The bi-weekly business report by Bonnier CHINA | No 148 | 23 February 2010 | Creating transparency in emerging markets since 1991 | www.news2biz.com | ” It is a short-cut to enter into China by choosing a good distributor. Peter Rosta, president at Ellen Asia PAGE 2 MANUFACTURING Swedish Ellen aims to sell millions of probiotic tampons in China PAGE 2 FINANCE China tightens bank liquidity again within a month as loans surge PAGE 4 FOOD & AGRICULTURE China produces more fertiliser but still buys more from Europe PAGE 6 PROPERTY & CONSTRUCTION New housing price in big cities grows fastest in nearly two years in Jan PAGE 7 RETAIL & SERVICE No 1 Nordic corporate law firm Mannheimer Swartling expands PAGE 8 IT & MEDIA China's software sector buckles downturn, sales up 26% PAGE 9 TRANSPORT & LOGISTICS Motorcycle output posts the first drop in years as exports wanes PAGE 11 ENERGY & ENVIRONMENT China disallows foreign investors from controlling offshore wind farms PAGE 11 ECONOMY & POLITICS China’s export back to pre-crisis levels, import surges in January PAGE 13 Finnish Outotec supplies metals plant to China Outotec, a mining equipment supplier, wins another order of EUR 6m in China, following one worth EUR 7m in 2009. PAGE 3 Danish ATP mulls EUR 1bn energy investments Danish compulsory pension fund ATP wants to pour EUR 1bn in China, India and Brazil in energy sources, transmission, infrastructure, etc. PAGE 11 Most important updated key figures in this issue Bank credits PAGE 4 Foreign trade PAGE 13 Inflation PAGE 13 Foreign direct investment PAGE 14 SEE ALL KEY FIGURES PAGES 18–20 ALSO IN THIS ISSUE ▶ Stelton, shedding 20 jobs in Zea- land, outsources to China PAGE 3 ▶ Insurance premium tops RMB 1 trln for the first time in 2009 PAGE 5 ▶ Chinese state fund CIC invests cautiously in USA PAGE 5 ▶ Chinese New Year holiday boosts retail and tourism sales PAGE 8 ▶ Minimum wages to up by 2-digit in provinces and cities PAGE 14 Bonnier Group/Äripäev publishes similar business reports on Po- land, Latvia, Lithuania and Estonia. As a subscriber you have ac- cess to your country report ten years back through our on-line ar- chives at www.news2biz.com. Multiple user access available - write [email protected]or phone +372 667 0251. Employers looking for workers in a job market in Shandong. The competition for workers will force employers to raise salaries. Photo: hc360.com PAGE 14 Swedish Autoliv makes acquisitions in Asia, expecting to boost market share Swedish Autoliv will acquire US auto parts maker Delphi’s car safety assets in China and South Korea. The Delphi operations are expected to generate USD 250m in sales in 2010. This new purchase brings the number of Autoliv’s manufacturing facilities in China to ten and headcount to nearly 4,000. PAGE 10 Housing prices at new high Looks like the media reports about stagnant housing sales have undersestimated the reality. The new housing prices in 70 big cities rose by an average of 11% y-o-y in January, the fastest increase in nearly two years. The results for the entire year, however, depend heavily on how harsh the tightening measures will be. PAGE 7 Housing prices speed up -2% 0% 2% 4% 6% 8% 1 0% 12% Jan 09 Apr 09 Jul 09 Oct 09 Jan 10
Transcript
The bi-weekly business report by Bonnier
CHINA
| No 148 | 23 February 2010 | Creating transparency in emerging markets since 1991 | www.news2biz.com |
”It is a short-cut to enter into China by choosing a good distributor. Peter Rosta, president at Ellen Asia PAGE 2
MANUFACTURING Swedish Ellen aims to sell millions of probiotic tampons in China PAGE 2 FINANCE China tightens bank liquidity again within a month as loans surge PAGE 4 FOOD & AGRICULTURE China produces more fertiliser but still buys more from Europe PAGE 6 PROPERTY & CONSTRUCTION New housing price in big cities grows fastest in nearly two years in Jan PAGE 7 RETAIL & SERVICE No 1 Nordic corporate law firm Mannheimer Swartling expands PAGE 8 IT & MEDIA China's software sector buckles downturn, sales up 26% PAGE 9 TRANSPORT & LOGISTICS Motorcycle output posts the first drop in years as exports wanes PAGE 11 ENERGY & ENVIRONMENT China disallows foreign investors from controlling offshore wind farms PAGE 11 ECONOMY & POLITICS China’s export back to pre-crisis levels, import surges in January PAGE 13
Finnish Outotec supplies metals plant to China Outotec, a mining equipment supplier, wins another order of EUR 6m in China, following one worth EUR 7m in 2009. PAGE 3 Danish ATP mulls EUR 1bn energy investments Danish compulsory pension fund ATP wants to pour EUR 1bn in China, India and Brazil in energy sources, transmission, infrastructure, etc. PAGE 11 Most important updated key figures in this issue Bank credits PAGE 4 Foreign trade PAGE 13 Inflation PAGE 13
Foreign direct investment PAGE 14
SEE ALL KEY FIGURES PAGES 18–20
ALSO IN THIS ISSUE ▶ Stelton, shedding 20 jobs in Zea-land, outsources to China PAGE 3 ▶ Insurance premium tops RMB 1 trln for the first time in 2009 PAGE 5 ▶ Chinese state fund CIC invests cautiously in USA PAGE 5 ▶ Chinese New Year holiday boosts retail and tourism sales PAGE 8 ▶ Minimum wages to up by 2-digit in provinces and cities PAGE 14
Bonnier Group/Äripäev publishes similar business reports on Po-
land, Latvia, Lithuania and Estonia. As a subscriber you have ac-
cess to your country report ten years back through our on-line ar-
chives at www.news2biz.com. Multiple user access available -
Employers looking for workers in a job market in Shandong. The competition for workers will force employers to raise salaries. Photo: hc360.com PAGE 14
Swedish Autoliv makes acquisitions in Asia, expecting to boost market share Swedish Autoliv will acquire US auto parts maker Delphi’s car safety assets in China and South Korea. The Delphi operations are expected to generate USD 250m in sales in 2010. This new purchase brings the number of Autoliv’s manufacturing facilities in China to ten and headcount to nearly 4,000. PAGE 10
Housing prices at new high Looks like the media reports about stagnant housing sales have undersestimated the reality. The new housing prices in 70 big cities rose by an average of 11% y-o-y in January, the fastest increase in nearly two years. The results for the entire year, however, depend heavily on how harsh the tightening measures will be. PAGE 7
MEDICAL DEVICE Swedish Ellen enters China to sell probiotic tampons Swedish Ellen AB, a producer of probiotic sanitary protection prod-ucts for women, entered the Chinese market by signing a contract with Chinese Beijing Zhonglian Pharma-ceutical for the distribution of Ellen's probiotic tampons.
"This is an exclusive agreement for distributing our probiotic tam-pons in China," says Peter Rosta, president of Ellen's Hong Kong-based subsidiary Ellen Asia, to news2biz.
Ellen wants to sell probiotic tampons to Chinese women. Photo: ellenab.com
Ellen's probiotic tampons can
help protect women from acquiring infections and restore natural PH value level after infection of any kind.
"Our market study shows that quite a lot of women in China, like in other countries, are suffering from
discomfort due to infections. So, the sales potential in China is vast," says Rosta.
In Sweden, Ellen sells about 0.5 Ellen tampon per female per year. If sales reach one fifth of that in China, it is feasible to assume sales in the range of 60 million probiotic tam-pons per year, said Ellen. Distributor is the key However, the actual sales will de-pend on the performance of Zhonglian, because Ellen has li-censed tampon sales in China exclu-sively to the Chinese firm which is a daughter company of Sinopharm Group, one of China's largest phar-maceutical companies.
"An incompetent distributor can kill your products. But Zhonglian is a very good company and this is a commitment-based contract, and it will save us from spending lots of money to set up our own big opera-tions in China. Cooperating with a competent distributor like Zhonglian will considerably shorten the time to the Chinese market," says Rosta.
Rosta says although the various approvals and applications for cer-tificates to sell in China have to be made in Ellen’s name, Zhonglian with its extensive experience will support with the application proce-dures.
"It is not only a short-cut to enter into a new market like China by choosing a good distributor but also a strategically important long term decision," says Rosta.
” It is a short-cut to enter into a new market like China by choosing a good distributor. Peter Rosta, President at Ellen Asia
Rosta adds that the contract also has an option to negotiate to sell Ellen's other probiotic products in China. The company may also con-sider to set up a manufacturing facil-ity in China in the future. Currently, it wants to only ship the probiotic tampons that are manufactured in Europe. We have talked to
RADIO CONTROL Åkerströms to sell Swedish remote controls in China Åkerströms Björbo, a Swedish com-pany that develops, produces, mar-kets and services products for radio remote control of industrial cranes, mobile applications, door-opening systems and locomotives has entered the Chinese market through a part-nership. The Chinese partner is Nan-jing Shunmei Science and Technol-ogy Co. Ltd.
"Nanjing Shunmei is our first Chinese partner, but we have been on the Chinese market thanks to co-operation with large Nordic indus-trial companies like ABB and Kone
that use us for cranes and other products," says Åkerströms Björbo's export manager Mikael Nilsson to news2biz.
"We will be focussing on our Re-motus T-Rex line of products used for remote controlled vehicles. These are typically used in the construction sector and construction material sec-tor for the transportation of con-crete, gravel etc," explains Mr Nils-son.
Mr Nilsson is leaving for China the day after news2biz spoke to him and even though he is enthusiastic about Åkerströms' partner, he will not say anything about goals for the company in the Chinese market.
"We have tried not to let our-selves get carried away by all this talk of China. We have had positive indications and we have high hopes for the Chinese market to a certain degree, but in the end we will have to see how it develops," Mr Nilsson says.
Åkerströms Björbo, situated in Björbo in Gagnef in Dalarna, was founded 1918, but is now owned by the Norwegian investment company Verdane Capital. Åkerströms Björbo employs 50 staff and has a turnover of SEK 80m. Part of the company's production is outsourced to sub-suppliers, but Mr Nilsson does not want to reveal if there are Chinese suppliers among them.
The company is represented in more than 70 countries worldwide. In addition to mobile units and vehi-cles, Åkerströms Björbo's Remotus line includes radio remote control
for industrial cranes. Åkerströms Björbo's range of products also in-cludes Sesam, for simpler industrial applications such as door opening systems etc, and Locomote, for oper-ating locomotives.
Nanjing Shunmei was founded in 2003 and has specialised in supply-ing radio-controlled solutions for in-dustrial customers in China. We have talked to
PRECIOUS METALS Outotec to supply EUR 6m metals plant to China The Finnish mining equipment sup-plier Outotec has won an order for the supply of EUR 6m precious met-als for the Baiyin Non Ferrous Group in the Gansu province in north-western China.
Outotec's scope includes basic engineering, proprietary equipment and services on site. The plant is ex-pected to be operational during the first half of 2011 and it will treat annually 4,000 tonnes of both cop-per and lead anode slimes in a Kaldo furnace.
"In basic, our equipment will be extracting gold, silver and selenium from by-products of copper and lead smelting," explains Jan H. Nilsson, CEO at Outotec Skelleftea in Sweden that will be making the smelting work for China.
"Outotec's Kaldo furnace repre-sents a unique technology both in reduction of liquid fuel consumption
and in cleaning of emissions. Here in Skelleftea, we are the only plant which is making this kind of equip-ment," he adds.
Baiyin's plant will be the third precious metals plant in China to use Outotec's Kaldo technology.
Outotec is a NASDAQ OMX Hel-sinki listed leading global provider of process solutions, technologies and services for the mining and metallurgical industries.
Outotec was divested from Fin-nish Outokumpu in 2001. In 2008, the group had a turnover of EUR 1.2bn (of which EUR 343m origi-nated in Asia), an operating profit of EUR 120m and just short of 2,700 staff world wide. Outotec Skelleftea employs 130 staff. We have talked to
DESIGN Danish Stelton outsources stainless tech to China The Danish high-end design com-pany Stelton is moving the produc-tion of stainless steel products to Austrian Rondon's plant in Xaping on the Pearl River, 100 km north of Hong Kong. The move means that 20 people lose their jobs at the com-pany production unit in Farevejle, northwest Zealand, but distribution and warehousing will continue there.
"It was decided six years ago that Stelton should no longer be a pro-
duction company but focus on de-sign and marketing, so this is just a consequence of this decision," ex-plains Stelton's main shareholder and CEO Michael Ring to news2biz.
Stelton's Cylinda Line designed by Arne Jacobsen Photo: Stelton
"The technology we use in
Farevejle is a so-called flow technol-ogy, invented by Hitler's Germany for cartridge casings, and not a lot of companies have that kind of produc-tion. But in connection with the fi-nancial crisis, we had a decline in sales in our large stainless products and an increase in sales of our smaller items, so we decided to carry out the six year old plans," says Mi-chael Ring.
He was taken aback by the com-motion which was a result of the outsourcing - it was even a news item in the state-owned Danish Ra-dio's news broadcasts.
"And none of these journalists had the dignity to phone me," says Mr Ring who assures that his em-ployees received a very generous severance package, including 12 months full salary.
Stelton was founded in 1960 and is well known for its line of stainless steel utensils, Cylinda Line, designed
by Danish design icon Arne Jacobsen, but the company is work-ing with a long list of strong Danish and international designers. The company employs 80 staff in Fare-vejle, its Copenhagen HQ and daughter companies in Sweden, Norway and Germany. Mr Ring took over the company six years ago. We have talked to
EXPORT EXPANSION Swedish Filton starts production in Chongqing Swedish Filton, a manufacturer of filters situated in Svalöv in Southern Sweden, has started a 100% owned subsidiary in Chongqing.
"Lots of our customers have their production in China and so it is more efficient to be in place in the country," says Kent Petersson, Fil-ton's CEO, to news2biz CHINA.
Settling in Chongqing was no co-incidence.
"Chongqing is an enormous ag-glomeration with some 32 million inhabitants. We have access to good people and settling in Chongqing is cheaper, both as far as wages and facility costs are concerned, com-pared to the Shanghai area," says Mr Petersson, "but the thing that de-cided the location issue for us was there are approximately 100 filter manufacturers in Shanghai. We did not want to be Filter Factory No. 101 and in Chongqing we are much more unique," he adds.
owned subsidiary CQ Filton Ltd in Chongqing is not enough for the Swedes and according to Mr Peters-son the Chinese unit will grow sig-nificantly in the near future.
Filton supplies app 8,000 differ-ent kinds of filters for ventilation units, vacuum cleaners and other aggregates where air filters form a component - with an end use spread into many different sectors.
The company employs 65 staff in total, has a unit in Latvia in addition to the Swedish and Chinese ones and expects to make turnover of SEK 50m in 2009 which has been a rather tough year for the company.
Filton was founded in 2003 by Kent Petersson and Michael Olsson, but in 2005 it was taken over by the Swedish filter maker Dinair. We have talked to
EMS NOTE buys out partner from China plant NOTE, the Swedish listed EMS (elec-tronic manufacturing services) pro-vider, has taken over the remaining 50% in a Chinese joint venture, IONOTE, with the Philippine Ionics EMS.
The plant in question is situated in Tangxia, a 45-minute drive from Shenzhen. In October 2007, the Swedes bought into the plant which had been set up by the Philippine company in 2005 (see no 97 page
10). "We have fulfilled our obliga-tion of taking over the company from our partner," explains NOTE's CFO Henrik Nygren to news2biz.
According to Mr Nygren, the plant is very modern, but the origi-nal owner never managed to use more than 20% of the plant's capac-ity.
More staff to satisfy demand "We still are not using it 100%, but we are increasing the number of staff by about a dozen to some 120 as we continue to relocate produc-tion from Europe to Asia and also to satisfy demand from existing cus-tomers in China," explains Mr Ny-gren.
The growth in employment hap-pens even as NOTE has lost 30% of its sales in 2009 compared to 2008. The company's losses went from SEK 4m in 2008 to SEK 91m in 2009 and the company has planned more spending cuts and an IPO targeted at existing shareholders to finance them.
"We are planning an IPO that will give us SEK 70m, for which details should be fully disclosed by the end of February as to reduce the uncer-tainties for our stakeholders [the loss and the IPO were announced on 2 February, ed.]. We want to cut yearly costs by SEK 50m. The IPO funds will be used to cover the one-off costs of SEK 45m for those cuts and also to trigger a growth for the company in a market which we be-
lieve is improving now," says Mr Ny-gren. We have talked to
IN BRIEF Iron ore miner in lawsuit In February, China began to indict four employees of Rio Tinto, the world's third largest mining company and no 2 iron ore producer, for bribery and stealing trade secrets (see no 146 page 4). Mean-while, Rio said it has never been so de-pendent on the Chinese market as it made nearly 25% of its turnover in 2009 from China, outstripping 24% from North America and 19% from Europe. More expensive steel Shanghai-based Baosteel, a leading Chi-nese steelmaker, in February raised the prices of steel products that will be deliv-ered in March by as much as 7%, reflect-ing the market anticipation of higher costs, especially more expensive iron ore. Other big steel mills in China are ex-pected to follow suit due to Baosteel's leadership on the market. Baosteel earned a net profit of RMB 6bn in 2009, down 11% from 2008, on a turnover of RMB 15bn, down 26%. Kodak expands in Xiamen The US films and printing products pro-ducer Kodak is launching a second pro-duction line in its printing plate facility in Xiamen, Fujian province in Southeast China, as a means of improving its manufacturing capacity. Kodak began to construct its USD 100m campus of print-
ing plates and films in Xiamen in 2005 (see no 54 page 5-6) and is now building the campus into a regional hub for Asia Pacific.
FINANCE
M&A New credits rebound in Jan, China curbs liquidity again The strong new bank lending and the fast growth of money supply have prompted China's central bank the People's Bank of China (PBOC) to move to mop up liquidity from Chinese banks, following closely a similar move in mid-January (see no 146 page 5).
The PBOC said that new bank lending hit RMB 1.4 trln in January. Although smaller than 1.6 trln in January 2009, new bank lending in the first month of 2010 exceeded the total of 0.9 trln in Q4 2009.
"The appetite for loans is still big. Meanwhile, The PBOC's scheme to impose quarterly maximum loans for state-owned banks also pushed banks to lend early in each quarter," says Li Wei, an economist at Stan-dard Chartered Bank, to news2biz.
"There are signs that new bank lending cooled substantially in late January, which means that the amount of new bank lending will tumble in February, especially con-sidering the weeklong holiday," Li adds.
China has set the target for new bank lending at RMB 7.5 trln in
2010, down from the jaw-dropping RMB 9.6 trln in 2009.
"The target amount is quite ap-propriate, not too excessive, nor cooling too fast," says Li. M1 money supply at new high At the end of January, China's broad M2 money supply expanded at 26% year-on-year, slowing from the nearly 28% growth rate at the end of December.
In the meantime, the narrower M1 money supply accelerated sig-nificantly, increasing from the 32% growth rate in December to a new historical increase of 39% at the end of January.
The acceleration of M1 and de-celeration of M2, under China's definition of money supply, mean that companies are drawing money out from time deposits and putting it into their demand deposits, in an-ticipation of more business activities.
"China's economy in Q1 is indeed very strong and may expand 11%, faster than 10.7% in Q4 2009, but there is not much concern about overheating because GDP may slow down in H2 2010 due to the dimin-ishing push from stimulus," says Li. Reserve ratio up again However, China's central bank is probably more worried about over-heating than Li is. The PBOC an-nounced in late afternoon of Friday, 12 February, a day before the Chi-nese New Year's eve on 13 February, that it raises the required reserve ra-
tio (RRR) for big banks by 50 basic points, effective from 25 February.
This was the second RRR hike in a month, following an increase of 50 basic points in mid-January for banks to 16% (see no 146 page 5).
The delicate timing of PBOC an-nouncing the RRR hike reflected the central bank's intention, i.e., to mop up more liquidity from banks but not to deal too heavy a blow on the stock market, hoping the long mar-ket closure on 13-21 February will help investors assimilate the new tightening measure.
"Besides the RRR hike, we expect the PBOC to raise interest rates twice this year, once in March-April and the second time in June," says Li. We have talked to
INSURANCE Insurance premium income tops RMB 1 trln in 2009 Despite the economic slowdown and the new regulatory guidance, China's insurance industry posted a total premium income of RMB 1.1 trln in 2009, up 14% over 2008, and top-ping the mark of RMB 1 trln for the first time ever, according to the China Insurance Regulatory Com-mission (CIRC).
In 2008, total premium grew 39% over 2007, the fastest pace since 2003 (see no 126 page 4).
"The cooling economy especially in H1 2009 played its part, but the main reason is that the CIRC had
since early 2009 required insurers to sell fewer policies linking to securi-ties investments, but more 'pure' in-surance policies," explains Peng Yu-long, an analyst at Guotai & Junan Securities, to news2biz.
Insurance policies linking to se-curities investments are often sold through banking offices to lure those who want more investment returns from their insurance policies. But these policies mean lower profitabil-ity for insurance companies which have to pay commissions to banks.
"Such adjustment of the business focus mainly affects life insurance policies. So, life premium grew much slower than property premium last year," adds Peng.
The CIRC figures showed that life insurance posted total premium of RMB 826bn in 2009, up 11%, and property insurance reaped premium of RMB 288bn, up 23%. Premium income slows in 2009
Source: CIRC, China Insurance Regulatory Commission
"Property premium was mainly
pushed up by the red hot car sales last year. So, with the slowing car market, property insurance will also
slow down this year when life pre-mium will speed up. In general, the total insurance premium will grow at a pace modestly faster than in 2009," expects Peng. Foreign insurers mixed Foreign-funded life insurers posted total premium income of RMB 42.6bn in 2009, up 18% over 2008. The number of foreign life insurers rose from 26 to 28 and their aggre-gate market share was up from 4.9% in 2008 to 5.2% in 2009.
But foreign-funded property in-surers benefited less from car-related policies, with total premium up 10% to RMB 3.2bn in 2009. Although the number of foreign funded property insurers rose from 16 in 2008 to 18 in 2009, their aggregate market share in property insurance edged down from 1.2% to 1.1%. We have talked to
FUND State fund CIC reveals USD 10bn portfolio in USA China Investment Corp (CIC), the country's USD 200bn sovereign wealth fund, bought USD 10bn worth of shares in 84 companies listed in the USA by the end of 2009, according to a CIC filing to the US regulator Securities and Exchange Commission (SEC).
As it is rather rare for a sovereign wealth fund to disclose its invest-ment portfolio to regulators, the CIC
move and its conservative invest-ment holdings are regarded as the fund's efforts to sooth worries of Western governments, especially Washington, about the political in-fluence of CIC whose money comes from China's massive foreign reserve.
The CIC filing showed that its biggest interests are in energy and finance. By the end of 2009, its big-gest investment is USD 3.5bn in Teck Resources, a Canadian re-sources and mining company listed in the USA, followed by USD 1.8bn in Morgan Stanley and USD 714m in Blackrock, both of which are finan-cial service companies. CIC's investments in USA are diverse Selected investments in million USD and 1,000 shares Value Shares Teck Resources 3,542.6 101,304 Morgan Stanley 1,772.8 59,891 Blackrock Inc 713.8 3,074 Visa Inc 353.8 4,045 Citigroup 29.8 9,000 Wells Fargo 31.0 1,150 Coca Cola 9.0 158 Johnson & Johnson 9.3 145 Merch & Co 7.3 200
Source: US Securities and Exchange Commission
Meanwhile, CIC, one of the
world's largest sovereign wealth funds, also had small stakes in US blue chips including Apple Inc, Coca Cola, Cummins, Pfizer, Citigroup, Visa, etc.
But for unknown reason, CIC's list does not include its first invest-ment worth USD 3bn in the US asset
management firm Blackstone (see no 91 page 13).
Nor did the CIC filing disclose its investments in the rest of the world.
According to CIC's 2008 annual report, about 50% of its registered capital of USD 200bn was used for investments outside of China and the overwhelming majority of its overseas assets was in form of cash or cash equivalent such as bonds.
Chinese media said that CIC is trying to get another USD 200bn from Beijing, and that the US chip giant Intel is tying up with CIC for tech investments outside of China. That shows CIC may want to try more and riskier investments for higher returns. IN BRIEF HSBC opens more outlets HSBC, the largest European lender and one of the largest foreign funded banks in China, said in early February that it has so far established 99 banking outlets in 23 cities throughout China. HSBC said it has so far invested over USD 5bn in China including in its own business and stakes in Chinese financial service companies.
Japanese investing in China Orix Corp, a leading Japanese financial services group, set up in January a sub-sidiary in Dalian, Liaoning province in Northeast China, as the HQ of its opera-tions in China. Orix has already invested in some leasing and rental business in China and it plans to expand its lending and investment activities in diversified industries such as finance-related, infra-
structure, automobile and ship-related activities in China.
FOOD & AGRICULTURE
AGRICULTURE China raises official rice prices to ensure grain crop Following a hike of the official minimum purchasing prices of wheat in late 2009 (see no 141 page 7), Beijing in February announced to raise the minimum purchasing prices for rice for 2010 by 3.3-10.5%, ac-cording to the National Development and Reform Commission (NDRC).
After the hike, the government's minimum purchasing prices for rice range from RMB 1.86-2.1 per kg.
The minimum purchasing prices mean that the government will pur-chase whatever quantity of grain crops peasants can provide under the set prices.
"The hike of minimum prices for rice is mainly a psychological sup-port to peasants because the actual selling prices of rice on the current market is about 10% higher than the minimum purchasing prices," says Ma Wenfeng, an analyst at Beijing Orient Agribusiness Consultant, to news2biz.
"The price hike is not enough to boost income for peasants because of the rising prices of diesel and fer-tiliser, etc. But it could help prompt farmers to continue to plant rice, in-stead of changing to other crops," adds Ma.
China's total grain output edged up 0.6% in 2009, posting gains for the sixth straight year (see no 146 page 6-7). China's policy is to con-tinue to boost grain output in order to feed its people by its own. Delicate situation The Chinese government has vowed to provide more funds, subsidies and tax breaks and higher purchasing prices to help the country's under-privileged peasants. But Beijing is facing a delicate situation of the ris-ing inflation expectation now.
"The inflation concern is part of the reason that the hike of rice prices is not big enough. We may see more direct subsidies to peasants be-cause such subsidies will have smaller impact on inflation," says Ma.
Beijing provided RMB 120bn in 2009 in subsidies for peasants to buy seeds and farm equipment, up about 20% over 2008. The government has in late January promised to offer even more subsidies this year. We have talked to
FERTILISER Fertiliser output speeds up in '09, export- import down China produced 67 million tonnes of fertilisers in 2009, up 16% over 2008 and speeding up from a small growth of 1% in 2008, according to the National Bureau of Statistics.
"The fertiliser prices, although sill much lower than those in 2008,
were recovering in 2009. Meanwhile, a significant new fertiliser capacity began operations last year, which also pushed up productions," ex-plains Xu Hongzhi, an analyst at Bei-jing Orient Agribusiness Consultant, to news2biz.
Fertiliser output sped up in 2009
0
20
40
60
80
2003 2004 2005 2006 2007 2008 20090%
5%
10%
15%
20%
Fertiliser output in m tonnes, left
Y-o-y growth in %, right
Source: National Bureau of Statistics
Moreover, Beijing deregulated
fertiliser prices since 2009, except the import prices of potash fertiliser, which was an additional push.
"But the glut of capacity in 2009 squeezed the profitability of fertiliser producers. In fact, many of them were not making money and strug-gling on the brink of break-even. So, China's fertiliser sector will slow sub-stantially in 2010, although we may still see a small output growth owing to the recovering demand at home and aboard," anticipates Xu. Smaller decline in export The China Customs figures showed that in 2009, China's fertiliser export edged down only 5% year-on-year to 8.8 million tonnes.
Meanwhile, fertiliser import tumbled 35% to 4 million tonnes.
"Beijing lowered export duties of fertiliser last year which prevented from posting a bigger decline in ex-port. On the import front, China did not made any agreement with pot-ash producers in Russia and Belarus in 2009, which meant that there were very few big purchasing deals, and this partly brought about the downfall," says Xu.
China mainly sells nitrogenous and phosphate fertilisers to South-east Asia and India, and buys potash fertiliser as China lacks kali salt, the key raw material to produce potash fertiliser. China's fertiliser import from the biggest import markets Russia and Belarus slumped 39% and 25%, respectively, to 1.7 million and 560,000 tonnes in 2009. Buying from Nordic countries However, China bought 29% more fertiliser to 472,000 tonnes from the EU, in 2009. "China is also buying compound fertiliser from Germany and Nordic countries such as Nor-way and Finland," says Xu.
"As a trend, China will import less and less fertiliser due to a capac-ity glut at home. Anyhow, China will continue to import some fertiliser mainly because the quality of do-mestic products, especially com-pound fertiliser, is not as good as imports," he adds. We have talked to
IN BRIEF Chinese drink more wine China consumed 75 million cases of wine, or 900 million bottles, in 2008, up nearly 80% from 2004, according to the Inter-national Wine and Spirits Record survey conducted for Vinexpo, the world's lead-ing wine fair. Vinexpo expects China's wine consumption to increase 32% from 2009 to 2013.
PROPERTY &
CONSTRUCTION
HOUSING China's new urban housing prices hit new mark in Jan In spite of numerous media reports about stagnant housing sales, the new housing price in 70 big cities rose by an average of 11% year-on-year in January, according to the National Bureau of Statistics (NBS).
The increase is the fastest in nearly two years. The NBS figures showed that 69 of the 70 big cities posted increases in new housing prices, led by gains of 35% in Hai-kou, 31% in Sanya and 22% in Guangzhou in January.
Haikou is the capital of Hainan province and Sanya is the top tourist destination of the island province offshore South China.
"Property investors hurried to Hainan after news that China will build it into a tourism hub and even try gambling on the island (see no 145 page 7)," says Huang Daoli, an
analyst at Guosen Securities, to news2biz.
Housing prices speed up The average gain of new housing prices in 70 big cities, y-o-y in %
-2%0%2%4%6%8%
10%12%
Jan 09
Apr 09
Jul 09
Oct 09
Jan 10
Source: National Bureau of Statistics "Other than Hainan, it is usually
a low season for housing sales in January-February. So, developers tend to launch premium properties on the market, for instance apart-ments in downtown locations or vil-las in Q1 which support the market prices," adds Huang. Uncertainties of tightening The NBS does not provide the abso-lute values of housing properties, nor has it revealed the total sales volume in January.
But Huang expects both housing sales and housing prices may be stagnant this year.
"The housing market in 2009 was just crazy. We will may see a respite, or even a correction, depending on how harsh the tightening measures will be," says Huang.
"If the central bank raises interest rates significantly, the housing sec-tor will be pounded rather hard," he adds.
LAW OFFICES Mannheimer Swartling builds up in China Sweden's Mannheimer Swartling, the largest corporate law offices in the Nordic countries, has decided to strengthen its presence in Shanghai and Hong Kong, the company's two Chinese locations.
From August this year, partner Peter Idsäter, so far stationed at the company's Malmö office, will be moving to Shanghai. Also, the ambi-tion is to increase the number of Mannheimer Swartling lawyers in China from 20 (18 at the offices and 2 engaged in arbitration) to about 30 in three years.
"Increasing staff is not a goal in itself. But we see increasing business in China as Nordic companies move from distributor agreement to repre-sentation offices and from rep offices to joint ventures and production in their own right," explains Mr Idsäter.
He says that the company has al-ready achieved its goal of being the leading and most consulted partner to most of all Nordic companies do-ing business in China.
Mr Idsäter will be the responsible partner for Mannheimer Swartling's China business together with Ulf Öhrling, Thomas Lagerqvist and
Oliver Schulte. Mr Idsäter will be go-ing through a crash course in Chi-nese culture, business and language, but from a secondment as an associ-ate lawyer in Singapore in the early nineties he is already experienced in working with Chinese colleagues.
Peter Idsäter will move to Shanghai to take care of his firm’s business in China. Photo: Mannheimer Swar-
tling
Mannheimer Swartling has of-fices in Sweden, Germany, Russia, the USA, Belgium and China. The company employs a staff of 650, of which 420 are lawyers. We have talked to
CLOTHING US clothes retailer VF to open more shops in China US-based VF Corp, the retailer of the renowned clothes brands such as Lee and North Face, plans to open 400 more outlets in China to add to its current 1,000 to boost sales.
VF said the outlets include shop-in-shops and independent stores.
"We use both formats, i.e., fran-chise and self-owned stores, depend-ing on the location and brand, and will continue this balanced approach
in the future," says Cindy Knoebel, VF's vice president, to news2biz.
VF earned about USD 300m in Asia Pacific in 2009 in which "China is the majority", she adds. Different brand approaches VF entered the Chinese market in the mid 1990's - first launching its Lee brand, then Wrangler.
"We spent several years getting established, and the business picked up and began to grow rapidly since 2000. Our Lee brand has been the primary growth driver of our jeans business in China, and in 2010 we will leverage our success with a sig-nificant increase in advertising and additional store openings," says Knoebel.
Meanwhile, VF will continue to promote its North Face outdoor brand, open more partnership stores and improve the productivity of ex-isting stores with better assortment planning and customised products.
"China is still a relatively new market for Vans, but we have seen tremendous growth since launching the brand in the summer of 2008. In 2010 we will double the footprint of the brand to more than 200 doors – still a small number in a big mar-ket where the brand has a lot of room to grow," says Knoebel.
"We have indicated that our goal is to build a USD 1bn business in Asia Pacific, with much of this in China," she adds.
Knoebel says VF has long been contracting production of its brands
in China. The Asia Pacific region ac-counts for over 50% of VF's total sourced production. We have talked to
HOLIDAY Chinese New Year holiday boosts retail and tourism China's retail sales in the seven-day Chinese New Year holiday on 13-19 February hit a historical high of RMB 340bn, up 17% from the holiday a year earlier, according to the Minis-try of Commerce (MOC).
The pace was mildly faster than the growth of 14% a year ago when consumers were still clouded by worries of the global economic downturn (see no 126 page 8-9). The MOC said the speeding growth reflected increased consumer confi-dence.
Retail sales, tourism booming The MOC added that retail sales of food, clothing, home appliances and mobile phones all posted strong double-digit growth in the holiday. Meanwhile, restaurants and cinemas also posted strong sales growth.
What's more, the China National Tourism Administration (CNTA) said that the total tourism income during the Chinese New Year holiday surged 27% year-on-year to RMB 65bn. The pace was faster than the 23% gain in the holiday last year.
Besides the increased confidence of tourists, the CNTA specially noted
that the new fast railways opened before the holiday (see no 147 page 9) also helped boost travel.
IN BRIEF
Running shoes store in China
New Balance, a US based vendor of sports footwear, opened an experience store in downtown Shanghai in February, its first in Shanghai and second in China following the one opened in Beijing in 2009. New Balance hopes the experience store to better promote its products among consumers. The company plans to open ten more experience stores "soon" in major cities across China. The Chinese media reported that the com-pany also wants to open 200 more out-lets in China and boost its sales by over 50% in 2010.
New Balance wants to convey its century-old shoemaking history through the nostalgic style of the new 200 sq.m. experience store in Shanghai. Photo: newbalancechina.com.cn
IT & MEDIA
HOME APPLIANCES China's sales of white goods down in '09, may grow in '10 As the world's largest producer of home appliances, China posted the first decline in decades in its export in 2009, reflecting the weak global demand.
According to the China Customs, the total export of home appliances, covering televisions, electric fans, air-conditioners, refrigerators, wash-ing machines, microwave ovens, DVD players and digital cameras, fell 12% to USD 37bn last year.
Air-conditioners and refrigerators led the fall, with export volumes slumping 28% and 18%, respectively. Colour TV was the only home elec-tronics item that posted gains, with export volume up 10% in 2009. China's export of home appliances dn Export of selected home appliances in 2009, in million units
Index 100 = previous year Export Index Air conditioners 28.1 72.5 Refrigerators 12.2 82.3 Electric fans 404.7 83.1 Microwave ovens 44.9 92.4 Washing machines 13.8 93.9 DVD players 122.3 96.4 Colour TV 54.6 110.2
Source: China Customs
"Televisions are more of a house-
hold necessity than refrigerators and air-conditioners which are hit hard
due to the declining home sales in China's export markets especially in the EU and the USA in 2009," says Wang Nianchun, an analyst at Gu-osen Securities, to news2biz.
Although made in China, a ma-jority of home appliances from China are made by foreign-funded companies (including those from Hong Kong and Taiwan) which ac-counted for 73% of China's home appliances export in 2009, said the China Customs. Wang expects China's export of home appliances to rebound this year, but the rising trade disputes bring uncertainties.
"Export of home appliances to the EU and the USA had remained weak for over a year. With econo-mies bottoming out, the household demand for upgrading home appli-ances will revive," she expects.
"However, it is possible for the EU and the USA to introduce more technical barriers such as increased safety standards, which may cloud the prospect of export rebounding," she adds. We have talked to
SOFTWARE China's software sector robust in '09, sales up 26% The total turnover of China's soft-ware industry hit RMB 951bn in 2009, up 26% over 2008, although slowing from a 30% growth in 2008 owing to the slowing economy, ac-
cording to the Ministry of Industry and Information Technology (MIIT).
Partly owing to China's aggres-sive stimulus spending, industries of finance, telecom, railway, healthcare and e-commerce expanded fast last year, triggering their IT spending and thus sustaining a strong growth of China's software sector last year, explained the MIIT.
The total sales of software prod-ucts rose 26% to RMB 329bn in 2009. Meanwhile, the total turnover of software services rose 31% to RMB 213bn, among them the turn-over from outsourcing services was up 35% to RMB 31bn.
The majority of outsourcing or-ders are from domestic companies. In 2009, China's export of software outsourcing services rose 15% to USD 2.4bn, cooling substantially from a leap of 54% in 2008.
China has made efforts to boost software outsourcing, especially for exports, by naming 20 big cities in 2009 in which software firms can enjoy lower tax rates and subsidies for employee training, etc. Anyhow, the global economic downturn dampened China's software out-sourcing export last year (see no 127 page 9). Cautiously optimistic 2010 The MIIT listed Beijng's continued stimulus investments as a key posi-tive push of China's software sector in 2009. Besides, the global IT spending is expected to rebound with the economic recovery. The US
IT consultancy Gartner forecast the global IT spending to rise 3% in 2010 and 4% in Asia Pacific. This will be a plus for China's software sector. Software products led sales in 2009 Shares of China's software sector sales totalling RMB 951bn in '09
IC design 2%
Embeddedsoftware18%
Softwareservices22%
Systemintegration23%
Softwareproducts35%
Source: Ministry of Industry and Information Technology
China's software sector grows fast
0
200
400
600
800
1,000
2003 2004 2005 2006 2007 2008 20090%
10%
20%
30%
40%
50%
Total turnover in RMB bn, left
Y-o-y growth in %, right
Source: Ministry of Industry and Information Technology
However, there are negative fac-
tors such as the increasing pressure on RMB to appreciate and the rising salaries of software engineers which will punch software exports.
The MIIT anticipates the total software turnover to grow at a slightly slower pace of 25% in 2010.
IN BRIEF ST-Ericsson closer to China Switzerland-based ST-Ericsson, a lead-ing provider of wireless platforms and semiconductors, has strengthened its ties with China Mobile, China's largest mobile operator, on development of TD-LTE which is the future generation of China Mobile's TD-SCDMA network. ST-Ericsson tells news2biz that it shipped over 6.5 million TD chips in China in 2009, making it a leader in the TD-SCDMA tech.
Google hikers at two schools? The cyber attacks on Google and other American firms (see no 146 page 11) have been traced to the Shanghai Jiaotong University (SJU) and Lanxiang Vocational School in East China's Shandong prov-ince, according to the US media. The re-port has become a sort of a joke in China because Lanxiang is providing various courses which are roughly at the level of middle school lessons. The SJU also de-nied the report. Google did not comment. It is still providing search results in China after censoring and has not shown any sign of pulling out of China in near-term.
TRANSPORT & LOGISTICS
CAR SAFETY Swedish Autoliv acquires in Asia, good results in China Swedish Autoliv Inc, a world's lead-ing manufacturer of auto safety products, will acquire the US auto parts maker Delphi's car safety assets
in China and South Korea to boost its businesses in Asia.
The deal covers intellectual property, physical assets and a work-force of about 600 people in China and Korea. The Delphi facilities are producing seatbelts, airbags and safety electronics for Asian auto-makers including Korean Hyundai and Kia, Chinese Chery and Indian Tata.
An Autoliv spokesman Henrik Kaar says that the deal involves pro-duction equipment and engineering capacity in China. But he does not want to disclose financial terms as the deal is expected to close in March 2010.
"Our plan is to integrate Delphi's operation into our existing organiza-tions in Korea and China, while ap-plying Autoliv's production system and quality systems. We also plan to combine the purchase activities to take advantage of the higher com-bined volumes to achieve even bet-ter conditions from suppliers," says Kaar to news2biz.
"Autoliv will honor the employ-ment agreements that exist today and we do not expect any larger re-duction in headcount," he adds.
Autoliv expects the Delphi opera-tions to generate about USD 250m of annualised sales in 2010. Good results in 2009 in China Autoliv now operates ten manufac-turing facilities in China with 3,920 employees. The company expects to turn over USD 450m in 2009 in
China, up 55% over 2008. That was a sharp contrast to a 21% drop in its global sales last year. Autoliv leads in auto safety in China Shares of China's airbags & seatbelts market in 2008
Others32%
Jinheng 5%
TG 8%TRW 11%
Takata 18%
Autoliv26%
Source: Autoliv
"The highest safety contents per
vehicle are in North America and Western Europe where the average value of safety equipment and sys-tems per vehicle is more than USD 300, but the greatest potential is in the emerging markets like China where the value reached USD 210 per vehicle in 2009. Although China's safety content level is lower than Autoliv's traditional markets, it is still much higher than in many other emerging markets, due to higher safety consciousness among car buyers," says Kaar.
Autoliv claimed a 26% share in China's market of airbags and seat-belts in 2008. It expects to increase its share to 34% by 2012. We have talked to
MOTORCYCLES Motorcycle output posts 1st drop in years in 2009 China's motorcycle producers did not have a time as good as carmak-ers did in the country in 2009, as the total sales of motorcycles including export fell 7% year-on-year to 25 million units last year, which was the first drop in many years, accord-ing to the China Association of Automobile Manufacturers (CAAM).
The decline was mainly due to a tumble of 36% in motorcycle export to 7.5 million units in 2009, said the China Customs.
Even though China raised its ex-port tax allowance for motorcycles from 11% to 15% in H1 2009, the shrinking demand on export markets hit China's motorcycle sector.
Pessimism on 2010 exports The Customs figures showed that the EU, the ASEAN (Association of Southeast Asian Nations), the USA and Nigeria were the top four export markets, and China's motorcycle ex-port to them tumbled 24%, 31%, 28% and 54%, respectively, in 2009.
The China Customs is pessimistic on the prospect of motorcycle export in 2010 because the demand on ex-port markets is still sluggish.
Moreover, China's currency, by de facto pegging to the US dollar, has strengthened against the curren-cies in its biggest export markets for motorcycles, which made Chinese motorcycles lose competitiveness to
those from other exporters such as India, said the Customs.
Fortunately, the domestic market has provided a cushion for Chinese motorcycle producers. The CAAM es-timated that domestic motorcycle sales rose about 8% in 2009.
The trade group attributed the growth mainly to China's stimulus – Beijing started in March 2009 to in-clude motorcycles in its programme of offering subsidies to peasants to buy "household appliances".
Because about 50% of China's motorcycle output is sold to the country's vast countryside, the CAAM anticipates the extended gov-ernment subsidies will continue to support domestic sales in 2010. China's motorcycle sales sank in 2009
Source: China Association of Automobile Manufacturers IN BRIEF Airbus sells more planes Air China and China Southern Airlines, two of China's top three airlines, signed deals in early 2010 to each purchase 20 aircraft from Airbus. The European air-plane builder expects to deliver more than 100 new aircraft to Chinese airlines in 2010, up from 78 in 2009.
BMW car R&D in China The German luxury carmaker BMW is fi-nalising details of a global R&D centre in China to provide products that better suit Chinese buyers. The carmaker pledged in late 2009 to pour RMB 5bn for more capacity in China (see no 142 page 8). BMW sold a record 90,536 cars in China (including import) in 2009, up 38% over 2008, as compared to an 11% drop in its global sales in 2009. Hummer deal delayed General Motors and Sichuan Teng-zhong Heavy Industrial Machinery Co have agreed to extend until the end of February the deadline for a deal in which GM wants to sell its Hummer brand to Sichuan Tengzhong. The deal is still wait-ing for China's regulatory approvals, but unlike the Geely-Volvo deal, the Hum-mer deal was not favoured by Beijing be-cause Tengzhong has no experience in automaking, reported the Chinese media.
ENERGY &
ENVIRONMENT
ENERGY FUND Danish fund mulls energy investments in China ATP, a Danish compulsory pension fund, is mulling investments of up to EUR 1bn in China, Brazil and India.
In the Danish press the fund has been dubbed a sustainable energy fund and it has been implied that it will focus exclusively on alternative energy sources like hydro and wind
power, but the investment scope is much broader (better usage of cur-rent energy sources, transmission, infrastructure etc).
"The daily Politiken wrote that we have postponed a number of cli-mate projects in China, Brazil and India, but that is not the case," ex-plains ATP's communications direc-tor Svend Aagaard Nielsen to news2biz CHINA.
ATP administers a number of compulsory labour market payments and pensions. The fund has assets worth DKK 616bn and made a profit of DKK 16.9bn in 2009. We have talked to
WIND OFFSHORE China rules out foreign control of offshore wind China now only allows Chinese companies or Sino-foreign joint ven-tures in which the Chinese have ma-jority stakes to run offshore wind farms, according to a circular co-issued by the National Energy Ad-ministration and the State Oceanic Administration in late January.
That means foreign-controlled investors will be ruled out from op-erating offshore wind farms in China, which is different from onshore wind farms where foreign owned companies are allowed to invest.
"The main reason is perhaps that Beijing does not want to leak some data such as ocean currents, marine information etc, which Beijing
deems sensitive to the national de-fense," explains Shen Wenchun, an analyst at China Galaxy Securities, to news2biz.
"Anyhow, even in China's on-shore wind, there is no foreign in-vestor so far due to the low profit-ability of operating wind farms," adds Shen. Wind power to slow in 2010 China adopts an auction system to license wind farm developers. Thus, investors have to lower their tariff in their tenders as low as possible. This system will be applied to offshore wind power too.
"China has a long coastline along its more developed East and South China. So, the offshore wind will be the future of the wind power sector. Foreign suppliers of wind equipment have more sophisticated technolo-gies, thus they could benefit from this emerging niche in China," says Shen.
In fact, Denmark-based Siemens Wind Power, which is good at off-shore wind, set up a plant in China in 2009 to produce nacells and blades (see no 133 page 11), and Swedish SKF won orders from an offshore park in Shanghai (see no 138 page 2), among others.
So far, China has few sizeable offshore wind farms, while onshore, China was the world's third largest wind power country in terms of ag-gregate installation, after the USA and Germany, and the no 1 in terms of new installation in 2009.
The East Sea Bridge Wind Farm offshore Shanghai is scheduled to have 34 wind turbines by H1 2010, the largest offshore farm in Asia. Photo: sina.com.cn
According to the Global Wind Energy Council, China's aggregate wind power capacity more than doubled from 12.1 GW in 2008 to 25.1 GW in 2009, meaning an in-crease of 13 GW, or over one third of the global new installation of 38 GW last year.
"China's wind power capacity has been growing over 100% for five years in a row. Wind farms are ex-panding so quickly that many wind turbines have not been connected onto the power grid. So, wind ex-pansion may slow down this year, although total capacity will still grow 20-30%," anticipates Shen. We have talked to
POWER USE Power use surges 40% in Jan, partly due to holiday China's power consumption, a ba-rometer of the country's manufactur-
ing industry, kept accelerating, surg-ing 40% year-on-year to 353 billion kWh in January, according to China's National Energy Administra-tion (NEA).
Part of the reason behind the big year-on-year leap was the Chinese New Year holiday which fell in late January in 2009, but in mid Febru-ary in 2010, thus reducing the num-ber of working days in January 2009.
Anyhow, the NEA said month-on-month power use rose 3% from De-cember, showing that the industry sector, which consumes over 70% of China's power, is speeding up.
The heavy industry which covers machinery, metal, chemicals, etc. was especially strong, consuming 214 billion kWh of electricity in January, up 50% year-on-year and representing 61% of the total power use in the month.
China's power use eased to sin-gle-digit growth in 2008-2009 amid the global economic downturn (see no 145 page 14), but is widely ex-pected to rebound to its usual pace of double-digit growth in 2010.
IN BRIEF Australia in biggest coal deal Australia's Resourcehouse secured a USD 60bn deal to supply coal to Chinese power stations over a 20-year period, calling it Australia's largest ever export contract. The contract with China Power Investment Corp is to supply 30 million tonnes annually from a new mine in central Queensland under develop-ment by Resourcehouse. The company
has also been awarded a USD 8bn con-tract to Metallurgical Corp of China to build the mine and related export infra-structure.
Oil consumption slows China's apparent consumption of crude oil covering domestic output plus net import of crude oil hit 388 million tonnes in 2009, growing 6.2% over 2008, but slowing from the average annual growth of 7.9% in 2003-2008, according to China Petroleum & Chemical Industry Associa-tion. The total apparent consumption of refined oil reached 221 million tonnes in 2009, up 2.5% over 2008, with gasoline up 5.5% to 67 million tonnes, diesel down 0.2% to 139 million tonnes and kerosene up 17% to 15 million tonnes.
Gas consumption & output up China's apparent consumption of natural gas covering domestic output plus net import of gas hit 87 billion cubic metres in 2009, up 12% over 2008, according to China Petroleum & Chemical Industry Association. The domestic output rose at a slower pace of 8% to 83 billion cubic metres in 2 009. China is trying to diver-sify its import sources to secure supply of natural gas. For example, China is ex-pected to start to consume natural gas from Central Asia in 2010 after complet-ing a giant 1,833-km natural gas pipeline linking Turkmenistan and China in late 2009 (see no 144 page 14).
FOREIGN TRADE Export back to pre-crisis lvl, import surges, RMB stable China's foreign trade extended its strong recovery in December also into January, which may put a heav-ier pressure on Beijing's stubborn policy of a de facto peg of RMB to the US dollar since H2 2008.
According to the China Customs, export rose 21% year-on-year to USD 109bn in January. Notably, im-port hit USD 95bn in the month, surging 86% year-on-year, which is the fastest pace since 1993. Thus, foreign trade, with export and im-port similar to those in January 2008, has largely recovered to the pre-crisis levels.
"The comparative bases a year ago were low due to the Chinese New Year holiday in late January in 2009 and the economic downturn at its height," explains Lu Zhengwei, chief economist at Industrial Bank, to news2biz.
"Foreign trade is recovering strongly, but not as strongly as growth in January may appear. I ex-pect export in the whole year of 2010 to grow about 12% and import to grow even faster," Lu adds.
Other economists are more opti-mistic, expecting 20-30% growth in export, but all are anticipating even faster growth in import in 2010. That means China's trade surplus will decline further from USD 196bn in 2009. In January, the trade sur-
plus shrank 64% year-on-year to USD 14bn.
China's foreign trade sped up in Dec in USD bn
50
60
70
80
90
100
110
120
130
140
Jan
07
Apr 0
7
Jul 0
7
Oct 0
7
Jan
08
Apr 0
8
Jul 0
8
Oct 0
8
Jan
09
Apr 0
9
Jul 0
9
Oct 0
9
Jan 10
Exports Imports
Source: General Administration of the China Customs
"After adjusting for inflation, the
smaller net export this year however will be neutral or slightly negative to China's GDP, which will be much better than the negative push of 44.8% to GDP in 2009," expects Lu. ASEAN replaces Japan The EU and USA remained as China's no 1 and no 2 trade partners in January. But the long time no 3, Japan, was replaced by the ten-member ASEAN (Association of Southeast Asian Nations) as China's export to ASEAN leapt 53% and im-port from ASEAN soared 117% in January, said the China Customs.
China and ASEAN launched a free trade zone in the beginning of 2010, the largest in the world in
terms of population (see no 145 page 16-17).
"The free trade zone is a plus but it could not benefit trade so quickly. The main reasons behind the jump in China-ASEAN trade are that Southeast Asian countries are also recovering fast and there are many people in ASEAN who are of Chinese origin and also celebrate the Chinese lunar new year," assesses Lu. RMB untouched in 2010 China had already grown into the world's largest exporter in 2009, outstripping Germany by a small margin. On top of that, the contin-ued strength of China's export ma-chine will trigger more criticism against China's currency policy, es-pecially from Washington.
China has left USD/RMB un-changed since H2 2008 after letting RMB appreciate about 20% against the USD during H2 2005 - H1 2008. The US president Barack Obama pledged in early February to press harder on Beijing to let the USD ap-preciate. But the chances are thin that Beijing will budge.
"Unless export keeps growing, say, rising over 15% year-on-year and 5% month-on-month, for several months in a row and meanwhile in-flation becomes serious, Beijing may not allow RMB to appreciate. These pre-conditions are quite impossible to take place this year," says Lu. We have talked to
INFLATION Mild inflation in Jan offers relief to tightening woes China's consumer inflation in Janu-ary was much milder than expected, with consumer price index (CPI) up 1.5% year-on-year and 0.6% month-on-month, cooling from gains of 1.9% year-on-year and 1% month-on-month in December, said the Na-tional Bureau of Statistics (NBS).
That provides a relief to the mar-ket worries that Beijing will soon take more tightening measures to curb inflation.
However, the relief may not last long.
"There are two opposite pushes this January, i.e., the timing of the Chinese New Year holiday which was negative to CPI and the unusu-ally cold weather which pushed up inflation. While the market had ex-pected the weather to outweigh the holiday effect, it turns out that the holiday had a bigger impact – vege-table prices rose but meat, poultry and edible oil prices dropped from a year ago," explains Wang Tao, chief China economist at UBS Securities, to news2biz.
However, the distortion due to the holiday effect will work in the opposite direction in February, be-cause the Chinese New Year holiday fell in mid-February this year but neared to an end in early February in 2009. Food prices tend to be pushed up by pre-holiday purchases.
"We expect an increase in CPI in February, to speed up to around 3%
year-on-year, which will renew con-cerns over inflation. We continue to expect the first interest rate hike in Q2 2010, as the central bank tries to control inflation expectations," pro-jects Wang. PPI strengthens fast As compared to easing consumer in-flation, the producer inflation sped up significantly in January, with the producer price index (PPI) rising 4.3% year-on-year, up from 1.7% in December.
The NBS figures showed that the faster PPI is led by crude oil and non-ferrous metals which are raw materials that China depends heavily on import for supply. For example, crude oil price surged 70%, copper was up 67%, zinc was up 40% and lead was up 32%.
Y-o-y changes of CPI & PPI pick up
-10%
-8%
-6%
-4%
-2%0%
2%
4%
6%
8%
10%
Jan 0
8
Apr 0
8
Jul 0
8
Oct 0
8
Jan 0
9
Apr 0
9
Jul 0
9
Oct 0
9
Jan 10
PPI
CPI
Source: The National Bureau of Statistics
"The quick rebound of PPI was
mainly driven by the recovery in commodity and raw material prices,
which collapsed a year ago," says Wang.
But Wang does not expect the higher input costs in raw material and investment goods to have an ef-fect on consumer inflation fast.
"The existing production capacity is larger than the total consumption demand at home and abroad. As a result, we may see the profit mar-gins of some sectors such as heavy industry and durable goods to get squeezed," Wang estimates. We have talked to
FDI Foreign investment eases in Jan; US invest more, EU less The foreign direct investment (FDI) inflow into China rose 8% year-on-year to USD 8bn in January, accord-ing to the Ministry of Commerce (MOC).
Although FDI managed to post a growth, it was much slower than the surge of 103% in December 2009 (see no 146 page 17).
"Data around the beginning of the year tend to be distorted because of the timing of the Lunar New Year celebrations. Given the low levels of investment a year ago FDI is likely to record further gains in year-on-year terms, at least during the first half of 2010," says Alaistair Chan, an economist at Moody's Economy.com, to news2biz.
Non-financial FDI up strongly in Dec
-4-202468
101214
Jan09
Mar09
May09
Jul09
Sep09
Nov09
Jan10
-40%-20%0%20%40%60%80%100%120%140%
FDI in USD bn, left
Y-o-y growth in %, right
Source: MOC, Ministry of Commerce
As usual, the MOC's monthly FDI
figures do not cover FDI into the fi-nance sector. Moreover, Hong Kong continued to be the top source of FDI, accounting for 57% of China's total FDI in January.
The USA was among the fastest growing investor by putting in USD 468m in January, surging 94% year-on-year, thus reversing from a 22% decline in full-year 2009.
On the contrary, the 27 EU na-tions invested a total of USD 471m in January, down 26% year-on-year. In full-year 2009, FDI from the 27 EU nations fell 9% to USD 6bn. Less FDI in manufacturing In January, manufacturing remained as the top destination for foreign in-vestors, although FDI into manufac-turing fell by 12% year-on-year. Thus, manufacturing represented 49% of China's total FDI in January, down from 59% a year earlier, and remaining below 50% of total FDI for the first time, said the MOC.
On the contrary, the service and the agriculture sectors saw FDI up
27% and 89%, respectively, in Janu-ary. Such changes in FDI destina-tions reflected China's policy of en-couraging more foreign funds to di-versify from setting up more facto-ries, especially those with heavy pol-lution or consuming a lot of energy. More hot money worries Although economists are optimistic that more foreign investment will flow into China in 2010 owing to the country's relatively stronger econ-omy, there still remains the concern that the speculative capital inflow, often dubbed as "hot money", is also hurrying into China.
"Speculative capital inflows, which can be disguised as proper in-vestments, are closely watched by the government as they have the po-tential to destabilise the economy. Increased capital inflows push up as-set prices and can increase inflation-ary expectations, while signs of trouble can prompt quick outflows," explains Alaistair Chan.
"It is hard to detect and measure speculative inflows. But any surge of hot money this year could prompt tough measures such as tighter capi-tal controls," adds Chan. We have talked to
minimum wages by 13-14%, a move that other provinces and cities in-cluding Shanghai and Shenzhen are set to follow, thus revealing a new round of wage hikes in China as the global economy is emerging from re-cession.
After the hike, the minimum wage in Jiangsu, one of the largest export provinces and home to many foreign companies in China, amounts to RMB 960 per month for a full-time worker.
Both Shanghai and Shenzhen have also expressed intent to raise their minimum wages by 10-15%. Other regional governments includ-ing those of Beijing, Guangdong and Chongqing have similar plans. Minimum wages in selected cities in '08 In RMB per month Wage Shenzhen 1,000 Shanghai 960 Beijing 800 Hangzhou 850 Nanjing 850 Guangzhou 860 Tianjin 820 Dalian 800 Nanchang 580 Xi'an 600 Chongqing 680 Chengdu 650
Source: the local governments
"The minimum wage hikes will
mainly affect small firms especially domestic employers. Most foreign companies are offering salaries far
above the minimum level and will not be affected," says Henry Sheng, a specialist at the global human re-sources consultancy Hay Group, to news2biz.
China has since 2004 required local governments to adjust their minimum wages at least once per two years to reflect inflation and economic growth (see no 21 page 13).
China's minimum wages differ from province to province. Even within one province, there are dif-ferent minimum wages for different areas. As of 2008, Shenzhen had the highest minimum wage of RMB 1,000 per month, and Guangxi in Southwest China had the lowest at RMB 580 per month. Shortage of labour According to the Chinese media, employers in the coastal provinces in East and South China are facing a headache as businesses are re-starting after the Chinese New Year holiday, that is, a lack of hundreds of thousands of workers. The de-mand mainly comes from millions of exporters in the region which see a rebound in export orders.
On the other hand, migrant workers from West and Central China have become more hesitant to go hunting for jobs thousands of kilometres away from home, as the current salaries may not pay off the costs of departure from their families, especially as more factories have moved to inland China.
” China will become a less attractive destination for low-cost manufacturing. Henry Sheng, specialist at Hay Group
"The competition for workers will force employers to raise salaries, at least for the near-term," says Sheng.
"In the long run, China will be-come a less attractive destination for manufacturers seeking low-cost la-bour. In fact, human resources costs in China are already higher than those in India and Vietnam, etc. Meanwhile, Chinese polices are also encouraging more jobs with bigger added values such as R&D and ser-vices, which will also push up salary levels in the country," adds Sheng. We have talked to
Employers hold vacancy boards in a job market in Shandong, eager to recruit workers. Photo: hc360.com
IN BRIEF
Forecasts on China economy China's state think tank Chinese Acad-emy of Sciences expected in February that the Chinese economy will expand 10% and inflation will pick up 3.1% in 2010. Meanwhile, China Construction Bank, China's second largest lender, projected 9.5% for GDP growth and 3% for inflation this year. But both institutions cau-tioned that Beijing should exit its stimu-lus policies and cool down the real estate sector properly this year.
Japan still leads China in GDP The Japanese government said in Febru-ary that although the country's economy shrank by 5% to USD 50.8 trln in 2009, it was still larger than China's USD 49.1bn last year. But it is expected that China's strong growth will help it grab in 2010 the position of the world's second largest economy which Japan has held for four decades.
China cuts US debt holding China trimmed its holdings of US na-tional debts by USD 34bn in December to a total of USD 755bn by the end of 2009, according to the US Treasury Depart-ment. Thus, China has left its position of the biggest holder of US debts in the past few years to Japan which held USD 769bn at year-end 2009. Some economists said China's cut of its US debt holding was a warning to Washington's rising threat of more trade disputes and bigger pressure on Beijing to hike RMB rates.
