Category: "Banking & Financial Services"
Demand Soars for China-Specific Finance Talent
February 23rd, 2007By Meta L. Levin 2007.1.23 Wall Street Journal
When Bernie Fung returned to Hong Kong 14 years ago, he secured a front row seat for the fastpaced economic transformation of the People’s Republic of China.
A HongKong Native who spent 20 years working and studying in Canada and the U.S., Mr. Fung is now CEO of AON Asia, a risk management consultancy, and finds himself competing for the limited pool of financial professionals who have expertise and experience of working in and with China. "It's a challenge to find the right talent," he says.
The rapid pace of economic growth is making China one of the hottest financial recruitment markets in the world. And multinational companies seeking to enter China are looking to hire candidates with skills that allow them to work in, and advise on, this complex market.
Companies arriving in china on the tide of foreign investment need accountants, auditors and financial managers who understand the market and are familiar with the variances between cities, provinces and regions. Demand is also high for English speakers, those with overseas and management experience, as well as familiarity with working in a multinational corporate environment and with new product sales, says Thomas Zhou, partner and co-founder of DaCare Executive Search, which has offices in Beijing and Shanghai.
"Native (Chinese) understand the culture, the policies and, most important, they have network connections with local government and companies," says Sherry Liu, a Beijing native, now based in Milwaukee, who has lived in the U.S. for 22 years and operates SimChain Global Logistics LLC, and outsourcing company in China. Like most, she believes that the best picks are the "haigui," Chinese who studied abroad and know the international game rules.
That, however, is one of the biggest challenges, and recruiters like Guy Day, managing director of Ambition Asia, an accounting and finance recruiting firm in Hong Kong, struggle to find enough Mandarin-speaking candidates who hold a U.S. Certified Public Accountant, British Certified Practical Accountant or similar certification from other countries.
Chinese colleges and universities are turning out an increasing number of entry-level job candidates, but there are few middle and upper-management Chinese with the necessary experience in international commerce, making the competition fierce and salaries rise. "Investment in education didn't start until about 10 years ago, so there is a greater supply of those with little or no experience and the top jobs are going to people from Hong Kong or to non-Asians," says Mr. Day.
It can be difficult, however, for non-Asians to understand the cultural complexities of working in china. "Sometimes a manager coming in from another country will have problems, because he doesn't know how to handle the locals," says Leonard Sarkissian of Milwaukee, Wis., whose company, international Harbor LLC, helps foreign firms through the process of setting up a business in China. He emphasizes the importance of learning to read cultural cues. For instance, Chinese will not say no directly to guests. They may say," it's very difficult," explains Ms. Liu. "There are many ways to show their disagreement, but none of them is no". Foreign managers who don't understand that may find the process frustrating and counterproductive.
Recognizing this, AON Corp., AON Asia's parent company, recently initiated a program to identify Chinese national studying in the U.S., hire them and put them through a training program before sending them back to China to work at either AON's insurance or brokerage offices there.
Those who take internal audit jobs in China must be ready for a lot of travel, and that can make these positions a tough sell, says Mr. Day. "Some of the junior-Level jobs have 90% travel. You are literally living out of a suitcase." Accounting and financial analysis jobs tend to have considerably less. Since many companies have manufacturing facilities in China, it also is important that those looking for jobs understand and be familiar with this environment, Mr. Day says.
Chinese job candidates are becoming more sophisticated. Whereas salary was king for many years, whey now are evaluating employers by career trajectory, training and overseas opportunities, as well as remuneration.
"Candidates have woken up to the fact that working for the right company and having the opportunity to work their way along a clearly defined career path can be worth more than money along," says Mr. Day. While money is still strong attraction, he finds the market maturing as those with financial expertise look for careers and not just jobs, and cast a critical eye on such things as location and travel opportunities. Employees also prefer big name multinational companies, seeing in them more opportunities in the long run.
An increasing number of young Chinese job candidates are looking for companies that will finance their M.B.A. studies, says Mr. Sarkissian. In fact, it has become a part of some corporate retention programs in China. An employer will offer to pay for graduate school in return for a commitment to stay with the company for certain number of years. A lot of Chinese universities also now have partnerships and joint programs with those in the U.S. and Europe. Often a job candidate will ask if the company will pay for an M.B.A. as part of the interview. "It would be the kicker for them," says Mr. Sarkissian.
Language is a big issue. Although Mr.Fung agree English is the international language of business, he believes that finance professionals who want to be successful in China do need to at least be familiar with Putonghua, the official Mandarin dialect spoken in most of the large cities.
"As a hot growth market, more U.S. companies are trying to establish their presence (in china), which does create additional demand for managers who are fully Mandarin-English fluent in both language and culture," says Susan Amy, director of the Career Management Center at the university of North Carolina's Kenan-Flagler Business School.
These is also the issue of Chinese familiarity with Western business culture. "Part of the advice I give is to raise your hand and speak up at meetings," says Corbette Doyle, AON's U.S. –based global chief diversity officer. "That is culturally unacceptable in China." It is Ms. Doyle's job not only to promote diversity in AON's offices around the world, but also to find ways to do business without stepping on cultural toes. She cites as an example a group of Chinese AON employees who founded the "China Desk" within the company. They help AON's U.S. clients who want to go to china, as well as Chinese clients who want to invest in the U.S. "They see it as an opportunity to help the organization and help themselves without raising their hands and saying 'look at me.'" She says.
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Investment options continue to expand
February 12th, 2007INSURERS are improving profitability as investment vehicles increase.
The investment returns for the country's insurers sat at 5.8 percent last year, up 2.2 percentage points from 2005. It marked a three-year high.
Total profit for the industry topped 95.5 billion yuan (US$11.94 billion) last year, according to the China Insurance Regulatory Commission.
The top insurance regulator is considering further expansion of the investment channels insurers can utilize.
"The watchdog is researching the possibility of expanding the upper limit of insurers' investments in the stock market," said an official with the commission who asked not to be named.
Domestic insurers were formerly restricted to bank deposits and bonds as main choices. The low returns made it difficult to boost profit.
At present, insurers are allowed to invest up to five percent of their total assets in the stock market. However, the watchdog is also concerned that the strict limit curbs insurers' investment returns from the stock market, especially now that has entered a period of strong gains.
China's stock market stepped out of a five-year low last year as the Shanghai Composite Index surged 130 percent. It is expected the bull run will continue for another two years, according to analysts.
Insurers can now invest in stocks, infrastructure and overseas fixed income markets. Insurers invested US$2.46 billion overseas last year while 10 billion yuan alone was invested in the high-speed railway linking Shanghai and Beijing.
Insurers are making money from investments in the banking sector. Last year, insurers bought stakes in Industrial and Commercial Bank of China and Bank of China. Both banks' shares have surged since their debut in Hong Kong and Shanghai.
Authorities are considering giving insurers more options to invest abroad by allowing them to invest up to 15 percent of total assets in overseas markets including stocks, funds, fixed-return products, options, deposits, bonds, commercial bills and other products allowed by the regulator, the top regulator said.
It has been soliciting public opinion on the plan in a draft rule posted in December. More moves are also under way.
Shanghai will test using insurance capital to build apartments in Pudong New Area on a trial basis, the Shanghai Bureau of the CIRC said last week.
"I am expecting wider investment vehicles which will make my job more challenging and exciting," said Xiao Hua, an official within the investment department of a local insurer. "And I see the trend coming quicker these days."
Tariff cuts may ease trade surplus
January 23rd, 2007CHINA will further reduce import tariffs on energy, raw materials and advanced technology in a bid to ease the country's growing trade surplus, Fu Ziying, assistant minister of commerce, said over the weekend.
The rapidly expanding trade surplus is "threatening the economy with the danger of rebounding investment and rising inflation," Fu said at an economic conference in Beijing.
China aims to narrow the surplus, which jumped 74 percent to a record US$177.5 billion last year, in an effort to adjust economic structure and curb rapid foreign exchange inflow that floods the world's fourth-largest economy with liquidity and adds pressure on its currency to rise.
China's exports rose 27 percent, and imports gained 20 percent in 2006, according to government data cited by Bloomberg News. To slow exports, China raised export taxes on oil, steel and nonferrous metals in November. In the same month, it cut import tariffs for alumina, the raw material for aluminum.
In September, it cut export incentives for steel and textiles.
The commerce ministry will further cut export rebates, Fu said, without elaborating. It will also adjust toll policies on companies that import raw materials and then export processed products, he added, without providing further details.
A more flexible currency is helping the government's effort to ease the trade surplus, Fu said. The yuan rose 0.31 percent to 7.7739 against the United States dollar in Shanghai last week, according to the China Foreign Exchange Trade System. It has risen 6.3 percent since a fixed exchange rate of 8.28 to the dollar ended in July 2005.
The government has asked the Export and Import Bank of China, a state-owned policy lender, to increase lending to importers, Liang Xiang, assistant president of the bank, told reporters on Saturday.
Premiums follow boom times
January 22nd, 2007CHINA mainland's insurance market expanded 14.4 percent to 564.1 billion yuan (US$73 billion) last year as the world's fastest-growing major economy generated more demand.
Insurance companies' total assets rose by 29 percent to 1.97 trillion yuan, according to documents issued at the China Insurance Regulatory Commission's annual conference in Beijing yesterday.
The premiums on property and casualty cases jumped 22.6 percent to 150.9 billion yuan, while life premiums rose 10.7 percent to 359.3 billion yuan, the regulator's chairman, Wu Dingfu, said at the conference.
China Life Insurance Co, Ping An Insurance (Group) Co and other insurers are benefiting from economic growth to sell more protection and investment products.
Government efforts to dismantle the cradle-to-grave welfare system are also spurring sales.
"The insurance industry's growth is likely to be faster in coming years, as economic expansion will make the Chinese more willing to spend on insurance products," said Tuo Guozhu, an insurance professor at the Capital University of Economics and Business.
Gross domestic product expanded 10.5 percent in 2006, down from a 10.7 percent pace over the first three quarters, National Development and Reform Commission head Ma Kai said on January 12. Still, the growth is the fastest among the world's biggest economies.
The mainland's insurance market may grow about 20 percent this year and in 2008, Tuo said.
Rapid premiums growth has made mainland insurers more attractive to investors. Shares of China Life more than quadrupled in the prior 12 months for the biggest gain among insurers worldwide, according to data compiled by Bloomberg News. Ping An more than tripled and PICC Property & Casualty Co doubled in the same period.
China Life's yuan-denominated shares on January 9 more than doubled on their first day of trading on the Shanghai stock exchange, making the company the world's second-biggest insurer by market value. The surge gives Beijing-based China Life a market value of US$128 billion, surpassing ING Groep NV, Allianz SE and Axa as the biggest insurer after American International Group Inc.
China Life raised 28.3 billion yuan selling 1.5 billion shares, or 5.3 percent of its enlarged capital, on the mainland last month.
Health and accident premiums rose 19 percent to 53.9 billion yuan, Wu said.
Insurance companies' total returns on investment were 5.8 percent last year, 2.2 percentage points higher than 2005.
The changes in mainland's health and pension systems to encourage consumers to spend more and save less have also helped to boost the insurance industry, Tuo said.
ICBC launches foray into Indonesian banking
January 2nd, 2007THE Industrial and Commercial Bank of China has signed an agreement to acquire a 90 percent stake in Indonesian lender Bank Halim.
The remaining 10 percent will continue to be held by shareholders of Bank Halim, but ICBC has an option to buy the balance in three years, the Chinese bank said on its Website. The purchase price was not revealed.
The deal represents ICBC's first takeover of a foreign bank, and it is also the first time for the bank to enter an overseas market via an acquisition.
The purchase is expected to produce valuable experience to help ICBC expand in the international financial markets, the Website statement said.
The two banks are now awaiting permission from their regulatory authorities before they can finalize the deal.
The agreement follows ICBC's October 27 simultaneous listings on the Shanghai and Hong Kong stock exchanges, registering the world's biggest initial public offering by raising US$21.9 billion. The ICBC share sale surpassed the US$18.4 billion raised by NTT DoCoMo Inc in 1998.
ICBC's total assets exceed seven trillion yuan (US$897.4 billion), and it has 2.5 million corporate and 150 million individual clients.
The privately held Bank Halim is based in Surabaya, on Indonesia's main island of Java. It had US$50 million in assets at the end of 2005, a capital adequacy rate of 57.88 percent and a non-performing loan rate of 1.32 percent.
Int'l banks move into RMB retail
December 26th, 2006 Foreign banks are expanding aggressively in the lucrative Chinese market, knowing they will soon be able to deal in the renminbi retail business.
The country's banking regulator approved over the weekend the first group of nine foreign lenders to incorporate locally, a sign that these overseas players will qualify for the business that is currently closed to them.
Executives of major domestic lenders in Shanghai said yesterday that Chinese players would be compelled to engage in further reforms amid the pressure that comes with full-front competition with overseas rivals in attracting high-end customers, recruiting talent and offering products with high added value.
At the same time, an equivalent competitive environment and supervisory framework would help domestic and overseas institutions carry out further partnership, they insisted.
The Hong Kong-based Hang Seng Bank plans to expand its operation on the mainland to more than 2,000 staff working among a network of 50 outlets by 2010, the bank said yesterday. The lender, a principal member of the HSBC Group with 15 outlets on the Chinese mainland, has been approved to begin preparations for setting up a subsidiary bank.
"Hang Seng's mainland subsidiary bank, with its headquarters in Shanghai, is expected to be set up in the first half of 2007," Johnson Fu, the bank's head of China business, said.
He said that it would incorporate locally with a registered capital of 5 billion (US$625 million) and, as of 2007, the total investment by the lender would reach 6.7 billion (US$838 million), together with its 1.7 billion (US$213 million) investment in a 15.98 per cent stake in the Fujian-based Industrial Bank.
Compared with domestic rivals, the biggest obstacle for foreign banks is the scarcity of outlets. To close the gap, the British Standard Chartered Bank has decided to open two additional sub-branches before the end of 2006 and double the number of existing outlets within the next 18 months.
With one of the largest foreign bank networks in China with 20 outlets in 14 cities, Standard Chartered intended to expand the number of staff in China to more than 2,000 before 2008 from the current number of about 800.
It also signed a framework agreement last week with Shanghai's metro operator and is about to install its ATM machines inside metro stations. Last month Standard Chartered announced the installation of their first ATM machine in Shanghai and their plan to set up at least 20 self-service facilities in key Chinese cities in the next few months.
In view of the fierce competition in the eastern regions, overseas players are advancing westward to explore the relatively less developed areas.
HSBC, Europe's biggest lender, opened a new branch in Xi'an, capital of Northwest China's Shaanxi Province, on Friday, becoming the first foreign bank to expand its presence to western China following the full opening of China's financial sector on December 11.
"As an economic centre of western China, Xi'an has achieved impressive growth in recent years and offers great potential for HSBC," Richard Yorke, HSBC chief executive officer China, said.
Vincent Cheng, HSBC chairman, said: "as long as there are customers, we will go there."
Other players approved in the first group of nine to set up local corporations are also sparing no efforts to roll out new outlets. ABN AMRO and the Bank of East Asia plan to open 30 and 35 new outlets respectively in five years.
Overseas lenders are working to boost other parts of their operation such as product development, service improvement and image building.
Singapore's DBS Bank posted an ad on Kong.net, a WAP portal owned by China wireless value-added service provider Kongzhong, to promote its brand.
Among imminent full-front competition, leaders of domestic lenders pointed to a wider prospect for co-operation in areas such as owner-management mechanisms, risk control, profit-making plans and product and service innovation.
Chen Xin, president of Bank of Shanghai, said yesterday that lenders would compete more fiercely for high-end customers in the relatively developed regions.
In order to best respond: "domestic banks should fully play on their advantages in geography, human resources and network, and enhance management, innovation ability and provide qualified services," Chen said.
Economy expected to grow by 9.8% in 2007
December 22nd, 2006China's sizzling economy will slow slightly next year but still should grow by a robust 9.8 percent even as Beijing extends controls to cool off an investment boom, the Central Bank said in a report published Friday.
The forecast was in line with outside estimates but well above the 8 percent target for 2007 set by a government strategy report released this month. It would be by far the highest growth rate for any of the world's major economies.
Growth this year should be 10.5 percent, said the Central Bank report, which was carried on the Web site of the official China Securities Journal newspaper. That was in line with earlier official forecasts.
Chinese leaders want rapid growth to reduce poverty. But they are trying to stop an investment boom in real estate and other industries where they worry that overspending on unneeded factories and other assets could ignite inflation or a debt crisis.
Beijing has raised interest rates twice this year, tightened controls on credit and imposed curbs on new construction.
Despite the controls, the government says investment in factories and other fixed assets in the first 11 months of this year soared by 26.6 percent over the same period last year.
In comments to state media, Ma Kai, chairman of China's main planning agency, the National Development and Reform Commission, said this month that the "relentless expansion has yet to be stopped."
Ma said in an interview Friday on the Web site of the People's Daily that economic controls will be extended into next year to prevent runaway investment.
Inflation should be 1.4 percent this year and 2 percent in 2007, the Central Bank report said.
The government reported economic growth of 10.7 percent for the first nine months of the year. But official indicators show the expansion has slowed slightly since then.
The planning report, released this month following a meeting led by President Hu Jintao, said Beijing would focus next year on trying to shift the basis of China's economic growth from investment and exports to domestic consumption.
Guangdong bank's new man
December 21st, 2006MICHAEL G. Zink, the former head of Citibank Korea, has been named the new president of Guangdong Development Bank.
Guangdong's former president quit after a Citigroup-led consortium won a US$3.1 billion bidding war on the lender.
Zink, a Citigroup veteran with 19 years' experience in the United States firm, has had corporate banking and executive management roles in New York, Cote d'lvoire, Gabon, Tunisia, Russia, Australia, Indonesia, and South Korea.
Citigroup has six seats on the 16-seat board of the lender in China's southern commercial hub. One is an independent executive.
The appointments were approved at a board meeting on Monday, Citigroup said yesterday.
Citigroup, the biggest US financial firm, and its partners, won out against Paris-based Societe Generale SA, and Ping An Insurance (Group) Co in the 18-month-long race for a combined 85.6 percent stake in Guangdong Development Bank.
The New York financial services company, China Life, State Grid and CITIC Trust and Investment Co each holds 20 percent, while IBM holds another 4.74 percent and Guangdong Finance Investment Holding, an investment arm of the Guangdong government, holds 0.85 percent.
The bidding money was injected into Guangdong bank, the country's 11th-biggest lender, yesterday.
Citigroup says it will help improve the internal governance, risk management, introduce lending expertise, and upgrade technological infrastructure.
"There's lots of restructuring to be done in the future to make the lender a globally competitive one," said the China Banking Regulatory Commission.
Guangdong bank is a test case for banking reform as regulators allowed the bank to sell a majority stake to private investors to ease its debt burden.
Zhang Guanghua, the former president, quit last Monday. He was reported to have joined China Merchants Bank.
Bullish stock market hits historic high
December 15th, 2006BEIJING, Dec. 15 - For years, China's stock market was an anomaly: the economy was going one way up and it was going in the opposite direction.
This year, it seems it can't wait to catch up gaining a staggering 94 per cent and becoming one of the best performing markets in the world in 2006 mainly because of successful security reforms.
Yesterday, the market hit a historic high: the benchmark Shanghai Composite Index rose 1.15 per cent to close at 2249 points, passing the previous intra-day high of 2245 on June 14, 2001.
Turnover of Shanghai A shares was a heavy 36.88 billion yuan (4.67 billion U.S.dollars).
The Shenzhen Composite Index yesterday closed at 6044.28 points, up 71.80 points from the previous day. It has more than doubled since the beginning of this year.
"Factors like the steadily growing economy, a series of reforms in the capital market, and massive capital inflows into the mainland will see the stock market embracing a 'golden decade'," said a report in Shanghai-based Orient Securities. "The index is expected to break 3000 points in 2007," it added.
In May last year, the central government embarked on an ambitious reform to convert non-tradable shares worth as much as US$250 billion to tradable ones.
"Now for the first time, the stock market is able to reflect China's booming economy. It proves the ongoing securities reform has fundamentally changed the stock market from a gambling house to a normally functioning market based on true value", said Li Yongsen, a professor at Renmin University of China.
With the bulls clearly on the ascendant, analysts point out that massive inflows of new money into the market make it hard to foresee when the rally will stop.
"With such excessive liquidity, the index is likely to continue to climb, and there is no clear sign it will end in the short term," said Zhang Qi, an analyst with Haitong Securities.
The rise of A shares yuan-denominated mainland stocks has tempted many blue chips originally listed overseas to come back to the home market.
China Life Insurance, the nation's biggest life insurer, has applied to issue A shares worth as much as 25.5 billion yuan (3.23 billion dollars) in Shanghai. The offer will likely make the company the second largest public offering in the A-share market after Industrial and Commercial Bank of China, the country's biggest lender.
The bullish market has allowed many ordinary Chinese to share the profits from the economic boom for the first time.
"The rise is just crazy. Many of my friends have doubled their money by investing in stocks or mutual funds this year. I also want to put some money in the market," said Li Yan who works for a law firm.
Bank regulator issues reform guidelines
December 7th, 2006Dec.7 - China's banking regulator issued guidelines Wednesday to encourage financial innovation by commercial lenders, such as increasing earnings made from fees and giving out less risky loans.
The guidelines will take effect next Monday, the day China will fully open its banking sector to foreign lenders in line with its commitment to the World Trade Organization.
According to Tang Shuangning, vice-chairman of the China Banking Regulatory Commission (CBRC), China's banking industry urgently needs to speed up its financial reform to deal with rising competition after fully opening.
"Chinese commercial banks lag far behind their international counterparts in terms of financial innovation," Tang said.
He said non-interest income generally accounts for more than 50 per cent of the total income of big international banks. But the highest rate for Chinese commercial banks from fees is less than 30 per cent and most of banks earn less than 10 per cent.
He said the guidelines are the first such document concerning financial innovation issued by the banking regulator, signalling a new stage of reform.
According to the guidelines, the CBRC will set up a sound legal environment to encourage financial innovation. The regulator will further streamline approval procedures and strengthen supervision to facilitate financial innovation.
The guidelines also emphasize the importance of risk control. They require commercial banks have a good knowledge of their businesses, risks, clients and competitors.
In addition, the guidelines clarify commercial banks' obligations to consumers, such as correct disclosure of information, professional services, protection of assets, and offering effective complaint channels.
Despite this need for reform, Tang said, commercial banks in China have made progress in financial innovation.
The CBRC's statistics show the trading volume of major commercial banks reached 14 trillion yuan (US$1.77 trillion) last year.
Nearly 30 Chinese banks offer renminbi wealth management services, with a total value of 130 billion yuan (US$16.46 billion).
A total of 17 foreign and Chinese banks have been approved to invest clients' assets overseas under the qualified domestic institutional investor (QDII) programme. So far, they have launched nine QDII products, with sales of 2.3 billion yuan (US$291 million) in renminbi and US$87 million in US dollars.
But more financial innovations need to be made, Tang said.
In addition to financial reform, commercial banks are being asked to engage in public education, informing investors that they should be responsible for their own purchasing decisions.
At yesterday's press conference Tang also said the Bank of Communications and China Construction Bank have applied to establish insurance companies.
Shanghai:Time ripe for welfare reform
November 21st, 2006China's high savings rate and sound public finances offer the right conditions for the authorities to proceed with social security and healthcare system reforms, People's Bank of China Governor Zhou Xiaochuan said.
Speaking to the Xinhua News Agency in Sydney, where he was attending a Group of 20 meeting of finance ministers and central bankers, the head of China's central bank said the nation's social security system should include all members of society.
Social security fund reform should involve government support, individual accounts and commercial insurance, Xinhua quoted Zhou as saying.
People with adequate savings should be encouraged to invest in personal pension and medical insurance schemes, Zhou said, stressing that the government should offer more support to poorer citizens.
The central bank governor said that pension funds, which are currently mainly held by banks, should be invested in capital markets to increase their value and generate higher returns.
The government is currently working on a plan to transfer 10 per cent of any domestic shares in listed State-owned companies to the national pension fund, the National Council for Social Security Fund.
The council, which had total assets of 230 billion yuan (US$29 billion) at the end of August, currently invests mainly in bonds and bank deposits and is planning to start overseas investment in the near future.
Zhou said the current healthy state of the nation's finances also offered good opportunities for further steps to be taken in foreign exchange rate reform.
He added that the nation's financial sector was now in a much stronger position than it was three or four years ago, noting that it was now better equipped to cope with interest rate reform and a more flexible yuan.
In another development, the People's Bank of China announced yesterday it had opened a representative office for the South Pacific in Sydney.
The office will improve communications with monetary authorities in the region and promote financial co-operation, the central bank said.
Foreign insurance agencies booming in China
November 20th, 2006Chinanews, Beijing, Nov. 18 - "Currently (before November 15), there are 121 branches of 47 foreign insurance agencies from 47 countries and regions in China,"said Li Kemu, deputy director of China Insurance Regulatory Commssion, at the 4th Sino-US Insurance Talks.
China's rapid economic growth has injected unparalleled vigor into its insurance industry, and allowed it to grow at an average annual rate of 17.3%. In fact, insurance is one of the fastest-growing of all industries in China.
Last year alone, insurance made a revenue of 49.27 billion yuan, and it will surely gain more by the end of 2006. The total capital of all the 100 insurance agencies in China is as much as 1.84 trillion yuan, an amazing figure.
However, there are problems in China's insurance industry. First, the market conditions are not perfect, thus regulations and laws must be made as soon as possible to bridge the gap of transparency and fairness of the market between China and developed countries. Second, local insurance agencies must work hard to improve the quality of their services, and the general public should know more about the importance of insurance.
As Chinese only spent 376 yuan per capita on insurance in 2005 (much lower than the average international level), the market will boom even faster in the future.
China:Foreign banks plan local incorporation
November 17th, 2006China's announcement Thursday that foreign banks can soon deal in renminbi retail business has prompted a flurry of international lenders to announce their plans to incorporate in China. [Read full text of the regulation]
The rule, which marks the implementation of one of China's banking commitments to the World Trade Organization (WTO), allows foreign-funded banks to deal in the renminbi retail business across the country after December 11.
In order to better protect the interests of domestic depositors, the Chinese Government is encouraging foreign banks to incorporate locally when dealing in renminbi retail business.
The release of the rule yesterday was welcomed by foreign banks, with a few immediately announcing they are ready to become among the first to incorporate in China.
According to Xu Feng, the director in charge of overseeing foreign banks for the China Banking Regulatory Commission (CBRC), more than 10 foreign banks are ready to change their branches to local corporations following the issuance of the rules.
Foreign lenders including HSBC, Standard Chartered, Bank of East Asia, and Hang Seng Bank have all expressed their willingness to transfer operating branches into locally registered corporations.
"It is a historic milestone to mark the fifth anniversary of China's entry into the WTO and its commitment to fully open the financial market," said Richard Yorke, China CEO of HSBC.
"We believe that local incorporation will enable us to further expand our network and service range, in particular our renminbi financing ability for the benefit of our customers in the China market," he said.
HSBC, Europe's largest bank, is aimed to become one of the first to incorporate in China based on its experience in other countries.
Katherine Tsang, CEO of Standard Chartered Bank China also announced the bank had submitted its application to China's banking regulator for local incorporation yesterday.
Hang Seng Bank said it planned to invest more than HK$1 billion (US$128 million) to expand its mainland network and service capabilities, including increasing its number of outlets to 30 from 15 by the end of 2007.
"The total assets of those banks who are willing to transfer to local corporations are accounting for 60 per cent of the combined assets of foreign lenders in China," said CBRC's Xu.
According to Wang Zhaoxing, assistant chairman of the CBRC, in order to lower the time and cost of local incorporation, the government will try to guide foreign banks. The procedure will normally take one to three months, Wang said.
Not an immediate threat
Though foreign banks are likely to siphon off renminbi services from local banks, which have grown by an annual average of 2 trillion yuan (US$246 billion) in recent years, experts say they won't pose an immediate threat to domestic banks.
Wang Yu, a 40-year-old lawyer who has years of experience overseas, said he does not plan to deposit most of his earnings into foreign banks.
"Currently the service in domestic banks are almost at the same level with those of foreign banks, and I don't feel there is a need to change my bank," he said.
He did say he would consider buying a few wealth management products from foreign banks once they start dealing in renminbi.
"Foreign banks are more sophisticated in providing wealth management service," Wang said.
A recent AC Nielsen survey said Chinese customers are increasingly interested in foreign bank services, especially young people.
But Yi Xianrong, a researcher from the Chinese Academy of Social Sciences, says Chinese banks already have a strong hold on the market. "Local banks have already built a nationwide network across the country, making it hard for foreign banks to compete," Yi said.
Deng Chun, vice-president of Bank of Communications, said he expects "there will be more co-operation than competition" between foreign and domestic banks.
However, analysts pointed out that foreign banks might encounter conflicts in their business strategies. In recent years, international banks have become strategic investors in Chinese banks. Now, they will be in direct competition with those banks.
HSBC, which holds a 19.9 per cent stake in Bank of Communications (BoCom), helped the Chinese bank establish a credit card centre in October 2004.
Now, as the foreign bank expands its own network in the country, analysts worry HSBC will siphon clients away from the card centre.
"I'm afraid with HSBC's expanding of its own operating branches in China it is not likely to share its clients with BoCom, especially from the high-end clients," said She Minhua, a banking analyst at CITIC China Securities.
Shanghai is 'the first choice'
With yesterday's announcement, Shanghai is expected to get the largest benefit from foreign banks locally incorporating.
Foreign banks currently concentrate their business in the country's eastern areas such as Shanghai, Shenzhen, Beijing and Guangzhou.
Statistics from the CBRC shows the number of foreign bank branches and bank corporations in Shanghai totalled 60. The overall number of foreign banks and non-bank financial institutions have reached 103 in the city.
Shanghai has 30 per cent of all foreign banking institutions, which accounts for 55 per cent of its total business revenue.
Now, Citibank, HSBC, Standard Chartered Bank, Bank of East Asia, and Hang Seng Bank all said they were considering setting up headquarters in the country's largest city.
Some foreign firms have expressed concerns that incorporation in Shanghai may take a long time due to complex legal procedures.
In response, the local government established a special financial office to help foreign banks efficiently incorporate.
World Bank ups '07 China growth forecast
November 15th, 2006By Zheng Lifei (China Daily)
Updated: 2006-11-15 08:53
The World Bank yesterday raised its growth forecast for the Chinese economy next year, citing favourable domestic macroeconomic prospects.
The Washington-based bank expects China to register a 9.6 per cent growth in its gross domestic product (GDP) in 2007, up from its previous forecast of 9.3 per cent made in August, the bank said in its latest quarterly China Economic Report released yesterday.
The bank's growth forecast for the Chinese economy this year remained unchanged at 10.4 per cent.
The Chinese economy expanded 10.4 per cent in the third quarter, down from a decade-high 11.3 per cent recorded in the second quarter.
"Prospects for the Chinese economy remain robust," the bank said.
"Looking ahead, underlying domestic economic conditions remain favourable to rapid growth," it said, pointing to 30 per cent annual corporate profit growth, ample liquidity in the banking system and robust enterprise investment growth.
Although the government's macroeconomic control measures to slow down investment growth have already had a significant impact, government-led investment in "bottleneck" infrastructure such as transport and energy is likely to remain buoyant, the lender said.
The bank noted domestic consumption "should continue to benefit from rising incomes, particularly in urban areas."
In addition, the external environment, where prospects for a soft landing of the world economy remain good, is also favourable for the Chinese economy in the next year.
China's retail sales surge 14.3% in October
November 15th, 2006BEIJING -- China's retail sales surged 14.3 percent from the previous year to 699.8 billion yuan in October, the National Bureau of Statistics (NBS) said on Tuesday.
The retail sales of oil and oil products registered the highest growth of 32.7 percent, with that of construction and decoration materials second with 30.4 percent. Retail sales of home electrical appliances increased by 25.8 percent.
The NBS said retail sales had been on the increase ever since the beginning of the year.
The growth of retail sales for the first half of the year was 13.3 percent. It rose to 13.7 percent in July, 13.8 percent in August and 13.9 percent in September.
The retail sales for the first 10 months stood at 6.2089 trillion yuan, up 13.6 percent on the previous year.
Although the growth of retail sales has risen, analysts said it was still far behind the growth of investment. The country's fixed assets investment shot up by 27.3 percent in the first three quarters.
This means China still has a long way to go if it wants consumption to replace investment as the main engine of its economic growth, the analysts said.
ICBC makes gains after world-record listing
November 13th, 2006Shares of the Industrial and Commercial Bank of China (ICBC) have posted modest gains two weeks after investors scrambled to get in on the world's largest ever initial public offering.
The dual listing of the bank's shares in Hong Kong and Shanghai, the first of its kind for China, sparked frenzy as top rank foreign and domestic investors sought to get a piece of the Chinese growth miracle.
The demand was so intense that the lender, China's largest, decided to exercised its over-allotment option this week, increasing the number of shares on offer to raise a world record-breaking 21.1 billion dollars.
While the state-owned ICBC staged a strong debut in Hong Kong last month with Shanghai lagging behind, two weeks on, its shares have only managed to score modest gains, analysts said.
They have risen 19 percent from their offer price in Hong Kong and 12 percent higher than the issue price in Shanghai with many individual investors having taken profit, they said.
Although fresh fund inflows are flooding the Chinese and Hong Kong stock markets, pushing them to record highs as investors bet on a further strengthening of the Chinese yuan, the money has also gone to other China-related stocks.
"I am a little disappointed with its performance," said Francis Lun, general manager of Fulbright Securities. "It's a big bank. I expected it would perform better."
In Shanghai however, Gu Junlei, banking analyst with Orient Securities, said ICBC's performance matches its expectations: "It offered a lower initial public offering price, which paved the way for further steady increase."
Kitty Chan, director of Hong Kong-based Celestial Asia Securities Holdings, said its performance was "acceptable" and remained within her expectations given the many problems that have dogged the sector.
International investors have jumped at the chance to buy into a piece of the Chinese financial sector despite mountains of bad debt, poor management and a lack of transparency.
But Chan said: "Investors will continue to be attracted by a country that has good economic growth and that will go for its banks."
ICBC is the third of China's big four banks to go offshore after Bank of China and China Construction Bank as part of government-driven sector reform.
(Source: AFP)
China to become world¡¯s 2nd largest market for capital management
November 9th, 2006Chinanews, Shanghai, Nov. 9 - In a recent report released by Mercer Oliver Wyman, the company predicts that over the next nine years, financial assets will increase sixfold in China and by 2015, the newly increased financial assets owned by Chinese individuals will account for 10% of the total newly increased financial assets in the world, making China the world¡¯s second largest financial management market next to the United States.
The report analyzes that Chinese people have a high tendency to save money. In China, the deposit rate exceeds 20%, nearly ten times that of the United States. The high deposit rate coupled with Chinese robust economy will make the total financial assets expand rapidly in China. Related information shows that at present, Chinese people¡¯s total financial assets reach nearly 3 trillion US dollars (excluding real estate properties). Since most Chinese people like to buy things in cash, the scale of financial assets managed by financial institutions is still relatively small at present.
Based on experiences learned from other developing countries, Mercer Oliver Wyman predicts that as the per capita GDP rises, the proportion of cash in Chinese people¡¯s assets composition will become smaller in future. As a result, the financial assets management market will boom. In addition, changes of policies in regulating the floating assets in China are also likely to change the developmental mode of the assets management market in China fundamentally.
Looking from global range and the situation of the Asian-Pacific region, the report envisions a prospective market for Chinese financial management in future. It says that by 2015, the capital asset in the investment management sector will increase from 300 billion US dollars at present to 2 trillion US dollars by then and the investment products will include funds, pensions and insurance
Investing in China's banking system requires act of faith
November 6th, 2006BANKERS and lawyers who operate in Beijing came down to earth with a thump last week. For months, they were the kings of town as they bunkered down to prepare the record $US21.9 billion ($28.46 billion) listing of Industrial & Commercial Bank of China.
With the job done (for shared fees of $US400 million), the advisers find themselves lower down the pecking order: behind important visitors such as African heads of state, 48 of whom arrived for the weekend's China-Africa "summit".
To allow African delegations easy movement, Beijing's authorities closed major roads and much else, creating traffic that has trapped bankers (and yours truly) in jams across the city. While the importance of advisers may have dropped, the share prices of Chinese banks continue to defy gravity.
The stock prices of ICBC, Bank of China, China Construction Bank and China Merchants Bank have all risen handsomely since floating, as shareholders gamble that lenders have reformed and will benefit from continuing double-digit economic growth. But how long before investor optimism falls?
China's largest banks have listed in near-perfect conditions, against a backdrop of record global liquidity. On the mainland, corporate profits are high, inflation is tame and economic growth is stable. In spite of the reforms, banks face little real competition and enjoy juicy spreads between deposit and lending rates.
It was only two years ago that bad loans at ICBC represented 21 per cent of the portfolio. Only gigantic re-capitalisations and loan write-offs by the state have enabled the large banks to become solvent.
Imagine the scale. ICBC runs 18,000 branches nationwide, some with managers friendly to the capital requirements of local industrialists. Investors are betting that banks' internal risk management culture and systems have, overnight, become sophisticated enough to stop poor lending or downright fraud.
In the words of Hong Kong governance activist David Webb, China has taken out the bad loans but has it taken out the bad lenders? Investors got a reminder of the not-too-distant past yesterday when it was announced that the former head of China Construction Bank had been given 15 years' jail for taking $US500,000 in bribes to arrange loans.
Zhang Enzhao abruptly quit in June 2005, four months before CCB became the first of China's big state-owned lenders to list in Hong Kong.
In short, it is remarkable that China's biggest banks have raised tens of billions of dollars from international and domestic investors, given that their recent trading history has been so abysmal and the banking sector is so immature.
The banking system remains deficient in several key respects, such as proven risk management. The banks have entered a new world, where they also have to tackle market risks such as foreign exchange and interest rate volatility.
China's legal environment is not mature enough, with huge improvements required in areas such as classification of property rights. The country has no independent ombudsman to adjudicate on consumer banking disputes.
Corporate governance within banks is largely untested, despite their efforts to hire independent non-executive directors.
While the banks have indeed been listed, the state retains about 80 per cent of the stock in each company. Will the state be a passive or active investor?
The Government wants banks to cool lending to prevent over-investment. But what if the banks have a commercial desire to create shareholder value by expanding lending?
Inside each bank is a Communist Party-controlled committee whose role is largely opaque. Banking executives claim that the chief role of the committees is to help enforce "discipline" among staff. Investors will have to take their word for it.
There is also a need to improve training, attract fresh talent and introduce performance targets and incentive schemes.
There is little doubt that the banks have made huge improvements compared with just two years ago. They have not felt ashamed to summon outside help, be it from McKinsey or foreign strategic partners such as Bank of America and Royal Bank of Scotland.
However, investors are either ignoring the risks in the rush for a fast buck or calculating that they can sell at the first sign of a slowdown.
Hong Kong-based Jing Ulrich, JP Morgan's star China equity-watcher, remains bullish on Chinese banks - in the short term. She says cash-rich global investors remain desperate to increase their China exposure.
But she also says many fund managers are judged on a quarterly basis and so could hardly miss out on the likes of ICBC. Quite.
Sound monetary policy remains key
November 3rd, 2006China will continue to pursue a sound monetary policy, which will be more closely linked to its industry, taxation and foreign exchange policies, a top central bank official said Thursday."
In order to maintain stable and healthy national economic growth, we will continue to stick to a sound monetary policy," Su Ning, deputy governor of the People's Bank of China, said yesterday.
"And we will seek more and effective co-ordination with industry, taxation and foreign exchange policies when drafting our monetary policies," the deputy central bank governor said, without elaborating.
The central bank would continue, as it did before, to employ a host of measures to curb expansive money supply and credit growth.
The measures may include open market operations, as well as interest rate and bank reserve ratio adjustment, Su told the BusinessWeek CEO Forum in Beijing.
The central bank has so far raised the interest rate twice and bank reserve ratio deposits that commercial banks are required to make with the central bank once this year in a bid to cool the sizzling economy.
Su said that macroeconomic tightening measures had already succeeded in reining in red-hot economic growth.
The Chinese economy grew 10.9 per cent in the first half of this year, with this growth slowing to 10.4 per cent in the third quarter.
But the economy still faces several challenges if it is to maintain robust yet healthy growth, Su said, pointing to slumping consumption, the soaring trade surplus and escalating fixed-assets investment.
The overall proportion of consumer spending in the national economy has been on a downward spiral for some time, which may pose problems for economic development, Su told the forum.
The proportion, Su said, has slid from 62 per cent in the 1980s to 52 per cent last year.
Problems related to the international balance of payments remain serious, with the foreign trade surplus continuing to soar this year, he said.
And the risk still remains that fixed-assets investment, which is "still bigger than it should be," may rebound again, as local governments and enterprises continue to invest more money in projects, the deputy central bank governor said.
China's fixed-assets investment grew by a spectacular 29.8 per cent in the first half of this year and increased 27.3 per cent in the first nine months of 2006.
The central bank, Su said, will put expanding domestic consumption high on its policy agenda.
The bank will also work to improve the credit structure, Su said.
China not to witness qualitative change in economy in 2007, expert
November 1st, 2006Chinanews, Beijing, Nov. 1 - An economist from the Chinese Academy of Social Sciences said recently that China would not witness an qualitative economic change in 2007. Next year, the economic growth rate in China would be kept at around 10%, less than the 10.5% growth rate in 2006. Such economic slowdown was normal as the Chinese government tried to take some measures to control the macro economy. It would not indicate that Chinese economy would have some qualitative change next year.
The statement was made by Wang Tongsan, director of the Quantitative Economics and Techeconomics Research Institute under the Chinese Academy of Social Sciences, in an interview given to a reporter of the People¡¯s Daily Overseas Edition.
Wang said that normally, three situations might lead to a qualitative change in the economy: the eruption of wars, the occurrence of natural disasters, or some external influences such as the Asian financial crisis or oil crisis. So far, none of these situations has occurred in China.
Apart from the eruption of wars, China has taken some protective measures to prevent other negative factors from happening. As Chinese national strength has increased, China is more able to prevent natural disasters, Wang said.
He said that Chinese government had tried to control the economy so that it wouldn¡¯t fluctuate too severely. With twenty years of experiences, Chinese government is now more capable of controlling the macro economy. In theoretical field, China has gained plenty of knowledge about macro economic control, therefore, it has become more and more mature in exercising its macro control policies in practice. When one looks back on China's economic changing trend in history, one will notice that the degree of economic fluctuation now becomes much smaller, unlike those in the 1980s or the 1990s when economic fluctuations could reach as large as five percentage points.
IBM, Lehman create 180-million-dollar fund for investments in China
October 30th, 2006BEIJING (AFP) - Computing giant IBM and investment bank Lehman Brothers, both of the United States, said they had tied up to create a 180-million-dollar fund earmarked for investments in China.
The China Investment Fund will target mid-stage to mature public and private companies across several industries, the companies said at a joint briefing in Beijing.
Christopher Manning, managing director of Lehman Brothers Private Equity, said the two companies had capabilities that were "highly complementary."
The partnership, which marks the first cooperation between the two, will bring together 90 million dollars and three support staff from each side to manage the fund.
Beyond funding, IBM and Lehman will also provide management and technology support to the companies in which they invest.
Manning said that Lehman Brothers currently has an investment group focused on China's real estate market, a sector excluded from the China Investment Fund's scope.
Reserves set to surpass US$1 trillion
October 30th, 2006Oct. 30 - China's foreign exchange reserves look set to hit the US$1 trillion mark at the end of this month or beginning of November. But as the figure rises, so does the debate over how to best manage it.
The reserves, already the world's biggest, surged to US$987.9 billion at the end of September, largely driven by a burgeoning foreign trade surplus and massive inflow of foreign direct investment (FDI).
In the first nine months of the year FDI stood at US$42.59 billion, although this was a 1.52 per cent drop year-on-year.
Reserves grew on average US$18.8 billion each month from January to September, statistics from the central bank show.
"How to manage such a huge reserve is a big challenge," said Yi Xianrong, a research fellow at the Institute of Finance Research under the Chinese Academy of Social Science.
"The crux of the problem is that you have to keep the value stable or increasing," Yi said.
The ballooning foreign reserves, many economist say, is a major reason behind the loose money supply. This is because the central bank has to issue additional money to mop up the excess US dollars in the market, resulting in excessive liquidity in the banking system.
And the fluctuating foreign exchange rate also poses a huge risk, economists say.
In a bid to minimize such risks, the central bank should diversify its existing US dollar-dominated foreign reserves structure, and increase its holdings of euros or other major international currencies, said Li Yongsen, a finance professor at Renmin University of China.
The central bank, he said, could also buy more state bonds issued by other major economies and decrease holdings of US Treasury bills.
"It's better to spread the risks, and not put all your eggs in one basket," Li said.
The professor also suggested that the country might consider using the huge foreign reserves to purchase some strategic resource reserves such as oil.
But such a plan should proceed with caution, both Li and Yi warned, citing the huge risks involved due to changing resource prices.
In the short term, increasing imports is an effective way to decelerate foreign reserves, economists said. This would also reduce trade frictions with some countries that have a high trade deficit with China.
Economists also said the country should further relax controls on capital outflow, in order to create a better balance of international payments.
In a bid to ease foreign reserves and broaden investment channels, China has introduced a QDII (Qualified Domestic Institutional Investors) scheme, allowing them to invest overseas.
By October 10, the foreign exchange regulator had granted quotas worth US$11.6 billion to QDIIs.
"This is the right approach for creating a two-way capital corridor," said Yi. "We used to put too much emphasis on attracting foreign investment and feared capital outflow."
China is also shifting from a long-held policy of stockpiling foreign reserves in State coffers, and instead encouraging households and businesses to hold more foreign currency.
Individuals, for example, are now allowed to buy up to US$20,000 in foreign exchange a year, up from the previous US$8,000.
Previously, China invested some foreign exchange reserves in banks.
Central Huijin Investment Company, an investment arm of the central bank, injected a total of US$45 billion in foreign exchange reserves into China Construction Bank and Bank of China in 2003.
It poured another US$15 billion into the Industrial and Commercial Bank of China in 2005.
China Launches Bank Compliance Risk-Management Guidelines
October 28th, 2006BEIJING -(Dow Jones)- China's banking regulator Wednesday issued official guidelines aimed at strengthening Chinese banks' compliance risk-management in a move seen as helping them combat increasing competition from foreign banks.
The guidelines ask the country's banks to adopt better compliance risk- management practices, to boost their risk-management systems and corporate governance, the China Banking Regulatory Commission said in statements posted on its Web site.
The new policies are aimed at bringing China's banks into line with global practices. Foreign banks will be able to carry out a full range of local- currency services starting Dec. 11 as part of China's World Trade Organization commitments.
The guidelines - a draft of which was first reported by Dow Jones Newswires last week - are effective immediately. They apply to Chinese commercial banks, foreign banks and their branches operating in China, the CBRC said.
Other financial institutions such as policy banks, fund asset management companies and trust cooperatives aren't required to abide by the guidelines, but should take them as references, it said.
Banks are required to set up a sound compliance system, and the top management should file a compliance risk-management report to the board of directors annually, it said.
The compliance practice should receive regular checks from independent internal audit department, and banks should submit their compliance management plans and assessment report to the CBRC in a timely manner, it said.
Deutsche Bank plans China property JV -sources
October 28th, 2006SHANGHAI, Oct 27 (Reuters) - Deutsche Bank AG is set to establish a property venture in China, in which Germany's biggest lender expects to take a 50 percent controlling stake, industry sources and the venture's Chinese partners said on Friday.
Zhongzhu Real Estate, based in the southern Chinese city of Zhuhai near Hong Kong, plans to take 20 percent of the new joint venture, said a senior executive at Zhongzhu who is familiar with the situation.
"We're finalising the deal and we will sign an agreement" in the next few days or weeks, the Zhongzhu executive, who declined to be identified, told Reuters by telephone.
The sources declined to say how much Deutsche Bank would pay to invest.
A Shanghai-based banking source said Deutsche Bank had been negotiating with Zhongzhu and other parties for about half a year, though no final decision had been made yet.
The sources said a Macau company would take 25 percent of the joint venture, and another Chinese company would take 5 percent. ADVERTISEMENT
A spokeswoman in Sydney for Deutsche Bank's asset management division, which deals with property investment in Asia, declined to comment on Friday.
China's ICBC launches record IPO, shares soar
October 28th, 2006Chinese lender raises $21.9 billion, while shares climb 15 percent in market debut.
October 27 2006: 6:53 AM EDT
HONG KONG (Reuters) -- Shares in Industrial & Commercial Bank of China, which is raising up to $21.9 billion in the world's largest IPO, ended 15 percent higher in their Hong Kong debut on Friday after its stock sale generated huge investor demand.
The debut values the largest Chinese lender, making the first simultaneous Hong Kong and mainland China listing, at about US$139 billion, ranking it fifth among global banks, behind JPMorgan Chase & Co. (Charts) and ahead of Mitsubishi UFJ
China began listing its banks overseas last year, and all five mainland lenders trading in Hong Kong have drawn huge demand for their shares as investors downplay worries about the legacy of decades of state-directed lending.
Yang Liu, managing director at Atlantis Investment Management, bought ICBC's IPO shares as a play on the Chinese economy, a rising currency and growing middle class, despite her preference for China Merchants Bank and China Construction Bank
"It's too big to be ignored," she said.
The stock leapt as high as HK$3.63, or 18 percent above its offer price, shortly after the Hong Kong market opening, compared with an IPO price of HK$3.07, before closing at HK$3.52.
ICBC was the most active stock in Hong Kong, but fell short of expectations for a first-day gain of as much as 20 percent.
"It's better than what the average investor expected, given the size of the offering," said Kent Yau, deputy research director at Core Pacific Yamaichi in Hong Kong.
ICBC's domestically listed A-shares, however, disappointed investors by ending with just a 5.13 percent gain to 3.28 yuan, compared with an offer price of 3.12 yuan. The Shanghai shares rallied early by 10 percent before easing.
The Hong Kong debut was crimped by a 0.31 percent dip in the Hang Seng Index, which earlier on Friday hit a record high.
Big and bigger
ICBC raised $19.1 billion and is expected to expand the offering to $21.9 billion by exercising an overallotment option.
The stock sale was the most popular in Hong Kong and China history, and unmet demand for shares, combined with a surging Hong Kong market and an offering priced at a discount to peers, helped lift its first-day trading performance.
"Investors foresee China's economy maintaining 10 percent growth every year before the 2008 Olympics in Beijing, so they're buying mainland bank shares now to access that growth," said K.C. Chan, executive director at money management firm KDB International, which bought ICBC shares for its clients.
The IPO, about 75 percent of which was sold to Hong Kong and global investors and the remainder in the mainland, surpasses Japan's NTT Docomo, which raised US$18.4 billion in 1998, as the world's largest share sale.
"This is the world's largest IPO ever with the biggest ever subscription rate. That speaks volumes for the quality of the offer and for global investor confidence in China," said Damian Chunilal, president of Pacific Rim global markets and investment banking at Merrill Lynch, one of ICBC's underwriters.
Among its rivals, Bank of Communications trades 132 percent above its IPO price, while China Construction Bank and Bank of China are up 50 percent and 13 percent, respectively. On their Hong Kong debuts, Construction Bank closed flat and Bank of China ended up 15 percent.
Billions in bailouts
China has scrambled to get its creaky banks into better shape ahead of increased foreign competition set to kick in at the end of this year under its World Trade Organization obligations.
ICBC's IPO attracted share orders worth about $400 billion for the Hong Kong portion of its deal and 780.7 billion yuan ($99 billion) for its domestic deal.
That should hearten another mainland lender, China CITIC Bank, which plans to raise as much as US$2 billion in a Hong Kong and mainland share sale by early 2007.
ICBC's share sale was a bonanza for foreign institutional investors led by Goldman Sachs (Charts), which paid $2.58 billion in April for about 16.5 billion ICBC shares -- a stake that is now worth $7.45 billion. Allianz and American Express (Charts) also bought stakes alongside Goldman that are now worth a combined $3.5 billion.
All three investors have three-year lockups on their shares.
ICBC's IPO values the lender at 2.23 times its forecast book value. By comparison, No. 2 mainland lender Bank of China trades at 2.35 times 2006 book, No. 3 China Construction Bank trades at 2.66, and No. 5 Bank of Communications trades at 3.04 times book.
At the end of June, ICBC had total assets of 7.05 trillion yuan, 360,000 staff and more than 18,000 branches all over China.
China's "Big Four" state-run banks have received billions of dollars in government bailouts to help ease their bad loan woes.
ICBC received a US$15 billion capital injection from Beijing in April 2005, helping lower its non-performing loan ratio to 4.1 percent as of June 30 this year, compared with Bank of China's 4.2 percent and 3.51 percent for Construction Bank.
ICBC's investors will be rewarded with dividends of 45 to 60 percent of net profit for 2007 and 2008, compared with 35 to 45 percent for both Construction Bank and Bank of China.
ICBC's global IPO was sponsored by Merrill Lynch, China International Capital Corp., ICEA, Credit Suisse and Deutsche Bank
China Lawmakers Consider Extending Bking Supervisor Power
October 28th, 2006BEIJING -(Dow Jones)- China's national legislature started deliberations Friday on revisions to the country's banking regulatory law, a move that could broaden banking regulatory powers to include non-financial institutions and individuals, the official Xinhua News Agency said in a brief report.
The revisions could add power to China's primary financial watchdogs, the China Banking Regulatory Commission and the People's Bank of China.
Revisions to Chinese laws are often a long and drawn out process. China's corporate bankruptcy law was approved in August by the Standing Committee of China's National People's Congress after 12 years of drafting and deliberation.
Employer liability insurance available in China
October 26th, 2006Senior managers in China's listed companies have a specially designed insurance plan which helps ease work pressure both in and out of the office.
AIU Insurance Company China branch, a member of the American International Group, yesterday presented a liability insurance plan for directors, supervisors and senior managers in listed companies. This is the first plan of its kind in China.
The liability insurance enables listed companies to meet the costs of compensation and legal fees for employees who are injured or take ill at work through the fault of the employers, be they directors, supervisors, senior managers or managing directors in the affiliates.
Stock index futures trading to start in early 2007
October 25th, 2006Oct. 25 - The trading of stock index futures will be launched at the Shanghai-based China Financial Futures Exchange in early 2007, the country's top regulator Shang Fulin said in Beijing Tuesday.
"With the listing of some major state-owned commercial banks and big enterprises, there is a much stronger connection between the stock index and the national economy. The opportunity to trade stock futures has arrived," the chairman of China Securities Regulatory Commission (CSRC) said at a seminar on financial derivatives.
The capital market has been keen to develop financial futures for years. It is also a must for further development of the capital, monetary and insurance market, Shang said.
China Financial Futures Exchange, the country's first financial derivatives exchange, was inaugurated on September 8.
Zhu Yuchen, the exchange's general manager, said trading stock futures will provide investors with a new risk hedging tool.
"Currently investors can only profit when the index is going up. With the introduction of index futures, investors now can also make money when the index falls," he said.
Official: China to loosen control on RMB gradually
October 23rd, 2006BEIJING, Oct. 23 - China will loosen controls on its currency gradually and should step up development of financial tools such as derivatives to help banks and companies cope with a more flexible exchange-rate system, offcial from the People's Bank of China said.
China will "improve the yuan's flexibility gradually," Su Ning, deputy governor of the People's Bank of China, said at an economic conference in the eastern city of Suzhou, Jiangsu Province at the weekend, Bloomberg News said.
"China needs to develop new financial tools and enhance financial reform to help remove the burden on its financial system," Su said.
A record trade surplus has flooded the world's fourth-largest economy with cash, spurring investment in factories and real estate that the government is concerned may lead to overcapacity and bad loans. Foreign-exchange reserves have surged to almost 1 trillion U.S. dollars, fueled by exports that the United States and Europe say are supported by an undervalued currency.
China has limited gains in the yuan to 2.6 percent since dropping a decade-old peg to the US dollar in July last year. The currency strengthened 0.1 percent to 7.9025 to the dollar on Friday, according to the China Foreign Exchange Trade System.
Chinese officials have said repeatedly that the yuan's exchange rate will be loosened only gradually because the nation's banks and companies aren't prepared to cope with a free-floating currency. China has been introducing derivatives such as interest-rate forwards and swaps to provide tools to hedge risks, and plans to add interest-rate and stock-index futures.
The government should step up reform of the nation's banks including Agricultural Bank of China, Su said. The Beijing-based lender is the last of the big four state-owned banks awaiting restructuring and a government bailout.
Agricultural Bank is close to completing a plan to create a shareholding company, the Xinhua news agency reported last week, citing central bank Governor Zhou Xiaochuan. The government may inject 100 billion dollars into the bank, the agency said.
Industrial & Commercial Bank of China, the nation's biggest lender, raised 19.1 billion dollars in the world's biggest initial public offering, bankers involved in the IPO said. Bank of China Ltd and China Construction Bank Corp have also listed in Hong Kong in the past year.
Banking investment in China set to skyrocket
October 21st, 2006Beijing, Oct 17: Around 5.7 billion US dollars in insurance capital could flood into China's banking sector this year after the nation's insurance watchdog unveiled a package of investment rules.
According to detailed rules issued by the China Insurance Regulatory Commission (Circ) for insurers' equity investment in banks yesterday, insurance institutions could invest no more than three per cent of their total assets in state-owned commercial banks, joint-stock commercial banks and city commercial banks.
By the end of last year, the total assets of China's insurance sector had reached 1.5 trillion yuan (190 billion US dollars), implying that 45 billion yuan (5.7 billion dollars) in insurance capital could be poured into China's banking sector this year.
"Equity investment in banks is just the first step, and we are considering regulations on investment in fixed-assets projects and state-owned enterprises," a Circ official was quoted as saying by China daily.
In guidelines published in late June, the regulator expressed its support for insurers' investment in banks, part of its efforts to boost insurers' investment returns.
"We support insurance companies buying into, or even taking controlling stakes in, well-managed, profitable banks that have a strong customer base," Circ Chairman Wu Dingfu said earlier.
The regulation stipulated that insurers could use their registered capital and provisions over 10 years for the investment.
In terms of purpose and scale, insurers' investment in banks is divided into two types general and grand investment.
Those accounting for less than a five per cent stake in a bank are classified as general investment, while those greater than five per cent are regarded as grand investment. There are no upper ceilings for the investment.
If an insurer plans to make a grand investment, its total assets by the end of last year should be no less than 100 billion yuan (12.7 billion US dollars).
For any investment taking a 10 per cent stake or above, the insurer should have total assets in excess of 150 billion yuan (19 billion US dollars) by the end of last year.
Meanwhile, those target banks for general investment will have to meet a capital adequacy ratio of up to eight per cent, a non-performing loans ratio lower than five per cent and a return on net assets of up to 12 per cent.
In fact, China's largest life insurers have been quite investors in banks.
In late July, Ping An Insurance (Group) company became the controlling shareholder in Shenzhen city commercial bank after it bought an 89.24 per cent stake in the lender for 4.9 billion yuan (620 million dollars).
Ping An has also been in talks with Beijing-based China Everbright Bank. Sources said the discussions are at a very early stage and it is uncertain whether they will result in an agreement.
Bureau Report
Insurance market after China´s WTO entrance
October 21st, 2006It is almost five years since China joined the World Trade Organization on December 11th of 2001.
On Wednesday, China's insurance market regulators and some 200 industry players are meeting in Beijing to discuss their experience in the past five years and the possible challenges ahead.
Li Kemu, the vice chairman of China's Insurance Regulatory Commission made the opening speech at the Insurance and Financial Market Forum on Wednesday afternoon. He stressed China is opening to all and will give them equal treatment, whether they are domestic or overseas players. He said there are now 44 overseas insurance companies operating in China, while another 135 have representative offices here. In big cities such as Shanghai and Guangzhou, overseas insurers claim some 20 percent of each city's total premium.
In 1992, AIG set up the first wholly-owned foreign insurance company in Beijing, which is seen as the beginning of China's opening up of the industry. Another milestone was made in 2004, when China lifted geographic restrictions against foreign insurers and allow them to operate corporate insurance, health insurance and annuity. At present, China restricts overseas life insurers to hold less than 50 percent in their joint ventures. But to foreign insurers, it is still a promising market.
Meanwhile, Li Kemu said the country will further broaden the investment channels for insurance companies. Besides involving in the stock market, banking industry and infrastructure construction, Li said his commission is negotiating with China's Ministry of Railways, and there will soon be insurance capital flowing into China's railway.
China Life Insurance Sector Takes a Giant Leap
October 21st, 2006Insurance sector in China is showing a continuing growth during the past few years. There‘re hordes of opportunities present for players in this sector.
According to recent news, there’s been a remarkable increase in the profits of China LIC (Life Insurance Co.) during the 1st half of 2006. The insurance company is said to have earned around 8.97 Billion Yuan during this period as compared to 5.21 Billion Yuan in the year-earlier period.
As per Macquarie’s research note released Sep 18 2006, the results would probably be dominated by investment gains from both sharp rally in the equity markets in China and strong post IPO rally of Bank of China, of which China Life holds 394 Million shares.
Bank of China has cautioned a slow down in the equity markets in China. Growth in policy fees and premium is likely to decelerate from 22 percent to 15 percent in the 2nd half of 2006.
“China Insurance Sector Analysis (2006)” the latest market research report published by RNCOS- a market research and analysis firm- provides an analytical overview of every aspect of the insurance sector in China.
According to this report, “Higher income among the Chinese and growing need for financial products to safeguard any unexpected loss are the main drivers for the China insurance market. Considerable amount of time and efforts have been put in to develop modern insurance solutions, so that insurance needs among the Chinese are met.”
Issues and facts addressed by this report include:
- Marketing strategies of key players in the insurance industry
- Growth in Health and Group insurance driving the Insurance sector in China
- Demographic factors, like death and birth rates, which affect the insurance market in China
- Emerging opportunities and challenges in this sector
- Factors that spur the growth of Life and Non Life insurance in China.
About the Report
RNCOS report on insurance sector in China provides extensive research and objective analysis of the Insurance Sector in China. It helps clients in analyzing the opportunities critical to the growth of Insurance market in China.
About RNCOS
RNCOS, incorporated in 2002, provides Market Research Reports for your business needs and aims to put an end to your information pursuit. Our expertise in gathering global business information for industry research, corporate training, growth consulting, and business consulting, brings reputed companies and firms to us for business enhancement solutions. We can be your one-stop-shop for Industry research information and niche market analysis.
Morgan Stanley buys bank, gets China licence
October 21st, 2006SHANGHAI/SINGAPORE, OCT 2: Morgan Stanley, the world’s largest securities firm by market value, said it acquired Nan Tung Bank, China, giving it a commercial banking licence in China from which it can apply to do business in the local currency and offer new products, including mortgage-backed securities.
The acquisition, approved by China Banking Regulatory Commission, will enable Morgan Stanley to apply for a licence to offer yuan- denominated services in the world’s fastest-growing major economy.
The commercial banking license currently enables Morgan Stanley to offer foreign -currency denominated services, including deposits, mortgage loans, and trade finance to individual and corporate customers based primarily in the Pearl River Delta region of Guangdong Province, the New York-based firm said on Monday.
‘‘Nan Tung Bank is a good strategic fit for our China business,’’ Wei Christianson, chief executive officer of Morgan Stanley in China, said in an e-mailed statement. ‘‘This platform will allow us to provide a wider array of new product capabilities that are currently being offered only by commercial banks with a presence within China.’’
Zhuhai-based Nan Tung Bank, formerly funded by a Macau-based unit of Bank of China, is now a wholly owned subsidiary of Morgan Stanley, the US firm said, without giving details on pricing. Nan Tung Bank, which has only one branch and fewer than 40 employees, serves customers mainly from Hong Kong and Macau.
By fully acquiring Nan Tung, Morgan Stanley will be eligible to apply for a local-currency license immediately, rather than wait for five years had it started operations in China from scratch. Morgan Stanley can also apply to offer derivatives and foreign-exchange products to local and overseas clients based in the world’s mostpopulous nation.
‘‘That’s the right thing to do but you’d need to get the products past the regulator,’’ said Roman Scott, a Singapore-based partner at Boston Consulting Group Inc. ‘‘Everyone would love to do structured products or derivatives if they were allowed to do so in China, if the markets were stable enough to do it.’’
Rivals including Goldman Sachs Group Inc and UBS AG have bought minority stakes in Chinese lenders, which won’t help them win banking licenses to offer services on their own.
Still, a ban by the China Securities Regulatory Commission last month on international securities firms from buying stakes in local brokerages has blocked a route for Morgan Stanley’s expansion in China.
Nasdaq and NYSE Seek China IPOs
October 21st, 2006BEIJING -- The New York Stock Exchange (NYX - commentary - Cramer's Take) and the Nasdaq Stock Market (NDAQ - commentary - Cramer's Take), worried they're losing out on big IPOs from China, are trying to boost their visibility in the region. They're staffing up and touting the benefits of a U.S. listing to dealmakers at investment banks, private equity outfits and law firms in China.
"Obviously China is a very exciting market. We see it as the fastest-growing market outside the U.S., as well as the strongest market internationally," says Charlotte Croswell, the London-based head of Nasdaq International.
This year the Nasdaq started publishing Going Public: A Guide for Chinese Companies to Listing on the U.S. Securities Markets. Written in both Chinese and English, it details minimum listing requirements, explains the role of investment banks and accountants, and even sets out a sample 20-week IPO timetable, from start to finish.
There's no mystery why the American exchanges are feeling anxious.
Last year, China's IPO proceeds of $24.3 billion ranked second only to those of the U.S., whose companies raised $33.1 billion, according to Ernst & Young/Thomson Financial. And in 2005 China claimed three of the world's 10 biggest public offerings.
But a U.S. listing is no longer the default for ambitious Chinese firms. All three of the Chinese companies on 2005's 10-biggest IPO list -- China Construction Bank, China Shenhua Energy and Bank of Communications -- passed up the U.S. in favor of listing in Hong Kong. The Bank of China, another multibillion-dollar IPO, followed suit earlier this year.
The moves are part of a broader trend of foreign firms passing up the U.S. exchanges.
Companies are discouraged by America's higher regulatory burdens, litigious investors and different accounting requirements. (The U.S. uses generally accepted accounting principles, or GAAP, while some other countries employ a framework called international financial reporting standards, or IFRS.)
And foreign companies that list outside the U.S. don't have any problem reaching American money managers. They can simply arrange ahead of time to sell shares to big institutional investors on the day of their IPO.
As a result of all this, the American exchanges are having to work harder to attract overseas listings -- and China is a key focus. Currently the NYSE has 17 companies listed from mainland China, while the Nasdaq has 29.
The NYSE "has an aggressive marketing campaign out to show the advantages of listing in New York as opposed to listing overseas," says Alan Seem, a Beijing-based partner at the law firm of Shearman & Sterling.
The NYSE and Nasdaq both are seeking Beijing's go-ahead to open offices in mainland China. The NYSE now has two salespeople on the ground in mainland China, with another in Hong Kong.
The Big Board is also hoping to score new listings business through NYSE Arca, an all-electronic trading platform aimed at small, fast-growing companies that don't yet meet the standards of the main board -- a category likely to include many firms from emerging markets such as China. Companies can aim to graduate to the NYSE as they grow bigger.
This year Nasdaq tapped a new Asia-Pacific executive to be based in Hong Kong who will work with another salesperson already focused on China.
Both exchanges say they're seeing progress on the mainland. The NYSE is in talks with four or five Chinese companies "that are considering the U.S. capital markets," according to Noreen Culhane, the NYSE's executive vice president of the global corporate client group.
"Our pipeline, I would say, is stronger now than it was 12 months ago," says Nasdaq's Crosswell, although she acknowledges that some of those IPOs may not take place for a couple more years.
Even as they vie for more Chinese business, both U.S. exchanges deny competing with the Hong Kong bourse.
"We say we don't compete with local markets," explains Crosswell. Chinese IPOs "have always gone to Hong Kong. That has always been quite a natural home for them as well as Shanghai and Shenzhen." Nasdaq offers a "complementary" listing that can increase their visibility, market liquidity and access to capital, she says.
But in fact, while Shanghai and Shenzhen are still crowded with weak, poorly run government-owned companies from the mainland, the Hong Kong exchange has emerged as a more powerful regional force over the past few years. Its legal infrastructure is much stronger than that on the mainland, and its regulations are respectably high -- though not as burdensome as those in America.
Still, American exchanges contend they are in a different league from their peers in Hong Kong and elsewhere. The 2,700 companies listed on the NYSE claim a total market value of $23 trillion. "This is the deepest investor pool in the world. Companies come here because they understand there is a valuation premium that comes with being associated with high listing standards," says Culhane.
Companies that trade on an American exchange are able to give stock options to employees based in the U.S. They also benefit from a higher profile that can help them attract stateside customers, business partners and employees.
That's important for Chinese outfits with international ambitions -- or so say the NYSE and Nasdaq. But lately, a small but notable number of major Chinese companies don't seem convinced.
China's biggest bank breaks record with IPO
October 21st, 2006Industrial & Commercial Bank of China attracted a great number of retail investors and is expected to raise up to $22 billion, the most ever raised in a stock debut anywhere.
HONG KONG - (AP) -- China's biggest lender, Industrial & Commercial Bank of China, attracted the largest amount of orders ever from Hong Kong retail investors for the bank's initial public offering, news reports said Friday.
The bank's dual IPO in Hong Kong and Shanghai is expected to raise up to $22 billion, the most ever raised in a single share debut anywhere.
The retail portion of the offering drew orders of more than HK$420 billion ($53.9 billion) in Hong Kong, The Standard newspaper and the Hong Kong Economic Journal said.
More than 1 million people -- or one in seven of Hong Kong's total population -- placed those orders, the Journal said.
The keen demand surpassed the record set by Bank of China, the mainland's No. 2 lender, whose IPO in June drew HK$280 billion in retail orders.
The Hong Kong portion of the IPO is being priced Friday, while the price of the mainland portion will be set Monday. The shares are due to begin trading simultaneously in Hong Kong and Shanghai Oct. 27.
Given the strong interest, the state-owned bank is expected to price its shares at the top end of the range specified in its prospectus. The price range for the Hong Kong portion has been set at HK$2.56-HK$3.07 ($0.33-$0.39), on par with its Shanghai offering, at 2.60 yuan to 3.12 yuan ($0.33-$0.39).
The IPO has also attracted well over $300 billion in orders from institutional investors, the South China Morning Post reported quoting unidentified market sources.
ICBC plans to sell 35.39 billion ''H'' shares in Hong Kong -- stocks for a mainland Chinese-registered company listed in Hong Kong -- and 13 billion ''A'' shares in Shanghai.
If priced at the top of the range, the dual IPO will raise about $21.9 billion -- exceeding the 1998 IPO by Japanese mobile phone company NTT DoCoMo, which raised $18.4 billion.
Mainland Chinese banks have a long track record of bad debts and lending scandals, but investors have been keen to buy shares, betting that government support will limit risks while allowing them to tap into China's economic boom.
Like the two other major state banks that have already sold shares in Hong Kong, Bank of China and China Construction Bank, ICBC has restructured and wiped out billions of dollars in bad debts.
China:Foreign banks need to be 'local'
October 20th, 2006RULES that require foreign banks to incorporate locally before they can offer bankcards and yuan-denominated deposit service will be implemented by December 11, an official of the banking regulator said.
Passing the rule should be no problem by that date, Xu Feng, director of the banking supervision department at the China Banking Regulatory Commission, told a conference in Beijing yesterday.
The regulator has reached "more consensus" with foreign banks on the draft regulations, Xu said.
China is set to open its retail yuan business to overseas banks on December 11 under its World Trade Organization commitment.
The banking regulator has held two meetings in Shanghai and Beijing to get responses from overseas institutions about the draft.
Some of them have said it's hard to meet the requirement of having a deposit-to-loan ratio of 75 percent.
The regulator is likely to grant overseas banks a transition period to allow them to take in deposits to meet the requirement, earlier media reports said.
Overseas banks that don't incorporate locally will need three times more capital to offer yuan services to local individuals in the country, under draft rules given to Shanghai Daily in August.
Overseas banks which are not locally incorporated can only take fixed deposits of more than one million yuan (US$125,000), the draft noted.
China's US$1.9 trillion household savings are like the icing on the cake that most overseas banks can't easily overlook.
Overseas banks have 214 outlets nationwide now. The figure is the tip of the iceberg when compared with more than 70,000 run by their Chinese rivals.
Xiang Junbo, deputy governor of the People's Bank of China, said in September that international experience has shown that a "too fast" and "too much" opening up of the banking sector will do harm, rather than benefit, a country's economy.
RMB becomes more powerful in regional finance system
October 20th, 2006Chinese central bank announced on Tuesday that the amount of swapped currency included in the bilateral currency swap agreement between China and Indonesia has increased to about 4 billion US dollars, doubling the previous figure. Analysts say this shows that China has played a more important role in maintaining the stability of the regional finance system. It is expected that Renminbi will become a more powerful currency in regional finance system in future.
In December 2003, China and Indonesia signed a bilateral currency swap arrangement, and the total amount of swapped currency included in that agreement was 1 billion US dollars. In October 2005, when the two countries re-signed the agreement, the amount of swapped currency had increased to 2 billion US dollars.
Economists have suggested that Asian countries should establish a regional financial cooperative scheme possibly in four ways: The first is to establish a regional currency fund system; the second is to set up an exchange rate administrative system in the Asian region; the third is to set up a regional trade settlement system. Some experts also suggest that a regional currency system should be set up that takes a specific currency as the core currency in the system. Under this system, most people think that Japanese yen and Chinese yuan are the two most probable currencies to take the role.
Previously, when talking about the basket of currencies to which Renminbi refers, Chinese central bank governor Zhou Xiaochuan encouraged businesspeople to use more local currencies, not US dollar, for bilateral trade settlement.
Pushed by the central banks of China and Russia, the two countries started to use local currencies for bilateral trade settlement since January 1, 2005. Previously, China and Russia had only accepted US dollar for their bilateral trade deals.
At present, Renminbi has already become the major currency for border trade deals in countries such as Mongolia, Vietnam, Myanmar, Nepal, etc.
When Renminbi is greatly needed by neighboring countries, its influence in Asia is also greatly increased.
3.7bln foreign capital flows into Shanghai property market
October 18th, 2006According to the "2006 Shanghai Finance Stability Report" issued by the central bank, in 2005 some 3.763 billion US dollars of foreign capital flowed into the property market in Shanghai, increasing by 40% over 2004. Among the four major types of foreign capital flows, a large proportion went to the group of people who were not Shanghai local residents and spent their money directly buying real estate.
Although Chinese government had issued a regulation on limiting foreign capital's access to domestic property market, foreign capital still kept flowing into the Shanghai property market. Many foreign-fund management companies are enthusiastic about using their money to buy office buildings or luxury apartments in Shanghai.
On July 24, a month after the central government published related regulation on limiting foreign capital¡¯s activities in China, the Hopson Group announced that it had sold all the shares of the Hopson International Mall to the Pacific Delta Investments limited at a total price of 300 million US dollars. The Hopson International Mall is located in the finance and trade area in Lujiazui. Two months later, the Genting Berhad Group in Malaysia announced that they had controlled the Changshou Commerical Plaza in Shanghai by the acquisition of the Rich Field Group at a price of 572.7 million Hong Kong dollars.
"The short-term changes in the investment market will cause investors to make some adjustment. However, for the long-term investors are still optimistic about the property market in Shanghai," said Zhang Zhenpin£¬ president of the Colliers International Group.
His words showed that the regulation might affect their investment activities for a short period. However, it won¡¯t change their long-term investment prospect.
Floating exchange-rate regime is successful, PBC official
October 18th, 2006Chinanews, Beijing, Oct. 17 - Yi Gang, Assistant Governor of the People's Bank of China (PBC), said recently that with one year¡¯s operation, that China's floating exchange rate regime, which is based on market demand, has been proved successful. In 2006, China's export competitiveness is still very strong. China's GDP and consumption are still increasing.
He made the remarks when delivering a speech at the School of Economic Management in Beijing University of Technology. In his speech, Yi says that overall, the Renminbi exchange rate regime will remain stable at a reasonable, balanced level, and its value will rise slowly in response to the Renminbi appreciation pressure.
Since July 2005, the Renminbi value has raised by 4.7% in total. Some people once worried that Renminbi appreciation would affect China's export competitiveness. However, the real situation has proved that such worries are unnecessary, since the trade surplus for the first nine months of this year has exceeded the total trade surplus for the whole of last year. This shows that China's export competitiveness is still very strong, Yi claims.
ICBC draws US$130bln for coming IPO
October 16th, 2006Oct. 15 - It seems certain for the Industrial and Commercial Bank of China to set a new initial public offering (IPO) record with US$130 billion of orders so far, the South China Morning Post reported Saturday.
ICBC, China's largest bank, has drawn more than $130 billio worth of orders from international investors for the Hong Kong portion of its IPO marketing, the English newspaper reported, quoting market sources.
The retail tranche of H shares on Hong Kong Stocks will go on sale on Monday and is expected to meet with an overwhelming response from the public.
ICBC will raise as much as $22 billion through a dual listing in Hong Kong and Shanghai, the world's largest IPO to date, according to the newspaper.
The previous IPO record on Hong Kong Stocks was set by Bank of China, which attracted $175.6 billion worth of institutional orders for its HK$67.7 billion IPO in May.
The current $130 billion in orders were 10 times the $13.23 billion worth of H shares available to all institutional investors, including the $3.9 billion worth already set aside for 13 corporate investors and wealthy individuals.
With most big institutional investors yet to place orders, the subscription level should reach a record high before the books close, the newspaper cited a fund manager as saying.
Despite the strong demand, the deal's sponsors and bank management have no plans to raise the indicative price range for the sale, the newspaper cited an investment banker close to the IPO as saying.
China to see insurance premiums double in 2010
October 16th, 2006Oct.16 - China will see its insurance premiums double to one trillion yuan (125 billion U.S. dollars) by 2010, driven by people's growing demand and constant product innovation, said the state insurance watchdog.
During the 2006-2010 period, as Chinese people spend more money on cars, houses, education and travel, insurance demand will grow, according to a document released by the China Insurance Regulatory Commission (CIRC).
With a 1.3 billion population and an ageing society, China will see insurance play greater role on the improvement of social services during this period, particularly on the medical service and pension, said document.
According to the commission, China vows to create a healthy environment for the development of the insurance industry before 2010, with improved legal system and people's enhanced awareness towards insurance.
The commission urges insurance companies to explore markets, introduce more product varieties and improve risk-control system.
By 2010, China plans to build a modern insurance industry with a batch of large insurance companies with international competitiveness, said the plan.
China's insurance premiums hit 493 billion yuan (62 billion U.S. dollars) in 2005, ranking the 11th in the world. The industry witnessed a 25 percent annual increase from 2000 to 2005, the CIRC statistics showed.
E-mail leads Morgan Stanley analyst to resign
October 6th, 2006SINGAPORE Andy Xie's resignation as Morgan Stanley's chief economist in Asia last week followed an e-mail message in which he characterized Singapore as an economic failure.
Xie, a Shanghai-born economist who worked at Morgan Stanley for nine years, sent the message to his colleagues after attending the International Monetary Fund and World Bank annual meetings last month in the Southeast Asian island state.
In the e-mail message, he questioned why Singapore had been chosen as host for the conference and said that delegates "were competing with each other to praise Singapore as the success story of globalization."
Xie also made unsubstantiated allegations about the use made of Singapore's financial services by corrupt officials and businessmen in Indonesia.
The $118 billion Singaporean economy has experienced three recessions since the 1997 Asian financial crisis, and is expected to grow by as much as 7.5 percent this year.
The city-state is grappling with growing competition from China and India, the most populous and second most populous countries, respectively, where labor costs are less than a quarter of those in Singapore.
Prime Minister Lee Hsien Loong of Singapore said last month that the city- state's economy could sustain annual growth of 3 percent to 5 percent for the next 10 to 15 years as the country expanded industries from information technology to tourism.
Singapore is ending a four-decade ban on casinos. The government plans to triple tourism revenue to $19 billion and double visitors to 17 million by 2015.
Officials from the public relations departments of the Monetary Authority of Singapore and the government information service declined to comment on the contents of Xie's message. They also declined to be identified.
When reached on his cellphone Monday, Xie said that he had not decided on what he would do next.
"I'm not at liberty to comment on anything," Xie said. "I'm in Guangzhou, and I'm taking a break on top of a mountain. It's quite nice here."
Morgan Stanley confirmed the contents of the e-mail message, but the firm, based in New York, said that it did not elaborate on the reasons behind departures of employees.
"This is an internal e-mail based on personal suppositions and aimed at stimulating internal debate amongst a small group of intended recipients," Cheung Po-ling, a spokeswoman for Morgan Stanley in Hong Kong, wrote in a statement. "The e-mail expresses the views of one individual, and does not in any way represent the views of the firm."
"Morgan Stanley has been a very strong supporter of Singapore, and has a great deal of respect for Singapore's achievements," Cheung said.
Morgan Stanley has handled $1.5 billion in merger deals in Singapore this year, according to data compiled by Bloomberg News.
It advised Temasek Holdings, the Singapore government investment company, in its purchase in March of a 9.9 percent stake in Tata Teleservices, based in Mumbai, India.
Xie worked at the corporate finance division at Macquarie Bank in Singapore before joining Morgan Stanley.
Morgan Stanley star analyst Andy Xie resigns
October 3rd, 2006BEIJING (Reuters) - Morgan Stanley's star Asia Pacific economist, Andy Xie, has resigned and is expected to embark on a new career elsewhere, the U.S. investment bank and an industry source said on Sunday.
Xie, whose widely-read reports on the Chinese economy have boosted Morgan Stanley's image in the region, tendered his resignation last week and had left the firm as of Friday, said Hong Kong-based spokeswoman Po-ling Cheung.
"An internal memo was sent out (on Friday) informing employees that he has resigned from the firm," she said by telephone.
"He has left the firm," she added.
Xie confirmed the news by telephone, but declined to say what he would do next.
A source close to Morgan Stanley said that Xie would likely join another firm in the industry in the near future.
U.S. Insurers Press China for Access
October 3rd, 2006BEIJING — American life insurance companies are pressing China to make good on WTO commitments to give them equal access to its booming market, arguing that they can help meet the needs of a fast-aging population, the head of an industry group said Tuesday.
Insurers want Beijing to remove obstacles that limit their ability to set up nationwide operations and cap foreign ownership of a Chinese insurer at 50 percent, said Frank Keating, president of the American Council of Life Insurers.
He said China's life insurance market, now about one-tenth the size of the $540 billion-a-year U.S. market, could grow in coming years to become the world's biggest.
Keating said his group pressed regulators in meetings this week to bring China's licensing system in line with its promise to the World Trade Organization to treat foreign and Chinese insurers equally.
China's current system requires foreign insurers to apply to open new offices one at a time, while Chinese competitors can win permission for a nationwide operation, Keating said.
China promised in 2004 to end such geographic restrictions and officials acknowledge that they are no longer required by regulations, but regulators still use the old system, he said.
"Our message here was a gentle chiding message that as this process goes forward it is important to be prompt, to be fair and to provide a competitive market for all," Keating told reporters.
China faces a Dec. 11 deadline for meeting commitments to open its banking, insurance and other financial industries to foreign competitors.
Trade groups say Beijing has met most of its commitments to repeal formal barriers to foreign competition. But they say that in some areas, companies are still waiting for promised regulations that are meant to put them on an equal footing with Chinese competitors.
Keating said he told Chinese officials that foreign insurers can help Beijing cope with the needs of a rapidly graying population by selling life insurance, annuities and other retirement-related services to millions of families who can afford them.
That would let government focus on helping the poor, he said.
Keating, a former governor of the U.S. state of Oklahoma, said he plans to meet with U.S. Treasury Secretary Henry Paulson in hopes of having equal treatment in insurance made part of a U.S.-Chinese dialogue on economic matters.
The dialogue was launched last week when Paulson visited Beijing.
Keating also said that while Beijing has met its WTO commitment to let foreign investors own up to 50 percent of a Chinese insurer, his group wants to see that limit raised to allow full ownership.
The American Council of Life Insurers represents 377 companies that sell life insurance, annuities and pensions, including about 20 that operate in China.
U.S. insurers accounted for $1.5 billion of the $61.6 billion in life insurance premiums paid in China last year, according to Brad Smith, the insurance group's vice president for international relations.
The Chinese market for insurance has been growing by 15 percent to 20 percent a year over the past decade, Smith said.
Smith said he couldn't estimate what share of China's insurance market foreign companies might be able to capture. But elsewhere in Asia, foreign companies account for 25 percent of Japan's insurance market and 13 percent of South Korea's, he said.
Insurers hope to see Beijing create tax and other incentives for families to invest in annuities, long-term health care policies and other retirement services, Keating said.
"That will free the government to focus on the 60 million poorest people," he said. "That's good public policy."
Calpers looks at investing in China
October 3rd, 2006The California Public Employees Retirement System, the largest US public pension fund, is considering investing for the first time in Chinese companies, aiming both to capitalise on the country's booming economy and to raise its exposure to emerging markets.
Such a move by Calpers, which has not invested any of its $208bn (€164bn) portfolio in Chinese companies because of poor corporate governance standards, could have a ripple effect on other US public pension funds and increase demand for Chinese shares.
In an interview with the Financial Times, Russell Read, Calpers' recently appointed chief investment officer, indicated that the fund could begin by investing in Chinese companies with US or international listings through American Depository Receipts and Global Depository Receipts.
He said the pension fund's staff could recommend the strategy to Calpers' board in the coming months.
Mr Read, who shaken up Calpers' investment strategy since joining in June, said the issue of how to invest in China and other emerging markets was a primary focus for the Sacramento-based fund. "Investing properly in the emerging markets . . . is fundamental to our investment success," he said.
Calpers, which has a reputation as a tough guardian of shareholders' rights, has so far excluded China from its list of investable markets.
The list is updated yearly and is up for re-evaluation by the Calpers board in February, although permission to invest in ADRs and GDRs could come sooner.
In spite of China's fast-growing economy, its capital markets have proved disappointing to foreign investors. The local stock markets have been volatile and are closed to all but a small group of investors picked by the Chinese government.
However, several big companies, including the state oil giants Petrochina and CNOOC and telecommunications operators China Telecom and China Mobile, have listings in Hong Kong and trade ADRs in the US.
Calpers has some real estate holdings in China. Other US public pension funds also have a degree of exposure to China, although in most cases it appears to be limited to real estate.
Citigroup, Northern Trust named China NSSF custodians - source
October 3rd, 2006BEIJING (XFN-ASIA) - China's National Social Security Fund (NSSF) has named Citigroup and Northern Trust as its custodian banks for overseas investment, an unidentified fund official said.
'Citigroup and Northern Trust have been appointed,' the official told XFN-Asia, adding that an official announcement will be made soon.
By the end of 2005, NSSF had total assets of 211.79 bln yuan.
Xiang Huaicheng, head of the NSSF, said earlier that the agency plans to invest up to 800 mln usd overseas by the end of the year, mainly focusing on Hong Kong as well as US and European markets.
China's ICBC: The World's Largest IPO Ever
October 3rd, 2006Well it's official. On Sept. 27, China's mega-lender and biggest mainland bank, the Industrial and Commercial Bank of China [ICBC], disclosed details of its upcoming $19 billion share offering in Hong Kong and Shanghai that will go down in history as the world's biggest initial stock listing. And judging by the overwhelming investor responses to previous share offerings by China Merchants Bank and Bank of China this year, get ready for a stampede.
ICBC certainly has a lot going for it. It is the mainland's biggest bank with $815 billion in assets and some $415 billion in outstanding loans. And it is No. 1 in corporate and personal banking in China and has as branch network of some 18,000 branches, according to an initial sales document posted on the Web site of the Hong Kong Stock Exchange. [The ICBC offering documents can be found here.]
ICBC is forecasting a 47% increase in earnings this year to nearly $7 billion. "The bank has a very strong franchise in China," says May Yan, vice-president and senior credit officer with Moody's Asia Pacific in Hong Kong. "It's the biggest in almost every banking business."
INVESTORS LINING UP. And thanks to government help, both in outright capital injections and purchases of non-performing loans, ICBC's balance sheet is a lot stronger than in recent years. Its capital adequacy ratio is 10.7% and the ratio of dud loans to its overall loans has fallen to 4.1% as of June of this year from 21% at the end of 2004.
Small wonder that ICBC has attracted the likes of Goldman Sachs (GS), German insurer Allianz (AZ), and American Express (AXP) as strategic investors. They have collectively spent $3.8 billion for an 8.5% stake in the bank ahead of ICBC's offering that will start trading on Oct. 27. Another $3.7 billion will be sold to an array of corporate investors such as China Life Insurance, Hong Kong tycoons and the investment arms of governments such as Kuwait, Qatar, and Singapore.
The rest will be up for grabs among mainland investors for the Shanghai portion of the offering of about $5 billion and global investors via the Hong Kong side, where the plan is to raise $14 billion. Judging by recent offerings, the ICBC listing will be heavily over-subscribed. Two big mainland state-owned banks, China Construction Bank and Bank of China, had little trouble selling a combined $22 billion-plus worth of share offerings over the past year in listings in Hong Kong and Shanghai [see BusinessWeek.com, 5/31/06, "A Golden Age for Chinese Banks"].
DOUBLE DIGIT DEPOSITS. If you want a China play with broad exposure to the mainland economy, it's hard to pass up big banks that lend to so many different industries and will benefit from the country's prospering and growing middle class. "The financial sector is really one sector that you need to invest in" to capitalize on the China growth story, Tat Auyeung, a fund manager at Apex Capital Management in Hong Kong, told BusinessWeek.com recently.
Also, the economy grew 10+% during the first half of 2006 and deposits are rolling into Chinese banks at a double digit pace [see BusinessWeek.com, 9/5/06, "Chinese Bank Stocks: What, Me Worry?"].
Chinese bank stocks have generally done well post-IPO, too. China Construction Bank's share price has appreciated more than 40% since its IPO last October. China Merchants Bank shot up 25% in its first day of trading on Sept. 22. The betting is that ICBC could well come out of its IPO with a market capitalization of $180 billion-plus.
China Grants QFII License To 2 More Foreign Institutions
October 3rd, 2006SHANGHAI -(Dow Jones)- China's securities regulator approved Sumitomo Mitsui Asset Management Co. and UBS Global Asset Management (Singapore) Co. to invest in China's yuan-denominated securities listed on the exchange.
The China Securities Regulatory Commission disclosed the information on its Web site Friday.
The program to invest in yuan securities called Qualified Foreign Institutional Investor program, or QFII, was launched in the middle of 2003 to introduce foreign funds into China's underdeveloped domestic capital market as part of efforts to liberalize its capital account.
-Sun Yan contributed to this story; Dow Jones Newswires; 8621 6120-1200; yan.sun@dowjones.com