TRANSCRIPT: Will Barclay's Turn Chinese? Macro
Report, More:
Sinomania! Volume I Webisode 25, July 25, 2007
Will Barclay's Turn Chinese?
A Red Hot Macro Report;
Plus Market Numbers and more IPOs!
MARKET NUMBERS
Chinese stock markets are back up, the Shanghai
Composite surging last Friday and this Monday
to pass the 4,000 mark for the first time since
June and closed today at 4,323.966. The news is
the same for other major indexes including the
CSI 300 which is above 4,000 points for the first
time in a month and for the Shanghai B shares
that closed July 25 at 309.32 and have now recovered
the ground lost since June 19. I'll have more
numbers in the macro report coming up.
And there's a new way to play the Shanghai A
share market - remember A shares are not available
directly to individual foreign investors: the
IPOX 30 China A Share Index, a new product of
IPOX-Schuster out of Chicago. The IPOX 30 components
are the largest and most actively traded A shares.
A share IPOs enter the index at about one week
old and stay for 1,000 days. Currently the sector
composition is about one third financials. The
top 10 holdings include Chinese front-runner Industrial
and Commercial Bank Corp.
IPO REPORT
Wuxi PharmaTech, a contract research firm headquartered
in Shanghai, has filed with the United States
Securities and Exchange Commission for an IPO
on the New York Stock Exchange under symbol WX.
Wuxi PharmaTech plans to issue over 13 million
American Depository Shares priced between $11
and $13 US dollars. At that price the company
could raise up to $120 million dollars. The funds
will be used to build a drug safety center for
increased lab test services. The company's two
biggest customers, Pfizer and Merck, already account
for almost 30% of the firm's revenue.
Another one for New York, E-House, a real estate
services company with a sales force in 20 Chinese
cities, has filed with the SEC to sell American
Depositary Shares in the $11.50 to $13.50 US dollar
range. The offering is approved under symbol EJ
and could raise over $120 million dollars. Property
markets in China are booming - I'll have more
on that in the macro report.
China Southern Locomotive and Rolling Stock Industry
Group plans a dual Hong Kong and mainland IPO
for early next year according to reports. The
listing could raise up to $2 and half billion
US dollars. The company was established by the
State Council in 2002 and is one of the top 100
companies in China. Its Sifang Locomotive subsidiary
in Qingdao produces high-speed rolling stock.
China Southern Locomotive has a ready customer
in China's state-owned railways.
And one of the biggest Chinese companies available
to investors, Aluminum Corporation of China or
CHALCO will issue a huge number A share block
as part of its takeover deal for Baotou Aluminum
Company. Consolidation in high energy consuming
industries is an important trend as China tries
to achieve energy conservation. Takeover targets
most likely will be smaller and privately owned
companies.
TURNING CHINESE?
Barclay's, Britain's third biggest bank, will
receive a huge multi-billion pound cash infusion
from the China Development Bank initially giving
the state-controlled Chinese company a 3% stake
in Barclay's. Barclay's will use the money in
a hotly contested bid to acquire ABN-AMRO and
thereby create one of the world's biggest financials.
If that merger is successful, China Development
Bank will increase its stake in Barclay's to 6.7%
still a minority position that will not come with
a voting board member.
Although an investment by China on this scale
is large it is not that unusual in an open economy
such as the United Kingdom and is mostly non-threatening.
Nonetheless the prospect that venerable Barclay's,
once the largest banking company in the world,
could turn Chinese has many in The City chewing
on their bowlers. Coincidentally, the American
Blackstone Group where China owns a 9.9% stake
will act as advisor to China Development Bank
on the Barclay's deal.
Meanwhile on the continent the EU is putting
China on notice. As in the USA, quality assurance
has become the new control to slow the flood of
Chinese imports. On Monday, the EU consumer protection
commissioner Maglena Kuneva met her Chinese counterpart
Li Changjiang (Director of the State Administration
of Quality Supervision - China 's product safety
watchdog) and gave China until November when Prime
Minister Wen Jiabao meets with European Commission
President Jose Manuel Barossa to deliver an acceptable
report on actions taken for safety in Chinese
exports.
European steel producers, however, want real
action. The European Confederation of Iron and
Steel Industries (Eurofer) says China's steel
industry is out of control with EU imports from
China expected to double this year. EU steel makers
are asking the EU to file three anti-dumping measures
against China with the World Trade Organization
as soon as September.
MACRO REPORT
Second quarter and half year 2007 data were released
by China's National Bureau of Statistics last
week and the numbers say the Chinese economy is
hot to trot. Some highlights:
Gross National product is growing at 11.9%;
Headline Consumer Price Inflation is at 4.4%
with a June spike in food prices up 11.2%;
Overall the economy is still all about investment
and exports: fixed-asset investment in China was
up 23% end June and exports increased 27% with
a surge of exports to the EU where Chinese goods
now make up a quarter of all EU imports;
Consumption is gaining strength - retail sales
were up 12.9 % in the second quarter;
Chinese coal production was up 12% first half
with import of coal up 47.6 percent;
Foreign exchange reserves grew to $1.33 trillion
US dollars by end June;
China's money supply is up 17% end June with
bank loan growth up 16.5% at the end of the quarter;
Rinminbi (RMB) appreciation accelerated and is
currently running at a 6% annualized pace, believed
to be the maximum increase tolerated by the Finance
Ministry and Chinese central bankers;
Property prices were up in 7.1 % in 70 major
cities;
And the Shanghai Composite index has gained 20%
since the end of the first quarter even though
it is down 14% from its May peak.
So is the Chinese economy a runaway train? If
it is overheating will China move to increase
interest rates and put in place policy measures,
as it has so many times in the past, to put the
brakes on the boom? Will there be a hard landing
like the one in the late 1980s or mid 1990s or
2004?
Most analysts are saying "No." Many believe that
the economy is in an upturn through 2008 due to
an economic cycle that now follows the transfer
of power in China's national government. Also
many believe President Hu Jintao, who in all likelihood
will be reelected for a second and final five
year term, will do whatever possible to ensure
the Beijing Olympics go smoothly and the country
is not rocked by any disruptive economic crisis.
