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Geely, up on Volvo bidder tag, faces uphill task

Geely Automobile, whose shares soared yesterday after being named the “preferred bidder” for Ford’s Volvo unit, could win a valuable brand if the bid succeeds, but could take years to see profits from the loss-making Swedish carmaker.
Home-grown Geely, which means “lucky” in Chinese, is hungry for modern and innovative technologies that can upgrade its cars to tap the growing affluent auto market in China, the biggest in the world.
“I think the market is still divided on the Geely deal,” said Chen Qiaoning, an analyst with ABN AMRO TEDA Fund Management.
“If its parent indeed gets Volvo and the deal serves it well, the listed firm would benefit tremendously. But if they are unable to handle Volvo… the listed company will suffer.”

Market watchers have been hopeful that Geely, which used to make China’s cheapest cars, would reap benefits in better brand recognition and new technology if its parent, Zhejiang Geely Holding, can buy Volvo and turn the company around.
Investors have bid up Geely’s stock more than four-fold this year, sending it to a record high yesterday, even as the broader market slipped.
Ford Motor named Zhejiang Geely Holding Group as a preferred bidder for its loss-making Swedish unit Volvo Car Corp late on Wednesday, bringing the long-running sale process closer to a conclusion.
“That for sure will shorten the technology development time for Geely,” said Vivien Chan, auto analyst with Sinopac Securities Corp.
Geely shares rose as much as 4.5 percent to HK$3, the highest since the company was listed in 2004 after buying a shell company. The stock ended yesterday up 2.1 percent.
Zhejiang Geely said its bid is supported by Chinese banks and it will now embark on further detailed discussions with Ford.
“We have made a great effort and are well prepared. But whether the deal will go through depends entirely on the negotiations,” Yuan Xiaolin, a spokesman for Zhejiang Geely told Reuters.
Media reports suggested the price tag for Volvo could be closer to $2 billion than the $6.45 billion Ford paid for the Swedish carmaker in 1999.

Auto imports from US under scanner

China has officially kicked off anti-dumping and anti-subsidy investigations into automobile imports from the US, the nation’s top trade official confirmed yesterday. The move is a significant and timely decision to show the country’s clout on the global economic stage, analysts and officials said separately.
Commerce Minister Chen Deming said that his ministry was carrying out a probe on some vehicle imports from the US, based on requests from Chinese automakers.
The confirmation was made during high-level talks to resolve trade disputes between the two countries yesterday in Hangzhou.
The investigations, which were first proposed last month to challenge the Obama administration’s plan to impose a 35-percent tariff on imported tires from China valued at about $1.8 billion, could lead to new duties on vehicle imports.
Chen also said the probe would be carried out in accordance with Chinese laws and World Trade Organization (WTO) rules.
He Weiwen, a member of the China Society for American Economy Studies, said the investigation was “fair and proper” and conformed to WTO regulations.
“Launching the investigation on such an occasion, during the two countries’ trade negotiations and before the US president’s visit, is undoubtedly a kind of pressure tactic by our government, which is hoping that the US will not frequently investigate other trade matters in the future,” a Ministry of Commerce official, who declined to be named, told China Daily.
“It’s a reasonable self-defense for China, which is battling the US government’s unfair case over tire imports,” said Fu Donghui, deputy general manager of Allbright Law Firm. “If China still keeps silent under the current situation, other countries will follow the lead of the US.”
The officials and analysts, however, all believed that the investigation would not impact US auto exports much.
“The action won’t seriously impact Sino-US trade relations, and only lightly hit the US auto industry’s exports to China,” said He.
Zhong Shi, an independent auto analyst based in Beijing, agreed. “The investigations are more of a signal that China is exerting pressure on the US’ trade protectionist moves.”

“And, the investigations may only impact General Motors among the US Big Three automakers, as Ford is not on the US government subsidy list and Chrysler doesn’t do much business in China,” Zhong said.
GM, which signed a $607-million purchase deal with its China joint venture Shanghai GM in September to export complete vehicles, vehicle kits, machinery and equipment from the US, said in a statement earlier that “GM will make sincere efforts to promote mutual understanding between the US and China and minimize trade conflicts between the two countries”.
It is also “confident that the current trade-related disputes can be resolved in a constructive manner”, GM said.
Statistics show that, in the first seven months, China imported 182,200 vehicles, 26.51 percent less than last year. However, Reuters, citing the American Automotive Policy Council, said that the Big Three US automakers exported only about 9,000 vehicles to China.

Diversify iron ore sources: Minmetals

China Minmetals, the country’s largest State-owned metals trader, has urged industry leaders to diversify iron ore supply and improve negotiation tactics to reverse China’s unfavorable position in global iron ore deals.
“Chinese steel mills seeking lower prices (of iron ore) should think more about reducing dependence on the three global miners,” Zhang Ye, vice-general manager of China National Minerals Co Ltd (MINCO), a wholly owned subsidiary of China Minmetals, told China Daily yesterday.
His remarks come at a time when China’s steel industry is facing a de facto breakdown in iron ore negotiations for the year, while the outlook for next year’s talks seems gloomy at best.
The three global miners, Brazil’s Vale SA, Australia’s Rio Tinto and BHP Billiton, contributed to about 50 percent of Minmetals’ iron ore trading volume. But the company is looking to diversify its iron ore suppliers, he said.
Minmetals will expand its list of buyers from the current five, which include Ukraine, Chile and Russia, to eight next year. The targeted iron ore suppliers will be from North and South America, Zhang said.

He also revealed that Minmetals is close to finalizing some overseas investment and acquisition deals, but declined to reveal specifics.
MINCO’s iron ore imports will touch 12 million tons this year, 2 million tons higher than anticipated, due to higher steel output, he said.
China produced 266.58 million tons of crude steel in the first half, up 1.23 percent over the same period last year, according to official data.
“It is difficult to reduce the proportion of iron ore imports from the three giant miners, given the quality of their iron ore and geographic position, but what we can do is to cut the dependence. For example, when the three miners cut supplies, we can at least have alternative resources,” he said.
The relationship between Chinese steel mills and iron ore miners should be mutually beneficial since China is the largest iron ore consumer and the three giant miners account for 70 percent of the iron ore trading market, Zhang said.
“Chinese steelmakers should realize that the three global miners are very eager to sell in China and are competing with each other. So, Chinese steel mills should take advantage of this to ask for a better discount,” he added.
Zhang suggested all Chinese steel mills should join hands to exert their influence during iron ore price negotiations.
China’s steel industry lobby and top iron ore price negotiator, China Iron and Steel Association (CISA), is made up of 216 members, with 72 key members being State-owned steel mills. CISA is often questioned on whether it really represents China’s 1,200 steel companies.
Zhang suggested that all the smaller steel mills that meet the government’s industry requirements should be part of CISA.
This year’s iron ore price negotiations have been deadlocked since June after China insisted on a 45-percent price discount, but Chinese steel mills opted to buy on the spot market or privately accepted long-term prices that had been set with other Asian steel mills.
The Chinese media, including some State-run organizations, have criticized CISA’s inability to get a better discount from the global miners.
During the next round of negotiations, CISA should consult with experienced negotiators and market researchers to get a better price for iron ore imported from the giant miners, People’s Daily Online quoted industry insiders as saying.

Watchdog warns of rising liquidity risk

China’s top banking watchdog said yesterday that the nation’s commercial lenders had maintained ample liquidity so far, but warned rising liquidity due to record lending this year could pose a risk to the banking system as a whole.
As of the end of September, banks’ average liquidity ratio, or cash held by these banks as a proportion of deposits, was 41.7 percent, well above the industry requirement of 25 percent, the China Banking Regulatory Commission (CBRC) stated on its website yesterday.
“Chinese banks’ liquidity is high at present, and there is plenty of money in the inter-bank lending market,” it said, but underlined the necessity of enhancing liquidity risk management against the backdrop of the global financial crisis.
Analysts, however, pointed out that the liquidity ratio alone was not the only barometer of a bank’s health, and said only when other indicators, such as the loan-to-deposit ratio and cash reserve ratio are taken into account, will the liquidity issue become more pressing for Chinese banks.
“The loan and assets expansion of some Chinese banks, especially medium-sized lenders, was excessively fast, which will sow the seeds for future liquidity risks and rising bad loans,” said Fu Lichun, an analyst at Southwest Securities.
For example, China Minsheng Banking Corp, the nation’s first listed private lender, has seen its average net profit jump by 18.11 percent in the first three quarters from a year ago, driven by a galloping 42-percent lending growth during the period. But the rapid loan expansion also propelled the bank’s loan-to-deposit ratio to a record 80 percent, exceeding the industry requirement of 75 percent, Fu said.

In response to the nation’s call to prop up the slowing economy amid the global financial crisis, Chinese banks advanced 8.67 trillion yuan ($1.28 trillion) in fresh loans in the first nine months of the year, more than doubling the amount they issued during the same period last year, causing concern that this may lead to a commensurate rise in bad debts after the lending spree and help form an assets bubble.
The CBRC recently unveiled a slew of rules to govern domestic commercial banks’ lending practices, bringing loans for fixed asset investment, corporate working capital, and personal use under its regulatory roof, in an effort to safeguard the healthy development of the banking sector.
In the guidelines the CBRC released yesterday to direct banks on how to manage their liquidity risks, it urged commercial lenders to conduct stress tests on a quarterly basis, which it said could help them identify existing and potential risks in time.
Commercial banks’ bad loan ratio has continued to drop, falling to 1.66 percent as of the end of September from the 2.42-percent at the beginning of the year, while the total value of non-performing loans was 504.5 billion yuan, down 55.8 billion yuan from nine months ago.

Mainland gold jewelry sales to dazzle

Hong Kong Resources Holdings Ltd, the gold company that has jumped fivefold in market value in the past year, said jewelry sales in the mainland will climb at a “double-digit” pace this year.

Middle-class buyers have helped the sales recovery. [China Daily]

Middle-class buyers, the second-biggest gold user, drove a 16-percent gain in gold and silver jewelry sales in the first nine months, Hong Kong Resources Chairman Kennedy Wong said in an interview. Record household savings are fuelling demand for investment products and wedding gifts.
China’s economy grew 8.9 percent in the third quarter, the fastest pace in a year, and the World Gold Council said in July that the nation may pass India as the biggest consumer. Bullion is on course for its ninth annual gain after the dollar weakened and demand for gold as a store of value increased.
“With the Chinese economy faring exceptionally well this year, people are getting more wealth,” said Ellison Chu, a metals manager with Standard Bank Asia Ltd in Hong Kong. “It’s quite normal to expect that demand for gold will increase in the next two to three years.”
Bullion advanced to a record $1,070.80 an ounce on Oct 14 as the dollar dropped to the lowest level since August 2008 against a basket of six major currencies and amid concern inflation may accelerate. Gold will rise to $1,200 an ounce by yearend as the dollar extends a slump, researcher CPM Group said on Oct 15.
“The Chinese have only started to buy gold as an investment product, and there is huge room for this sector as the middle class grows,” said Wong, whose company has 219 jewelry stores in the mainland, eight in Hong Kong and two in Macao.
China’s household savings reached 26 trillion yuan this year, Wong said. Gold and other jewelry sales in China are forecast to reach 260 billion yuan this year, only 1 percent of the total household savings, he added.
“We will see double-digit growth for years to come,” said Wong. The company plans to add 100 stores in the mainland next year and another 100 in 2011, he said.
Sales in India have been poor during the holiday season amid record prices and the nation’s imports will decline, Anjani Sinha, president of the Indian Bullion Market Association, said on Oct 22. Sales in India typically reach their highest point during the Hindu festival of Diwali, which this year fell on Oct 17, and the wedding season that follows.

Sales in China will also be boosted by demand for wedding jewelry, he said. “This year is particularly good for marriages and we will see increases in turnover across the board in the fourth quarter,” Wong said. There are about 10 million couples getting married every year in China, according to data from the National Bureau of Statistics.
Gold for immediate delivery has advanced 18 percent this year and traded at $1,039.32 at midday yesterday in Singapore.

Bullet trains ‘threat’ to airlines

The top three Chinese carriers all turned profitable in the third quarter due to strong domestic travel demand. [China Daily] 
Emerging competition from high-speed trains will pose a threat to the nation’s airline industry, which has not yet fully recovered from the worst economic crisis in decades, a top airline executive warned yesterday.
“The industry is still facing uncertainties due to the macro economic situation. But a more urgent issue is the challenge from high-speed trains,” said Si Xianmin, chairman of China Southern Airlines.
“Over 80 percent of the domestic aviation market will be impacted and about 518 flights are expected to see a 50-percent plunge in traffic when the planned high-speed rail lines enter service,” Si said at the Aviation Outlook Asia forum yesterday in Beijing.
Si said competition from high-speed trains is already on the rise. The airline’s weekly traffic on the Shanghai-Wuhan route has dropped by 30 percent since high-speed trains started service on the route, while its weekly traffic between Beijing and Taiyuan has plunged by over 60 percent, also due to the same reason.
Expansion of the high-speed train network is a national priority and a core component of the government’s economic stimulus measures. China will, by 2020, build 18,000 km of high-speed passenger rail lines where trains travel over 250 km per hour. This is expected to account for over half of the world’s total high-speed rail lines.
Compared with air travel, bullet trains enjoy advantages such as a better safety record, a more comfortable travel experience, larger capacity and lower fares.
Si called for “policy support” such as tax breaks to help airlines lower costs and more efficient cooperation with airports and air traffic management authorities to make air travel more competitive.
“Airlines can also include the railway system as part of their package and use it as a feeder. The railway system can feed traffic if it is used correctly,” said David Brett, Asia-Pacific president of Amadeus, a world leading IT provider to the travel industry.
China’s three biggest carriers all turned profitable in the year’s third quarter due to strong domestic air travel demand.

Air China posted a net profit of 885 million yuan ($129.61 million), compared with a loss of 1.97 billion yuan a year ago. China Southern, Asia’s biggest carrier by passenger number, reported a net profit of 284 million yuan, compared with a loss of 830 million yuan a year earlier. China Eastern Airlines reported a profit of 23.2 million yuan, compared with a net loss of 2.33 billion yuan during the same period last year.
China Southern will add three Airbus A380 jumbo jets to its fleet in 2011 and start to receive Boeing B787 Dreamliner planes in 2012 to expand its international network, Si said.
Africa and South America will be the new focus areas for its international expansion, Si added. Currently, domestic operations account for 80 percent of the airline’s total business.
Also yesterday, the US-based ARINC Inc, the world’s largest data link service provider, signed a memorandum of understanding during the forum to extend its partnership with the Aviation Data Communications Corp of China (ADCC) for another four years. They will further develop aviation data link communications for the Asia-Pacific region. ADCC is the only data link service provider in the country approved by the Civil Aviation Administration of China. 

China to tighten rules on personal loans

China’s banking regulator Wednesday issued a draft plan on stepping up rules of personal loans to prevent misuse of money lent from the country’s financial institutions.
The draft regulation, posted on the web site of the China Banking Regulatory Commission (CBRC) to solicit public opinions, aimed to enhance prudent management of personal loans and ensure the money to enter real economy, the CBRC said.

The CBRC ordered lenders not to give loans to individuals without knowing their proposed usage. The regulations did not raise the threshold for people applying for funds, the CBRC said.
In the first six months, new personal loans hit 650.8 billion yuan, 391.7 billion yuan more than the same period of last year, the CBRC said.
The amount and types of personal loans was rising, but the country lacked a unified regulation, which would result in legal risks and affect the steady and fast development of the country’s economy, the CBRC said.
The draft regulation came amid the concerns that part of loans were used for speculation rather than in real economy, increasing risks of asset bubbles and bad loans.
In the first nine months, Chinese banks lent 8.67 trillion yuan of new loans, compared with the full year target of 5 trillion yuan after the government eased restrictions to back the economic growth amid the global economic downturn.

China’s search market grows 38% in Q3

China’s Internet search market was worth 2 billion yuan ($293 million) in the third quarter, up 38 percent, as global search leader Google Inc continued to expand its market share in China, research firm Analysys International said on Wednesday.
Google had 31.3 percent of China’s Internet search market in the third quarter, up from 29.1 percent in the last quarter, while homegrown search leader Baidu Inc had the lion’s share with 63.9 percent.

Google has been intensifying its efforts in China in a bid to catch Baidu in the country’s rapidly growing search market where users grew to 235 million in June, up about a third from a year ago, according to government data. On Monday, Baidu warned of weaker-than-expected fourth quarter revenue as its transition to a new advertising keyword system faced some customer resistance.
Analysts said the hasty move to transit to the new system provided a window of opportunity for Google to cut into Baidu’s market share.

Oil and gas pipelines to be protected

A child rides a tricycle believed to be carrying stolen natural gas in Pucheng of Puyang, Central China’s Henan province.[China Daily]

Oil and gas pipelines in China will be protected against theft, damage and construction encroachment under a draft law proposed by the State Council.
The draft law was sent to the National People’s Congress (NPC) Standing Committee for first reading yesterday.
The law is to “protect oil and gas pipelines, maintain transportation safety and public safety and safeguard the national resource supply.”

The State Council in 1989 released Regulations on Oil and Gas Pipelines, which has been effective until now.
However, with demand for oil and gas increasing rapidly and new problems arising in the protection of pipelines, China urgently needed a special law, said Cao Kangtai, director of Legislative Affairs Office of the State Council.
Rapid urbanization has resulted in the reckless construction of buildings and roads within buffer areas for the pipelines in recent years, making access to the pipelines, as well as their protection, increasingly difficult, Cao said.
The pipelines must be constructed clear of railways, roads and waterways, to avoid conflict and damage, Cao said.

The network, which carries most of the country’s crude oil and natural gas, is also threatened by rampant theft of oil and gas through illegal siphoning off the pipelines, Cao said.
“We need a special law to regulate and better coordinate pipeline construction with urban planning, to enhance protective measures, and to clarify the responsibilities of different departments,” he told the 11th meeting of the Standing Committee of the 11th National People’s Congress, which is convening from yesterday to Saturday.
The draft law requires governments at different levels to enhance supervision of the pipeline work. The departments included in the process are public security, quality supervision, and work safety supervision departments, particularly state and provincial-level energy departments.
The draft also details the responsibilities of enterprises that own and operate the pipelines, as well as planning, construction and protective measures.
It stipulates that enterprises have to establish accident emergency plans and report these plans to the local government. Those who fail to carry out necessary protection and safety-maintenance work will be penalized.
Those who steal from pipelines face fines of up to 10 times the value of the stolen oil or gas, according to the draft law. And those who commit these crimes will be charged with criminal liability.
Drilling pipelines to steal oil has become a serious crime in recent years. Thieves illegally drilled into the pipelines of China National Petroleum Corporation (CNPC) 18,382 times from 2002 to 2006, causing the company a loss of more than 500 million yuan ($72 million).
In 2007, 10 criminals in Shandong were sentenced to death and imprisonment for stealing oil by drilling into a CNPC oil pipeline in the ocean.
The local court said the 10 committed severe crimes as the stealing not only risked explosion, but also polluted the ocean and caused huge losses for local fishermen.

Buildings worth HK$600m completed: HK

The declared cost of the new buildings completed in Hong Kong in September totaled about HK$600 million, said Hong Kong’s Buildings Department on Tuesday.
According to the Buildings Department, it has approved 30 building plans in September, 14 on Hong Kong Island, four in Kowloon and 12 in the New Territories.

Of the approved plans, nine were for apartment and apartment/ commercial developments, nine for commercial developments, four for factory and industrial developments, and eight for community services developments.
In the same month, consent was given for work to start on 23 building projects that, when completed, will provide 33,926 square meters of gross floor area for domestic use, involving 249 units, and 119,636 square meters of gross floor area for non-domestic use. The department has received notification of commencement of work for 17 building projects.
In addition, 14 demolition consents involving 14 building structures were issued.