Business

China’s housing market will continue to slow this year, but analysts say new government incentives on the horizon should spark a rebound.

The measures include possible tax and interest rate reductions and more-liberal lending practices.

Analysts said the efforts are needed to help developers who are facing severe capital pressure as a result of bank credit controls designed to fight inflation.

Potential home buyers, meanwhile, have been sitting on the sidelines waiting for the market to hit bottom.

“It was not a good year for China’s real estate industry,” said Yin Zi, an analyst who works for Shenyin & Wanguo Securities Co.

China’s residential property sales fell 13 percent year on year during the first eight months of 2008, and in August alone sales plummeted 42 percent from a year earlier.

But Li Shaoming, an analyst at China Jianyin Investment Securities Co, believes the contraction in property deals does not indicate an underlying weakness.

“People are just postponing their purchases,” Li said. “The demand will hardly subside as so many people in China need to buy a home.”

One major ray of hope for property developers is that the government has taken a clear position on boosting the real estate sector.

On October 8, the central bank cut interest rates and reserve requirements for commercial banks to expand market liquidity and stimulate economic growth. It was the second 0.27-percentage-point reduction in a month. The earlier cut, on September 15, was the first rate reduction since 2002.

With the support of the central government, local authorities have introduced a series of rescue measures.

Shanghai yesterday raised the mortgage ceiling by as much as 20 percent for some households that participate in the public housing fund, a government program that provides reduced interest rates.

In July in Hunan Province’s Changsha, the city government cut the down payment for the purchase of a first home from 30 percent to 20 percent, and the mortgage period was raised from 20 years to 30 years.

In Shenyang in Liaoning Province, the government cut in half the property deed tax to encourage sales.

In Nanjing, capital of Jiangsu Province, buyers were guaranteed direct subsidies for home purchases.

Industry sources said the biggest hope for a market recovery is their expectation that more government stimulus measures will be issued by the end of the year.

Yin of Shenyin & Wanguo expects the new policies to include the removal of restrictions on the purchase of a second property by an individual, further reductions in the deed tax and looser lending rules for developers.

Wang Qing, a Morgan Stanley economist, said the stringent mortgage lending rules may be eased and mortgage interest rates may be lowered further.

(Shanghai Daily October 16, 2008)

Editor: Sharon Li
17 Oct 2008 02:32:15 GMT

PEOPLE crowded into an electronics show yesterday in Suzhou, lining up for free gifts and discounted gadgets. Even though the world is facing its toughest financial crisis, the visitors to the fair seemed oblivious to this.

The economic meltdown will have relatively less influence on the IT industry and there are still opportunities in the sector even in the current situation, said exhibitors attending the Electronics Manufacturing Exposition (eMEX) in Suzhou.

A total of 557 exhibitors, including Samsung, NEC, Acer, BenQ and China Mobile, are taking part in the show. In the 44,000-square-meter expo center, the latest technologies in semiconductors, displays, personal computers and entertainment electronics are on show.

Globally speaking, Intel Corp, Microsoft Corp and other technology companies will lose sales as the crunch catches up with them, analysts said. Corporate spending on computers, software and communications equipment may be little changed or fall as much as five percent next year as the lending freeze spooks clients, said Jane Snorek, an analyst at First American Funds. It would be the first decline in IT industry since 2001 after the dot-com bubble burst.

“It (the economy) does influence the market but I have to say it’s in a limited range. I can’t imagine people not using computers or logging on to the Internet,” said JT Wang, Acer’s chairman, who is also the Taipei Computer Association’s chairman.

During the show, Acer displayed its 8.9-inch netbook Aspire One, which helped the world’s No. 3 PC maker to sell the most notebooks in September.

With a reasonable price – Aspire starts at 2,999 yuan (US$439) – and design, consumers still want computers even in a recession. Acer forecasts it will sell 15 million netbooks next year, double its previous expectations, Wang told Shanghai Daily.

Netbook, which features ultra-compact portability and is designed for light computing tasks such as e-mail, basic Web browsing and word processing, has stolen the spotlight at the show.

Players including Acer, ASUS and Samsung all displayed netbook models costing between 3,000 and 4,000 yuan, half the price of mainstream laptops.

Samsung will debut its netbook NC 10 in the Chinese mainland next month, with an “attractive price” at about 3,499 yuan, Samsung officials said.

Long lines appeared in front of BenQ’s booth where discounted products were being sold, from portable hard disk drives and cameras to laptops.

Storage products like hard disk drives and RW drives are receiving a warm market response in the third quarter, BenQ said.

At Acer’s booth, more than a dozen laptops were sold in a few hours.

On the LCD sector, the Kunshan-based InfoVision Optoelectronics (Kunshan) Co Ltd (IVO), aims to expand capacity even though the LCD panel price has dropped dramatically.

IVO has invested US$1.57 billion to expand its capacity from 35,000 units every month now to 110,000 units from the beginning of next year.

The company plans to invest US$3 billion next year to build a more advanced plant to make larger size panels for LCD televisions.

“Finally we have evolved from computer panel maker to TV panel maker after discovering the stronger demand for TV,” Carolyn Tseng, IVO’s communications manager said. IVO showed off its 47-inch LCD TV panel during the show.

For home entertainment, Samsung displayed its 70-inch high-definition LCD TV and Epson launched its family of projectors.

The price of projectors, starting from 6,000 yuan now compared with 10,000 yuan previously, is more affordable.

And the demand in the domestic market is still strong, said an Epson official.

In the cyber world, advertising players like Sina and Sohu are expected to suffer from the economic crisis.

They will lose Olympics ad inventories and their top three ad categories, said Richard Ji at Morgan Stanley.

Australian miner Mount Gibson Iron Ltd said some Chinese steel makers have asked it to delay ore shipments, a further sign of weaker demand that will add pressure on mining giants in the upcoming annual price negotiations.

It has received requests from a number of customers to postpone ore deliveries scheduled for the second quarter of the financial year, Gibson said yesterday. Australia’s fiscal year starts on July 1.

“Customer and iron ore sector analysis indicates a slowdown in demand for iron ore in China due to current economic uncertainties and the tightening of credit facilities, leading to reductions in steel production and the significant build-up of iron ore stockpiles at Chinese ports,” Gibson said. The requests caused its shares to tumble by as much as 32 percent in Australia.

Rio Tinto, a bigger Australian miner, said it will continue normal shipments while BHP Billiton, another giant, declined to comment.

Due to weaker steel demand and the Olympics-driven slowdown in production, domestic ore prices have dropped by almost 50 percent over the past three to six months, with Indian imports including insurance and freight costs down from a high of over US$200 a ton in early April to existing levels of US$100 to US$110, Morgan Stanley said this week.

The timing is rather unfortunate for Gibson as the start of a new round of talks on prices for annual ore contracts between mills and the world’s top three miners, Brazil’s Vale, BHP and Rio, is about one month away.

Vale, which offered lower prices than Australian rivals for 2008/2009, has been positioning itself by asking China mills to pay more for already agreed contracts to match what it charges mills in Europe, even at a time of slower demand.

A vice president from Vale reportedly will fly to China next week to push mills for the rise, although Chinese industry and market analysts have played down the request.

Morgan Stanley said it has downgraded ore price forecast for 2009/2010 contracts from a previous projection of a 30-percent increase to a 5-percent rise for Brazilian ore and a 5-percent decline for Australian ore.

It said Chinese mills will ask for a 15-30 percent price fall while the miners may seek a rise of the same size, which suggests the talks would be the most drawn-out.

(Shanghai Daily October 10, 2008)

Banks’ overseas M&A challenges outlined A Huawei booth at a Hong Kong telecom exhibition. [China Daily]

Huawei Technologies, China’s largest telecom equipment maker, yesterday said it had suspended the auction of a stake in its terminal unit to foreign buyout companies, citing the ongoing global financial crisis.

“Despite investors’ strong interest, we believe it is the best choice to halt the sale as the global financial market continues to deteriorate,” the privately held company said.

Huawei’s terminal division recorded US$2.2 billion in sales revenue last year. Insiders said Huawei had been expected to sell a controlling stake, which could be worth about US$2 billion.

The Shenzhen-headquartered company in mid-May formally invited potential buyers to make bids to introduce strategic investment. Huawei’s terminal unit includes mobile phones, data cards for notebook PCs and ADSL modems.

US private equity groups Bain Capital and Silver Lake have been negotiating with Huawei over the deal and had been expecting to finalize it in November, insiders said.

However, the two US companies hoped to cut the value of the deal, citing the economic crisis that has dealt a blow to most US financial institutions, but Huawei rejected this, insiders said.

Huawei’s terminal unit has maintained a fat and steady profit margin as it has been customizing mobile phones for telephone operators such as Vodafone.

Unlike Huawei, most Chinese handset makers have been focusing on an increasingly overcrowded domestic retail market that can only offer razor-thin profit margins.

Huawei’s terminal division is expected to book US$3.5 billion in revenue with a net profit of about US$400 million this year, earlier media reports said, citing a report by Morgan Stanley, which Huawei hired to advise on the auction of its terminal unit.

Last year, the division accounted for 17.5 percent of Huawei’s total global sales of US$12.56 billion.

“The terminal unit has been our fastest-growing business. It has been always our strategic priority and a major revenue driver. We are confident about its prospects,” a Huawei spokesman said, adding that halting the auction would not affect Huawei’s cash flow and operations.

The spokesman said Huawei’s terminal unit recorded a compound annual growth rate of 70 percent although it was a latecomer to the mobile phone business, and by September the company had sold 150 million units of terminals worldwide.

If the market condition improves, Huawei may restart the auction, the spokesman said, declining to give a timetable.

Wang Guoping, an analyst with China Galaxy Securities, said the credit crisis would force many foreign investors to scale down their acquisition activities in China.

“Given the current problems, it’s a wise decision for Huawei to shelve the auction,” he said.

The credit crisis will impact on the global telecom market as spending on telecom equipment is expected to drop, the analyst said.

“But (China’s) Huawei and ZTE Corp might have a better chance in competition as they have been selling cost-effective telecom gear. In a difficult time, there is no reason to buy expensive equipment from Western suppliers, especially for operators outside China.”

(China Daily October 10, 2008)

Editor: Sharon Li
10 Oct 2008 02:17:33 GMT

Huawei Technologies, China’s largest telecom equipment maker, said Thursday it had suspended the auction of a stake in its terminal unit to foreign buyout companies, citing the ongoing global financial crisis.

“Despite investors’ strong interest, we believe it is the best choice to halt the sale as the global financial market continues to deteriorate,” the privately held company said.

Huawei’s terminal division recorded $2.2 billion in sales revenue last year. Insiders said Huawei had been expected to sell a controlling stake, which could be worth about $2 billion.

The Shenzhen-headquartered company in mid-May formally invited potential buyers to make bids to introduce strategic investment. Huawei’s terminal unit includes mobile phones, data cards for notebook PCs and ADSL modems.

US private equity groups Bain Capital and Silver Lake have been negotiating with Huawei over the deal and had been expecting to finalize it in November, insiders said.

However, the two US companies hoped to cut the value of the deal, citing the economic crisis that has dealt a blow to most US financial institutions, but Huawei rejected this, insiders said.

Huawei’s terminal unit has maintained a fat and steady profit margin as it has been customizing mobile phones for telephone operators such as Vodafone.

Unlike Huawei, most Chinese handset makers have been focusing on an increasingly overcrowded domestic retail market that can only offer razor-thin profit margins.

Huawei’s terminal division is expected to book $3.5 billion in revenue with a net profit of about $400 million this year, earlier media reports said, citing a report by Morgan Stanley, which Huawei hired to advise on the auction of its terminal unit.

Last year, the division accounted for 17.5 percent of Huawei’s total global sales of $12.56 billion.

“The terminal unit has been our fastest-growing business. It has been always our strategic priority and a major revenue driver. We are confident about its prospects,” a Huawei spokesman said, adding that halting the auction would not affect Huawei’s cash flow and operations.

The spokesman said Huawei’s terminal unit recorded a compound annual growth rate of 70 percent although it was a latecomer to the mobile phone business, and by September the company had sold 150 million units of terminals worldwide.

If the market condition improves, Huawei may restart the auction, the spokesman said, declining to give a timetable.

Wang Guoping, an analyst with China Galaxy Securities, said the credit crisis would force many foreign investors to scale down their acquisition activities in China.

“Given the current problems, it’s a wise decision for Huawei to shelve the auction,” he said.

The credit crisis will impact on the global telecom market as spending on telecom equipment is expected to drop, the analyst said.

“But (China’s) Huawei and ZTE Corp might have a better chance in competition as they have been selling cost-effective telecom gear. In a difficult time, there is no reason to buy expensive equipment from Western suppliers, especially for operators outside China.”

Editor: Bruce Meng
9 Oct 2008 02:09:35 GMT

LONDON, Oct 8 – Plummeting car sales, climate
change, high oil prices and the threat of global recession.

The answer? Free electric cars.

So says the founder of California-based electric car
operator Better Place, Shai Agassi.

“Do you want a $40,000 car, a $20,000 car or drive this car
off the lot for free?” he asks.

His question compares the rough cost of a new hybrid
electric car such as the proposed General Motors Corp Chevrolet
Volt, an economy conventional gas-driven car, and his proposed
contract to buy a pure electric car.

Better Place is a $200 million-backed venture to install the
electric power network to charge electric cars, whether at home,
at work or on the road at the equivalent of today’s filling
stations.

Agassi calculates the present running cost of a pure
electric car at some 7 cents per mile compared with about 35
cents to run on gasoline — contrasting the dual cost of
electricity plus battery with the cost of gasoline.

That price difference is the source of his teaser.

Agassi reckons he can offer to buyers of electric cars a
contract whereby if they pay the same per month as they would to
run a gasoline car, the dealer could keep some of the difference
in running costs — which would be enough to cover the vehicle
purchase.

In that way pure electric cars could leapfrog
gasoline-electric hybrids in the pipeline or already in use,
such as the Toyota Prius, said Agassi, as a cheaper alternative
to beat plummeting car sales and in a race to find oil
alternatives.

The concept is to install uniform electric car charging
points at designated parking lots in residential areas and
workplaces. In addition, to allow longer drives, the company
would roll out electric filling stations.

But it is still in a very early phase.

“We’re in the process of going through a series of tests of
installing our charge spots, about 1,000 of them in about 50
different prototype parking lots,” said 40-year old Agassi.

“We’re installing 500,000 spots across Israel by
mid-2011.”

RECESSION

Major automakers last week reported plunging U.S. sales for
September, led by a 34 percent slide at Ford Motor Co, as an
escalating credit crisis hit the slumping industry.

The Better Place alternative approach will not come cheap.

The total infrastructure cost would work out at about
$500-$1,000 per car, in what Agassi estimates as a $7 trillion
global auto market, including gasoline and services consumption.

“In some countries it will be in the billions. In the U.S.
it would be $100 billion to do the whole country — that’s two
months of oil imports into the United States.”

“It’s the best way to get out of recession, you do big
private sector infrastructure projects.”

The company now wants carmakers to build electric cars that
will be compatible with the charge spots it has designed.

“Renault, Nissan were the first ones to sign up, to agree,
to build these cars. They’re not just prototypes, they’re saying
by this date we’ll have a city car, a sedan, an SUV. They shared
a line up and said all these cars will come up between 2010 and
2014 in volume, mass production.”

Better Place closed funding from investors Israel Corp.,
Morgan Stanley and VantagePoint earlier this year.

It plans to roll out its concept in Israel first and then in
Denmark, where it has an agreement for an investment and
technical partnership with Danish oil firm and utility DONG
Energy, said Agassi.

Major US financial institutions yesterday denied reports that they are planning to sell lucrative properties in Shanghai in order to maintain an adequate cash flow during the ongoing global credit crunch.

After taking a hit from the biggest financial turmoil in recent memory, Morgan Stanley has moved to put its Shanghai properties up for sale, including Jinlin Tiandi Residences, Pinnacle Century Park, and Anxin Business Plaza, according to a report in the Wall Street Journal.

In addition, local newspaper Oriental Morning Post reported that Citibank has decided to sell two apartment buildings in Minhang district, Lehman Brothers intended to market Fu Hai Tower, which was co-purchased with Hong Kong-listed Capital Strategic Investment Ltd, and Merrill Lynch is looking for buyers for its projects on Nanjing Road West.

But when contacted by China Daily, Morgan Stanley said the reports were “rumors”, and refused to make further comment.

American International Group (AIG) also denied a report that it will sell the Shanghai Center, a project combining commercial, residential and hotel services. Located on Nanjing Road West, it is one of Shanghai’s landmark properties.

If the sale takes place, it will be the first time in five years that Morgan Stanley has decided to sell its Shanghai property, stoking rumors that Shanghai’s residential property market may see a downturn. With Morgan Stanley yet to find buyers, uncertainty reigns in the market.

However, Regina Yang, head of research at property consultant Knight Frank, said it would be a mistake to read too much into the possible sale.

For an international investment bank like Morgan Stanley, the ultimate goal of purchasing a property is to sell it, said Yang. “This rule applies to all investment banks,” she said.

Jinlin Tiandi was Morgan Stanley’s first official property in Shanghai. Jinlin Tiandi has two buildings – one is a 90-suite hotel, while the other has 106 serviced apartments and a business area of 5,000 sq m. The company decided to sell the serviced apartment section months ago, but no deals have been struck yet.

But Yang cast doubt on the reports. “It is not a wise decision to sell properties at this moment, which may result in a market panic,” she said. “The most possible situation is that these investment banks are contacting some interested investors privately.”

“Early entrants to Shanghai are currently seeking to divest their assets, but only if the right offer comes along. This is considered a normal practice as funds are approaching the end of their set length,” Greg Hyland, head of investment for Jones Lang LaSalle Shanghai, said.

(China Daily October 8, 2008)

China may use targeted measures and interest-rate cuts to revive a sagging property market and sustain economic growth, Jing Ulrich, chairwoman of China equities at JPMorgan Chase & Co in Hong Kong, said yesterday.

“Expectations are building for the government to introduce policies supporting lower-income home buyers and a selective easing of credit for some developers,” Ulrich told Bloomberg News.

Policy makers are trying to prevent a sharper slowdown in the world’s fourth-biggest economy as the credit crisis undermines demand in export markets. China can’t afford a housing-market slump because the property sector accounts for a quarter of fixed-asset investment and 10 percent of employment, Ulrich said.

House prices in China’s 70 major cities fell 0.1 percent in August from July. Morgan Stanley analysts warned last month the sector could be heading for a “meltdown.”

“As the property market’s woes spill over into other areas of the economy, we expect the government to selectively loosen restrictions on the sector,” Ulrich said. “Specific measures to boost the property sector may be necessary to forestall a sharper slowdown in the broad economy.”

The steel industry relies on construction work. Steel-company shares tumbled yesterday after the China Securities Journal reported that some steel makers would cut output by 20 percent this month as demand cools.

Baoshan Iron & Steel Co Ltd fell 8.8 percent and Angang Steel Co declined 10 percent. The broad market gauge, the CSI 300 Index, closed down 5.1 percent.

Ulrich said measures to support the property sector included lowering interest rates and bank reserve requirements, reducing down-payment requirements, and allowing more bond sales to finance property developers. The government could also reduce or eliminate land appreciation tax, she said.

(Shanghai Daily October 7, 2008)

Visitors examine Chalco products at an exhibition in Beijing. [China Daily]

Aluminum Corp of China Ltd (Chalco), the country’s biggest producer of the metal, is planning to maintain its production of primary aluminum despite low prices that may force smelters in China to cut production.

But China’s aluminum smelters, the world’s largest, may cut their capacity in the second half due to falling demand from builders and losses caused by lower prices, Luo Jianchuan, president of Chalco, said.

High costs and low prices have prompted some smelters to adjust production, Luo said, adding that Chalco is not considering cutting output.

Shanghai aluminum futures fell 1.8 percent on Wednesday, hitting its lowest record in four years on concerns over swelling stockpiles and worries China’s smelters will continue to churn out metal despite weak demand.

Luo’s comments came two months after China’s top 20 aluminum smelters, including China Minmetals Corp and Yunnan Aluminum Co Ltd, agreed to cut production by more than 350,000 tons on an annual basis in July, due to power shortages and in the hope of pushing up prices.

The reduction is equivalent to about 2.8 percent of the nation’s production last year of 12.6 million tons, according to statistics.

Some smelters are operating below costs at current prices in China, JPMorgan Chase & Co said this month.

Song Huaibin, an analyst at Guoyuan Securities, said some small and medium-sized smelters could also be cutting production due to losses of 1,000 to 2,000 yuan for every 1 ton of aluminum produced.

Large smelters such as Chalco are able to keep costs down using their own aluminum mines so they are less affected by low prices, Song said, adding that their current costs are 10,000 yuan per ton, while the market price is about 15,000 yuan per ton.

Chalco produces over 10 million tons of alumina and 3 million of electrolytic aluminium per year.

Luo said that Chalco is confident about domestic primary aluminum consumption next year as the government is devising measures to boost demand.

He also said aluminum consumption is likely to be thwarted globally by the financial market crisis, but more time is needed to assess the extent of the impact.

Song said domestic aluminum demand largely depends on the country’s economic growth. He said he was optimistic about the aluminum market, provided China didn’t suffer any economic setbacks in the short term.

The real estate industry accounts for a third of demand for the light metal in China. But the nation’s property market could be headed for a meltdown, as sales and prices slump, Morgan Stanley said this month.

China’s 25 steelmakers, including Baosteel, have lowered steel product prices amid the market downturn.

(China Daily September 26, 2008)

A single acquisition could not solve the systematic U.S. credit crisis, a senior official with the China Investment Corp. (CIC) said Friday.

The official, who spoke on the condition of anonymity, did not comment when asked by Xinhua if the country’s US$200-billion sovereign wealth fund was in acquisition talks with Morgan Stanley.

Bloomberg cited an unnamed source as saying on September 18 the state-controlled fund may buy as much as 49 percent of the second-biggest independent U.S. securities firm. Morgan Stanley was also reported to be in talks about a possible merger with Wachovia Corp.

“The U.S. is experiencing liquidity strains and it is a systematic credit crisis. No single acquisition could solve it,” the official said.

“Even if the CIC intended to buy a stake, it could be very hard now as the purchase of a stake, even one smaller than 10 percent, could be subject to the U.S. government foreign investment review.”

The CIC bought a 9.9 percent stake in Morgan Stanley for US$5 billion in December. A purchase of 10 percent or larger stake in U.S. firms is subject to the government foreign investment review.

The U.S. investment bank was also reported to be in talks with CITIC Group, China’s largest financial conglomerate, as it was seeking a buyer as the credit crisis deepens.

A public relation official with CITIC Group said he didn’t knew nothing of the market talk about the CITIC move.

“We also learned the news on the web. We’ve received many media calls seeking comments and already reported this to the senior management,” the official told Xinhua.

(Xinhua News Agency September 19, 2008)