China Economic Scan - Your daily update on the Chinese economy.
In this edition: Chinalco "Very Disappointed" with Rio Tinto deal collapse, inflation expectations could benefit stocks, ICBC buys Bank of East Asia's Canadian unit, China considers penalty tax on polluting businesses, Chinese stocks fall slightly but close the week up.
Top 5 headlines
Chinalco Is ‘Very Disappointed’ With Rio Rejection
- Aluminum Corp. of China, the nation’s largest producer of the material, said it is “very disappointed” with the rejection of its proposed $19.5 billion investment in Rio Tinto Group.
- “Our proposal presented an outstanding value creating opportunity for all Rio Tinto shareholders and would have provided a strong platform for a long-term strategic partnership between the two companies,” said Xiong Weiping, president of Chinalco, as it’s also known.
- The failed deal would have been the largest single foreign investment by a Chinese company. Rio, the world’s third-largest mining company, said today it will raise as much as $15.2 billion in a share sale, helping reduce $38.9 billion in debt.
Analyst: Inflation expectations benefit stocks
- Although surging prices are not good for the economy, inflation expectations can drive up asset prices and boost stocks in the Chinese market, a senior investment banker told the official China Securities Journal on Thursday.
- According to Frank Gong, JP Morgan's China chief economist, financial authorities worldwide are now taking various measures against economic recession and deflation.
- But these moves, if not well managed, could incur inflation risks in the future.
ICBC’s Canadian Foray May Prompt North American Push
- Industrial & Commercial Bank of China agreed to buy control of Bank of East Asia’s Canadian unit, gaining a foothold for expansion in North America with its first acquisition on the continent.
- ICBC is making the Canadian foray to “learn the lay of the land and decide whether or not to make a bigger push,” John Aiken, an analyst with Dundee Securities Corp., said in an interview. “ICBC has the potential to deploy a ton of capital within the domestic marketplace if they so choose.”
- ICBC, which has more customers than Russia has people and $247 billion of cash and equivalents, has spent more than $6 billion on acquisitions in Indonesia, Macau and South Africa during the past 2 years. Chairman Jiang Jianqing aims to triple the share of profit coming from abroad to 10%.
China mulls penalty tax on polluting businesses
- Zhang Lijun, vice minister of environmental protection, said collecting environmental taxes from polluting enterprises was one of the directions of the country's tax system reform.
- "It has been put on the agenda of the ministries of finance, environment protection and the state administration of taxation," Zhang told a press conference. "We are jointly studying the issue, and when conditions are ripe, we'll launch the taxation system on polluting enterprises."
- Zhang admitted that air in a few cities remained "very polluted" and the problem of acid rain remained serious.
China’s Stocks Decline, Paring Weekly Gain; Developers Retreat
- Chinese stocks slipped slightly on the Mainland with the Shenzhen Component down -0.62% to 10,667, the Shanghai Composite down -0.48% to 2,754, however The Hang Seng registered a gain of +0.96% to 18,680.
- Gemdale, the country’s fourth-largest developer by market value, retreated -1.6% after almost tripling this year. Haitong Securities dropped -2.3% as the stock traded near its priciest level in a year. Liquor maker Sichuan Swellfun gained +6.8% after Diageo boosted its stake in the parent.
- “Stocks are expensive so the rally needs a pause,” said Larry Wan, Shanghai-based deputy chief investment officer at KBC-Goldstate Fund Management Co., which oversees about $583 million in assets.
Financial Indicators:
| Metric | Value | Point change | % change |
| Hang Seng Index | 18,680 | 176.76 | 0.96% |
| Shanghai Composite | 2,754 | -13.35 | -0.48% |
| Shenzhen Component | 10,667 | -66.61 | -0.62% |
| TAIEX | 6,767 | -18.96 | -0.28% |
| CNY/USD | 6.8360 | 0.0032 | 0.05% |
Source: China Economic Scan
