China Watch Blog

China Watch Blog wishes all readers Kung Hei Fat Choy 恭喜發財, and may the Year of the Dragon bring readers a happy and prosperous New Year.

China Watch Blog has learnt that China has urged Chinese companies, including logistics firms to expand overseas via foreign acquisitions to help boost exports, but some fear they are just eyeing acquiring assets in depressed economies at low cost.

Speaking at an industry conference in Beijing, Wang Xuanqing, a deputy director at the Ministry of Commerce, said the government would encourage domestic logistics operators to acquire overseas distribution centres to “facilitate the nation’s trade growth”.

Wang did not provide details of how this was to be achieved, but the message comes just days after the ministry prioritised “stable export growth” in its 2012 agenda.

Launching the agenda, Commerce Minister Chen Deming said: “We will take more steps to stimulate exports, to consolidate and expand our market share internationally in 2012.”

The move could also be seen as opportunity for Chinese logistics firms to benefit from depressed economies in much of Europe, snapping up overseas assets at lower cost.

However, He Liming, Chairman of trade association the China Federation of Logistics and Purchasing, warned that smaller operators should not rush into overseas markets, even if property and company prices were favourable.

He said overseas acquisitions already made by some of the country’s logistics players have generally been restricted to larger companies.

China Watch Blog has learnt that China’s economy expanded by 9.2 per cent last year, slowing from 2010, as global turbulence and efforts to tame high inflation put the brakes on growth, Beijing said on Tuesday.

But the still healthy annual growth suggested that China’s economy would avoid a much-feared hard landing despite slumping demand from key export markets in the United States and Europe, analysts were quoted as saying in a SCMP report.

The figures, down from 10.4 per cent growth in 2010, also meant China’s central bank was less likely to ease credit in the short-term to spur the world’s second-largest economy.

Beijing had set a growth target of around 8.0 per cent for last year.

“This indicates our economy is still good and quite stable, and a soft landing for the economy is more possible. Therefore, the government is likely to postpone the next policy easing move,” said Li Huiyong, economist at Shenyin Wanguo Securities in Shanghai.

China’s Gross domestic product (GDP) grew 8.9 per cent in the fourth quarter, the National Bureau of Statistics said, slower than in the third quarter, but still exceeding analyst expectations.

China Watch Blog has learnt that yuan loans and dim sum bond sales in Hong Kong will expand rapidly this year as appreciation of the currency is expected to slow and Beijing relaxes investment rules, the city’s financial services secretary said.

“Yuan loan growth will be fast,” Professor Chan Ka-keung said at the annual Asian Financial Forum in Hong Kong. The market for so-called dim sum bonds would also expand “in all dimensions”, with gains in issuers and amount, according to a Bloomberg report.

Mainland companies are increasingly seeking to borrow in Hong Kong as unsettled equity markets deter stock sales. The yuan is expected to see the slowest growth since 2009 as shrinking economic growth curbs demand.

Sales of dim sum bonds, denominated in yuan, quadrupled to a record US$23.7 billion last year, exceeding the US$16.6 billion raised using Hong Kong dollar debt. The number of dim sum bond issuers jumped to 87 from 19 in 2010. Sales may rise to US$47.5 billion this year, according to analysts.

Vice-Premier Li Keqiang pledged in August to allow companies to borrow as much as 50 billion yuan (HK$61.2 billion) each year through bond sales in the city. The government has also relaxed rules to allow direct investments denominated in the currency.

The yuan will gain 2.3 per cent to 6.15 per dollar, according to Andy Ji, a Singapore-based strategist at the Commonwealth Bank of Australia.

China Watch Blog has learnt that Hong Kong will help London develop as the next offshore yuan trading centre, shrugging off traditional competition between the two cities as part of a broader plan to boost international usage of the currency.

The tie-up with the City of London, including extensions of currency trading hours, is the first such agreement with another financial centre and signals Hong Kong’s intention to deepen its involvement in building the yuan into a truly global currency.

Britain’s finance minister, Chancellor of the Exchequer George Osborne, played down suggestions the move would hurt Hong Kong as a leading offshore yuan trading centre, the SCMP reported. Osborne told a Hong Kong government seminar yesterday that the plan was to “establish London as a new hub for the renminbi market as a complement to Hong Kong”.

Osborne will meet Vice-Premier Wang Qishan in Beijing to discuss details about how London will develop as a yuan trading centre and tap business in Asia. Britain, which was hard hit by the global financial crisis, saw its exports to China surge 20 per cent last year.

“We have got to do more if we are to be the home of Asian investment in Europe. The British government needs to roll up its sleeves and make it happen,” Osborne said, adding that he wanted more Asian trade and tourists in Britain.

The chief executive of the Hong Kong Monetary Authority, Norman Chan Tak-lam, said that by establishing appropriate links with Hong Kong’s offshore yuan platform, banks in different parts of the world would be able to provide a comprehensive range of yuan banking and financial services to meet the rapidly increasing demand of customers.

China Watch Blog has learnt that since last week the annual exodus of workers returning to their hometown has started, and those who are living outside the mainland cannot imagine the large number of people travelling throughout the length and breadth of the country during this period unless you see it happen before your eyes.

All transportation systems come under heavy pressure during this period, particularly buses and railways. Of course, those who can afford it fly as well for convenience, but even the airlines are full.

For the Chinese this is the time for annual reunion dinners with their families and so that this why they try to return to their hometowns.

Prices of tickets have also risen so travelling in China during this period until the Spring Festival which starts on Jan 23 is no fun.

Offices and factories are already thinning out and some are already operating with a skeleton staff as many have started to take leave.

Meanwhile, shippers are trying to get out goods before the long holiday season starts, but all the Hong Kong and Chinese ports are jammed packed.

Some have to resort to shipping goods out by airfreight to be able to get their products to the final destination on time.

Shopping malls are also jammed with shoppers trying to buy Chinese Lunar New Year goodies as there are sales everywhere.

China Watch Blog has learnt that Guangdong Province says it will give about 880,000 skilled migrant workers urban household registration this year.

NewsGD.com reported acting Governor Zhu Xiaodan as saying in his maiden government work report to the Guangdong People’s Congress on Friday that the growth target for the province’s economic output this year was 8.5 percent, down from 10 percent.

The inflation target was “around 4 percent.” Zhu said Guangdong was facing a series of problems. A slowing economy, overcapacity in traditional industries, uncertainties in the development of new industries and price pressures would be among the major challenges to the building of a “happy Guangdong” this year.

The government would offer 883,000 migrant workers who had qualified as senior technicians urban household status. He said the government believed public services could cope with the extra numbers.

“The policy can lead to stability as it steers the migrant workers to study skills in the hope of integrating into society,” Party secretary Wang Yang said.

“It will solve the problem of migrant workers coming to Guangdong as a result of economic growth and open the road for migrant workers to integrate into the cities where they work.

“It will give the dream of settling down in the cities to all the 30 million migrant workers in Guangdong, making them behave properly and have a Guangdong dream.”

Wang also said that offering migrant workers urban residency rights would help the province compete with the Yangtze River Delta.

He said it could break the bottleneck that was inhibiting the upgrading of industry in the Pearl River Delta because improving the quality of the workforce was the key to increasing competitiveness.

“We are cultivating skilled blue-collar workers to make the manufacturing industry and clothing industry more competitive,” he said.

Among other preferential policies, the province will provide 400,000 more migrant workers with workplace injury insurance and sponsor 10,000 to study in colleges and universities.

The policies are among 10 livelihood initiatives outlined by Zhu, which include canceling the public security fees collected from the floating population.

China Watch Blog has learnt that Chinese outbound merger and acquisition (M&A) deals reached a record high of $42.9 billion in 2011, an increase of 12 percent year-on-year, despite the global economic slowdown.

According to the accountancy company PricewaterhouseCoopers LLP (PwC), a total of 207 outbound M&A deals were signed last year, up 10 percent from 2010.

“Those figures indicate that Chinese investors’ appetite for deals is stronger than ever, across a wide range of industries and geographical locations,” said Leon Qian, PwC China’s Transaction Services Partner.

The strong growth in outbound deals also pushed the country’s overall M&A activity up by 5 percent to 5,364 deals, the highest-ever annual total. Domestic deals climbed 11 percent to 3,262.

“Despite the global macroeconomic climate, confidence among investors looking for M&A deals both within China and abroad remains surprisingly robust,” Qian added.

As China moves into a new phase, M&A is emerging as a key enabler of consolidation, growth, market positioning and the acquisition of strategic assets and expertise.

There were 16 outbound M&A deals valued at more than $1 billion by Chinese buyers last year, compared with 12 in 2010. Fourteen of those deals were in the resources and energy sectors.

China Watch Blog has learnt that despite the current global uncertainties in the US and Europe, China aims to expand its foreign trade by around 10 percent year-on-year in 2012, though significantly slower than in 2011, as the country is facing a “grim situation” in terms of boosting exports.

“We expect more difficulties in foreign trade and the export situation will be grim in 2012, especially in the first half of the year,” Zhang Xiaoqiang, deputy director of the National Development and Reform Commission (NDRC), was quoted in a China Daily report as saying at a forum held in Beijing.

The world’s largest exporter will suffer from weak external demand, increasing trade competition and disputes, the appreciation of the yuan and rising costs for domestic enterprises, Zhang said at the Annual Meeting of China’s Economy 2011-2012 organized by the China Center for International Economic Exchanges.

China’s foreign trade surged 22.5 percent in 2011 from a year earlier to reach 3.64 trillion U.S. dollars, customs figures show.

Zhang said trade has slowed down over the past few months. Compared with January of 2011, year-on-year export growth in December was down by 24.2 percentage points to 13.4 percent and import growth down by 39.8 percentage points to 11.8 percent.

Zhang suggested stabilizing export growth by improving tax rebate and insurance policies and providing more financial support for small trade companies.

Financial products should be developed to help exporters hedge against exchange rate fluctuations, while the value of the yuan should be kept stable, Zhang said.

China Watch Blog has learnt that Foxconn has confirmed it will employ one million robots over the next three years to replace human labor, and this may be the start of a new trend in the mainland.

As labor costs keep on increasing, boosting operating costs of industries, it is certainly becoming more difficult for industries to operate in the coastal cities in China.

Furthermore, the phenomena that workers return home for the Spring Festival and do not return to the cities, preferring to work in their home towns for lesser wages to stay closer to their families is putting increasing pressure on industries as they cannot find sufficient workers and jobs go abegging.

The Economic Information Daily reported Xie Gang, a professor at School of Information Engineering, Taiyuan University of Technology, as saying that: “Large numbers of robots will inevitably replace some humans in the short term. Robots are more accurate and adaptive than workers.”

He added that decreasing labor cost is of vital concern to Foxconn.

However, the vice-chairman of Shanxi Federation of Industrial Economics told Economic Information Daily that it is a large-scale investment for Foxconn to produce robots in such a big amount.

In addition, some experts believe robots cost much more and are not effective to develop even for a powerful company like Foxconn.

Foxconn is one of the largest corporations in the electronic assembling industry in China and has been plagued by scandal in the past over the treatment of employees.

It suffered a string of suicides by young workers at its massive Chinese plants with some blamed on working pressure.