Business

Prompted by the government initiative to reduce the country’s dependence on coal as an energy source, many Chinese firms are investing heavily in alternative energy projects.

The spending spree on clean energy and wind and hydro electric power is being closely watched by investors as these investments could have a far reaching impact on the future earnings of the enterprises, most of which are publicly traded.

China Shipbuilding Industry Corporation (CSIC), one of the country’s largest shipbuilders, has said it would invest about 200 million yuan on innovation and research of 5-mW offshore wind power generators. It also plans to invest around 5 billion yuan for building related test platforms, assembly and production bases.

Yang Benxin, an official from CSIC, said the wind power diversification is one of its strategies to combat the financial crisis. He also predicted that sales of wind power generators would exceed 1 billion yuan this year.

CSIC said its profit in the first quarter of 2009 had risen 18.6 percent from a year earlier period, while revenue rose more than 11 percent.

In addition, CSIC said it plans to start making onshore wind power generators of over 350,000 kW this year. Production of larger generators in excess of 2 million kW is expected to begin in 2015.

Coal accounts for nearly 70 percent of the country’s total energy consumption. To lessen the country’s dependence on coal, the government plans to accelerate the pace of restructuring its energy mix and economic structure and seek a “green recovery path” from the economic downturn.

Policymakers said they are revising earlier targets to create a “greener” environment, adding that new jobs to support the new energy sources also would spur economic growth.

Xie Zhenhua, vice-minister in charge of climate change policy for the National Development and Reform Commission (NDRC), said previously that renewable energy, including solar power and wind power, is expected to account for 10 percent of the country’s energy resources by 2010 and 15 percent by 2020.

The nation is chalking out a plan whereby it expects renewable energy to account for 20 percent of the total energy needs.

Liu Qi, deputy director, National Energy Administration, said the new energy programs would involve investments amounting to trillions of yuan.

The first phase of the program would see a strategic shift in three years to nuclear, solar, wind, biomass power and clean coal technologies – with investment opportunities running into nearly 3 trillion yuan, Liu said.

The second phase encompassing the period up to 2020 would entail even more investments, he said.

Apart from CSIC, many of sharp-nosed Chinese enterprises are following suit.

Early this week, Shanghai Automotive Industry Corporation said it is investing 12 billion yuan for developing renewable energy vehicles in the next three to five years.

The investment will go to 41 hi-tech projects including new energy cars for the Shanghai Expo 2010.

In January this year, China’s top offshore oil producer CNOOC signed a 15-billion-yuan agreement with the Tianjin municipal authorities for developing renewable energy projects.

The company will set up a renewable energy industry base in the city’s Binhai New Area including a research and development center.

Analysts said that relevant legal system and policies are still waiting for improvement and the renewable energy market is still emerging with opportunities and challenges.

“The wind power facility market in China seems to be overheating and hence investors should be careful,” said Shi Lishan, deputy director of the new energy department under the National Energy Administration.

Analysts also said Chinese enterprises need to be more familiar with market demands and also pay more attention on research and innovation to obtain core technologies when they are investing in renewable energy industry.

Vice-Premier Li Keqiang said in May that fiscal and tax incentives would be strengthened to promote application of new energy and environmental protection technology in the future.

(China Daily July 10, 2009)

The China Securities Regulatory Commission (CSRC) granted approval to China International Travel Service Corporation Limited for an initial public offering (IPO) on the Shanghai Stock Exchange, the securities regulator said Monday.

The company will sell up to 220 million shares to raise about 1.7 billion yuan (US$248.9 million) for expansion of travel network and duty free shops, according to its prospectus.

Net profits of the company in 2008 totaled 221.23 million yuan, compared with net profits of 217 million yuan in 2007.

Before the IPO, the China International Travel Service Group, the parent company, held 84.62 percent-stake and the Shenzhen Overseas Chinese Town Holding Co. took the other 15.38 percent.

After the IPO, the China International Travel Service Group will hold at least 61.35 percent of the listing vehicle.

(Xinhua News Agency July 21, 2009)

China’s five leading oil companies have all accelerated the pace of their overseas development in the first half of this year due to sliding prices and rising domestic oil demand, said a Shanghai Securities News report Wednesday.

China Aviation Oil (Singapore) Co Ltd, a subsidiary of China’s largest jet-fuel producer and distributor, China National Aviation Fuel Group, recently announced it intended to buy a refinery in South Korea to expand operations besides aviation oil trade and supply, said the report, citing the company’s CEO, Meng Fanqiu.

Although there were slim margins and rare investment opportunities in the refinery sector, some refinery plants in South Korea were still attractive and may be acquired at reasonable prices, Meng said.

Last week, the news that China’s largest oil company, China National Petroleum Corp (CNPC), and China’s top offshore oil and gas producer, China National Offshore Oil Corp (CNOOC), made a bid for Spanish oil major Repsol’s Argentine unit YPF aroused the world’s attention.

If the acquisition is approved, it will make a record in China’s crude assets trade history with an estimated investment of $22.6 billion.

CNPC, teamed with Britain BP PLC, won a contract on June 30 to develop the Rumaila oilfield in Iraq, which boasts the third-largest oil reserves in the world. It also planned to bid for the auction of two oil blocks in Venezuela together with France’s Total.

In addition, CNPC’s listed arm PetroChina completed the purchase of a 45.51 percent stake in Singapore Petroleum Co with $1.02 billion on June 21.

CNPC’s smaller rival Sinopec Group said on June 25 it agreed to acquire the Geneva-based oil and gas producer Addax Petroleum Corp for $7.3 billion.

State oil trader Sinochem and CNOOC also led a consortium to enter a bid for Maysan oilfield complex in Iraq, but failed eventually in June.

“These acquisitions imply that some foreign resource enterprises were caught with liquidity difficulties caused by the global financial crisis,” said Zhou Fengqi, former director of the Energy Research Institute under the National Development and Reform Commission yesterday.

Zhou’s views echo those of Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University. “The timing is now good for domestic oil companies to make overseas deals as they can buy assets cheaper.”

“But Chinese oil companies should select quality assets prudently,” Zhou added.

Meng said China Aviation Oil is extremely prudent about overseas acquisitions as it follows a set of strict evaluation procedures.

Ping An Insurance, China’s second-largest life insurer, incurred a 22.8 billion-yuan ($3.34 billion) investment loss in Fortis, a Belgian-Dutch bank last year, being an expensive lesson to Chinese companies which are still inexperienced in foreign acquisitions.

Chinese enterprises’ overseas acquisitions had amounted to 67 cases this year as of the end of June, involving an asset value of $26.7 billion, up 26.3 percent year-on-year, the report said, quoting Thomson Reuters figures.

China, the second largest energy consumer in the world, relies on imported oil for nearly half of its requirements. The country’s oil consumption grew around 5 percent annually in recent years.

Customs data showed that China’s net crude-oil imports rose to 16.62 million tons in May, a 14-month high, as demand gained before the peak summer period.

In order to meet the country’s mounting oil demand for rapid economic growth, Chinese oil giants are deploying their strategic overseas expansions by grasping the chance of cash hungry overseas oil firms and lower crude prices.

Crude oil prices have fallen to around $60 a barrel these days, after rocketing to a record above $147 in July last year.

(Chinadaily.com.cn July 9, 2009)

ICBC Credit Suisse Asset Management Co yesterday issued an exchange-traded fund of centrally administered state-owned enterprises on anticipation of strong profitability and mergers.

The ETF, which enables investors to buy or sell shares in an entire benchmark portfolio, tracks an index constituted by 50 central SOEs listed on the Shanghai Stock Exchange.

“The 50 central SOEs are key companies that influence the country’s economy, and they have recovered ahead of other companies backed by the government’s 4-trillion-yuan (US$585 billion) stimulus package,” said fund manager Hu Wenbiao.

“Besides, potential mergers of SOEs will generate investment chances and good returns for investors,” Hu said.

The State-owned Assets Supervision and Administration Commission set next year as the deadline for mergers and restructure of central SOEs.

A total of 155 SOEs have been merged into 136 companies so far, and that number should drop to about 80 to 100 companies by next year.

The SSE State-owned Enterprises 50 Index has gained 64.2 percent so far this year.

“The timely introduction of SSE Central State-owned Enterprises ETF provides investors with an opportunity to share the income of the high quality blue chips in a more easy and transparent way,” said Liu Xiaodong, vice general manager of the Shanghai bourse.

“ETFs are among the most successful products across the world as they realized large sum of net capital inflow even in the international financial crisis last year when global asset depreciated sharply,” Liu said.

Only five ETFs, with a total asset of 23.2 billion yuan, had been issued on the Chinese mainland by the end of last year.

(Shanghai Daily July 21, 2009)

Coalmines in Shanxi are quickening their pace of restructuring, backed by the government, in a move that could eventually see the public listing of all choice assets instead of fragmented pieces held by various listed subsidiaries and units.

The overall plan calls for the listing of the five leading coal producing enterprises in the province known for its rich coal deposits before 2015, said an official with one of the enterprises.

The five companies are Datong Coal Mine Group, Shanxi Coking Coal Group, Lu’An Group, Yangquan Coal Industry Group and Jincheng Anthracite Mining Group.

Wen Shihua, vice-general manager, Jincheng Anthracite Mining Group, told China Daily that the company has been planning an initial public offering for some time now and is accelerating its efforts by setting up a special department headed by a general manager for the listing.

Wen’s comments come close on the heels of those made by Ren Runhou, chairman of Shanxi Lu’An Environmental Energy Development Co Ltd, a listed subsidiary of Lu’An Group, to Shanghai Securities News, that the parent firm was in the process of going public.

The fineprint of Shanxi’s Capital Market Development Plan between 2009 to 2015, issued by the provincial government in April, has said the listing of the five top coal enterprises is key to promoting the province’s economic development and also the enhancement of the nation’s energy security.

It also said Shanxi is striving to complete the full listing of one or two coal producers by 2012 and all the top five coal firms are expected to go public by 2015.

Apart from Jincheng Group, the other four firms have already owned listed subsidiaries. Jincheng Group is committed to listing its subsidiary Jincheng Blue Flame Coal Industry Co Ltd by 2010, said Wen.

He said the company abandoned its IPO plans last year, partly because of the country’s gloomy capital market and some other reasons that he refused to disclose. The company has roped in China International Capital Corp (CICC) for the IPO plans.

” The listing would help the company to raise funds, especially at a time when the company is accelerating its development plans,” said Wen.

He said it was also difficult for an old State-owned enterprise to transform into a listed company as it carries with it legacies like excess staff and an old style of management.

Currently, only a part of these firms’ coal assets have been listed. Industry insiders said that in a bid to eliminate internal competition, it would be better to bring all coal assets into the listed arms and achieve complete listing.

Once completed, the listing would also help coal firms strengthen resource reserves and the production capacity of their listed arms, industry insiders said.

According to statistics, Datong Coal Mine Group produced 122 million tons of coal in 2008, while it owns 6,157 sq m coalfield with reserves of 89.2 billion tons. Its listed subsidiary, Datong Coal Industry Co Ltd, produced 20.3 million tons of coal.

The coal output of Shanxi Coking Coal Group in 2008 was about 80.3 million tons with reserves of 50.3 billion tons. Its listed Shanxi Xishan Coal and Electricity Power Co Ltd produced 16.3 million tons.

Lu’An Group produced 42.1 million tons of coal with 40 billion tons in reserves while coal output of Lu’An Environmental Energy Development Co Ltd was 25.8 million tons last year.

China’s largest anthracite coal producer, Yangquan Coal Industry Group, has an annual capacity of producing 44 million tons of coal, with about 12 billion in reserves. Its listed entity Shanxi Guoyang New Energy Co Ltd produced 17.7 million tons of coal.

(China Daily July 9, 2009)

China Investment Corp (CIC), China’s US$200-billion sovereign wealth fund, has agreed to invest HK$2 billion for a 40-percent stake in private equity fund manager CITIC Capital, Reuters and Caijing magazine reported, citing unnamed sources.

CITIC Capital, backed by the powerful CITIC Group, which is directly led by the country’s cabinet, will issue new shares only to CIC, and the deal could help the fund manager boost its capital base to HK$5 billion from the current HK$3 billion, said the sources with direct knowledge of the matter.

“It will give CIC a very influential role in the fund to decide what to buy and what not to buy in the future,” Xie Lijin, a lawyer specialized in private equity funds at Beijing-based Deheng Law offices, told China Daily.

“Plus, by investing in a fund of funds, this may be another way in the post-Rio world for China to make big block investments overseas in resources companies.”

Steel-to-property conglomerate CITIC Pacific and CITIC International Financial Holdings Ltd, which are CITIC Group arms, each now hold 50 percent of CITIC Capital.

After CIC’s investment, the shareholding of CITIC Pacific and CITIC International Financial, will drop to 30 percent each as they have decided not to subscribe to the new shares of CITIC Capital, Reuters said.

CIC will appoint new directors on CITIC Capital’s board, according to the sources.

“This means CIC, as the biggest of the three limited partners, could have more power in deciding what to buy compared to the many former deals it invested in before,” Xie told China Daily.

The deal is in sharp contrast to CIC’s recent US$1.5-billion investment in Canadian miner Teck Resources, in which CIC signed a highly restrictive agreement and was widely perceived as being only a financial investor in the firm.

CIC gets no representation on Teck’s board despite buying an economic interest of 17 percent in the company. The shares it is buying are vote-restricted B shares.

On the other hand, the investment in CITIC Capital, a fund of funds, is being seen as a move by CIC to employ overseas talent in managing its huge portfolio.

“As a young sovereign fund, CIC still lacks professional investment management skills. CITIC Capital, as a mature overseas private equity fund, will certainly supplement CIC’s shortage in human resources,” Xie said.

“CIC needs to be more commercial and professional in overseas investment deals.”

Many institutional investors, also known as “limited partners”, of CITIC Capital’s China-focused buyout and real estate funds, welcomed the deal, said the sources. CIC could help CITIC Capital do domestic deals more easily in future, they added.

The sources, who declined to be identified before an official announcement was made, said the deal was expected to be announced this week or the next.

Both CIC and CITIC Capital declined to comment.

(China Daily July 21, 2009)

Chinese insurers, which cumulatively have some 1.1 trillion yuan on hand to invest this year, face a big dilemma in choosing where to park that money during the second half of 2009, the industry regulator said yesterday.

“There will be around 1.1 trillion yuan, or 30 percent of existing assets, available for investment this year, putting insurers under huge investment pressure,” said Wu Dingfu, chairman of the China Insurance Regulatory Commission (CIRC).

Since the returns on bonds may continue to decrease in the following months, insurers may increase their investments in the stock market, in infrastructure projects and in the property sector during the second half, industry insiders said.

“We are planning to invest more in stocks once the market undergoes some corrections,” a manager at the Taikang Asset Management Co Ltd told China Daily.

As of the end of June, Chinese insurers had increased their investments by 10.4 percent from the beginning of this year. Bonds accounted for 50.2 percent, down 7.7 percentage points, and bank deposits 31 percent, up 4.5 percentage points, the CIRC said yesterday.

Among the investment portfolio, the proportion of stocks increased 1.9 percentage points to 9.8 percent, while mutual funds accounted for 6.8 percent, up 1.4 percentage points. The combined ceiling for these two types of investment is 20 percent.

The Tianjin municipal government announced recently that its Binhai New Area will become one of second batch of eight state strategic crude oil reserve bases. China Petrochemical Corporation (Sinopec) will begin to build the bases within this year.

According to plans, the first phase of the new project will cost 10 billion yuan ($1.46 billion). Sinopec will build crude oil storage tanks with a total capacity of 3.2 million cubic meters and refined oil storage tanks of 2 million cubic meters, which will occupy a total area of 2.1 sq m.

Zhang Guobao, head of the National Energy Administration (NEA), said recently that plans for the second phase of China’s crude oil strategic reserve had been approved by the State Council, or the Cabinet, and construction would begin this year.

The eight new bases will have a total capacity of 28 million tons upon completion, exceeding that of the first four bases, according to government plans.

The other two of the eight new bases confirmed are to be located in Lanzhou of Gansu province and Jinzhou of Liaoning province, with the remaining five yet to be announced.

China launched its state strategic oil reserve project in 2003 and has since built four oil reserve bases in coastal cities of Qingdao, Dalian, Ningbo and Zhoushan. The first four bases were completed and put into use last year. Zeng Chuanya, a NEA official, revealed that they have a total capacity of 16.4 million cubic meters.

The bases planned in third phase of the state oil reserve will have a capacity of 28 million tons, according to government plans.

When all the bases are in place, China’s strategic crude oil reserve will equate to 90 days of the country’s net import of oil.

(Chinadaily.com.cn July 8, 2009)

China’s insurance premium income hit 598.61 billion yuan (US$87.64 billion) in the first half, up 6.6 percent over the same period last year, said Wu Dingfu, chairman of the China Insurance Regulatory Commission, on Monday.

Profits of the country’s insurers nationwide was about 26.1 billion yuan in the first half, up 98 percent, Wu said at a national insurance regulation working conference in Beijing.

China’s insurance premium income hit 598.61 billion yuan (US$87.64 billion) in the first half, up 6.6 percent over the same period last year.

The premium income figure is more than 1 billion yuan higher than the 597.55 billion yuan premium figure announced by the commission last week.

“The previous figure was an initial assessment, and the figure released today is accurate,” said Cai Jipu, head of the commission’s information office.

Property insurance premium revenues rose 16.4 percent year on year to 151.18 billion yuan; life insurance premium income was 447.43 billion yuan, up 3.6 percent.

Total assets of the country’s insurance companies stood at 3.7 trillion yuan by the end of June, an increase of 10.9 percent from the beginning of the year.

“Although world financial crisis had some negative effect on the insurance industry, this sector is still stable and sound as a whole,” Wu said.

The government’s efforts to boost infrastructure construction provided more channels or opportunities for insurance companies to invest insurance funds, he added.

Income from insurance investment funds totaled 109.97 billion yuan in the first half, an increase of 69.5 percent over the same period last year.

To cope with the world economic downturn, China’s government unveiled a 4-trillion-yuan stimulus packages in November, which laid out infrastructure projects in the transport, communications and energy sectors.

Wu also underscored the importance of avoiding risks, asking government departments and insurers to further improve supervision and to better manage the use of insurance funds.

(Xinhua News Agency July 20, 2009)

Huadian Power International Corporation，China’s largest independent power producer，announced Tuesday in a filing to the Shanghai Stock Exchange that it was buying into two Shanxi coal companies through one of its wholly-owned subsidiaries.

The move indicates the company’s expansion into upstream business to secure power coal supply and reduce operational risks, said a China Securities Journal report.

Huadian Power International, the listed arm of one of China’s five leading power producers, China Huadian Corp, bought a 70 percent stake in each of the two coal companies for 397.6 million yuan ($58.19 million) and 362.6 million yuan respectively.

One of the coal miners will be put into production by the end of this year and the other by the first half of next year, according to the company statement.

With coal reserves of about 290 million tons, the coal companies will provide steady power coal to Huadian Power International’s coal-fired power plants, especially for those in Shandong province, the statement noted.

The purchase shows Huadian Power International’s determination to achieve coal self-sufficiency and will play a positive role in improving its future performance, the report said, citing an electricity industry researcher.

China, the second largest power consumer in the world, uses coal to generate about 80 percent of its electricity; therefore thermal coal prices are fairly sensitive to the country’s power generators.

Chinese coal-fired power plants incurred losses of about 70 billion yuan in 2008 and the country’s five leading power-generating companies lost about 30 billion yuan due to soaring power coal costs and the State’s price cap on electricity, said Zhai Ruoyu, general manager of China Datang Corp in March this year.

Spot thermal coal prices in China reached a record high of over 1,000 yuan a ton last July. Now, it is hovering around 570 yuan per ton.

On the other hand, the unsuccessful annual coal price negotiation in late December pushed thermal power generators to seek more reliable coal supply sources.

Each year, China’s coal producers and power companies sit down to negotiate the following year’s contract coal prices, which have long been a bone of contention.

Negotiations for 2009 coal prices resulted in a deadlock, as domestic coal miners aimed to charge power producers 10 percent more for fuel under the 2009 annual contracts, while power producers wanted a price cut of as much as 10 percent.

In order to be less vulnerable to domestic coal prices and less dependent on domestic coal miners, Chinese power enterprises stepped into the coal-mining industry in succession and bought more coal from abroad.

China Datang Corp, also one of the country’s five biggest power generators, has been given the green light to expand into the coal- mining business, authorities said in March.

The Customs statistics showed China’s coal import reached 9.43 million tons in May, more than double that in the same period of last year. China’s coal import and export amounted to 32.20 million and 10.53 million tons respectively in the January–May period, or a net import of some 22 million tons.

China’s five biggest power generators include China Huaneng Group, China Datang Corp, China Guodian Corp, China Huadian Corp and China Power Investment Corp.

(Chinadaily.com.cn July 8, 2009)