the service will eventually be extended to the rest of the world.

Global Sources said that it has 130,000 suppliers, over half of whom are in China, but it would not say how many of them would sign up for inclusion in the new service.

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June 10, 2005

Jetro finds Japanese reluctance to invest in China

Filed under: Economy, Countries & Regions, China, Asia, Japan
Jetro finds Japanese reluctance to invest in China

A survey published Thursday by the Japan External Trade Organisation (Jetro) has found that only 54.8 percent of Japanese companies surveyed in May are planning to expand their operations in China.

Last December, 86 percent of companies said they would do so.

The drop-off in planned expansion is part of the fall-out of anti-Japan sentiment and demonstrations targeting Japanese business in China in April over issues such as Tokyo’s efforts to win a permanent seat on the United Nations Security Council and the publication of history textbooks in Japan that ere seen by China as not admitting Japan’s wartime aggression.

The two nations have also been involved in disagreements over energy rights and territorial claims and China has protested the plans of Japan’s prime minister to visit a war shrine seen as excessively nationalistic.

Of the 414 companies included in the survey, 7.5 percent said they would cancel or postpone planned projects in China and a further 5.6 percent said they were planning to downsize Chinese production or to shift production to other countries.

Just 9.7 percent of surveyed companies said that their business had already been hurt by the tensions between the two countries, but many more said that there could be effects in the future.

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June 9, 2005

Singapore police arrest CAO executives

Filed under: Companies, China, Asia
Singapore police arrest CAO executives

Police in Singapore arrested the chief executive of China Aviation Oil, the state-owned jet fuel importer.

They also arrested four executives of CAO’s Beijing-based parent company, China Aviation Oil Holdings.

All are held on charges that they hid losses related to oil derivatives trading.

There were additional accusations that they participated in insider trading that resulted in Singapore’s biggest market scandal since 1995.

This is believed to be the first time that charges have been brought against executives of a state-owned Chinese company in another jurisdiction.

The fact that Singapore has filed charges in this case is expected to raise the confidence of investors concerning the accountability of state-owned Chinese companies and their subsidiaries that are listed overseas.

The arrests came just before creditors approved a plan to restructure CAO’s debt, which could allow Chinese Aviation Oil Holdings to enter a joint venture with Singapore state investment company Temasek Holdings which would put $50 million into CAO in exchange for a minority share.

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June 6, 2005

Institutions jockey to replace Citigroup

Filed under: Companies, China
Institutions jockey to replace Citigroup

In the wake of Citigroup’s fall from grace as an advisor and potential underwriter of China Construction Bank’s upcoming initial public offering, set for later this year in Hong Kong, other institutions appear to be jockeying to get into position to replace Citigroup.

Even though some have pointed out that there has been no official move by CCB to remove Citigroup from the deal and that even if it does so, it might not be inclined to replace Citigroup, several international investment firms were thought to have held weekend meetings to firm up plans for approaching CCB in hopes of gaining a place at the table.

Meanwhile Morgan Stanley, the other underwriter in the CCB IPO, along with its partner, China International Capital Corp., are expected to try to convince CCB not to replace Citigroup at all. This move would be an attempt to retain a larger share of banking fees, possibly worth up to $175 million, for themselves.

Meanwhile, Bank of America is expected to pursue its offer to buy a more than $1 billion stake in CCB in the wake of Citigroup’s failure to do so.

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June 3, 2005

CCB to drop Citigroup

Filed under: Companies, China
CCB to drop Citigroup

It is looking more and more likely that China Construction Bank (CCB) will drop Citigroup as an advisor in its initial public offering, which is expected to take place before the end of the year in Hong Kong.

In past weeks, Citigroup has been excluded from meetings planning for the IPO.

Sources close to the deal have indicated that CCB is unhappy with Citigroup because it has failed to follow through on a promise to purchase US$1 billion in shares in the Chinese bank.

However, reports are that Citigroup did not confirm its promise, making it unclear just how serious its offer to invest in CCB was.

If Citigroup is indeed dropped as an advisor to the government-owned bank, it stands to lose fees in excess of US$87 million.

At any rate, the relationship between CCB and Citigroup has been beset with allegations of misconduct, with both Citigroup’s head of China investment banking and the chairman of CCB having departed under suspicion of wrongdoing.

CCB is now believed to be in negotiations with the Bank of America, which is said to have offered to buy a 5 percent stake in CCB for around US$1.2 billion.

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May 31, 2005

Minmetals deals with Chile

Filed under: Companies, China, Americas
Minmetals deals with Chile

State-owned Chinese mining group Minmetals signed an agreement Tuesday with Corporación Nacional del Cobre de Chile (Codelco), the world’s largest copper producer, to develop copper mines in Chile.

The deal gives financial aid to Codelco to expand its operations while giving China access to more copper at a time when the Asian nation is becoming more dependent on foreign sources for raw materials.

Minmetals will put US$550 million into Codelco in the first phase of a reported US$2 billion commitment to developing copper projects and making supply deals with the Chilean company.

As part of the deal, Minmetals was given the option of acquiring a stake in Codelco’s Gaby copper mine at some time in the future. Minmetals is also reportedly trying to put together a partnership with Canadian base metals producer Noranda in order to ensure another source of supply for metals.

Minmetals is not the only Chinese metals group to be looking for deals in the Americas. Baosteel, China’s largest steel maker, has an agreement with Companhia Vale do Rio Doce to build a plant in Brazil that will produce 4.1 million tonnes of steel per year.

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May 30, 2005

China challenges textile quotas

Filed under: Economy, US, Europe, China
China challenges textile quotas

China has decided to abandon limits on textile exports to the United States and the European Union after the US and the EU threatened to retaliate by putting quotas on Chinese textile shipments.

China’s commerce minister announced Monday that his country would cancel export tariffs on 81 clothing and textile products beginning on Tuesday.

However, China reserved the option of taking the dispute before the World Trade Organization in the future. China has claimed that the EU’s move to single out T-shirts and flax yarn for possible sanctions may violate WTO rules.

The EU rejects that claim and has said that it was surprised at China’s decision to cancel their tariffs.

The dispute began after Chinese sales of some clothing and textiles surged following the end of global quotas on January 1.

Pressure from domestic manufacturers caused the US and EU to invoke a WTO agreement allowing resumption of quotas in case of a “surge” in imports.

China claims that the decision to reimpose quotas was based on insufficient data over too short a period of time and blamed the US and EU for failing to prepare their textiles industries for the end of quotas.

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Peru courts Chinese investment

Filed under: Economy, China, Americas
Peru courts Chinese investment

Peru’s president, Alejandro Toledo, is currently engaged in making his country a main focus of Chinese investment in Latin America.

In a trade mission to China, this week, Mr. Toledo hopes to secure Chinese promises to invest in the development of ports, oil exploration, and airlines, as well as to make a deal on lowering tariffs.

He is likely to point out to China that his country has the largest population of Chinese immigrants in Latin America and that Peru and China have been engaged in diplomatic relations for over a century and a half.

However, Peru will have to overcome a slow start in trade with the Asian nation.

Between 2000 and 2003, Peru’s exports to China grew by 50 percent, compared to a growth of 503 percent in exports from Brazil to China, a growth of 363 percent in trade from Argentina to China, and a 238 percent growth in trade from Chile to China.

Peru’s exports to China totaled $1.2 billion in 2004 and are expected to grow to a total of $2.6 billion this year. Over half of these exports were in minerals.

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May 27, 2005

CNOOC seeks advice on Unocal bid

Filed under: Oil, US, China
CNOOC seeks advice on Unocal bid

Investment bank Rothschild and Charles River, a business consultancy, have been hired by independent directors of the China National Offshore Oil Corporation to look at a management plan to bid over $16 billion for US oil company Unocal.

This move indicates an internal split over the deal and that the independent directors are not positive that the bid is in the best interests of investors in CNOOC.

It is believed that a previous bid for Unocal was blocked by the independent directors last month just before ChevronTexaco made a $16 billion bid for Unocal.

Not only could a bid by CNOOC give the company additional debt, but it could start a political backlash in the United States, which currently sees China as a growing economic rival.

CNOOC, which is listed in Hong Kong but is state-controlled, is believed to be most interested in acquiring Unocal’s assets in Thailand, Bangladesh, and Indonesia in order to put in place sure energy supplies for China’s growing economy.

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May 24, 2005

Bertelsmann to publish in China

Filed under: Companies, China
Bertelsmann to publish in China

Bertelsmann, the media and publishing group, has announced that it has entered into a joint venture with Liaoning Publishing Group in China.

The purpose of the venture is to distribute books to retailers around China.

Initially, the venture will focus on the distribution of Chinese-language books, but it may eventually enter into the distribution of English-language books as well.

The venture, Liaoning Bertelsmann Book Distribution, is to be based in the northeastern city of Shenyang, is worth Rmb30 million ($3.6 million).

The Chinese group will control 51 percent of the new company.

Bertelsmann is already involved in other Chinese book companies, including a partnership with China Science and Technology Book company and a joint venture with Beijing 21st Century Book Chain, a national private book retailer.

The state retains tight control of publishing in China, but the opening of wholesale and retail book, newspaper, and periodical distribution to foreign investors was announced by the government last year.

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US demands 10 percent renminbi revaluation

Filed under: Forex, US, China
US demands 10 percent renminbi revaluation

The controversy over China’s currency has heated up, with the United States telling China that if they do not revalue the renminbi by at least 10 percent in relation to the dollar, they face legislation that would impose trade sanctions.

Such a bill, that would impose sanctions if China does not act within six months, has already been introduced by Senator Charles Schumer.

To impress the serious nature of the threat on the Chinese, according to sources, several envoys have approached Chinese officials on an unofficial basis.

These messengers are said to include former US secretary of state Henry Kissinger and Brent Scowcroft, who was national security adviser to former US presidents Gerald Ford and the first president Bush.

Besides a 10 percent revaluation at minimum, the Chinese are being told that they need to take other measures, including shifting to a currency band in relation to the dollar or a basket against a group of currencies to replace the current peg.

This is a continuation of a change to a more urgent course of action from the earlier, more gentle urgings for China to revalue its currency, and is being taken in the face of repeated warnings that threats will only make China more reluctant to act.

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May 18, 2005

US warns China on revaluation

Filed under: Forex, US, China
US warns China on revaluation

In its semi-annual report to Congress on exchange rates and trade, the US Treasury warned China that it expects China to revalue its currency within six months.

Treasury Secretary John Snow emphasized that the US was not demanding full revaluation immediately, but that it does expect appropriate intermediate steps that will support full revaluation when it takes place.

A senior Treasury official later more fully defined what such an intermediate step would be, saying that a 5 percent revaluation would not be sufficient.

The report stopped short of accusing China of engaging in currency manipulation, but it signaled a harder line than the US has pursued in the past.

In the view of some US legislators, however, the report did not go far enough because it does not define any repercussions if China does not meet the six-month deadline.

Democratic Senator Charles Schumer has introduced a bill that, if approved, would impose serious sanctions on China if revaluation does not occur in six months.

This legislation worried officials because experts on China have said that threats will only delay China’s move to revalue its currency.

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May 16, 2005

China to open stock and debt markets

Filed under: Markets, China
China to open stock and debt markets

China is reported to be ready to raise the amount foreign investors are allowed to put into the nation’s primary stock and debt markets, according to a report in the China Securities Journal.

An official of the China Securities Regulatory Commission (CSRC) said that it was “only logical” that foreign investors will have a larger role in China’s economy as it grows.

China has already given 26 foreign entities permission this year to invest a total of $4 billion in over 1,300 Chinese companies, treasuries, and corporate bonds.

That amount is expected to be raised to a total of $10 billion for the year under a qualified foreign institutional investor (QFII) program.

The QFII was launched in 2003 but had lost impetus when Beijing slowed approvals in the program.

Now, however, Beijing seems interested in attracting more foreign investment as the markets are at six-year lows, as its main index is down 13.6 percent so far on the year after a 15 percent retreat in 2004.

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May 11, 2005

Growth of demand for oil slows in US and China

Filed under: Oil, US, China
Growth of demand for oil slows in US and China

Growth of demand for oil is falling off in China and the United States, and actual demand fell more than 1 percent in Europe in the first quarter, according to the International Energy Agency.

It said that it is other Asian countries, the former Soviet Union, and the Middle East that are driving forecasts of growth in demand.

In Europe, oil deliveries were down 11.6 percent in Germany and fell by 6.4 percent in Italy. In China, demand grew by 19.3 percent in the first quarter of last year.

This year’s first-quarter growth there is estimated at only 4.5 percent. Reasons for this slackening in demand may include a lower incentive to import oil due to government limits on retail prices.

Meanwhile in the United States, demand grew 1.2 percent in the first quarter, less than half the demand growth in the same quarter last year. This is a bit below expectation and has been blamed mostly on higher prices.

In real numbers, US demand is expected to rise by 260,000 barrels per day this year, compared to a rise in demand of 490,000 barrels per day in 2004.

Globally, OPEC has predicted that in 2005 demand growth will amount to 1.78 million barrels per day. This compares to a demand growth of 2.79 million barrels per day in 2004.

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May 6, 2005

General Motors threatens over Chinese Chery move

Filed under: Companies, US, China
General Motors threatens over Chinese Chery move

General Motors has threatened legal action if the U.S. importers of a Chinese car called the Chery tries to use that brand name in the United States.

GM claims that the name is too close to the Chevy nickname it has sold its Chevrolet make under for 93 years.

Visionary Vehicles plans to begin selling the Chinese-made Chery in the U.S. in 2007.

Malcolm Bricklin of Visionary has said he does plan to use the Chery brand name in the U.S. and is prepared to challenge GM on the issue, but he also said he is putting together a list of alternate brand names as well.

In a letter sent to Bricklin last month, GM said they would challenge the application to register the Chery name in the U.S. and would try to prevent the importation, sale, or use of the name on the car or any parts and accessories associated with it.

GM is already embroiled in legal action in China over the QQ, a car that GM claims is a rip-off of the Daewoo Matiz, which is sold in China under the Chevrolet name.

GM is especially anxious to prevent use of the Chery name as it is attempting to make Chevy a global brand.

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May 5, 2005

China tries to cool renminbi speculation

Filed under: Forex, China, Asia
China tries to cool renminbi speculation

China attempted Thursday to cool down talk about the possible revaluation of the renminbi as Jin Renqing, the Chinese finance minister, said in Istanbul that the wide speculation on the subject was making it difficult for China to act on the revaluation.

His comments had very little effect on the currency market, with one analyst saying that there is little doubt that China will have to act on revaluation this year.

The discount on one-year non-deliverable forward contracts in the renminbi remained at 4,750 points, which implied a 5.7 percent revaluation.

Other Asian currencies, which stand to gain if and when the renminbi is revalued, were also undisturbed by Mr. Jin’s comments, although trade was light as many Asian and European markets were on holiday. The yen was up a bit at ¥104.40 in relation to the dollar and at ¥135.05 to the euro.

In other currencies, the dollar changed little in relation to the euro, standing at $1.2934. Sterling was up in relation to the dollar, at $1.9044, and it stood at £0.6792 in relation to the euro.

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May 2, 2005

China to trial $300 billion equities sale

Filed under: Equities, China
China trials $300 billion equities sale

China has approved the sale of state holdings to foriegn investment in a number of specified companies.

The state holdings involved amount to around two-thirds of the equity in businesses that have a stock market value of $400 billion.

The program is a trial that will include a small number of companies, according to the China Securities Regulatory Commission.

Rules for the trial, which take effect immediately, include a requirement that the commission and two-thirds of shareholders must approve the sales, effectively giving the state veto power over the transactions.

In addition, the rules provide that purchasers of state shares may not sell them in the first year, and after that they will only be able to sell a maximum of 5 percent of a company’s equity in any 12-month period.

This is the third try at resolving the problem of the sale of state holdings in Chinese companies, after unsuccessful attempts in 1999 and 2001.

The statement did not indicate which sectors and companies would be allowed to participate in the trial program.

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April 29, 2005

Renminibi revaluation speculation continues

Filed under: Forex, China, Asia
Renminibi revaluation speculation continues

Speculation is increasing that China is coming closer to revaluing its currency.

If this happens, it is expected that other Asian currencies would strengthen because nations would be able to let their currencies appreciate without having to lose their competitiveness against China.

All this anticipation of an impending move by China was heightened Friday by a report in the state-owned China Securities Journal which said that the time was “ripe” for a revaulation of the renminibi.

Speculation grew even more when the renminibi briefly rose above the official valuation range in relation to the dollar, to Rmb 8.27.

Most analysts said that the move was likely either a glitch in the system or a rogue price, but some speculation circulated that Beijing had deliberately allowed the variation in the renminibi’s value in order to see what would happen to trade.

Still expert opinion remains divided on when Beijing would finally act on revaluation, with some saying it could come at any time.

Others, however, feel that revaluation isn’t likely before May 18, which is when foreign banks will begin spot trading foreign currencies in China.

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April 27, 2005

Baoshan raises RMB 25.6 billion in Shanghai

Filed under: Companies, China, Asia
Baoshan Iron and Steel

Baoshan Iron & Steel set a new record for equity fundraising in Shanghai on Tuesday when it announced that it had sold 5 billion shares priced at RMB 5.12 each for a total of RMB 25.6 billion.

The previous record there was an offering by oil group Sinopec, which raised RMB 11.8 billion. The RMB 5.12 price was near the top of the range of prices it announced when the offering opened two weeks ago.

Baoshan is expected to use the funds to buy assets from Shanghai Baosteel Group in a reorganization effort. These assets are expected to include mining interests, a port, and steel mills.

The share offering was underwritten by China International Capital Corporation, a joint venture between Morgan Stanley and China Construction Bank. The offering in China could lead to an eventual international listing by the company.

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