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.

China Coal Energy Co., the country’s second largest coal producer, said on Saturday that it produced 52.67 million tonnes of coal in the first half of this year, up 5.4 percent year on year.

The Beijing-based firm said in a statement to the Shanghai Stock Exchange that in June alone it produced 10.64 million tonnes of coal, up 24.2 percent over the figure a year earlier.

The Shanghai-listed company jumped 7.39 percent Friday to 14.53 yuan (2.13 U.S. dollars) per share.

Chinese coal producers sold 1.23 billion tonnes of coal in the first half of this year, an increase of 42.26 million tonnes, or 3.55 percent ,from the same period last year, according to statistics released by the China Coal Industry Association Friday.

(Xinhua News Agency July 19, 2009)

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)

A China industry body has proposed limiting any further purchase of Royal Dutch Shell’s coal gasification technology after teething problems at half the plants, but Shell said the glitches were not its fault.

Chinese firms have acquired 19 technology licenses from Shell since 2001 in their bid for a share of the growing market for the clean utilization of coal, which powers around three quarters of the world’s third-largest economy. Coal gasification has yet to be widely adopted on a commercial scale.

But the China Petroleum and Chemical Industry Association posted a report on its Website on Wednesday that said 12 units in operation in 11 companies, including refiner and gas producer Sinopec, have all been troubled by unsteady performance. A total of 23 units are now running.

Local firms have encountered a lack of support in trial runs, while some components, most of which had to be imported, were easily damaged and costly to replace, the report said.

Shell (China) Ltd denied there were flaws in its technology.

“Our internal analysis showed that around two-thirds of reliability problems in China were caused by issues outside of the Shell Coal Gasification Process,” Lusha Li, Shell China’s communication manager, told Reuters.

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.

China’s power generation is expected to see solid growth in the third quarter, in line with the recovery in industrial activities, industry insiders said yesterday.

Power generation is expected to rebound in the third quarter, ending the consecutive drop in the first five months, said an executive with State Grid, the country’s main power transmission company.

Recovery in economy plays a vital role in the rebound, he said. Some regions that have many high power consuming industries have seen robust growth in power demand in July.

The high temperature in the summer will also push up the use of electricity, he said, asking not to be named.

Affected by the financial crisis, power generation in the second half of last year was relatively low, which made it possible for large growth this year, he added.

China’s power generation began to see first year-on-year increase in June, with growth rate of 3.6 percent, according to State Grid.

Statistics from State Grid showed that in the first 10 days of this month, China’s power generation increased by 3 percent on average on a daily basis.

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

Workers at a PetroChina plant in Liaoning province. [CFP]