China Economic News

[greengiraffe]

China to allow foreign ownership of hospitals
DOW JONES AUGUST 28, 2014 10:00AM

China will let foreign companies own and operate hospitals in some parts of the country as part of an effort to overhaul its health-care system.

Foreign investors in some parts of the country will be allowed to set up new hospitals or acquire existing ones under a new pilot program, according to a statement issued jointly by the National Health and Family Planning Commission and the Ministry of Commerce. The notice was dated July 25 but posted on Wednesday.

The pilot program will apply to the cities of Beijing, Tianjin and Shanghai as well as provinces of Jiangsu, Fujian, Guangdong and Hainan, the statement said. Only investors from Macau, Taiwan and Hong Kong can set up hospitals devoted to traditional Chinese medicine, however.

Investors are expected to provide internationally advanced knowledge in hospital management, advanced medical technology and facilities to supplement or improve the deficiencies of local health care, ministries say. The applications will be approved by the provincial-level health authority.

The program marks China's latest step toward lowering barriers for private foreign investment in health care. In September the State Council, China's cabinet, allowed foreign funds to set up wholly owned hospitals in a new Shanghai free-trade zone. In May, it loosened limits on foreign investment in joint ventures involving medical institutions and eased approval procedures.

In July, German hospital operator Artemed Group agreed with other investors to establish a hospital in the Shanghai zone, making it the first hospital fully funded by foreign capital.

China is ramping up health-care spending to meet the growing needs of an aging population as well as greater expectations from the general population from China's social safety net. Health spending last year rose more than 13% to 820 billion yuan, or about $133 billion. That accounted for 5.8% of overall fiscal spending, according to the Ministry of Finance. Health spending in China is expected to reach $1 trillion by 2020, according to consulting firm McKinsey & Co.

Still, the country's medical system has been plagued by funding problems, leading many hospitals to mark up the price of drugs and other services, experts say. Such practices were put under a spotlight last year when Chinese authorities accused U.K. drug maker GlaxoSmithKline PLC of bribing doctors and hospitals to sell more of its drugs. Glaxo has said it is cooperating.

[greengiraffe]

Chinese industrial profit growth slows in July
PETER CAI AUGUST 28, 2014 12:30PM

Chinese earnings growth slowed sharply last month, raising concerns about the country’s pace of economic growth.

Industrial profits increased 13.5 per cent in July from a year earlier, down from the 17.9 per cent growth posted for June, according to the National Bureau of Statistics.

In the first seven months of the year, industrial profits were 11.7 per cent higher than the previous corresponding period.

The result came on back of a string of worse than expected economic data last month including lending data.

Chinese credit expansion plummeted last month. July’s new lending dropped to 385 billion yuan, or $A67bn, from 1.1 trillion yuan, a contraction of 65 per cent.

The last time China’s monthly lending was in the realm of 300 billion yuan was back in December 2009, when the world was in a deep credit freeze.

China’s total social financing (the country’s broadest measure of lending) also shrank by as much as 546bn yuan last month compared to the same period last year, dropping to 273 billion yuan.

New bank bill acceptances also declined by 400bn yuan, which was dubbed as the largest decrease in history.

[greengiraffe]

China to allow local governments to replace costly debt
FERGUS RYAN AUGUST 29, 2014 10:30AM

China’s local governments will be allowed to apply for cheaper municipal bonds to help refinance high-cost debt, Finance Minister Lou Jiwei said this week.

Lou said the central government will control the quotas within which local governments can borrow money in a speech to the standing committee of the National People’s Congress on Wednesday.

The move may help to ease concerns about the amount of debt in the country and its potential impact on the world’s second largest economy.

The latest estimate by the National Audit Office of local government debt and contingent liabilities in mid-2013 was 17.9 trillion yuan ($A3.3 trillion).

[greengiraffe]

Beijing to unveil new round of asset sales
Angus Grigg AFR correspondent
484 words
29 Aug 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.

Shanghai The Chinese government is set to embark on its biggest round of asset sales in a decade, as it looks to restructure indebted local governments and the nation's giant state-owned enterprises.

The asset sales program is a central plank in Beijing's economic reform agenda, but it is unlikely to provide the same windfall profits enjoyed by foreign firms during the last major sell-off.

Hopes for a substantive assets sales program were buoyed this week when oil giant Sinopec said the $US20 billion ($21 billion) sale of a 30 per cent stake in its Chinese petrol stations should be completed next month. Sinopec has shortlisted 37 bidding consortiums for the subsidiary, which operates 30,000 petrol stations across the country.

"We're expecting quite a few deals over the next few years," said Roger Liu, a partner in the transactions services group at PricewaterhouseCoopers in Shanghai. "Currently the big reform push around SOEs is about changing their ownership structure or having mixed ownership."

The last major wave of state asset sales in China began around 2005, when many foreign banks bought into their local peers.

But companies and foreign private equity firms expected to play a secondary role in this round compared to their cashed-up domestic rivals.Higher valuations

Valuations are expected to be substantially higher. Some foreign players could also be put off by a perceived spike in sovereign risk across China, after Beijing used its anti-monopoly powers over recent months to target at least 20 foreign firms including Microsoft, Toyota and Audi.

"You never really own anything in China and the rules can often change, so any potential returns need to reflect this," said one private equity player, who asked not to be named.

Agriculture, transport, regional banks, local government infrastructure and SOE assets considered not to be strategic by Beijing are the areas where sales are most likely, according to investment bankers.

The government has talked about attracting more private capital into the railways, although bankers believe investors would be more inclined towards freight rather than passenger networks. Others suggested local government water, road and gas infrastructure would be attractive.

"There's lots of talk about what might be sold, but it's a bit too early to get really excited," said another banker.Role for Western investors

The banker also said the next round of sales will be more transparent as SOEs must have their assets independently valued by an accredited firm and the sales must then be advertised on government websites.

"The process will still favour Chinese investors, but there will be a role to play for Western private equity firms and banks," he said. The banker suggested that foreign firms and private equity players were likely to team up with domestic players in many of the deals.


Fairfax Media Management Pty Limited

Document AFNR000020140828ea8t00009

[greengiraffe]

Macau flush with China cash

Lisa Murray AFR correspondent
548 words
30 Aug 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.

Macau China's purported crackdown on illegal money flows is having little effect in the gaming hub of Macau, where gamblers report they can still easily exceed their quota for bringing cash across from the mainland.

Bogus transactions in the scores of pawnshops and jewellery stores which line Macau's streets are thriving despite reports of tougher scrutiny, according to shop owners and gamblers interviewed by AFR Weekend.

"We heard there was a crackdown but there has been little real action," said Mr Chen, outside his shop filled with gold necklaces, diamond rings and costly watches, most of which never get sold. "If they really clamped down on this, Macau would be finished."

On the surface, Beijing has strict ­capital controls in place, which include an annual $US50,000 ($53,413) limit on the amount of cash Chinese nationals can transfer abroad, including Macau and Hong Kong.

There is also a daily limit of 20,000 yuan ($3476). However, ­gamblers get around these rules by ­purchasing expensive jewellery or watches in Macau and then selling it back to the shop for cash, minus a ­service fee. Earlier this year, the Macau government and payment network UnionPay said they would increase scrutiny of suspicious transactions. However, Mr Chen said monitoring hadn't been increased.

China's strict capital controls have failed to prevent large flows of money leaking from its borders. High net worth households were estimated to hold $US8.8 trillion at the end of last year, according to Boston Consulting Group, but they are restricted in their investment options at home because of a sluggish domestic real estate sector and volatile stock market. That is prompting them to look overseas, pushing up the prices of properties in cities like Sydney and Melbourne.

While most of the money flowing from the mainland to Macau is spent in its casinos, the gaming hub is a prime example of the porous nature of China's capital control system.

High-rollers flaunt the rules by ­borrowing money from so-called ­junket operators, the people who organise VIP gamblers to visit the ­casinos. Any winnings can be banked in Macau or Hong Kong, and then invested anywhere in the world while losses are paid back on the mainland. A substantial proportion of any winnings find their way back to the casinos, helping to boost gaming revenues fifteen-fold over the last 12 years to $US45 billion in 2013.

Wealthy middle-class gamblers are more likely to use the services of pawn shops. They buy an expensive watch or gold necklace using their UnionPay debit card and then sell it back to the shop-owner, who takes a small fee for the service. Most customers pocket Hong Kong dollars, which are then used to buy gaming chips but the machine is registered in China so it is as if the money never left the mainland.

In Mr Chen's shop there is not even the pretence of a purchase and return. The card is swiped through the machine as a "general sale", and the gambler takes their money. After the practice was widely reported earlier this year, Macau's government banned the use new point-of-sale machines.

with lucy gao


Fairfax Media Management Pty Limited

Document AFNR000020140829ea8u00082

[greengiraffe]

China, its balance sheets, and us

Economic briefing Alan Mitchell Economics editor
970 words
1 Sep 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.
Alan Mitchell

"The relevant question to ask about the Chinese economy," says RBA governor Glenn Stevens, "is not really, 'What is the PMI doing this month?' – which is a huge obsession in markets and so on."

"The real issue is the financial part of the economy and whether they can manage that down."

Like other successful emerging market economies, China is trying to steer away from the dangerous shoals of financial crisis.

But China's problem is different to the external pressures placed on the other emerging market economies by the prospect of a return to more normal monetary policy in the United States.

They face the risk of at least a mild variant of what International Monetary Fund economists Bas Bakker and Leslie Lipschitz call conventional balance sheet crises: a sudden reversal of capital flows after a long period of strong inflows and a build-up of foreign currency debt.

China, with its capital controls and $US3.8 trillion in foreign currency reserves, seems immune from that kind of crisis. In fact, say Bakker and Lipschitz, China might welcome some capital outflow after the recent strong rise of its real exchange rate.

However, China is not immune from what the IMF economists call an insidious balance sheet crisis.

Insidious crises, they say, are triggered by internal imbalances and balance sheet vulnerabilities.

They typically occur when a combined credit, asset-price and construction boom becomes unsustainable.

"As growth slows and asset prices decline, many loans granted during the boom period (and predicated on unrealistic growth and price expectations) become problematic," Bakker and Lipschitz explain.Triggers for banking crises

"Nonperforming loans in the banking sector trigger a banking crisis.

"Given conventional bank leverage ratios, deposit protection, and political pressures, a widespread banking crisis almost inevitably elicits government direct intervention and a worsening of the fiscal accounts that is far larger than that due directly to the recessionary effects on government revenues."

As in the case of conventional, foreign debt-driven crises, the story usually begins with prolonged prosperity that dulls the sensitivities of investors and lenders to risk and rising vulnerabilities.

And, as the IMF economists tell it, this domestically generated crisis also emerges with the economy's natural evolution.

As both incomes and demand for goods and services rise, relative prices change.

The prices of internationally traded goods don't rise much because they are set primarily on global markets.

But the prices of goods and services that are not internationally traded ("non-traded" for short) are a different story.

Their prices are determined by domestic supply and demand, and an increase in demand has to be met by cranking up production, which can be expensive. The shift in consumer demand from motorbikes to cars to better housing and services such as healthcare and education is completely natural, and the change in prices needed to keep domestic production equal to the changing demand is part of that process.

The problem is when rising prices are built into investor expectations, and there is a debt-fuelled speculative boom with prices overshooting the levels needed to meet underlying demand, and we have a price bubble.

Asset markets are particularly prone to overshooting and bubbles, and domestic real estate is what the IMF economists call the "ultimate non-traded asset".Fuelled by credit

Unlike sharemarket booms, real estate booms always are fuelled by credit. That's how real estate market crashes turn into banking crises.

The shift in production from exports to goods and services to meet the new patterns of demand can create pressure on a government to support growth by throwing more fuel on the housing boom.

In China's case, the shift in demandto better housing and services is not just natural, it is long overdue.

It should have happened naturally. As manufacturers use up the pool of surplus farm labourers, wages rise. The consequent real appreciation of the yuan and the shift in income distribution from capital to labour should lead to increased consumption and lower saving. Higher household incomes shift demand toward non-traded goods and services, especially housing. In practice, the rebalancing of China's economy has involved the gradual dismantling of policies designed to boost saving and investment in export manufacturing.

It also became entangled with Beijing's macro-economic management response to the global financial crisis, which involved a massive expansion of investment funded through the state-owned banking system.

With China's financial and capital market regulations still limiting the returns on saving, private savings also poured into the real estate market.

By 2012 construction was running at more three times the level of 2003.

That, the economists say, represents a rate of expansion far above that in Japan in the mid-1990s, and comparable with that in Ireland in the 2000s.

Coupled with this construction boom has been an explosion of credit. Although bank credit has increased rapidly, other mechanisms of lending have proved much more expansionary, and "social financing" – the total amount of financing that the real economy can access via the financial sector – increased from 127 per cent of GDP in 2008 to 200 per cent in 2013.

Perhaps China will be the first country to have fully absorbed the lessons of insidious crises in rapidly developing countries, Bakker and Leslie Lipschitz say as the country's property market rocks ominously.

If not, China has a huge amount of economic ammunition to throw at the problem. But, even in the more optimistic scenarios, growth is likely to slow sharply.

In those circumstances, selling the budget may quickly become the least of Tony Abbott's problems.

In Australia, as in other economies in the Chinese supply chain, all bets – fiscal, political, and investment – would be off.


Fairfax Media Management Pty Limited

Document AFNR000020140831ea910000n

[greengiraffe]

http://www.businesstimes.com.sg/premium/...y-20140904

PUBLISHED SEPTEMBER 04, 2014
China services sector rebounds but property remains a worry

The services purchasing managers' index (PMI) compiled by HSBC/Markit jumped to 54.1 in August - the strongest in 17 months - from a nine-year low of 50.0 in July - PHOTO: REUTERS
[BEIJING] Activity in China's services sector rebounded in August after a drop in July, two surveys showed on Wednesday, offsetting factory-sector weakness and letting the government stick with its "targeted" policy stance to keep growth on track.
The government is determined to achieve its 7.5 per cent economic growth target for 2014 to keep employment stable and rein in financial risks while pushing long-term reforms to put the world's second-largest economy on a more sustainable footing.
The services purchasing managers' index (PMI) compiled by HSBC/Markit jumped to 54.1 in August - the strongest in 17 months - from a nine-year low of 50.0 in July.
A reading above 50 in PMI surveys indicates an expansion in activity while one below that threshold points to a contraction.

[Behappyalways]

Anonymous says Chinese chemical company is 'a massive fraud'
http://money.cnn.com/2014/09/03/investin...d=HP_River

[Dosser]

The allegations were also reported yesterday in the South China Morning Post. Today's SCMP reports that a second company, Shenguan Holdings Group, has also been suspended after a report by Emerson Analytics. The paper also contains a report of another company, Wison Engineering Services, which has the distinction (?) of having been suspended for 12 of the 20 months it has been listed on the HK exchange. The Chairman of the company disappeared a year ago, and it turns out he has been arrested on corruption allegations concerning PetroChina.

I dug around a bit and found out that Wison was one of 38 mainboard HK listed companies that have been suspended for more than 3 months, as of 31st July this year. One of them is SCMP itself, but that is an exception in that the problem is a lack of free float. The problems with most of the others look familiar to anyone who followed S-chips at any time.

http://www.hkexnews.hk/reports/prolonged...rep_mb.doc

[greengiraffe]

China's state companies begin hunt for investors
DOW JONES SEPTEMBER 08, 2014 10:45AM

China is kicking off a potentially significant experiment in ­injecting some entrepreneurial juice into its state-owned firms.

State-owned China Petroleum & Chemical Corporation, known as Sinopec, has started the process of vetting would-be investors in a new unit that operates more than 30,000 petrol stations and 23,000 convenience stores in some of the richest areas of the country.

Some 37 companies and consortia — including Chinese internet power Tencent Holdings — have expressed interest, according to insiders. Sinopec is selling as much as a 30 per cent stake in the unit, Sinopec Sales, which is ­valued by the company at $US56 billion ($60bn).

Some of the potential investors, such as Tencent, are also signing up for business partnerships with the unit, according to an announcement by Sinopec. Those partners will get priority consideration for investment spots, Sinopec’s chairman, Fu Chengyu, told the WSJ.

The Chinese e-commerce unit of Wal-Mart Stores has also signed a partnership agreement, according to Sinopec, although it is unclear whether the unit is also interested in investing. A spokeswoman for Wal-Mart’s China e-commerce unit, Yhd.com, confirmed the partnership with Sinopec Sales but didn’t respond to requests for further comment.

In an unusual move, a few top investors will also be offered board seats at the unit, Mr Fu said.

“The reaction from the capital market and potential investors is better than expected,” Mr Fu said. “Outside investors will be offered board seats, since this can help accelerate reform” of Sinopec Sales.

The final roster of investors will be decided by the end of the month, Mr Fu said.

At stake is more than a share in a sizeable gas-station chain — although that is a juicy enough: the operations included in Sinopec Sales account for just over half of the oil company’s 2.9 trillion yuan in revenue. Sinopec controls most of the gas stations in the relatively affluent eastern and southern ­regions of China. The associated convenience-store network is the biggest in the country, with a footprint 12 times as large as 7-Eleven’s, according to brokerage firm Bernstein Research.

The offering of a stake in Sinopec Sales to private businesses is also a small but potentially significant step in the country’s attempt to shake up its sprawling state-owned enterprises, which employ millions of workers and control vital segments of the economy but operate so inefficiently that many economists warn they are dragging down growth.

Chinese leaders called for an overhaul of the SOEs in the ­Communist party’s blueprint for economic change, released in ­November. In July, the government said it had chosen six SOEs for pilot programs that would ­introduce more private investors and improve management.

In Sinopec Sales’ case, the offer of an undisclosed number of board seats to private investors — potentially giving them a say in the running of the company — is a particularly interesting step. SOEs have long had outside ­directors, including some foreigners. But significant investors have rarely been awarded directorships, as is common in the West.

Sinopec has said it is hoping the new investment will help revitalise its gas-station business, where convenience stores bring in far less income than is common in the West.