ChinaScope Daily Dim Sum: September 2012

Wednesday, September 26, 2012

Land Market Heats Up Since Aug

Source: Economic Information, ChinaScope Financial (Data)

+ According to latest data, China Vanke (000002: SHE) has acquired 17 land parcels since August. Meanwhile, China Vanke, China Resources Land (1109: HKG), and China Merchants Property Development (000024: SHE) have spent CNY 13.4 billion, CNY 5.4 billion and CNY 4.5 billion, respectively, on land purchase since August, surpassing the total figure over the first seven months.

+ Industry insiders say that the large-scale land purchases among developers since August was seen for the first time since China started policy control on the property market in 2011. After destocking land reserves over the past 20 months, developers are in urgent need to replenish their land reserves for future development. Furthermore, the financial status of developers has improved given the recovering housing transactions over the past months and local governments’ increasing land supply, which heats up the land market to some extent.

Vanke (000002: SHE) and Longfor (0960: HKG) are leading the recent acceleration in land acquisitions.

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Tuesday, September 25, 2012

Total Assets in Banking Industry Increase CNY 100 Tn over the Past Decade

Source: Caijing, ChinaScope Financial (Data)

+ According to data released by China Banking Regulatory Commission, total assets in China’s banking industry were CNY 122.92 trillion at the end of July 2012, compared to CNY 23.7 trillion at the end of 2002.

+ Aside from a 14 percent growth in 2004, banks’ total assets grew at an annual rate of more than 17 percent over the last ten years. The figure exceeded CNY 50 trillion to CNY 53.1 trillion in 2007, while it surpassed CNY 100 trillion to CNY 111.5 trillion in 2011.

+ In addition, China’s five major commercial banks (Bank of China, Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank, and Bank of Communications) accounted for approximately 90 percent of the total assets in China’s banking industry in 2002, while the figure dived to 45 percent at the end of July 2012.

The steadily declining leverage ratio has now almost reached Basel level, recent increases in overdue loans might however cause asset erosion in the near future.

BAIC to Launch IPO in Hong Kong

Source: National Business Daily, ChinaScope Financial (Data)

+ XU Heyi, Chairman of Beijing Automotive Group (BAIC Group), said at the 2012 Summer Davos that its subsidiary, Beijing Automotive Industry Holding Co., Ltd. (BAIC), is planning to list in Hong Kong next year. BAIC is expected to raise roughly CNY 10 billion for the development of its passenger vehicle business.

+ In May 2007, BAIC Group was planning for an IPO in Hong Kong to raise USD 1 billion; however, it changed its plan to focus on the A-share market instead in March 2008.

+ In early September, China’s auto makers performed a crash test after the industry standard was updated. The two E-Series models of BAIC Motor received a 3-star and 2-star ratings, which shows that technologies and qualities of the brand still have room for improvement. In the June-August period, the company sold more than 2,000 E-Series models each month.

Beijing Automotive Group is once again preparing for an IPO, the proceeds of which will be used to develop the company’s own passenger car.

Monday, September 24, 2012

Retail Prices of Moutai Increase More Than CNY 200

Source: China Economic Net, ChinaScope Financial (Data)

+ The 53-degree Flying Moutai of Kweichow Moutai (600519: SHA) was offered in supermarkets at around CNY 1,800 a bottle, much higher than the manufacturer suggested retail price (MSRP) of CNY 1,519.

+ On September 3, Moutai raised the ex-factory prices of some of its liquor products by 20-30 percent but kept the MSRP the same. Consequently, distributors’ margin was narrowed.

+ Unlike in previous occasions, the price hike of Moutai has yet to cause a chain effect among its competitors, including Wuliangye Yibin (000858: SHE), Jiangsu Yanghe Brewery (002304: SHE), and Lu Zhou Lao Jiao (000568: SHE).

The margin between ex-factory and retail price of Chinese luxury brand liquor is extremely thick, so price hikes might not immediately pass through to consumers. However, the move might be a preparation for future retail price increases.

Property Tax Pilot Will Expand Nationwide, Taxation Official Says

Source: China Securities Journal, ChinaScope Financial (Data)

+ CONG Ming, an official with the State Administration of Taxation, said on September 20 that the scope of the property tax pilot will be expanded further and the real estate tax system will be gradually set up. The property tax pilot is expected to enter more cities at the end of this year or at the beginning of next year, eventually reaching nationwide implementation.

+ CONG pointed out the difference between property tax and real estate tax. Property tax, aiming to enhance housing market control and curb speculation activities, is collected based on the original value of a property. Real estate tax, however, is collected based on the appraised value, which includes the land cost, and is not for market control purpose.

The expansion of the property tax scheme might put additional downward pressure on the property market, although prices and transaction volumes have proven very resilient to controlling policies.

Friday, September 21, 2012

China’s Big Four Banks Issue CNY 219.2 Bn New Loans in Aug

Source: People’s Bank of China, ChinaScope Financial (Data)

+ According to data released by the People’s Bank of China (PBOC) on September 18, in August, approximately CNY 219.2 billion in new loans was offered by China’s four major state-owned banks: Industrial and Commercial Bank of China (1398: HKG: 601398: SHA), Agricultural Bank of China (1288: HKG; 601288: SHA), Bank of China (3988: HKG; 601988: SHA), and China Construction Bank (0939: HKG; 601939: SHA). The figure was lower than CNY 237.2 billion in new loans offered in July.

+ In August, new short-term loans issued by China’s big four banks were CNY 39.89 billion, accounting for 18.91 percent of the total; new mid- and long-term loans were CNY 127.1 billion, 58 percent of the total.

+ By the end of August, total deposits in the four major banks were CNY 40.92 trillion, increasing slightly by CNY 57.47 billion month-on-month, a turnaround from a month-on-month decrease of CNY 909.4 billion in July.

The share of loans and deposits held by the big four banks continued to decrease in August. Although the government is encouraging long-term loans, it will take some time for a maturity composition change to materialize.

Exchange Loss Weighs on Airline Companies

Source: China Business News, ChinaScope Financial (Data)

+ According to Civil Aviation Administration of China, total profit of Chinese airline companies stood at CNY 5.83 billion in August, down 17 percent year-on-year and lower than CNY 6.4 billion in July.

+ Analysts pointed out that exchange loss is the main reason for profit decline in airline companies. In August, the exchange loss in the airline industry reached CNY 560 million, a turnaround from an exchange gain of CNY 1.48 billion in the same period last year.

+ In August, the CNY exchange rate against USD depreciated 0.205 percent. The depreciation cumulated to 0.39 percent in the first half of this year.

+ Currently, USD is the major currency used for aircraft purchase in the world, so the largest portion of Chinese airline companies’ debts are settled in USD.

Driven by higher passenger traffic growth, transport turnover in the airline industry recovered some over the summer.

HSBC Flash China Manufacturing PMI at 47.8 in Sep

Source: HSBC, ChinaScope Financial (Data)

+ HSBC data released today shows that the HSBC Flash China Manufacturing PMI for September was 47.8 percent, compared to the final reading of 47.6 percent in August. The index increase may ease market concerns over China’s economic slowdown.

+ The Flash China Manufacturing Output Index stood at 47 percent in September (48.2 percent in August), a ten-month low.

The HSBC flash PMI for September was 47.8 percent, up 0.2 percentage point on August, but still indicating contraction in manufacturing activity.

Thursday, September 20, 2012

LDK Solar Sells Land for Cash

Source: Netease Finance, ChinaScope Financial (Data)

+ According to the LDK Solar’s (LDK: NYSE) financial results for the second quarter of 2012, the company’s net sales in the period were USD 235.4 million, considerably lower when compared to USD 499.4 million for the same period a year before.

+ Total loss in 12Q2 was USD 92.0 million, a turnaround from gross profit of USD 11.0 million in 11Q2. The financial results also show that during the reporting period, LDK Solar entered into several sales agreements to sell some of its real estate properties and land use rights to local governments for cash.

+ In the second quarter of 2012, LDK Solar paid USD 12 million in interest expenses related to the unrecorded fair value change of certain interest rate swap contracts.

A quick cut down in headcount and steep decline in capacity utilization imply that a full-scale liquidation of LDK is approaching.

U.S. to Launch Anti-Subsidy Probe on China’s Auto Exports

Source: Sina Finance, ChinaScope Financial (Data)

+ The U.S. has requested a World Trade Organization (WTO) consultation with China on the auto export subsidies. The U.S. accused Chinese auto exporters of receiving at least USD 1 billion in government subsidies between 2009 and 2011.

+ The state of Ohio was known for its manufacturing industry. Many people are blaming the current industry downturn on the emergence of Chinese exports.

+ The U.S. government said that China’s “export base” project, in which Chinese auto makers receive governmental support, has helped China increase the value of its exports of automobiles and spare parts from USD 7.4 billion in 2001 to USD 69.1 billion in 2011.

China exports a significant amount of auto parts to the US, implying that some US producers will see their input costs increase because of the ADDs. Much of Chinese auto export to the US is by joint ventures, why the ADDs will also hurt the foreign JV partner.

Multiple Japanese Enterprises Temporarily Close Their China Factories

Source: Beijing Morning Post, ChinaScope Financial (Data)

+ Due to escalating protests against Japan’s purchase of the disputed islands, Canon announced yesterday that it will put three plants in China out of commission on September 17 and 18 out of consideration for its staff safety. Another Japanese consumer electronics company, Panasonic, has also decided to stop production starting September 18. The company has not specified a date on which production will be resumed.

+ In addition, Faw-Toyota and Zhengzhou Nissan have also temporarily closed their plants in China today.

+ Sales of Japanese brand TVs decreased sharply as well. Since early-August, the sales of TVs made by Sanyo, Toshiba, Panasonic, and Sharp declined by 44.32 percent, 40.31 percent, 23.41 percent, and 21.06 percent, respectively.

Japan’s investment in China has been increasing since 2009, this trend however might be threatened by the recent spat over the disputed islands.

Wednesday, September 19, 2012

China's Macroeconomy At a Glance

Policy Watch

+ Project Approval Acceleration Adds Fiscal Stimulus - On September 5, the NDRC announced that it has approved the construction of 25 urban rail transit projects with total investments worth more than CNY 800 billion. In the days following the announcement, additional projects were approved adding stimulus at a time of slower growth. Reactions to the approvals were mixed. Some analysts point to the risk of overheating, some say there will be no notable effect due to the relative restrictive banking lending currently, and others say that the projects are part of the 12th FYP and have been waiting for approval for some time.

+ China May Introduce New Foreign Trade Stimulus Measures - China’s weak export growth has been weighing on the Ministry of Commerce and the regulator is now actively studying methods to stabilize export growth. Currently there are rumors that a new round of foreign trade stimulus policies will be rolled out, which will include quality inspection, customs clearance, credit, and insurance and increase in tax rebates. The new stimulus measures are expected to be launched later this month.

+ VAT Reform Continues Moving Ahead - The reforms which will replace business tax with VAT are moving ahead. Most recently, on September 6, the Beijing Municipal Office of the State Administration of Taxation released details of VAT regulation reform, clearly outlining relevant procedures as well as the application materials taxpayers need to submit.

Output and Outlook

+ Industrial value added growth continued its downward trajectory in August, with light industry IVA growth declining 1.5 ppt on July. Outlook indices looked equally bleak in August with the NBS and HSBC PMI falling further into contractionary territory.

Investment:

+ As predicted by the CAI, FAI growth fell to 20.2% in August. Private FAI growth suffered the largest setbacks. As one of the few bright spots in the downbeat August data, growth of investment in real estate development increased slightly and floor space growth stopped declining reflecting some faith in the sector.

Price Indices:

+ Driven by soaring global food prices, CPI-measured inflation rose 2.0% year-on-year in August, up from 1.7% in July.

Monetary Policies:

+ The PBOC continues its cautionary monetary policy stance and have kept the RRR ratio unchanged for three months. Total social financing in August increased on the previous month; a nascent sign that policy efforts to stimulate the economy are being stepped up.

External Sector:

+ China’s trade surplus increased slightly in August as weak domestic demand drove down import growth.

+ Net change in forex purchase position was a negative CNY 3.82 billion in July as expectations of CNY appreciation are fading.

Tuesday, September 18, 2012

CCB Plans to Spend USD 15 Bn Buying European Counterpart

Source: Netease Finance, ChinaScope Financial (Data)

+ Media reported that China Construction Bank (0939: HKG; 601939: SHA), the second largest bank in China, is planning to spend as much as USD 15 billion acquiring a bank in Europe. If this materializes, it will become the largest acquisition of a foreign bank in China.

+ WANG Hongzhang, Chairman of CCB, said that with CNY 100 billion (USD 15.8 billion) in funds, the bank expects to buy a bank’s entire equity, or at least 30 percent to 50 percent of one of Europe’s large banks. WANG didn’t specify which banks the lender was considering to purchase, but he said that banks in the UK, Germany, and France are the most attractive.

Unaffected by the huge losses made by other Chinese banks going global, China Construction Bank (601939.SHA) is continuing its internationalization strategy. So far the bank has acquired AIG finance and BOA Asia in Hong Kong, and bank fundamentals remain solid.

Pharmaceutical Industry's Sales Growth Estimated to Beat 23 Percent This Year

Source: China Securities Journal, ChinaScope Financial (Data)

+ YU Mingde, Chairman of China Pharmaceutical Enterprises Association (CPEA), predicted that sales revenue in China’s pharmaceutical industry will grow more than 23 percent this year, with profits up 18-19 percent year-on-year. But the growth rates of sales and profits may decline.

+ WU Zhen, Deputy Commissioner of the State Food and Drug Administration (SFDA), said that, with the reorganization of the current drug and medical system, China’s pharmaceutical industry will grow steadily. The Chinese government will promote enterprises to go global in order to speed up the internationalization of Chinese medicines and drugs.

+ Data from the National Development and Reform Commission (NDRC) shows that in the first seven months, total output value of China’s pharmaceutical industry was CNY 983 billion, up 19.2 percent year-on-year.

China’s pharmaceutical industry has experienced some setbacks in 2012, but growth prospects remain strong.

Friday, September 14, 2012

CNHTC Jinan Truck Sells 5,420 Vehicles in Aug, Down 23.1 Percent YoY

Source: Company Disclosure, ChinaScope Financial (Data)

+ According to an announcement last night, the number of heavy trucks CNHTC Jinan Truck Co., Ltd. (000951: SHE) produced in August was 4,010, down 2.2 percent year-on-year. The sales volume of heavy duty trucks decreased 23.1 percent year-on-year to 5,420.

+ In the first eight months, total output of heavy duty trucks was 51,079, down 26 percent. Total sales volume was 51,898, a decrease of 30.73 percent year-on-year.

+ As a pioneer in China’s heavy duty truck industry, the company is now one of the top players in the global market after 50 years of development. It has been playing an important role in China’s social development over the past several decades.

Slowdown in fixed asset investment growth is reflected in heavy truck sales declines. CNHTC Jinan Truck (000951.SHE), one of China’s leading heavy machinery producers, has recorded negative sales growth rates throughout most of 2011-12.

Banking Regulators: Infrastructure Projects Need Financial Support

Source: China Securities Journal, ChinaScope Financial (Data)

+ Regulatory bodies recently urged commercial banks to extend greater financial support to the major construction projects: railways and roadways, agricultural infrastructure projects, and low-income housing projects.

+ LIAN Ping, Chief Economist at the Bank of Communications (BoCom), believes that commercial banks will increase lending to infrastructure projects continuously in the next few months, so that the offering of medium- and long-term loans will be on an uptrend.

+ As of June 30, 2012, the outstanding loans of China’s five major commercial banks (Bank of China, Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank, and BoCom) to the transportation industry had reached CNY 33.36 billion, accounting for more than 10 percent of total outstanding loans.

The growth of loans extended to the transportation and construction sector has fallen for most banks over recent years. The acceleration of infrastructure project approvals is however expected to reverse the downward trend and lengthen the overall loan maturity.

China Introduces Foreign Trade Stabilization Methods

Source: The Central People’s Government, ChinaScope Financial (Data)

+ Yesterday, the State Council introduced a series of measures to stabilize foreign trade growth.

+ The government will accelerate the process of export tax rebates, and ensure that payments will be given accurately and timely.

+ China will help enterprises expand financing size and reduce financing costs. In addition, commercial banks in China are encouraged to extend trade financing to micro- and small-sized enterprises (MSEs) as well as issue more loans to qualified exporters.

+ In addition, the government is also encouraging the expansion of export credit insurance. Insurance companies are now required to increase short-term insurance services to MSEs to help them gain better traction in overseas markets.

+ To facilitate smoother trade operations, the efficiency of customs and clearance will be improved, administrative procedures will be optimized, and related costs will be cut starting from 2013.

+ Furthermore, China will aggressively expand imports, and encourage enterprises to venture into emerging markets such as Africa, Latin America, Southeast Asia, and Central and Eastern Europe.

As fettering global demand is weighing increasingly heavily on China, policy makers are returning to the tried and true stimulus tool of export tax rebates.

CSRC Grants QFII Licenses to Eight Foreign Institutions in Aug

Source: China Securities Regulatory Commission, ChinaScope Financial (Data)

+ China Securities Regulatory Commission (CSRC) announced last night that it has granted investment licenses to 8 overseas institutional investors in August, adding the total number of Qualified Foreign Institutional Investors (QFIIs) to 181.

+ The 8 new QFIIs include: US-based Hall Capital Partners; Board of Regents of the University of Texas System; Taiwan’s Nan Shan Life Insurance Co., Ltd.; Suva, an Investment Management Corporation based in British Columbia; Value Partners Hong Kong Limited; Ontario Pension Board; and the US Church Pension Fund.

+ Data released by the State Administration of Foreign Exchange (SAFE) on August 31 shows that SAFE granted USD 1.34 billion investment quota in August. So far, a total of 152 QFIIs have been granted USD 29.87 billion investment quota.

+ Yesterday, SAFE announced that QFII’s investments in the Chinese securities market surged to USD 1.5 billion in 12Q2.

In addition to significantly lowering the QFII requirements and expanding the investment scope of the scheme, the CSRC has accelerated the number of approvals in 2012, efforts that are heralded as significant strides in opening China’s capital market.

Thursday, September 13, 2012

Vanke Purchases Land Worth CNY 6.9 Bn this Month

Source: Jinhua Times, ChinaScope Financial (Data)

+ China Vanke (000002: SHE) acquired a plot of land in the city of Shunde, Guangdong at a price of CNY 3,489 per GFA or a total of CNY 1.58 billion, 14.38 percent premium. The deal is the highest-recorded land transaction value in the region.

+ Vanke has spent a total of CNY 6.89 billion acquiring four plots of land since the beginning of this month. The CNY 6 billion the company had spent on land in July alone has surpassed the aggregate amount spent in 12H1. In August, the company’s land purchase cost was CNY 3.6 billion.

+ Statistics show that three Chinese real estate leaders (Vanke, Evergrande (3333:HKG), and China Resources Land (1109: HKG)) have spent a total of CNY 8.24 billion on land purchase so far this month, 50 percent higher than in August.

+ Analysts believe that developers have frequently been acquiring land due to the improvement of their financial situation, which came from recovering housing sales, declining idle housing stock, and greater land supplied by local governments.

As China’s largest developer, China Vanke (000002.SHE) enjoys a strong cash position, which allows the company to continue increasing its land reserves. In recent months Vanke has taken advantage of relatively cheap land offers in tier-two cities.

PBOC: CNY Deposits Increase CNY 504.4 Bn in Aug

Source: People's Bank of China, ChinaScope Financial (Data)

+ Data released by the PBOC on September 11 shows that CNY deposits increased CNY 504.4 billion in August, down CNY 202.2 billion on last year’s figure.

+ In August, household deposits increased CNY 103 billion, deposits from non-financial enterprises increased CNY 196.5 billion, and fiscal deposits increased CNY 40.6 billion.

+ At the end of August, China's broadest measure of money supply, M2, was up 13.5 percent year-on-year to CNY 92.49 trillion. However, its growth went down by 0.4 percentage point on the previous month.

Bank deposits growth remained stable in August, possibly due to higher deposit rates following the interest rate moves in June/July and possibly because banks are preparing for the quarterly CBRC review. M2 growth in August was 13.5 percent, lower than expectations.