Recruiting in China

BEIJING -(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.

SHANGHAI, 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.

Chinese 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

BEIJING -(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.

While the United States still has a bigger share of the global R&D market, second-ranked China is gaining ground.

U.S. companies are falling behind on research-and-development spending, while their Chinese counterparts have upped their investments in recent years, according to a new report.

The study, conducted by R&D magazine and Battelle, a Columbus, Ohio-based research firm, could spell trouble for small businesses that benefit from local R&D activity.

This year, the United States is responsible for 32.4 percent of global R&D, but that number is down slightly from 32.7 percent in 2005, and is expected to drop to 31.9 percent in 2007.

China ranks second for most dollars spent, and while it's only responsible for 13.4 percent of the world's R&D, Battelle projects that number will rise to 14.8 percent in 2007. The percent changes may be small, but on a global scale, they translate into large figures -- R&D magazine reports that global spending on R&D topped $1 trillion in 2006.

"There still is a considerable gap, but it's closing," Jules Duga, a senior Battelle research scientist and co-author of the report, said in a statement.

Chinese growth has been fueled by the liberalization of Asian economies and the ongoing development of a highly educated, technology-oriented population, according to Battelle.

The report explains the results in terms of an evolution in international competition: After the global arms race subsided, focus shifted to a "hands race" for lower-cost manual labor. Now shifting once again, the world is entering a "head and brains race" for technological advancement.

Falling behind in the "race" could have a negative impact on small businesses in the United States. Earlier research has shown that small-business formation and growth is directly linked to local R&D.

A 2002 study published by the Small Business Administration showed that communities with larger amounts of university R&D activity are home to more start-ups, and those companies significantly benefit from R&D during their early stages of growth.

This is due in large part to a "spillover effect" of knowledge and technology to the surrounding area.

The SBA research found that there is generally a two-year lag between the year of R&D expenditure and the spike in the launch and growth of new firms, during which the spillover takes place. That means that universities, government laboratories, and corporations need to consider changing trends of today in order to protect the vitality of small businesses in the future, according to the SBA

"These challenges can be accommodated only by long-term strategic investment and will," Duga said.

SHANGHAI (Reuters) - Former China president of mobile phone maker Motorola Inc. Daniel Shih has joined PepsiCo Inc. to help the U.S. company to sell its cola products in China, industry sources said on Thursday. Shih is now the president for Pepsi's beverages business in China, two sources familiar with the situation told Reuters, a market where Pepsi is facing tough competition from its U.S. rival, Atlanta-based Coca-Cola Co.

Shih, a Taiwan-born Amercian, joined Pepsi before the week-long Chinese National Day holiday last week and will report to Zhu Huaxu, current China chairman of Pepsi, the sources said.

"Shih will be working very closely with Zhu and finally Shih will take over all Zhu's posts, becoming his successor," said one Beijing-based source close to Pepsi.

Shih, who left Motorola late last year, will take over Pepsi's China operations in the second quarter of 2007, when Zhu plans to retire after working for Pepsi for nearly a decade in China, the second source said.

Multinational corporations, from global banks to toy makers, have poured tens of billions of dollars in the past few years into China, the world's fourth-largest economy where personal savings have reached a total of roughly $2 trillion.

Global chief executives have long complained that a shortage of senior industry talent may be the biggest challenge that companies face in China. Foreign firms see China work experience and language skills as vital when hiring senior executives.

The first source said Pepsi's Zhu first brought up the idea of retirement with management late last year, after which Pepsi began to cast around for a successor.

"Pepsi is a big multinational corporation in China, so it needs some time to assure the handover ... will be done very smoothly," said the source, adding that profit margins in China's beverage sector may be larger than in its electronic industry.