16 June 2009 | China Economic Scan

16-June-2009

China Economic Scan - Your daily update on the Chinese economy.

In this edition: Foreign direct investment fell 17.8% in May, Home sales on the rise in China, KKR said to pay $150m for China Modern Dairy stake, VC deals showing signs of life in China, Chinese stocks gain for first time in three days.

Top 5 headlines

Foreign Direct Investment in China Tumbles on Crisis

• Foreign direct investment in China fell for an eighth month from a year earlier as companies cut spending to weather the worst economic slump since the Great Depression.
• Investment slid 17.8% in May to $6.38 billion, the commerce ministry said at a briefing in Beijing today, after falling 22.5% in April.
• “Companies have just been trying to survive the crisis, I don’t think they’re in the mood for aggressive overseas expansion,” said Wang Qing, chief Asia economist for Morgan Stanley in Hong Kong. “It’s too soon to see a pick-up.”

Home sales rise, but pricing remains crucial

• According to DTZ, an international real estate consulting company, total floor space of new homes sold nationwide increased 18.6% year-on-year to 162 million sq m in the first four months this year, which was also 21.2% above the year-on-year average of 2006 to 2008.
• Analysts say the strong rebound was triggered by the government's favorable policies on interest rates and taxation, and pent-up demand from 2008.
• Statistics from the National Development and Reform Commission show that property prices in China's 70 largest cities climbed 0.4% in April, 0.2% higher than the previous month.

KKR Said to Pay $150 Million for Stake in China’s Modern Dairy

• KKR, the private equity company of Henry Kravis and George Roberts, invested $150 million in Chinese milk supplier Ma Anshan Modern Farming, two people familiar with the matter said.
• KKR completed a series of investments in the company, known as Modern Dairy, the New York-based firm said today, without providing financial details.
• The milk supplier, based in Anhui province, has about 40,000 dairy cows and produces more than 150,000 tons of raw milk a year, KKR said.

VC deals showing renewed signs of life

• Twenty-six venture capital (VC) and private equity (PE) companies invested $4.81 billion in 15 deals in May after a cautious April that registered only $156 million in total investment, the report said.
• The financial services industry attracted by far the most investment in May, some $4.64 billion, or fully 97%, of the total.
• It was one big deal in the finance sector that dramatically changed the investment mix toward financials. On May 12, PE funds led by Hopu Investment Management invested about $4.62 billion to buy 8.53 billion H shares of China Construction Bank.

China’s Stocks Gain for First Time in Three Days; Banks Rally

• The Shanghai Composite Index gained 1.7% to 2,789.55 at the close, erasing a loss of as much as 0.6%. The CSI 300 Index, which tracks shares on both the Shanghai and Shenzhen exchanges, added 2.1%, with financial stocks posting the biggest gain among the 10 industry groups.
• Industrial & Commercial Bank, the world’s largest bank by market value, advanced 5.3% to 4.94 yuan, the most since March 26. Bank of China Ltd. climbed 4.8% to 4.12 yuan.
• The restarting of public offerings after a nine-month suspension may allow as many as 32 companies to raise up to 70 billion yuan ($10.2 billion), according to estimates from Liang Jing at Guotai Junan Securities Co. Some companies may receive final approval for initial public offerings this week, China Business News reported today.

Financial Indicators:

Metric

Value

Point change

% change

Hang Seng Index	18,499	-390.72	-2.07%
Shanghai Composite	2,790	45.79	1.67%
Shenzhen Component	10,769	244.83	2.33%
TAIEX	6,226	-222.67	-3.45%
CNY/USD	6.8410	0.0059	0.09%

Source: China Economic Scan

1 June 2009 | China Economic Scan

1-June-2009

China Economic Scan - Your daily update on the Chinese economy.

In this edition: Chinese economists see risk in holding US bonds, Chinese MOFCOM to encourage foreign investment after a 22.5% fall in FDI, China's banking regulator and Finance Ministry warned banks on making risky loans, Chinese industrial profits drop 28%, China's Agricultural Bank may still be some time away from IPO.

Top 5 headlines

Chinese economists deem huge holding of US bonds "risky," split on way out

• On the first day of U.S. treasury secretary Timothy Geithner's visit to China, the Beijing-based Global Times published a survey of 23 famous Chinese economists on Sunday, saying that the majority of them deemed the vast holding of U.S. bonds "risky."
• Among the 23 experts polled, 17 said they believed that holding U.S. equities pose great risks to China's economy.
• However 15 of the interviewed economists said they were against the idea to quickly offload China's possession of U.S. debt as a means to strengthen the country's financial stability and decrease Beijing's vulnerability to the already ailing world economy.

China's Ministry Of Commerce To Encourage Foreign Invest

• The Chinese Ministry of Commerce said it would seek to actively encourage foreign investment in China, ahead of U.S. Treasury Secretary Timothy Geithner's official meeting with Chinese authorities next week.
• China's actual foreign direct investment fell 22.5% on year in April to $5.89 billion, bringing actual FDI in the first 4 months of this year to $27.67 billion, down 21% from a year earlier.
• There were roughly 666,000 foreign-invested companies in China as of end April, about 3% of the country's overall number of companies. These foreign-invested firms contributed to 29.7% of China's overall industrial output and 21% of the country's tax revenue in 2008.

China regulator warns banks on risky loans

• China's banking regulator and the Finance Ministry on Sunday warned banks against issuing risky loans, saying they must step up their risk management.
• Banks extended 5.17 trillion yuan ($757.2 billion) in loans in the first 4 months, exceeding the government's minimum target of 5 trillion yuan for all of 2009 and fanning fears among analysts that banks were taking undue credit risks.
• In offering loans, banks must make a careful assessment of the borrowers' needs, to ensure the company in question is not using the money for 'blind expansion', the statement said.

China Jan-Apr industrial profits drop 28 pct yr/yr

• Chinese industrial profits in the first 4 months in 22 provinces fell 27.9% from a year earlier, narrowing a drop seen in Q1, the National Bureau of Statistics (NBS) said.
• In April, 23 out of 39 sectors saw their profit growth rebound or their losses narrow, the NBS said in a statement on its website (www.stats.gov.cn).
• Petroleum refining and coking industry profits reached 26.66 billion yuan ($3.9 billion) in the first 4 months, surging 181.3% year on year. The electricity sector made a profit of 2.19 billion yuan as of the end of April, in sharp contrast with a 1.37 billion loss made in Q1.

China’s Agricultural Bank May Not List This Year, Finet Reports

• Agricultural Bank of China probably won’t list its shares this year, Finet news service reported, citing 2 bank executives it didn’t name.
• The bank plans to open branches in New York and London this year to prepare for a global commodity-trading system before seeking a public listing.
• Agricultural Bank expects to acquire licenses to start operations in the U.S. and U.K. next year.

Source: China Economic Scan