Business

Overseas funds quickened their inflows into China during the second quarter after the economy and stock market have started showing signs of recovery.

According to Massachusetts-based research firm EPFR Global, qualified foreign institutional investors (QFII) injected about US$3.6 billion capital in the equity markets in the second quarter.

Currently, China’s total quota for QFII is about US$30 billion. EPFR’s research covered all the QFII products of fund managers, with their total quota reaching US$26 billion.

“There are three main reasons for the record high overseas capital inflow on the stock market,” said Gao Zijian, chief analyst, financial derivatives, Orient Securities.

According to Gao, overseas investors are optimistic about China’s market and believe that the nation could be one of the first to recover. Chinese stock markets have been the one bright spot amongst the languishing global stock markets. In addition, more quotas were approved in the past three years, making the enlarged QFII market more attractive.

The EPFR figures also showed that there were capital outflows in the last week of June and first two weeks of July. In addition, in the first quarter, about US$400 million of overseas capital flew out of China’s stock market.

“This phenomenon doesn’t mean that overseas investors have changed their attitude to China’s stock market,” said Gao.

According to Gao, the US, Canada and South America also experienced capital outflows recently, as the US released worse-than-expected economic data at the end of June as investors preferred to hold greenbacks.

“Housing activity has started to pick up in the US. Large capital flows to the market are expected once again,” said Gao.

Two securities companies that are planning to list on the country’s main board posted good mid-term numbers, paving the way for their initial public offerings (IPOs).

Everbright Securities posted a net profit of 1.28 billion yuan in the first half, up 37.96 percent year-on-year, while China Merchants Securities said its net profit rose 37.83 percent year-on-year to 1.472 billion yuan.

“The two securities companies are likely to get listed this year. The strong financial reports could enhance their chances to get IPO approval,” said Li Daxiao, director of research at Yingda Securities.

Founded in 1996, Everbright Securities has developed into China’s 11th biggest brokerage by assets. Its registered capital was about 2.9 billion yuan.

According to the financial report, Everbright Securities realized about 2.478 billion yuan of revenue and 1.283 billion yuan of net profit in the first half. Its half-year net profit even exceeded the overall net profit of 1.219 billion yuan in 2008.

Buoyed by the rally in the stock market, the self-support business of Everbright Securities contributed most of the increased revenue. The company’s investment on stocks, securities and warrants brought about 474 million yuan of revenue in the first half, while it posted negative figure in the same period of last year.

The company’s revenue from traditional brokerage business also climbed 7.11 percent year-on-year to 1.717 billion yuan. Like many other brokerage firms, the company’s investment banking business dropped about 80 percent year-on-year, due to the IPO market suspension.

Founded in 1991, China Merchants Securities had 3.227 billion yuan of registered capital and 1,600 staff in 27 cities across the country.

China’s banking regulator said Thursday that rules on mortgage for second-home buyers were not changed and it would “unswervingly” maintain it’s current rules.

Liao Min, spokesman of the China Banking Regulatory Commission (CBRC), made the remark in response to recent domestic media reports that the CBRC would tighten such rules on worries that soaring bank loans would create a bubble in the country’s property market.

Down payment on second homes is currently set at no less than 40 percent of the price.

Chinese lenders extended a record 7.37 trillion yuan (US$1.08 trillion) of new loans in the first half of this year, exceeding the whole-year target of five trillion yuan, after the government eased lending restrictions in November to boost the world’s third largest economy.

Liao said the rules on mortgage for second home are in line with the situation of the property market in China and are conducive to preventing speculative purchases.

He noted that the CBRC would be cautious about credit risks in the property market and ordered lenders to stick to rules and step up scrutiny over approvals.

(Xinhua News Agency July 24, 2009)

Royal Bank of Scotland’s China incorporation is considering issuing yuan-backed bonds to raise capital, the bank said yesterday.

The Edinburgh-based bank has set up a team to study the plan.

China allows overseas banks’ China incorporations to sell yuan-bonds in Hong Kong or Shanghai to help build up the yuan markets and the strength of the two cities as global financial centers.

HSBC China and Bank of East Asia China have both issued yuan bonds in Hong Kong. HSBC sold out the offerings to institutional investors on the first day while the Bank of East Asia used up its 4 billion yuan (US$586 million) quota after the bonds received a warm welcome from both institutional and retail banks.

Standard Chartered Bank has also shown interest in issuing yuan bonds.

RBS says it is waiting for more detailed directions from the central bank and had no timetable for the issuance.

It said it would focus on wholesale banking in China, including trade finance and cash management. The bank has already set up a team of 200-plus people in its wholesale banking sector in China. The bank, which sold its stake in the Bank of China, still has a cooperative relationship with the Chinese bank, RBS said.

(Shanghai Daily July 23, 2009)

China Everbright Bank Co is planning to rope in eight institutional investors through a private placement of 5.2 billion shares as part of its efforts to expand its capital base, a senior executive of the bank said yesterday.

“The bank could raise over 11 billion yuan from the share sale, which has been cleared by the shareholders and is now awaiting approval from the regulator,” the bank official, who declined to be identified, told China Daily.

The long-anticipated introduction of strategic investors will help shore up the lender’s capital adequacy ratio to above 10 percent, he said.

The Beijing-based commercial lender, the nation’s 11th largest by assets, has been grappling with capital strain problems in recent years. In a statement in June, the bank said its capital ratio may have dropped below 9 percent after paying the first dividend in six years, and is barely above the required 8 percent.

In the annual report released in May, the bank said it aimed to raise its capital adequacy ratio from the then 9.1 percent to 10.5 percent by the end of the year by roping in financial investors and issuing bonds.

Among the eight institutional investors, Shanghai Chengtou, a local water supplier listed in Shanghai Stock Exchange, said in a statement that it would spend 792 million yuan to buy 360 million new shares at a price of 2.2 yuan per share.

Sixteen Hong Kong banks offered on Wednesday to buy back a credit-linked financial product dubbed as minbonds issued by the Lehman Brothers.

Under the repurchase scheme, the vast majority of investors may be able to get back 70 percent or more of their original investments if they accept the repurchase package, according to Hong Kong’s Monetary Authority.

Richard Fuld Jr., Chairman and CEO of Lehman Brothers Holdings, testifies before a House Oversight and Governmental Reform Committee hearing on the cause and effects of the Lehman Brothers bankruptcy in Washington on October 6, 2008. [CFP]

The banks also agreed to make extra payments to eligible investors who have already entered a settlement with the banks if the amount is less than they would be offered under the repurchase scheme.

The repurchase scheme, which will cost the banks more than 6 billion HK dollars (about US$800 million), will put an end to “more than 10 months of distress for investors” and “enable banks to resume normal operation,” said John Tsang, financial secretary of the Hong Kong Special Administrative Region, who hailed the scheme as a “reasonable settlement that has taken account of the interests and rights of the investors.”

Disgruntled minibond investors took to the street several times to pressure the banks to refund their investment since last September, when Lehman Brothers collapsed. They complained that both regulators and distributing banks failed to inform them of the risks involved.

KC Chan, secretary for Financial Services

China’s securities companies are on track for rising profits this year with the nation’s economic growth back on track, a renowned financial analyst said Wednesday.

Yi Xianrong, an analyst with the Financial Research Institute of the Chinese Academy of Science, said China’s economic recovery was a major factor leading to the sound performances of securities companies in the first-half.

He was commenting on a report on the performances of the 55 Chinese securities companies that have released their first-half reports.

The companies had net profits totaling 28.6 billion yuan (US$4.2 billion), and none reported losses, according to a report from Shanghai Wind Information Technology Co., Ltd. (SWIT), a financial information service, published Tuesday.

China has 108 securities companies and they must release their first-half reports by the end of August, according to Securities Association of China.

The three most profitable firms were Guotai Jun’an Securities Co. Ltd.with profits of 2.323 billion yuan, GF Securities Co.,Ltd. at 2.137 billion yuan, and Guosen Securities at 1.805 billion yuan, said the report.

The net profit of the 55 securities companies increased 40 percent in the first half from the same period last year, with eight companies turning losses into gains, said SWIT.

Orient Securities, which lost 875 million yuan in the first half of last year, made a net profit of 922 million yuan in the first half, ranking 11th out of the 55 securities companies.

(Xinhua News Agency July 23, 2009)

China Life Insurance (Group) Company reported on Tuesday that its premium income totaled 186.51 billion yuan (US$27.3 billion) in the first half year.

The figure accounted for 30.7 percent of the total premium income of the industry in China in the first six months, said the company.

In the first half of 2008, the company saw its premium income climb 46.81 percent to about 195.46 yuan.

Total assets of the company hit 1.42 trillion yuan as the end of June, up 10.8 percent from a year ago. Net profits rose 43 percent from a year earlier to 8.734 billion yuan from January to June, the company said.

China Life posted 316.4 billion yuan in premium revenue in 2008, an increase of 46 percent from a year ago.

(Xinhua News Agency July 22, 2009)

Bank of East Asia (China) has issued 4 billion yuan (US$586 million) of yuan-backed bonds in Hong Kong, at the upper-end of its allowed quota as sales have been hot.

The bank is the first Chinese mainland-incorporated overseas bank to issue yuan bonds in Hong Kong to both individual and institutional investors.

The bank accepted investors’ bidding between June 30 and July 17. The two-year bond bears an annual interest of 2.8 percent.

About 70 percent of the bonds were sold to retail investors while the remaining 30 percent were allocated to institutional investors.

(Shanghai Daily July 22, 2009)

HSBC Bank (China) Co said yesterday it has further expanded its presence in China’s Bohai Rim region and is strengthening its network in inland cities.

The bank yesterday became the first foreign bank to open a branch in Jinan, the capital of the eastern Shandong Province. It has also obtained approval to establish a branch in Taiyuan, the capital of the northwest Shanxi Province.

The bank said network expansion is pivotal to its China strategy.

The Bohai Rim region, which includes Jinan, offers great potential and is one of its key areas for business development.

(Shanghai Daily July 22, 2009)