U.S Commercial Service - American Embassy, Beijing
Vol. 2 No. 178
The China Commercial Brief is a biweekly publication featuring summaries about developments in China's various commercial sectors, tips on doing business in China, and U.S. Embassy news. This publication is free of charge; please forward it to your colleagues and friends who are interested in China.
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Editor: Matt Gettman
Contributors: CS Shanghai, Xu Ye, Xi Xianmin
News Briefs
In addition to the article summaries provided by CS Beijing, our four China branch offices - Chengdu, Guangzhou, Shanghai and Shenyang - submit summaries of commercial articles from their local press to the CCB on a rotating schedule. This week we are pleased to feature a contribution from our Shanghai post.
1. Goldman and Allianz betting on China bank
2. MII Endorses 31 National Electronics and Information Industrial Parks
3. China Becomes the Largest Importer of American Hardwood
1.Goldman and Allianz betting on China bank
Shanghai Goldman Sachs and Allianz of Germany are in talks to pay more than USD1 billion (RMB 8.26 billion) to acquire a stake in the Industrial & Commercial Bank of China, the largest China state-owned bank, according to a person with close knowledge of the discussions.
The talks come at a time when some of the biggest financial institutions are rushing into China to acquire large stakes in some of the large, but troubled state-owned banks before planned initial public offerings over the next few years.
"All the big financial institutions want a piece of the action," said Jack Huang, who oversees Greater China coverage for the U.S. law firm Jones Day based out of Taipei.
"This is not necessarily a rational decision when you look at the numbers. But these institutions believe the Chinese Government won't allow these banks to fail. They will step in to help them succeed."
Bank of America said last month that it would pay USD3 billion (RMB 24.8 billion) for 9 percent of China’s 3rd largest lender, China Construction Bank, which is expected to offer shares to the public late this year. UBS said last month that it was considering investing up to USD 500 million (RMB 4.13 billion) in the Bank of China, another giant state-owned bank in China.
Several other major foreign financial institutions have also acquired large stakes in Chinese banks in the past two years. HSBC bought a 19.9 percent stake in China’s Bank of Communications, a smaller state-owned bank that went public this year. Temasek Holdings of Singapore, Newbridge Capital and ING Group also acquired large stakes in Chinese banks.
It was unclear how large a stake in ICBC, the Goldman and Allianz were seeking when the South China Morning Post first reported the negotiations.
Some large investment banks, like Goldman, are believed to be positioning themselves to help take the banks public in the next few years in deals that could result in hundreds of millions of dollars in investment banking fees.
Citigroup was initially expected to help take China Construction Bank public, but bankers said that deal was now likely to be handled by Morgan Stanley and its Chinese joint venture partner China International Capital Corp. (CICC), after Citigroup passed on buying a stake. Bank of America bought a large stake instead.
But the huge investments could be risky for some of the major financial institutions because the Chinese banking system has been struggling for years with massive debts, poor management and deep-rooted corruption.
The Chinese Government has consistently stepped in to help bail out the Chinese banks, including injecting USD 45 billion (RMB 372 billion) into the China Construction Bank and Bank of China in 2003.
ICBC is the biggest bank in China, with nearly 400,000 employees, more than 100 million customers and about USD 500 billion (RMB 4.13 billion) in assets, but it is also one of the most troubled. Analysts say the Chinese Government has pressed large financial institutions to help clean up the banking system by taking sizable stakes in the big four state-owned banks, which also includes the Agricultural Bank of China.
Goldman Sachs and Morgan Stanley - considered the two most powerful foreign investment banks in China - have each purchased a substantial amount of bad loans from Chinese financial institutions.
In 2003, Goldman said it would form a joint venture with ICBC to deal with about USD1.2 billion (RMB 9.9 billion) worth of bad assets then held by the bank.
Goldman, ICBC and J.P. Morgan have also agreed to lend about USD 9 billion (RMB 74.38 billion) to China National Offshore Oil Corp, another state-owned giant, if it succeeds in its bid for the US oil company Unocal. CNOOC is now in a bidding war with Chevron.
Indeed, Goldman has moved aggressively in recent years to strengthen its operations in China and solidify its ties to the Chinese Government in the expectation that this country could some day be a source of billions of dollars in profit.
Last year, the company agreed to donate USD 67 million (RMB 554 million) to the Chinese Government to bail out a Chinese brokerage firm. Goldman then got approval to form a joint venture that could operate in China's domestic securities market. Altogether, Goldman's investment in the joint venture is expected to top USD 200 million (RMB 1.65 billion) in the first few years.
Goldman has ample money to invest. In April, it finished raising USD 8.5 billion (RMB 70.25 billion) for the Goldman Sachs Capital Partners V, one of the largest investment funds created this year. Goldman has a track record lately of buying stakes in financial services companies in Asia and several years later selling them at a big profit, having already done so with Ping An Insurance of China and Kookmin Bank in South Korea.
(Source: China Daily,07/12/ 2005, - Translated by CS Shanghai)
2. MII Endorses 31 National Electronics and Information Industrial Parks
According to the China Electronics Daily, the Ministry of Information Industry (MII) endorsed 31 national-level electronics and information industrial parks on June 29, 2005. These industrial parks are distributed across 13 provinces and cities including Beijing, Shanghai, Tianjin and Guangdong. Twenty-three of the parks are in China's eastern regions, 6 in the central regions, and 2 in the western regions. They cover 8 sub-sectors in the information communication technology field: including telecommunication, audio video, computer and networking, home electronics, integrated circuits, electronic components, electronic devices, and power electronics. According to MII, this is a strategic measure toward developing a strong ICT industry in China.
(Source: China Electronics Daily, 07/01/ 2005 - Translated by Xi Xianmin)
3. China Becomes the Largest Importer of American Hardwood
According to the Chairman of the American Hardwood Export Council (AHEC), China becomes the largest market for American hardwood worldwide.
Statistics from the AHEC shows that in 2004, mainland China, Hong Kong and Taiwan have imported a total value of USD 500 million hardwood from the U.S., increasing 29.2% over 2003.
The AHEC forecasts that by 2008, mainland China, Hong Kong and Taiwan will demand 2.5 billion square meters flooring and 500 million sets of doors and windows.
China’s rapid economic development and the privatization of residences have triggered a new generation of wealthy consumers. U.S. hardwood is increasingly demanded in China’s interior decoration and furniture industry given its special characteristics.
(Source: China Business Times, 06/09/2005, - Translated by Xu Ye)
Consulate News: Shanghai
In keeping with our goal of making the CCB a more integrated publication, our four China branch offices - Chengdu, Guangzhou, Shanghai and Shenyang - submit consulate news to the CCB on a rotating schedule. This week, we are pleased to feature a contribution from CS Shanghai.
Shanghai’s Power Supply in the Hot Seat
The combination of extreme heat and peak-load power demands in Shanghai is generating concerns for many businesses. A historic heat wave settled on Shanghai this summer, with temperatures reaching 38 degrees Celsius for ten consecutive days. Shanghai experienced its hottest day in the past 71 years on July 4 when temperatures hit 39 degrees Celsius, prompting the municipality to issue three consecutive “black warning signals”. The peak load demand reached a record high of 16.4 million kilowatts, but the existing power generating capacity of Shanghai is only 11.5 million kilowatts. Shanghai purchased an additional 4.83 million kilowatts from neighboring provinces to cover the supply-demand gap. Peak power demand is expected to reach 19 million kilowatts, with air-conditioning accounting for 40 percent of demand. The Shanghai municipal government is requiring air-conditioners to be set to a minimum of 26 degrees Celsius, outdoors lighting to be reduced, and production schedules of industrial enterprises to be shifted to off-peak hours. Approximately 3000 enterprises, especially high-energy consuming and polluting firms in non-essential industries, will be affected by the policies. From July 10 through August 26, all industrial enterprises can be expected to ration their electricity usage. By 2008, Shanghai plans to build additional power plants in five suburban areas with a combined capacity of 27.7 million kilowatts. Shanghai also plans to invest USD 2.4 billion (RMB 20 billion) to improve grid transmission.
For more information on CS Shanghai and the Shanghai consular region, visit our website at[ http://www.buyusa.gov/china/en/shanghai.html]
DISCLAIMER: CS China does not guarantee the veracity of the original sources of our news summaries. While we do our best to report accurate and timely articles and news sources, you should always check the source for further information.
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