Germany’s leading automaker, Volkswagen, plans to invest EUR 4 billion in China between 2009 and 2011, with the aim of posting high sales growth across the country. The investment will be used to expand output at its two factories in Nanjing and Chengdu, which will be increased to 300,000 and 350,000 units per year by 2012 respectively. The funds will also enable production of three new models for the German auto giant. China has become one of the most important markets for Volkswagen, which sold 1.06 million vehicles in the country in the first nine months, up by 37% compared to the same period last year.

China International Business – Nov 2009

US private equity fund Goldman Sachs Capital Partners (GSCP) invested HKD 2.586 billion (USD 330 million) in convertible bonds and warrants from Geely Automotive Holdings, a top auto carmaker in China, eyeing the country’s booming auto market, GSCP will become the second largest shareholder in Geely. holding a 15.1% stake in the Chinese company. The money will be used to expand the output of Geely’s production base in Hunan, as well as to purchase three factories in Jinan, Chengdu and Lanzhou from its parent Zhejiang Geely Holding Group. The money will also assist its parent in acquiring Volvo Grand from US automaker Ford.

China International Business – Nov 2009

Korea’s LG Display, the second largest LCD manufacturer in the world, has signed a memorandum of understanding with the Guangzhou Municipal Government to create a LCD production line in the Guangzhou Economic Technical Development District, with investments totalling USD 4 billion. The JV project will focus on manufacturing 8.5-inch LCD screens, with initial output of 60,000 units each month by 2012. The project is only LG Display’s second manufacturing line of this product type worldwide, and will become the largest LCD project in China, with a production value of RMB 300 billion (USD 43.97) by 2010.

China International Business Nov 2009

China-Russia Energy Investment, a subsidiary of Hong Kong-based Rus Energy Investment Group, announced the purchase of a 51% stake in a Russian oil company. The deal, which is the first acquisition of a Russian oil company by the Chinese-Russian joint venture, will provide exploration and development rights for two natural gas fields with total reserves of 60 billion cubic metres. The JV will invest USD 300 million in exploring the two fields, which will produce natural gas for the Chinese, Japanese, Korean and Singaporean markets.

China International Business Nov 2009

Fangda Industrial Group, a Liaoning-based private company, has purchased a 5.797% stake in Nanchang Steel from Jiangxi Metallurgical Group for RMB 910 million (USD 133 million). Fangda, a carbon materials producer, will become the largest shareholder of Nanchang Steel and the controller of Changli Iron & Steel, a Shanghai-listed unit of the steel company. The deal is expected to help Fangda expand into the iron and steel sector in China, and compete with its local rival state-owned Valin Steel.

China International Business Nov 2009

US private equity giant The Carlyle Group and Shanghai Fosun High Technology, China’s largest privately-owned investment group, made a joint investment of around USD 100 million in the Guangdong-based milk powder maker Yashili Group last month, eyeing a recovery by the industry which was last year recked by large-scale production contamination. Carlysle and Fosun will become the second and third-largest shareholder of Yashili, holding a 17.3% stake and a 6% stake respectively. Yashili, founded in 1983, is a leading milk powder producer in China with a production value of RMB 3.8 billion (USD 556.7 million) last year and projecting value of RMB 4 billion (USD 586 million) this year.

China International Business Nov 2009

China Investment Corporation, the state-owned investment firm, has paid USD 850 million for a 14.9% stake in Nobel Group, a Hong Kong-headquartered agricultural company, as part of its plan to diversify overseas investments. The deal is the first acquisition in the agricultural sector by CIC. Nobel Group is a Singapore-listed company which saw revenues of over USD 36 billion in 2008. CIC has increased its investments abroad, buying USD 1.9 billion of debt from Indonesia’s largest coal producer, PT Bumi Resources, and 11% of the Global Depositary Receipts of the London-listed JSC KazMunaiGas Exploration Production for USD 939 million through its subsidiary Fullbloom Investment.

China International Business Nov 2009

Chen Fashu, chairman of Fujian-based New Hua Du Industrial Group and the province’s richest man, bought 65.81 million shares in China’s top pharmacuetical company Yunnan Baiyao Group last month, for RMB 2.2 billion (USD 322.3 million), from Hongta Group, the country’s largest tobacco producer. Chen Fashu will become the second largest shareholder of Yunnan Baiyao.

China International Business Nov 2009

China’s top agrochemicals producer Sinochem, a subsidiary of state-owned Sinochem Group, has signed a framework agreement with Australia’s Nufarm, one of the largest agriculture chemical manufacturers in the world, to pay AUD 2.83 billion (USD 2.44 billion) for a total of 218 million shares in the latter. Nufarm, which produces agriculture chemicals like glyphosphate and sells to over 100 countries around the world, holds huge shares in the agriculture chemical markets of Australia, South America, Europe, Asia and the US. The purchase is expected to help Sinochem  further extend its overseas network.

China International Business Nov 2009

Xi’an Aircraft International Corp, a subsidiary of the Aviation Industry Corporation of China (AVIC), has agreed to buy a 91.25% stake in FACC, the largest aircraft parts maker in Austria, for around EUR 91 million (USD 134 million). The deal will help AVIC compete with Boeing and Airbus in the production of jumbo jets. FACC, established in 1989, is the main supplier to the world’s top aircraft makers.

China International Business Nov 2009

“China has become the world’s largest energy producer.” – Zhang Guobao director of the Energy Bureau

“The financial crisis didn’t happen in China.” – Long Yongtu general secretary of Boao Forum for Asia

“Chongging could become the Chinese ‘Seattle.’” – Zhang Yaqin chairman of Microsoft (China)

“China’s voting right will be largely increased.” – International Monetary Fund (IMF) managing director Dominique Strauss-Kahn

“The present iron ore price negotiation is out of date.” – Wu Xichun honorary chairman of China Iron & Steel Association (CISA)

China International Business - Nov 2009

China’s largest bank . the Industrial and Commercial Bank of China, plans to acquire a 19.26% stake in Thailand’s ACL Bank from Bangkok Bank, the biggest commercial Thai bank, for THB 3.52 billion (USD 105 million), or about THB 11.5 per share. ICBC is making a bid for ACL’s remaining shares at the same price – including a 30.6% stake owned by the Thai Ministry of Finance, the largest shareholder of ACL – which would bring the total cost of the bank to THB 18.29 billion. The deal, while ICBC’s first purchase in Thailand, is one of many acquisitions the bank has recently made in Southeast Asia.

China International Business Nov 2009

Turnover in 2008

1. Sinopec RMB 1.462.44 billion

2. CNPC RMB 1.273 billion

3. State Grid RMB 1,140.74 billion

4. ICBC RMB 490 billion

5. China Mobile RMB 451.85 billion

6. CCB RMB 402.94 billion

7. China Life RMB 379.01

8. BOC RMB 352.28 billion

9. ABC RMB 334.04 billion

10. Sinochem RMB 308.98 billion

China International Business Nov 2009

25.5km – Total length of the new Shanghai Yangtze River tunnel and bridge, which will be the longest tunnel in the world.

RMB 100.7 billion – (UDS14.75 billion) China’s tourist revenue for the Golden Holiday Oct 1-8.

USD 5 billion – China’s luxury goods consumption this year, according to a report by Goldman Sachs.

16 – Number of Chinese companies listed among the top 50 Forbes Asia Enterprise 2009.

USD 113.8 billion – Capital raised by 154 Chinese mainland companies listed on overseas stock markets by the end of July 2009, according to the China Securities Regulatory Commission.

China International Business Nov 2009

While the West remains bogged down in the worst recession in decades, China’s economy has sprung back to life with remarkable speed. But is Asia’s giant strong enough to lead a global recovery?

On a steamy Saturday afternoon just outside Shanghai, Zhang Yi is in a blessedly cool General Motors showroom, kicking the tyres of the company’s newer models. He’s not there to beat the heat. He drives a small Volkswagen now and wants to upgrade. A middle manager at a state-owned steel company, Zhang has no worries about his job or China’s economy. “Things are still pretty good,” he says. “I have no problem now affording one of those,” nodding toward the array of gleaming new Buicks nearby.

There aren’t a lot of places in the world these days where consumers speak with all that kind of confidence. With the US, Japan and all of Europe mired in the worst global recession in 30 years, China has shown a restorative strength that six months ago many doubted it had. A devastating slump in exports crippled growth late last year, but on the back of a $586 billion government stimulus programme – about 13% of GDP spread over two years – China has snapped back. The economy grew 7.9% in the second quarter and will now probably expand 8% or more this year. Evidence of increasing momentum appears almost every day. Factory production has begun to edge up, in part because Chinese consumers continue to spend money at a healthy pace. Auto sales, helped significantly by government subsidies for small-car purchases, hit an all-time record in April, and will easily surpass those in the US this year. Overall, retail sales in China this year are up 16%.

The US, the unquestioned leader of the global economy, is now in the midst of a disorienting shift in economic policy, away from the let-it-rip form of capitalism that guided it for almost 30 years and toward more overt government control and regulation of huge swathes of the economy. No one yet can safely say whether this is wise. No such doubts are evident in China, where the government reacted to the crisis with alacrity and the economy is now responding in kind.

That’s why, for global companies like General Motors, China is no longer the future.  It’s the present. Of the world’s 10 biggest economies, China is the only one that is growing, and it could soon surpass Japan’s to become the world’s second largest. The Shanghai exchange has soared more than 80% this year, by far the best performance among major markets.

TRADING PLACES

A few years ago that question – and the notion that China could drive global growth – would have seemed absurd. After all, China’s economy was dependent upon manufacturing, which was in turn dependent upon demand from the US, the world’s undisputed economic locomotive. But that engine remaines sidetracked. The IMF predicts the US economy will contract 2.6% this year. American home prices continue to fall in some cities, while the unemployment rate has soared to 9.5%, the highest since 1983.

NOT SO FAST

Even if China’s economy continues to power ahead, it will probably not on its own, be enough to drag the rest of the world into recovery. Size matters. The US has a $14 trillion economy; China’s is $4.4 trillion. The US accounted for nearly 21% of total global GDP last year; China just 6.4%. Chinese consumption in other words, is growing – but is still insufficient to lift the world’s largest economies out of recession. Consumer spending drives less than 40% of China’s GDP; in the US before the burst, the consumer accounted for almost 70%.

China can help, but it remains a relatively poor country, with an annual per capita income of $6,000, compared to $39,000 in the US and $33,400 in the EU. To be solidly middle class in China’s big cities is to have an income of about $12,000. Brisk though auto sales may be, most Chinese still can’t afford a Volkswagen or a Buick, let alone a BMW.

Last year China’s consumption was about the equivalent of France. No one is calling on France to save the world.

As the rest of the world falters it is truer than ever, China is not yet the leader of the global economy but it is getting there.

Time magazine – Aug 10 2009

The economic crisis has reschaped the global lndscape. But one of the less observed events took place earlier this year when China overtook the United States as the world’s largest exporter to the Middle East. Its exports to the region have soared to $60bn (£37bn) from just $4bn a decade ago.

Chinese manufacturers are turning to the Middle East as their established buyers in Europe and the US cut their spending.

Yuan Chun is ilustrative of the change. He has a shop in one of Dubai’s retail malls. He used to sell mainly blue porcelain to European clients. But he recently switched his stock for red porcelein. His European clients have dried up. His Arab and African clients are still buying, but prefer brighter colours..

It is not only Chinese traders driving the change. The Chinese city of Yiwu, a short drive from Shanghai, is a virtual Arab market town. There are more than a dozen Arabic restaurants in its main street and the city receives 200,000 Arab visitors annually. It is a Mecca for Arab traders searching for low-cost goods for consumers back home.

The relationship has also grown beyond trade. Chinese construction companies are building offices for the Algerian and Yemeni foreign ministries in Algiers and Sana’a, not to mention airports, roads and apartment buildings. They are even building a light-rail system in the Holy City of Mecca, in Saudi Arabia. The companies can build fast and at the right price for developing countries.

Daily Telegraph – 28 August 2009

In some ways David Wei is exactly the type of boss you would expect to find at an internet company: he is young at 39, a football fan and a beer drinker.

But, looking at him behind his desk at Alibaba.com’s headquarters in the eastern Chinese city of Hangzhou, it quickly becomes clear that Mr Wei is no scruffy web pioneer.

He has the impeccably combed hair of a senior Comunist Party cadre and the sleek but-fashionable gold spectacles of the investment banker he once was.

His English is perfect, thanks to a stint working for Coopers & Lybrand in London, and happily free of the “buzzwords” and jargon of Web 2.0.

He first made contact with Alibaba.com in 2000, but only decided to join the company after six years of deliberation, during which he ran B&Q, the DIY chain, in China.

Founded with $60,000 (£37,000) of investment in a Hangzhou by Jack Ma, a former English teacher, Alibaba.com raised $1.5 bn and was priced at more than 100 times its earnings when it made its debut on the Hong Kong Stock Exchange in 2007 – a higher valuation than Google achieved.

The website forms a bridge between China’s myriad factories and their customers in the US and Europe. Almost 500,000 factories pay a fee to Alibaba.com to display their wares and put them in touch with the outside world.

The site is not flashy – it looks like a hybrid of Amazon and eBay – but it is simple to use. A few clicks brings up the makers of everything from chrome oxide pigment to tennis rackets to diamond jewellery.

For anyone who wants to import goods from China, Alibaba.com is the first port of call.

Daily Telegraph – 28 August 2009

Danone’s feud with Zong Qinghou has proved a cultural clash case study – write Tom Mitchell & Geoff Dyer

In the annals of international investment SCC Arbitration V (061/2007) will be remembered as a case study in how not to do business in China.

Technically the “partial award” judgement handed down by a Swedish arbitration tribunal on September 30 was a victory for Danone over Zong Qinghuo, the French food group’s Chinese joint venture partner since 1996 and founder of beverage-maker Wahaha Group.

Many of Danone’s claims against Mr Zong were not upheld, including an allegation he defrauded their joint venture. But a three-man tribunal convened by the Stockholm Chamber of Commerce’s Arbitration Institute ruled that he had breached confidentiality and non-competition agreements – allegations that the self-made billionaire categorically denied.

The tribunal also ordered thate he “cease forthwith using, or assisting in/procuring any unauthorised usage of the Wahaha Trademarks and any other intellectual property rights which belong to the [joint venture], and orders that Mr Zong transfers them to or cause their transfer to the [joint venture].

Meanwhile, as victories go, it was a limited and pyrrhic one for the French food group. On the same day that the confidentail judgement was handed down, Danone and Mr Zong formally ended a fued that had gone public more than two years earlier and featured in discussions between the two countries presidents, Nicolas Sarkozy and Hu Jintao.

Under the terms of the embittered partners peace agreement, Mr Zong agreed to pay Danone €300m ($450m) for its controlling 51 per cent stake in their joint venture operations.

Danone had valued those operations on its books at €380m. at the time, Danone and Mr Zong did not reveal the tribunal’s decision, a copy of which has been seen by the Financial Times. Danone had publicly alleged that Mr Zong undermined the joint-venture by establishing a parallel production and sales network. But neither the extent of Mr Zong’s parallel operations nor Danone’s self confessed ignorance of them, in spite of its controlling stake, has been made public.

SCC Arbitration V (061/2007) relates the behind-the-scenes story of one of the most embarassing foreign investment failures in China.

The tribunal’s findings cite the humble origins of Mr Zong, who worked as a rural labourer in coastal Zhejiang province for 15 years until 1978 before getting a job at a paper box factory in Hangzhou, the provincial capital.

He worked there until 1986 when, following market-orientated reforms in China, he was able to borrow Rmb140,000 ($20,506) to set up a small business selling ice creams, sodas and pollen oral solutions.

Mr Zong’s popular oral solutions – especially a product known as “Wahaha Children’s Nutritious Liquid” – were the cornerstone of the Wahaha Group’s success in the early and mid-1990’s.

In 1996 Danone, in partnership with a now defunct Peregrine investment bank, purchased controlling stakes in four Wahaha subsidiaries and a newly created distribution company, Hangzhou Wahaha Health Food Co. While Danone enjoyed board control, Mr Zong remained group chairman and managed five joint venture companies or JV’s.

For his services at the JVs, Mr Zong was paid more than $60m over a 10-year period, not including dividends. He also retained control of six other Wahaha subsidiaries referred to by the tribunal as “the original non-JVs” in which Danone chose not to invest.

Danone’s interests in the JVs were represented primarily by Stephen Yau, a finance director. the French company’s few other personnel at the JVs included Mr Yau’s assistant, a marketing director and a research and development director.

According to the judgement, Danone alleged that “Mr Yau, while technically financial director, was not permitted to take part in the management of or decision-making processes regarding any joint-venture, such that his role was reduced to acting as a “bridge” between Wahaha Group and Danone Asia regarding finance-related matters.”

Mr Zong countered, the tribunal added, that Mr Yau in fact “had access to …..all the financial information pertinent to the operation of the JVs.”

Over time the number of Danone-invested JVs would expand to 39, while the number of non-JVs privately controlled by Mr Zong would mushroom to at least 96.

Danone alleged that the non-JVs competed against its own JV companies, received preferential treatment from distributor Hangzhou Wahaha Health and were managed by Mr Zong through a deliberately opaque web of British Virgin Island, Samoan and Seychelles companies, some of which were held by his family members and associates including a truck driver from Shenzhen, the special economic zone bordering Hong Kong.

Mr Zong denied hiding anything from Danone or giving preferential treatment to his non-JVs, and expressed irritation when questioned on his vast network of offshore companies. “Just like making love to my wife, its none of your business,” he told the tribunal.

Mr Zong also noted that the proliferation of non-JVs stemmed in part from a clash of cultures, as he grew frustrated with his French partner’s relatively cautious approach towards expansion.

As a result of the September 30 agreement, which superceded the tribunal’s ruling, Danone’s stake in – and full legal control of – all Wahaha Group companies was returned to Mr Zong at a 21 percent discount to book value.

Last week the entrepreneur vaulted 15 places up Forbe’s China rich list, to the number three slot, with a fortune estimated at $4.8 billion.

Financial Times 10 November 2009

In China one doesn’t have to look far to see the country’s commitment to renewable energy. In cities such as Beijing and Shanghai, rooftops are now covered with solar water heaters. On the grasslands of Inner Mongolia, towering white wind turbines are popping up where only cattle, sheep and herders on horseback once roamed. While coal consumption is expected to climb more than 3% annually for the next two decades, the government has also required that electricity companies add a significant amount of alternative energy to their portfolios. With the global economy languishing, China-which is not only the world’s most populous country, but also the most polluted-offers the promise that its green-energy drive can become a major source of demand for international wind and solar companies.

That expectation was given a boost last September when First Solar, the Arizona-based solar-module manufacturing giant , announced that it had landed a deal to build a solar field bigger than Manhattan near the city of Ordos, Inner Mongolia. The project will dwarf the largest solar plants to date, and eventually generate enough electricity to power the equivilent of 3 million Chinese homes. To fulfill the huge demands, First Solar says it’s considering building a solar module facility in the city to support the project. While financial details were not released, news of the deal caused First Solar’s stock to jump 11% on the day of the announcement.

“This major commitment to solar power is a direct result of the progressive policies being adopted in China to create sustainable long-term market for solar and a low-carbon future for China,” First Solar CEO Mike Ahearn said in a statement.

The fast-growing country’s huge appetite for electricity is behind the push. While China’s total power capacity will nearly double by 2020, the amount that could come from wind and solar is expected to jump more than fivefold, aided by significant government assistance. Beijing announced last March it will subsidise 50% of costs for certain solar-panel projects, and 70% in remote regions.

But as often happens in China, this potential bonanza could prove to be mirage for foreign companies. The country’s policymakers are nurturing a domestic alternative-energy industry on a massive scale. China is home to more than 100 wind-turbine manufacturers and some 400 solar-panel companies. yet more than 95% of PV cells produced by China in 2008 were exported, indicating the country’s output far exceeds domestic demand.

The European Union Chamber of Commerce in China complained China has erected alterntive-energy trade barriers, focussing specifically on the treatment of wind-turbine makers.

Paulo Fernando Soares , China chief executive for Indian wind-turbine Suzlon Energy, says his company has successfully bid for provincial-level projects, but Suzlon and all other foreign firms have been shut out of national-level wind-base projects in Gansu, Hebei and Inner Mongolia.

China’s Ministry of Commerce rejected the European chamber’s complaints of protectionism, saying the country tries to offer a level playing field for all foreign and domestic businesses.

Adding insult to injury, Chinese firms are proving to be tough competitors in markets outside China’s borders. In Germany where government subsidies helped stimulate global solar-panel production, an industry association is investigating claims that Chinese panelmakers are dumping their products.

Shi Zhengrong, founder and CEO of Suntech Power, China’s biggest solar-panel maker, says his company doesn’t sell panels below cost anywhere in the world.  And he points to First Solar’s Ordos deal as evidence that foreign firms can suceed on the mainland. “As long as companies have a competitive renewable-energy technology and product offering.” he says, “there will definitely be opportunities in the Chinese market.”

Time Magazine 2 November 2009

Sorry no new articles for a while, but three days into a very heavy cold and feeling grotty.  Will try and upload some more early next week.

Had a great Christmas, but first New Year’s Eve in a long long time not celebrated with a cup of good cheer.

Peter