Monthly Archives: October 2007

More Cutting Out The Waste

A bit, if only a bit, more flesh on the skeleton of regulations being put in place to curb polluters:  a state database of companies that violate environmental rules is being set up, according to Zhang Lijun, vice director of the State Environmental Protection Agency; greater cooperation with the commerce ministry to supervise exporters is also in the works.

No details on timing, or penalties for non-compliance. The two agencies had previously announced that exporters would face a one to three year trading ban if they were found to have seriously violated environmental protection rules, which will no doubt be stretched to cover unsafe products if expedient.

Also announced was a timetable for shuttering outmoded industrial plants that are either polluting or energy inefficient or both. See Cutting Out The Waste. Varying amounts of paper, alcohol and chemicals making capacity will go. Details via Shanghai Daily, here.

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Car Parts

While General Motors was making play of its $250 million investment in an R&D plant in Shanghai to develop green auto technologies, China’s auto-parts makers were headed for its home turf.  At the end of last week, some of the leading ones gathered in Detroit for a mini-trade fair to promote Chinese made auto parts. Last year, according to the U.S. Commerce Dept., U.S. manufacturers imported $7 billion worth of Chinese auto parts, up by a third from the previous year. That makes China the U.S.’s second largest auto parts supplier after Mexico.

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Filed under China-U.S., Economy

Bohai Buys Pipe

China’s home-grown hedge fund, Bohai, has made its first investment. It is paying 1.5 billion yuan ($201 million) for a minority stake in Tianjin Pipe Group, according to the Asian Wall Street Journal. The deal is likely to be announced later this week.

Tianjin Pipe is China’s leading maker of steel pipe for use in oil pipelines, with a 50% domestic market share. The state-owned enterprise was turned into a shareholding company in 2006. It made a net profit of 1.4 billion yuan in 2006, up 46% from a year earlier.

Last month, two of China’s strongest investment banks, Citic Securities and China International Capital, were approved to start hedge funds, joining Bohai, which is an offshoot of Bank of China, in the fledgling industry. Bohai raised 6.1 billion yuan for its first fund last year — so it is not quite in the Carlyle or KKR league yet.

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Cutting Out The Waste

What to make of news, reported by AFX, that parliament has passed a draft law to make industry less wasteful of energy?

Typically, little more than the intent is defined. Companies will face an energy audit to see if they comply with as yet unknown energy-saving targets. There will be caps on unit energy consumption for energy hogging producers such as steel and aluminum plants and local officials will be held accountable for energy waste. But the regulations remain unwritten and the enforcement unknown beyond a broad threat to close down enterprises that don’t meet the new requirements.

Energy efficiency and moving industry up the technology ladder is a policy priority for China. Environmental degradation is a political raw nerve, but the new law seems intended mainly to bolster official efforts to close down antiquated plant, a process that has already seen some small scale power generation and steel making shuttered. It has also just announced plans to cut 6.5 million tons of paper-making capacity and 1.6 million tons of ethanol production  by 2010,

Beijing’s goal is to cut energy consumption per unit of GDP by 20% by 2010. Last year, it managed barely 1%, well below the needed 4% to be on track.

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New Boss In Shanghai

Yu Zhengsheng is the new party boss in Shanghai following Xi Jinping’s promotion to the politburo standing committee. Yu was previously party boss in Hubei province.

Like his predecessor Yu is a princeling — the offspring of a revolutionary veteran. In his case, he has particularly colorful history. His father was the first party boss in Tianjin after the revolution in 1949, and who at one point was married to Jiang Qing, who, of course, later became Mao Zedong’s fourth wife and famously “Madame Mao”.

Yu’s brother, an intelligence official, defected to the U.S. in 1985, which put a brake on Yu’s career. Shanghai could be his last stop.

IHT notes that Yu was construction minister in the late 1990s, when China suffered a series of building collapses. Tempting to say he has arrived in Shanghai just when its stock market faces the same risk.

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Making Waves

Sign of the (increasingly prosperous) times: China has staged its first international racing regatta, the China Cup on Oct 19-21. Yachting needs monied entrepreneurs even more than it needs water. It is a rich man’s sport and 20 of the 62 participating teams were from China.

It is only two years since Jianmin Qui, chairman of Shenzhen Deren Electronic, and Wu Yi, chairman of Microlab Technology, bought the first racing yacht in China. Last year, a Chinese sponsored team competed in the America’s Cup, the sport’s elite competition. China is getting serious about sailing.

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Is The Credit Crunch A Prelude To A Crash In China?

Interesting question posed by John Plender in the FT a couple of days ago : Is the credit crunch a prelude to a crash in China?

History suggests, Plender argues, that it could well be. He says that the credit crunch is a symptom of the liquidity bubble in China — a hiccough in  a huge global recycling of liquidity that is the markets’ response to huge macro-economic imbalances.

Plender:

China is still at an early stage of development, it may be a case of many bubbles and many crashes. The only question is whether the impact is felt globally, as in 1929, or mainly domestically, as with Japan in the 1990s. The longer policy remains inflexible, the greater the likelihood of a global backwash. 

In this anniversary month of some of the great market crashes — 1929, 1987 — this piece provides a reality check to the soaring prices on the Shanghai stock exchange and runaway growth in the economy.

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Banking On South Africa

They used to say of the British empire that trade follows the flag — and that the bankers were never far behind both. So, too, it seems with China.

Industrial and Commercial Bank of China is to take a 20% stake in South Africa’s Standard Bank, Africa’s largest, according to various reports. It is paying $5.5 billion. Standard Bank told shareholders earlier this week that it was in talks with an unnamed potential investor.

The stake represents a substantial step up in China’s involvement in Africa, which has largely been in natural resources hitherto via its program of aid and cheap loans in return for access to energy and minerals.

Standard is one of South Africa’s blue-chip banks and operates in 18 African countries, and there is plenty of opportunity for an African bank to finance the growing trade and investment between China and the continent. However, one sign of the concern the deal is raising in some quarters is that word is that South Africa’s central bank has put a cap of 25% on ICBC’s ownership of the bank.

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Another Point Of Hu

Oxford Analytica offers a contrarian take on the recently concluded 17th party congress. It argues that the new line up of the politburo will limit President Hu Jintao’s power, rather than consolidate it. Not sure I agree in this case, but I like OxAn’s work, so this piece is worth the read. (Link is via Forbes magazine site; OxAn requires registration,)

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Moon Shot

China’s long-awaited moon shot is about to happen. The AP reports that China National Space Administration officials say the Chang’e 1 lunar orbiter will be launched between October 24th and 26th.

As I noted in August, a successful flight will add China to an elite club of nations that have sent a spacecraft around the moon — the U.S., Russia and Japan. Beijing is a step closer to being an space power, with the all the commercial and military implications that holds for the rest of the world.

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