China Watch Blog

China Watch Blog has learnt that profit warnings, auditor disputes and delistings involving Chinese mainland companies trading on foreign exchanges are fueling investor distrust, wiping out valuations and poisoning the market for new listings.

The 180 Chinese mainland companies that have gone public in New York, Hong Kong and on other global exchanges since the start of 2010 are trading on average 21 percent below their offer prices, according to data compiled by Bloomberg.

At least six disputes have broken out this year between auditors and Chinese mainland companies listed in Hong Kong. More than a quarter of Chinese mainland companies that went public on the city’s main board in 2010, a record year for volume, have lowered forecasts since they started trading, compared with less than 10 percent of non-Chinese mainland companies that had IPOs there that year.

“Investors have been concerned: Are these companies accurately portraying themselves?” said Kevin Pollack, a fund manager at Paragon Capital LP in New York. “There has absolutely been collateral damage. Unfortunately, having big-name auditors and bankers behind a company doesn’t guarantee it’s free of issues.”

China Watch Blog has learnt that Shanghai will continue to work on expanding financing channels for cash-tight small firms and on a program to let more market players to participate in margin trading.

Members of the Shanghai Stock Exchange’s board of directors discussed new initiatives this year at a recent working meeting, the bourse said in a statement reported by Shanghai Daily.

The exchange will work out a trial program to allow small firms to issue corporate bonds to selected investors on the bourse.

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 India has lifted restrictions on foreign investments in the country’s US$450 billion retail market, a move that global supermarket chains have welcomed, but they fear the policy’s small print may keep a lid on investment in the short term.

The Indian government approved 51 percent foreign direct investment in supermarkets late Thursday, paving the way for firms such as Wal-Mart Stores Inc, Tesco and Carrefour to enter one of the world’s largest untapped markets, the Shanghai Daily reported.

The move may breathe new life into the government of Prime Minister Manmohan Singh, who ushered in free market reforms 20 years ago, but has been bogged down by corruption scandals.

As well as appealing to India’s burgeoning urban middle class, the reform will draw in much-needed new investment to a sputtering economy. Policymakers said spending on cold-storage and warehousing will ease supply side pressures that have driven inflation close to a double-digit clip.

“It’s important not only for raising overall growth, but also for containing inflation and improving the quality of life for over 50 percent of the population,” said central bank Governor Duvvuri Subbarao.

China Watch Blog has learnt that between China’s accession to the WTO and September this year, Guangzhou’s cumulative utilized foreign capital exceeded US$50 billion, and 217 Fortune 500 companies had invested in Guangzhou, the third largest number in mainland China after Shanghai and Beijing.

On November 2, at a press conference held at the municipal government information center, officials from the Guangzhou Bureau of Foreign Trade and Economic Cooperation reviewed the growth of Guangzhou’s development-style economy since China joined the WTO ten years ago and commented on the outlook of the economy, GDNews.com reported.

The bureau’s director, Xiao Zhenyu, stated that Guangzhou has made significant strides in attracting foreign investments since China’s accession to the WTO a decade ago. Xiao said that some people argue that Guangzhou has lagged farther behind the leader in foreign capital inflows, while the followers are quickly catching up.

He attributed this to the different methods used by the cities in computing foreign capital inflows, and stated that Guangzhou will intensify its efforts to lure foreign capital.

“Guangzhou accounts for 1/26 of China’s foreign capital inflows and 1/28 of the nation’s total imports and exports,” said Xiao. Since China joined the WTO ten years ago, Guangzhou’s foreign trade has increased by US$ 10 billion a year, surging from US$ 23.03 billion in 2001 to US$ 103.8 billion in 2010, averaging an annual growth of 18.2%.

In the first three quarters of the year, Guangzhou’s total imports and exports climbed 11.9% year-on-year to US$ 85.67 billion, and the figure for the whole year is expected to top US$ 110 billion.

The latest statistics released by the Guangzhou Bureau of Foreign Trade and Economic Cooperation show that the value of deals closed in the first and second phases of the Canton Fair rose 3.3% over the previous edition and 11.0% over the 108th edition to US$ 33.177 billion. The Guangzhou delegation secured deals valued at US$ 1.252 billion, an increase of 5.49% over the previous session and 12.98% over the 108th edition.

“Guangzhou has become a key node in the global investment network of multinational companies,” said Mr. Xiao. Since China’s accession to the WTO, Guangzhou’s investment environment has been further enhanced, and its appeal to Fortune 500 companies and the corporate headquarters of foreign invested enterprise has steadily risen. So far, 217 Fortune 500 companies have launched 563 projects in Guangzhou, involving a total investment of US$ 23.03 billion.

Xiao also indicated that his bureau will team up with the Guangzhou State-owned Assets Administration and Supervision Committee to foster one or two world-class enterprises on a par with Haier and Huawei. He said that the strongest candidates are the GAC Group and Yuexiu Group.

China Watch Blog has learnt that most German companies in China plan to increase their investment in the country through 2015, but Shanghai is slipping down the rankings as the most preferred city for German investment, according to a recent survey.

About 77 percent of respondents said they will raise investment in China through 2015, including 59 percent who said their input may rise more than 16 percent from 2010 levels, the Business Confidence Survey 2011 showed.

The survey, conducted by the German Chamber of Commerce in China, was based on opinions solicited from 188 German companies, according to a Shanghai Daily report.

China Watch Blog has picked up this news that to date, Guangzhou-based enterprises have invested in a total of 22 projects with a total of US$877,552 million in Nigeria, Tanzania, South Africa, Kenya, Ethiopia and several other countries in succession todate.

Of the figure, some US$834,324 million have been committed to such areas as light and textile industry, machinery manufacturing, resource development, pharmaceutical and biotechnology, trade and so on, according to a NewsGD.com.

From January to July this year, enterprises in Guangzhou had invested in six projects in Africa, accounting for a quarter of all the investment projects in Africa.

No wonder, we keep hearing of this country and that country trying to get Chinese investors to invest in their nation.

But Guangzhou is very focused on Africa to invest. Under its next phase, it plans to bring enterprises which are willing to invest to African countries to carry out: further investigations on economic and trade cooperation; promote the approach of projects on the part of enterprises in Guangzhou by organizing fairs on economic and trade cooperation with the collaboration of local governments or investment promotion agencies; and discover approach projects for potential future investment and contracted projects.

These details were revealed at the recent “Guangzhou Enterprises enter Africa-Investment Environment Promotion Conferences in Ethiopia, Kenya and South Africa”, sponsored by the Municipal Bureau of Foreign Trade, at the Guangzhou Garden Hotel where the event was held on September 6.

African officials stationed in China from such African countries as Kenya, Ethiopia and South Africa, etc. launched on-site promotion and welcomed enterprises in Guangzhou to invest in Africa and undertake contracted projects abroad.

It was reported that the event was another large-scale promotion conference on the environment for investment and business operation in Africa, following several visits of Secretary Zhang Guangning to South Africa, Kenya and other African nations from June 5 to 16 this year.

The event was aimed at putting into practice the central spirit of the instructions given by Secretary Zhang on promoting enterprises in Guangzhou to “go global” and carry out cooperation in investment and motivating the access of goods made in Guangdong to emerging markets such as Africa and other continents.

The event was held to allow officials of some African countries stationed in China to speak to potential investors in Guangzhou:
a) to introduce the business environment in their own countries;
b) provide first-hand market information for Guangzhou-based enterprises which plan to go to Africa for business development;
c) provide answers to their questions and clear up all their doubts; and,
d) to enhance the enterprises’ initiatives in opening up African markets as well as to help to strengthen bilateral economic and trade exchanges.

China Watch Blog has learnt that the number of merger and acquisition deals in China grew for a second consecutive month in August by 6.4 percent from July to reach 282.

According to a China Venture report, the total investment of the deals dropped 28.83 percent from a month ago to 73.3 billion yuan (US$11.47 billion).

Of the 282 deals, 207 have been completed – the highest number so far this year. The firm also said 176 of these deals saw a combined investment of 55.8 billion yuan, up 10.6 percent from July, the Shanghai Daily reported.

Among the 207 cases, 189 deals took place between Chinese firms, 12 were sealed outside China by domestic firms buying overseas assets and six were secured by foreign investors in China, the report added.

The energy and mining sector saw the most M&As with 38, followed by 23 cases in IT and 22 among manufacturers.

China Watch Blog has picked up an interesting article published in the Shanghai Daily that China has released a new guideline on investment opportunities in foreign countries that may be looking to attract Chinese investors, but does not cover the United States, and it does not give any reason why the country is not covered.

According to the Ministry of Commerce, the National Development and Reform Commission and the Ministry of Foreign Affairs, which jointly issued the 306-page guideline, the booklet gives an overview of industries in 115 countries in Asia, Africa, Europe, North America and South America that are keen to attract foreign investments.

The guideline provides the latest progress industries in foreign countries have made and is part of China’s strategy and efforts in “going out”, the commerce ministry said.

The guideline profiles each country for development priority, key targets of major industries, specialized zones, basic rules governing foreign investment and existing Chinese investments.

In the chapter on Japan, for example, the guideline lists environment protection, information technology, manufacturing and tourism as key industries the Japanese government has identified for future development.