• Enter the Dragon
• China had 340,000 millionaires in 2009
• China Investment Corp holdings
• China consumes 40% of the world's base metals
• Consortiums eye AIA
• Citic
• China Eyes Fosters
• Clinton in China
• China Real Estate Bazaar
• Mainland money fuelling Hong Kong
• Real Estate Tours to Canada
• CCB expanding global footprint
• China Life - profit up 72%
• UBS & Gemdale
• Peninsula Hotels expanding
• China tighens the Housing market   >>  Hong Kong market affected  >>  No mortgage for home buyers of more than two properties  >>   Beijing-ban covers most state firms from dealing in property  >>  MORE
• Guidelines for Presales
• Opportunities for Westerners
• Aging Demographics - 12% over 60

China is an economic growth story which is what Financial Markets like   "[By 2025,] 40 billion square meters of floor space will be built -- in five million buildings. 50,000 of these buildings could be skyscrapers -- the equivalent of ten New York Cities."                           Source: Mckinsey, "Preparing for China's urban billion"       China overtakes US at Attracting Most Property Investment Incentives for investing in Rural China 'Non-core' state owned real estate companies asked to withdraw Tighter lending practises China Drawing High-Tech Research from U.S. China Overseas Land Adding 'China' to name leads to Outperformance Doing Business in China is not so easy China tops US in spending on clean energy Why Real Estate in China? By 2030, China will add more new city-dwellers than the entire U.S. population; Residential and commercial property prices in 70 major mainland cities rose 5.7 percent in November from a year earlier, up from 3.9 percent in October, according to the National Bureau of Statistics. Prices of newly built residential units grew 6.2 percent in November, while secondary home prices gained 5.5 percent. China's real estate boom spells Trouble for Boyfriends CCTV reported that average secondary property prices in Beijing reached an annual high of 13,112 yuan (HK$14,881) per square meter in late November. Transaction volume last month also surged nearly 80 percent from October. Primary homes in Beijing were 3 percent dearer in November than October. The upside appears to have continued in December, with the average cost of property units in a Sanlitun project rising from 40,000 yuan per sq m to 42,000 per sq m within three days.   - 2009 December 11    THE STANDARD   China Resources & Citi team up for Shopping Centre fund Carlyle joins Foshan Blackstone & First Eastern Shui On & Redevco in Wuhan OVERSEAS CHINESE INVESTMENTS 外 國 人 Capitaland Guocoland SM Prime Properties  >> MORE Sunway City More overseas investment for China pension fund China's US$114 billion pension fund plans to ramp up its investments overseas in search of higher returns, even though it expects the yuan to strengthen in the long-run, according to a report from Reuters that appeared in Singapore’s Business Times. Dai Xianglong, chairman of the National Social Security Fund (NSSF), said the fund would pour more money into foreign stocks and bonds as well as overseas private equity funds and unlisted firms. The NSSF is permitted to invest up to 20% of its assets outside China. The proportion now is just 6.7%. “We are selecting, and are in contact with some Hong Kong financial professionals. Of course, I hope we can do some deals,” Mr. Dai said. The NSSF, which functions as a backstop for China's patchwork of underfunded provincial pension schemes, will also keep buying stakes in domestic companies, particularly financial firms, Mr. Dai added. The pension fund expects to increase its assets under management to two trillion yuan (US$293 billion) by 2015 from 776.5 billion yuan at the end of last year, Mr. Dai said. The fund, set up in 2000 with government capital and dividends from listed state firms, had a return on investment of 16.1% last year. Its average annual return over its nine-year history is 9.75%. Expressing optimism about overseas markets, Mr. Dai said the United States would achieve its goal of doubling exports in five years, while the eurozone's sovereign debt strains would not escalate. Mr. Dai, a former central bank governor, said the yuan was likely to tread water for the time being despite intense US pressure on Beijing to let the currency appreciate. In the long-run, though, the currency was headed higher. At home, the pension fund would inject 15 billion yuan into Agricultural Bank of China, the only big state lender that has yet to float its shares, and 20 billion yuan into China Development Bank, he said. The NSSF has invested 10 billion yuan into each of Industrial and Commercial Bank of China, Bank of China and Bank of Communications, earning returns of more than 25% in the last three to four years, he said. “In the future, when China's financial firms want to expand their capital base, we will make our investment decisions based on market conditions,” Mr. Dai added. He was upbeat about the long-term outlook of China's stock market, but he added that 2010 would be a difficult year due to policy uncertainties. As a key institutional investor in China, the pension fund would be a big user of domestic stock index futures when they are launched next month in Shanghai, Mr. Dai said.   - 2010 April 1 China's Second Largest Deal in North America - Sinopec - ConocoPhillips China's big move into Alberta Buying more treasuries Just 16 state-owned firms allowed to deal in property: 16 companies still in the property fray include China State Construction (3311), China National Real Estate Development, China Poly Group, China Railway Construction (1186) and Sinochem Corporation. The list also includes China Travel Services Holdings, China Merchants Group, China Resources (Holdings) and Nam Kwong Group Limited.  - 2010 March 19  THE STANDARD China Property consolidating RETAIL At Fendi, creative director Karl Lagerfeld staged the first-ever runway show on the Great Wall of China last October in, arguably, the slickest example of brand building that the luxury market has seen in years. Burberry bullish on China Fashion Show on the Great Wall China - Retail China growth rate, Retail sales jump Watsons aims for 1,000 stores by 2011 Tesco launch in China  >>  MORE 7-Eleven expansion Chinese mall with special parking lot for Women "Why are we in China? Because in the next 25 years, it will become the world's greatest economic power and we want Fendi to be very important in this country," Bernard Arnault, president of LVMH, the giant French luxury empire that Fendi, told Fashion Wire Daily.   - 2008 Spring  FQ MAGAZINE China is set to overtake the U.S. as the largest grocery market in the world by 2014, according to global food and grocery expert IGD.   The firm predicts that the Chinese grocery market will be worth nearly $1.1 trillion in four years.   -  2010 February 8  Progressive Grocer Tesco formed a 50-50 joint venture with an investment group that includes HSBC Nan Fung China Real Estate Fund, Metro Holdings of Singapore and Nan Fung Group of Hong Kong to build three shopping centers in China. The venture will build a 500,000-square-foot mall at Fushan in northeast China and two other malls in the northern cities of Anshan and Qinhuangdao.  - 2009 November China now No. 5 World's Largest Consumer Market China has become the fifth-largest market for consumer spending, at $890 billion, following the U.S., Japan, the U.K. and Germany. The ratio of China's personal consumption to GDP is only 36%, half of the U.S. figure and two-thirds of the figures in Europe and Japan, indicating the market still has enormous growth potential. China will become the third-largest consumer market worldwide after the U.S. and Japan by 2020, when consumer spending is expected to exceed $2.5 trillion, according to global consultancy McKinsey. China will reach another milestone much sooner, however, when it surpasses Japan as the world's second-largest economy by early next year, as much as five years earlier than previously  forecast. Chinese insurance companies will be allowed to invest directly in commercial real estate for the first time under new regulations that are set to trigger a huge influx of cash into the country’s high-end property market  - 2009 September 29   FINANCIAL TIMES   China's industrial output grew by 16.1% in October compared with a year earlier. Retail sales were up by 16.2%. The data underscore China's rapid economic recovery, thanks in part to a huge stimulus package. Car sales, for instance, have been booming (up by 72.5% in October) because of a cut in sales tax on new vehicles.  - 2009 November   ECONOMIST 'Rep' offices in China Railway bonanaza in China China eyes Panama Canal China builds ports in SE Asia Chinese buy more US assets than US buys in China China vs world as trade war becomes closer China outstrips US as centre for IPO's China's New Role China Investment Corp   - Holdings as at 2009 Dec 31 China orders retreat from risky markets  - 2010 February Image Makeover Chinese are new kings of bling China for Private Equity  - 2009 November 19 China's Rating Outlook Upgraded to Positive by Moody's - 2009 November 8 The Nine Nations of China Understanding China    - 2009 November 22 Competitive Threat   - 2009 November  China Property Market Overview - 2009 October 28 China insurers clear to invest in Real Estate -  2009 September 29 Outlook for Chinese Economy - June 2009 China Passes U.S., U.K. in Commercial Property Sales Attempt to Curb Property Speculation - Sales Tax for trades within first 5 years  >> Effect on Hong Kong Tung's sell their Property Portfolio to CapitalLand China, Where U.S. Internet Companies Fail MACRO ECONOMICS China already consumes twice as much steel as the US, Europe and Japan combined    BUSINESS INSIDER.com   China's share of global GDP (PPP adjusted) was less than 2 per cent in 1980 but has grown to 11.5 per cent in 2008. She has grown an average of 10 per cent per annum for the last 30 years and is forecast to overtake the US as the world's largest economy by 2027 by Goldman Sachs, and even earlier, by 2020, by the Economic Intelligence Unit. In 1980, China was the 32nd largest exporter in the world. In 2008, she was the second largest. In 2008, profit of the top 500 Chinese companies exceeded that of the top 500 US companies. The top 500 US companies chalked up US$98.9 billion profit compared to their Chinese counterparts, which generated US$170.6 billion profit. However Chinese companies are not branded well internationally because they are focused on industrial products on a B-to-B basis rather than B-to-C directly to the mass market. The top two companies in China are larger in value than the top two in the US: Petrochina and ICBC are valued at US$338 billion and US$323 billion respectively, compared to US$320 billion and US$211 billion for Exxon Mobil and Microsoft respectively. China's fast growing savings are being strategically reserved for the rainy days. China's foreign exchange reserve was US$1.6 billion in 1980; in 2008 she had the largest foreign reserve in the world at a whopping US$2.13 trillion. This is 30 per cent of the global reserve and is now well deployed to provide stimulus to the economy. As of August 2009, China's (including Hong Kong) US$5 trillion market value stock market is the second largest in the world. Notably, only one per cent of China's population invests in the stock market, compared to about 45 per cent of the households in the US. It is obvious that the growth potential for China's stock market is phenomenal.  - 2009 October 31  BUSINESS TIMES Why the Chinese invest abroad They get higher margins, ready-built brands and sales networks, supplies of key energy and raw materials Hummers and Saabs in the hands of the Chinese? The thought of Saab, a global symbol of Sweden, and Hummer, the epitome of America's love of big things, calling China their home would have seemed unthinkable in the not-too-distant past. But times are changing, and while everyone else is tightening their purse strings in this economic climate, China is increasing its overseas mergers and acquisitions (M&A). And both Hummer and Saab could very well be surviving on Chinese soil if Sichuan Tengzhong and Beijing Automotive Industry are successful in their bids. According to United Nations Conference on Trade and Development (UNCTAD), China's foreign direct investment (FDI) outflows for the period 2002-2006 grew at a rate of more than 60 per cent per year, and its total FDI stock at the end of 2008 was almost US$148 billion, or 3.4 per cent of China's GDP in the same year. While these may seem like impressive numbers, China's outward FDI flows and stocks are actually quite small relative to the size of its economy. For the sake of comparison, the outward FDI stock as a percentage of GDP was 14 per cent for developing economies and 26.9 per cent for the world. If China decides to match the average rate of FDI stock for developing economies, we can almost certainly expect to see more M&A activities. While FDI outflows will continue to focus on natural resource-rich regions, such as Africa, Latin America and Australia, knowledge-rich companies (in technology, skilled people, distribution networks) with strong brands in North America and Europe will also be potential FDI targets. So why do Chinese businesses invest abroad? Let's look at this question from the perspective of the Chinese government, Chinese companies and foreign companies. China's annual FDI outflow was virtually non-existent in 1979, due to a lack of foreign currency reserves. However, after 30 years of strong growth, partly fuelled by international trade, China has amassed huge foreign reserves (US$2.27 trillion as of September this year). As pressure mounted from trading partners to float its currency upward, the Chinese government responded by acquiring assets overseas - most of which were in natural resources to support China's economic growth. After joining the WTO in 2001, the Chinese government began selectively supporting the overseas expansion of Chinese companies in their quest to become internationally competitive players. The support was mainly in the form of tax rebates and cheap loans. Additionally, in 2005, when the Chinese currency policy was switched from being pegged to the US dollar to being pegged against a basket of its major trading partners' currencies, the Chinese yuan appreciated against the US dollar. A stronger yuan tends to favour overseas acquisitions over direct exports. Low-cost manufacturers, such as those in the automotive and consumer electronics industries, were plagued by overcapacity and cut-throat price wars that made domestic markets hyper-competitive. With a lack of profit potential in the domestic market, foreign markets became more attractive because they had less competition, higher margins and they provided an opportunity for Chinese manufacturers to capture a larger portion of the value chain. Acquiring capabilities (R&D and talent) is a second major reason why Chinese companies are reaching beyond their domestic borders. A case in point is China International Marine Containers (CIMC), a container manufacturer that acquired several foreign companies and licensed advanced technologies to improve its manufacturing process. By licensing technology from Germany, CIMC improved its reefer production process, reduced capital inputs and increased its capacity and efficiency by leveraging on automotive technology. Production volume was expanded 1.5 times with merely 20 per cent of the original capital input. Productivity improved from a rate of over 20 minutes per container to about five minutes per container. Foreign staff, who understand their home markets and environments, have been hired to run the European operations. Acquiring brands and a sales network, instead of building them from scratch, is another reason why Chinese companies invest abroad. For example, in December 2004, Lenovo announced that it would acquire IBM's PC division for US$1.75 billion. The deal quadrupled Lenovo's PC business, realising the company's globalisation dream. The deal also gave Lenovo the right to continue using the IBM logo on its products for the first five years. The renowned ThinkPad laptop and ThinkCentre desktop brands would belong to Lenovo. The access that it gained to global sales channels, management talent, research and development capabilities and global corporate clients was critical to Lenovo's future global expansion. Finally, as China is poorly endowed with oil, gas and other natural resources, Chinese companies acquire these resources abroad to secure the supply of key energy and raw materials in order to sustain economic growth. In February last year, Chinalco teamed up with Alcoa, a major US aluminium producer, to purchase a 12 per cent stake in Rio Tinto, the world's biggest mining company, for US$14.5 billion. Chinalco's interest in the company would secure its bauxite and iron ore reserves. From the foreign company's perspective, China's activities abroad are viewed as both a threat and an opportunity. While Chinalco's 2008 effort was viewed as an opportunity, Chinalco's interest in investing an additional US$19.5 billion in Rio Tinto in February this year was not viewed as favourably. As a result, Rio Tinto unilaterally abandoned its deal with Chinalco in June. Another example was the US$18.5 billion bid by China National Offshore Oil Corporation (CNOOC) in 2005 for Unocal, the US oil company, which the US government blocked. In the end, CNOOC withdrew its bid. Finding the right opportunities can be a challenge for Chinese companies, as it requires the willingness of the target companies and their governments to accept a Chinese acquisition. However, the economic crisis has meant that the opportunities are there and they are at the right prices, as evidenced by the Hummer and Saab cases. In today's volatile economic environment, multinational companies would be smart to review their business portfolios and take advantage of the opportunity to either partner with or sell their non-performing businesses and assets to Chinese companies. As more companies enter into strategic alliances, joint ventures and partnerships with Chinese companies, the global competitive landscape is bound to change, and those companies that participate will have a unique competitive advantage.  - 2009 December 4    BUSINESS TIMES REAL ESTATE \ GUANGZHOU, China—What is being billed as the world's most energy-efficient skyscraper is being built here in the center of one of China's smoggiest cities by state-owned China National Tobacco Co. It is the latest example of a new trend in China's burgeoning commercial-property market: State-owned businesses in industries as disparate as insurance and tobacco are emerging as developers, putting up the cash to build some of the most eye-catching skyscrapers in the world. These large corporations are drawn to these projects by potentially lucrative returns and are helped by strong connections and easy access to state bank lending. While these companies typically occupy some of the space they build, they often put much of it on the market to lease to others. China National Tobacco plans to lease out most of the 71 floors in its new project to other tenants. "We are a tobacco company, but the management is also thinking about the future," the project's chief engineer, Hu Baiju, said during a recent interview Ping An Insurance (Group) Co. of China Ltd., one of China's biggest insurers, already has committed to investing about 25 billion yuan ($3.66 billion) in Chinese property over the next three years through a trust. It now is working on what will be one of China's tallest buildings, in the southern city of Shenzhen, financing the multibillion-yuan skyscraper entirely with its own capital. China's state-owned enterprises also have been shaking up property prices, both at record-breaking government-land auctions and on the secondary office market. Last fall, Agricultural Bank of China paid about US$550 million for a top-grade Shanghai office tower, according to brokers. "Before 2009, there were relatively few state-owned enterprises involved in land sales and property markets; most concentrated on their own businesses," said Hing-yin Lee, a Shanghai property broker for Colliers International. Now, he said, "they see that easy profits can be made." At the same time, the building techniques Chinese companies are using in these new developments reflect the country's hope to leapfrog the U.S. by taking the lead in developing new green technologies that have long-term growth potential. The China National Tobacco project has four big wind turbines, solar panels and a dual-layer glass skin that traps sunlight and pipes it into the building's heating system. Shanghai-based head of office services for CB Richard Ellis in China, said state-owned enterprises are big employers that are expanding quickly in China, and see constructing and buying landmark buildings as a way to put their "badge" on a high-profile skyline. "[State-owned enterprises] have the opportunity to acquire sites in prime locations and have the cash or access to cash to be able to develop buildings tailored and customized according to their specific requirements," Mr. Latham said. Office vacancy levels are at about 20% in Beijing and 16% in Shanghai. Those are high rates by U.S. and European standards, but the new space is expected to be absorbed quickly thanks to the strong growth of the Chinese economy. Also, much of the vacant space is second rate, so demand for the newly built prime space may be strong. State-owned enterprises also are keen to show that they are in step with the priorities of national and regional officials, who have made it clear that green companies and those constructing sustainable buildings are going to enjoy more official support. In the case of the Pearl River Tower, as China National Tobacco's tower is known, the company's management decided to make the green plunge at the encouragement of Guangzhou's municipal leaders, who set aside a large swath of prime farmland for a new business district and encouraged state-owned corporations to participate. China National Tobacco decided it would build a landmark environmental building, and four years ago, through a subsidiary company, hired Chicago architects Skidmore, Owings and Merrill LLP to fashion the world's first "zero-energy" skyscraper, generating all the energy it needed to operate itself. Skidmore Owings embedded the tower with triple-glazed facades and solar panels, and chilled radiant ceilings. Its showpiece: four power-generating vertical-axis wind turbines. "A lot of clients say they want to build something very energy efficient, but in this case, they really followed through with that goal," said Ame Engelhart, a Hong Kong-based Skidmore associate involved with the project. Ms. Engelhart said China National Tobacco is one of the few companies willing to put its money where its mouth is on environmental issues. While the building won't be smoke-free, it will restrict smoking to designated areas, a far cry from China's typically hazy workplaces. The project is expected to be completed in about a year. Ms. Engelhart said a building like the Pearl River Tower costs about 10% to 15% more than without the energy-efficient features, but said the projected cost savings could mean the building breaks even within five years. Some of Skidmore's ideas, including "microturbines" that would sell extra capacity back into Guangzhou's power grid, were barred by municipal regulations. But Skidmore still maintains that the 2.2-million-square-foot tower will consume about 8.76 billion pounds of carbon dioxide over its life cycle, 58% less than a nonenhanced building of the same scale. The municipal government of Guangzhou's construction arm, Guangzhou City Construction & Development Co., also is getting in the act, having hired Wilkinson Eyre Architects of London to design a 103-story skyscraper not far from China National Tobacco's tower. The 750 million yuan building, set to open in October as the Guangzhou International Finance Center, features high-efficiency chilled water systems and heat recovery design, an air-conditioning system that recycles condensed water, built-in carbon dioxide sensors and double-glazed windows. "In the long run, the costs will be offset by savings on a range of resources such as energy and water," said Liang Jihao, deputy general manager of the municipal construction company.   - 2010  January 13   WALL ST. JOURNAL China property sales more than US, UK together Commercial property deals total US$31b in H1 as easy credit boost land sales (BEIJING) China outpaced the United States and the UK combined in commercial property sales in the first half of the year, Real Capital Analytics Inc (RCA) said. China's transactions totalled US$31.2 billion following a surge in land sales after the government eased credit terms, according to RCA. US sales were US$16.2 billion in the first half, according to the report, and the UK's were US$13.7 billion. 'There's no question that China will be a more significant player on the world stage for commercial property transactions versus other Western countries,' said Dan Fasulo, the managing director at RCA. China's growth 'may not be sustainable at this level', he said. About US$62.8 billion of commercial properties were sold during the second quarter, 17 per cent more than in the previous three months and the first increase in 18 months, RCA, a New York-based research company, said in a report yesterday. The research firm said sales growth is the first step towards a global recovery. The first half's total sales were US$116.4 billion, 65 per cent less than a year earlier and US$500 billion below levels at the height of the market in the first half of 2007, according to the report. Countries that receive the most financial support from their governments will recover faster, said RCA. The amount of office space sold in China rose 13 per cent in the first seven months of this year, while sales of property for commercial uses gained 22 per cent, the National Bureau of Statistics of China said in an Aug 10 report, without giving more details. Sales in the second half may rise as investors believe that 'the economy has bottomed out, clearing some of the uncertainty', Lee Hing Yin, Colliers' director of research of East China, said in an interview yesterday. Soho China Ltd, the biggest developer in Beijing's central business district, last week said it bought an office and retail development for 2.45 billion yuan (S$516 million) that it plans to sell within a month or two. 'Asia's looking the healthiest. They're very optimistic over there, like a young buck,' said Ray Torto, Boston-based global chief economist for CB Richard Ellis Group Inc, the world's largest real-estate broker, in an interview. 'You come back to the US and you're talking to an older man.' The slow US recovery reflects the 'deep connections of its major institutions to the epicentre of the 2008 financial cataclysm', RCA said. US spending was 6 per cent of the first-half amount in 2007, Mr Fasulo said, compared with China's spending of 92 per cent. The total volume of properties in default, foreclosure or bankruptcy around the world has reached US$230 billion, increasing US$96 billion in the second quarter, RCA said. 'The growth in transactions is only a first step in the recovery process,' according to the report. 'Pricing and operating fundamentals remain in decline and debt remains scarce.' -   2009 August  25    Bloomberg "Our conviction over the medium term is the China real estate story. . .strong personal income growth, the urbanisation and industrialisation demand, and also lack of alternative investments"  -   2008 February 26    ING's Justin Pica  "With global money supply rising following the quantitative easing measures enacted in 2008, ample Chinese liquidity impacting Hong Kong through its increasingly porous border, and HK$3 trillion ($375 billion) of domestic net cash suffering from zero deposit rates, we expect to see significant price rises of 32% for homes, 29% for offices and 12% for retail spaces, and rent rises of 11%, 28% and 14% respectively" says Wong. UBS is also positive on China's property market for a number of reasons... UBS eyes higher China/HK property prices through 2010 Liquidity is playing a key role in supporting current property market trends. The property markets of China and Hong Kong will experience significant price gains throughout the rest of 2009 and into 2010, according to a UBS forecast. Thanks in large part to global money supply, ample China liquidity and poor returns on bank deposits, UBS believes Hong Kong's homes and offices will rise 32% and 29% respectively between June 2009 and December 2010, while China's home prices will increase 20% over the same period. Eric Wong, head of Asia real estate research at UBS investment bank, says Hong Kong's property market is in a far stronger position than during the 1997 financial crisis because of strong liquidity. "With global money supply rising following the quantitative easing measures enacted in 2008, ample Chinese liquidity impacting Hong Kong through its increasingly porous border, and HK$3 trillion ($375 billion) of domestic net cash suffering from zero deposit rates, we expect to see significant price rises of 32% for homes, 29% for offices and 12% for retail spaces, and rent rises of 11%, 28% and 14% respectively," says Wong. UBS is also positive on China's property market for a number of reasons. The Chinese government has set a 2009 real GDP growth rate of 8% and this has been the basis for almost all policies issued since the target was announced. UBS notes that since China's property sector was classified as a vital pillar industry, the sector's operating environment is far looser than it was in 2008. Capital raising activities by developers has meant that liquidity pressures on them have eased and increased their ability to hold properties longer in return for higher prices. Plus, improved investor appetite has seen inventories shrink with the increase in demand not being met by an increase in construction.  - 2009 August 4     ASIA FINANCE

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China funds look overseas

Cash-rich mainland pension and sovereign wealth funds are looking to make acquisitions abroad as companies are now good value, according to reports.

The National Social Security Fund, the mainland's largest pension fund, is planning to invest in foreign private equity firms subject to State Council approval, Reuters said.

China Investment Corporation, the one-year-old sovereign wealth fund, is looking to invest in value assets and according to Dow Jones is eyeing Deutsche Bank's Singapore assets among other deals.

Its investment in the distressed assets of the German Bank would be comparable in size to stakes CIC has purchased in Morgan Stanley and Blackstone, Dow Jones said.

The NSSF and CIC are cash rich having stopped investing amid the financial turmoil in order to preserve capital for expansion.

NSSF has a portfolio of about 563 billion yuan (HK$639.3 billion), while CIC has US$2 billion (HK$15.6 billion) in cash and assets under management.

The NSSF is preparing to launch a strategic overseas investment plan that could kick off in the second half of this year with private equity funds as its first targets.

"The goal and the path is very clear. Timing is important as one certainly does not want to do a deal when the market has already fully recovered," said one source, adding that the plan had already been approved by the Ministry of Finance.

The NSSF will target foreign private equity funds, including real estate and buyout firms with a focus on domestic assets and overseas stocks and bonds, the source said.

CIC was cited by independent research house JL McGregor as being ready to sign several deals this year, including the purchase of Deutsche Bank's distressed assets in Singapore.

If the Deutsche Bank deal goes through it will be CIC's first overseas investment since it took a stake in Morgan Stanley at the end of 2007.  -   2009 May 18    THE STANDARD

China's economy is now tied more closely to the world. In 2007, China had surpassed the United States as the world's second largest merchandise exporter, and it is expected to replace Germany in 2009 to become the world's largest exporter.

Shanghai has been linked to New York, through Hong Kong. As of end-March 2008, among the top 10 Chinese companies measured by market cap in Shanghai, nine are dual-listed both in Shanghai and Hong Kong, compared with three at end of January 2006.

There is paradox in today's situation: China, the proverbial world factory is now heading to become the world largest market, while, its counterpart, the US, is turning from the world's largest market to the world's largest factory.  

Although the market has slowed somewhat, growth is still at 9%.   The country has foreign reserves of $1.9 trillion USD.

Investment in residential real estate comprises 10% of country's GDP, compared with 4.6% in the US.     Mortgage loans account for 12% of Chinese bank lending and loans to developers another 7%.  In the U.S., real estate-related loans accounted for more than 50% of lending by commercial banks, according to Standard Chartered.

China will exempt property transactions from stamp tax and value-added tax from November 1, 2008 for first-time buyers and for units under 970 sq ft.

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China wealth fund is US$10b richer
CIC stayed largely in cash last year and avoided Western bank shares

China Investment Corp (CIC), the country's US$200 billion sovereign wealth fund (SWF), made a profit of about US$10 billion last year as it benefited from staying largely in cash and avoiding new investments in Western banks, a source close to the fund told Reuters yesterday.

About half of CIC's money is tied up in Central Huijin, a financial company that holds the state's stakes in nine big banks and brokerages; the other half is invested overseas with about US$90 billion or so in cash and the remainder in the form of equity stakes in firms including Blackstone and Morgan Stanley.

'Combining all the investments together, CIC is still enjoying a positive profit of slightly less than 5 per cent, which is better than many other foreign wealth funds,' said the source, who declined to be identified as he was not authorised to speak to the media.

The fund declined to comment.

CIC has lost over half of the initial US$8 billion it ploughed into private equity firm Blackstone and Wall Street bank Morgan Stanley when it was set up in September 2007.

The ill-timed forays have drawn widespread criticism in China and prompted the fund to scale back its ambitions in the financial sector for now despite seemingly attractive valuations.

Fund chairman Lou Jiwei said in Hong Kong on Dec 3 that he was 'not brave enough' to invest in financial institutions in today's turbulent market conditions. 'Luckily, the fund put the brakes on in time on a lot of potential deals last year as the crisis got worse,' the source said.

CIC is still exploring investment opportunities in other sectors, notably natural resources.

Earlier this month, Mr Lou visited Australia, where one company, iron ore miner Fortescue Metals Group, has said it is talking to CIC about selling hybrid securities to raise funds for expansion.

Managing the fund's US$90 billion cash pile yielded about US$3 billion in revenue in 2008 before expenses, the source said.

The money is parked in a broad range of highly liquid assets such as treasury bills, bank notes, deposits and structured products, he said.

CIC also earns dividends from Central Huijin's huge stakes in domestic financial heavyweights such as China Construction Bank, Bank of China and China Galaxy Securities.

Huijin was put under CIC's umbrella when the latter was established with the aim of earning greater returns - in return for greater risks - on a portion of China's official foreign exchange reserves. These now total US$2 trillion and are managed conservatively by the central bank. --  2009 February 25    Reuters

Wary China to miss out on foreign banks' mega sale
Political concerns, lack of expertise and nationalistic worries among obstacles

China has the cash and ambition to be a major player in the world's biggest sale of financial assets in half a century, but politics, a lack of expertise and an aversion to risk will relegate it largely to the sidelines.

Nationalistic worries about how state-owned Chinese firms might behave if they had a controlling stake in a major foreign bank are probably Beijing's biggest obstacle, but there are others almost as daunting.

'Chinese financial institutions are not mature enough to make a large overseas acquisition,' said Zhao Xiao, an economics professor at the Beijing University of Science and Technology. 'They must gain experience helping China's thriving manufacturers to move overseas . . . and in five years they may be ready.'

China's cautious regulators are also reluctant to approve such acquisitions due to volatile markets, recent losses from earlier financial stakes and a lack of experience.

'The Chinese may have that ambition . . . but that would just not be allowed,' said Glenn Maguire, Hong Kong-based chief Asia economist for Societe Generale (SG).

'Politically, it is very sensitive,' said Mr Maguire, pointing to rising protectionist sentiment in the United States in a presidential election year.

China's financial stakes in Morgan Stanley and Blackstone have also soured as the credit crisis has spread, offering painful lessons in market volatility to investors accustomed to uninterrupted double-digit economic growth.

The expertise required in complex takeovers can also be outside the reach of established foreign banks as well.

After Germany's Commerzbank bought investment bank Dresdner Kleinwort for US$14.5 billion from Allianz last weekend, it unveiled plans to cut 9,000 jobs.

Commerzbank's shares have fallen 14 per cent in response to the deal as the bank said it still needed more cash from shareholders and analysts were sceptical of its ability to turn Dresdner around.

China Development Bank had been seen as a possible candidate to take over Dresdner, though how serious is not known.

Political concerns earlier this year prevented Bain Capital and China's Huawei Co from obtaining US government permission to buy 3Com Corp for US$2.2 billion.

SG's Mr Maguire said the opportunity to buy assets such as investment bank Lehman Brothers may not happen again for decades. Newspapers have reported China's top brokerage Citic Securities is also interested in Lehman.

'I don't think it is an exaggeration to call it a 50-year opportunity,' said Mr Maguire.

State-controlled Korea Development Bank is in talks with Lehman over a possible joint investment with other Korean banks, but has said it was still unsure whether there would be a deal.

'China's leading banks are massive in terms of market capitalisation and assets,' said Jing Ulrich, the head of China equities for JPMorgan Securities. 'But their business reach is limited compared to international banks.'

China's underdeveloped financial industry lags far behind its booming manufacturing sector, underpinning regulators' cautious sentiment that local financial firms need to demonstrate they can walk domestically before they run overseas.

China's Ping An Insurance bought 5 per cent of Fortis, the struggling Belgian-Dutch financial group, for US$2.67 billion last year.

But Fortis said earlier this month Chinese authorities had delayed approval of the US$3.33 billion sale of half of its asset management arm to Ping An.

'It isn't much of an opportunity if you don't have the ability to carry through,' said Gordon Orr, a director at consultancy McKinsey's Shanghai office.

China Development Bank bought a 3.1 per cent stake in Britain's Barclays plc last year but China's Cabinet rejected a request in July to increase that stake when Barclays raised fresh capital.

But firms such as the US$200 billion China Investment Corp, the country's sovereign wealth fund, and China Development Bank could still play important funding roles in consortia led by foreign banks.  --2008 September 8     Reuters

The real threat China poses to the world

Obsessed with rankings, Americans are bound to see the Beijing Olympics as a metaphor for a larger and more troubling question: Will China overtake the United States as the world's biggest economy? Well, stop worrying. It almost certainly will.

China's economy is now only a fourth the size of the US$14 trillion US economy, but given plausible growth rates in both countries, China's output will exceed America's in the 2020s, projects Goldman Sachs.

But this is the wrong worry. By itself, a richer China does not make America poorer. Indeed, because there are so many more Chinese than Americans, average Chinese living standards may lag behind ours indefinitely. By Goldman's projections, average American incomes will still be twice Chinese incomes in 2050.

The real threat from China lies elsewhere. It is that China will destabilise the world economy. It will distort trade, foster huge financial imbalances and trigger a contentious competition for scarce raw materials.

Symptoms of instability have already surfaced, and if they grow worse, everyone - including the Chinese - may suffer. China is now 'challenging some of the fundamental tenets of the existing (global) economic system', says economist C Fred Bergsten of the Peterson Institute.

This is no small matter. Growing trade and the cross-border transfers of technology and management skills contributed to history's greatest surge of prosperity. Living standards, as measured by per capita incomes, have skyrocketed since 1950: up 10 times in Japan, 16 times in South Korea, four times in France and three times in the United States.

Significantly, these gains occurred without serious political conflict. With the exception of oil, world commerce expanded quietly. The chief sources of global strife have been ideology, nationalism, religion and ethnic conflict.

Economics could now join this list, because the balance of power is shifting. The United States was the old order's main architect, and China is a rising power of the new. Their approaches contrast dramatically.

Economically dominant after World War II, the US defined its interests as promoting the prosperity of its allies. The aims were to combat communism and prevent another Great Depression. Countries would make mutual trade concessions. They would not manipulate their currencies to gain advantage. Raw materials would be available at non-discriminatory prices. These norms were mostly honoured, though some countries flouted them (Japan manipulated its currency for years).

China's political goals differ. High economic growth and job creation aim to raise living standards and absorb the huge rural migration to expanding cities. Economist Donald Straszheim of Roth Capital Partners estimates the urban inflow at about 17 million people annually.

As he says, China sees export-led economic growth as a magnet for foreign investment that brings modern technology and management skills. Prosperity is considered essential to maintaining public order and the Communist Party's political monopoly.

At first, China pursued its ambitions within the existing global framework. Indeed, the United States supported China's membership in the World Trade Organization (WTO) in 2001. But as it grows richer, China increasingly ignores old norms, Mr Bergsten argues.

It runs a predatory trade policy by keeping its currency, the renminbi, at artificially low levels.

That stimulates export-led growth. From 2000 to 2007, China's current account surplus - a broad measure of trade flows - ballooned from 1.7 per cent of gross domestic product (GDP) to 11.1 per cent. The biggest losers are not US manufacturers but developing countries whose labour-intensive exports are most disadvantaged.

Next, China strives to lock up supplies of essential raw materials: oil, natural gas, copper. If other countries suffer, so what? Both the United States and China are self-interested.

But the US has seen a prosperous global economy as a means to expanding its power, while China sees the global economy - guaranteed markets for its exports and raw materials - as the means to promoting domestic stability.

The policies are increasingly on a collision course. China's undervalued currency and massive trade surpluses have produced US$1.8 trillion in foreign exchange reserves (China in effect stockpiles the currencies it earns in trade).

Along with its artificial export advantage, China has the cash to buy big stakes in American and other foreign firms.

Predictably, that has stirred a political backlash in the United States and elsewhere. The rigid renminbi has contributed to the euro's rise against the dollar, threatening Europe with recession.

China has undermined world trade negotiations, and its appetite for raw materials leads it to support renegade regimes (Iran, Sudan). The world economy faces other threats: catastrophic oil interruptions, disruptive money flows.

But the Chinese-American schism poses a dilemma for the next president. If Americans do nothing, China's economic nationalism may weaken the world economy - but if we retaliate by becoming more nationalistic ourselves, we may do the same.

Globalisation means interdependence; major nations ignore that at their peril. -- 2008 August 21    The Washington Post Writers Group

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Buying Into China's Land Rush
Americans, Others Acquire Luxury Homes Despite Restrictions

Once known for drab, government-controlled housing and ancient courtyard homes, China has become a land of multimillion-dollar apartments and soaring property values. And foreigners are trying to get in on the action.
  
Real-estate prices in major Chinese cities have been shooting up at double-digit rates year over year, boosted by an economy that has been growing at more than 10% annually. The jump in prices has been so sharp that the government in mid-2006 implemented stricter controls on foreign investment in hopes of reining in housing costs. Still, foreigners keep buying.

Bill Bishop, a 39-year-old American living in China, bought a four-bedroom penthouse in Beijing in 2005, choosing a luxury complex built by a big-name developer and run by a well-known property manager. The apartment was an unfinished shell -- a common way of buying a unit in China -- and fitting it out took more time and attention than Mr. Bishop, a private investor, imagined it would. But he estimates that the home, for which he paid "a fraction of the cost of an apartment in Manhattan or San Francisco," now is worth at least 50% more than he paid for it.

Behind the run-up in property values is the scarcity of housing for sale. Analysts predict the growth will continue even after the building boom sparked by the Beijing Olympics this year tapers off, despite post-Games housing downturns that occurred in other Olympics cities such as Barcelona, Spain, and Sydney, Australia.

In the last few years, the average growth rate of residential prices in major Chinese cities has been 15% to 30%. Those prices will continue to rise at a rapid clip this year, though the rate of growth should slow, predicts Anna Kalifa, head of research for U.S. real-estate services firm Jones Lang LaSalle in Beijing.

Already there have been signs of a slackening in several southern cities. Prices for new homes in Shenzhen, a boomtown of nine million that borders Hong Kong, dropped 8% from September to the end of the year, according to global real estate advisers DTZ. In nearby Guangzhou -- China's third-largest city behind Beijing and Shanghai -- new-home prices fell 9.9% in November from October, according to city government statistics. Yet many brokers and analysts are reluctant to draw too many conclusions from the downturn in the south. They point to the tides of middle-class Chinese who continue to pour into big cities looking to buy a first home. "Fundamental demand in China across the board is very strong and will remain that way for the next 10 years," says Alan Chiang, the Shenzhen-based head of mainland China residential property at DTZ.

The real-estate boom has extended beyond Beijing and Shanghai, China's main population centers, to second-tier cities like Chengdu in the west, Hangzhou and coastal Qingdao and Dalian, experts say. As multinational companies push into less built-up parts of China they are bringing along expat employees who have helped feed property growth there, too.

Many investors say they have done well. Patty Chen, 53, an American living in Shanghai, says she sold one of her first apartments in the city -- a 1,829-square-foot luxury unit downtown -- for $600,000 in 2005, almost three times what she paid for it for in 2000.

Chinese real estate wasn't always a hot prospect. Foreigners in Beijing once were forced to live in government-approved housing -- chiefly diplomatic compounds and hotels -- often at astronomical rents. Buying was difficult. But laws began to change in the late 1990s and with China's entry into the World Trade Organization in 2001.

Today, upscale developments are popping up all over China's major cities -- in Shanghai, luxury apartments can go for as much as $20 million. The Beijing Yintai Center, a high-rise development that opened in 2007 with apartments ranging from 1,076-square-foot one-bedrooms to 9,253-square-foot penthouses, is almost sold out, a spokesman says. A salesperson for the property, a joint venture between Hyatt International, Merrill Lynch and China Yintai Holdings Ltd., quoted the equivalent of $1.35 million for a 2,582-square-foot apartment in the project's 63-floor tower.

On average, however, a 1,640-square-foot apartment with Western amenities in Beijing costs about $400,000, says Jones Lang Lasalle, while the same quality and size apartment would go for $520,000 in Shanghai and $190,000 in Chengdu.

Worried that real-estate speculation was leading to higher prices, China's government rolled out regulations in July 2006 that greatly restrict foreigners' ability to purchase homes. Under the rules, foreigners can't buy a home until they have lived in the country for at least a year. And they are restricted to owning just one home at a time. The full-year requirement applies to all foreigners except Taiwan and Hong Kong residents who have a Chinese work visa.

But as with most laws in China, gray areas exist. Some foreigners have been approved to buy homes despite having traveled in and out of China during their first year. "The rules aren't clear on how that one year is calculated," says Kevin Tu, a Beijing-based agent who works with foreign buyers. Agents also say that foreigners who owned multiple homes before the new rules not only can keep them but may buy an additional property. Ms. Chen, the American in Shanghai, says she owned seven residential properties before the regulations changed and had no problem buying another one afterward.

There are other potential downsides to China property purchases. Foreigners must borrow locally, and down payments typically are at least 30%. Lenders sometimes will loan only 50% to 60% of a property's value if the buyer already has another mortgage. Property sold within five years of purchase is subject to a 5% tax, a levy designed to discourage flipping.

Ms. Kalifa of Jones Lang LaSalle says researching the background of developers is especially important because buyers generally must hand over the purchase price to a developer before construction is finished -- the country lacks escrow services to provide a safeguard. Some buyers, in fact, have been unable to move in until a year or more after the agreed date. And since the government owns all the land in China, real-estate purchases are technically very long-term leases, usually up to 70 years.

Still, Ms. Kalifa says an investment could be well worth it for anyone looking to live in China for at least three to five years. "There's a major need for housing," she says. "People are looking for investment options, and housing is a no-brainer."   - 2008 January 18  WALL ST. JOURNAL

China real estate sector cools down

Big chill: More brokers are closing which may mark the start of a broader slump in a previously booming market

After booming in recent years, China's real estate market is finally starting to feel the pinch from sagging demand and tighter controls.  

One of China's biggest real estate agencies, Chuanghui Real Estate, has shuttered dozens of outlets in Shanghai and other cities, leaving angry customers and employees, after an ill-timed expansion just as the market was peaking. Many other agencies around the country have also closed down.

So far, the retrenchment appears to be mainly limited to property brokers. But the moves could herald the beginning of a broader slowdown in one of Asia's hottest real estate markets.

The government has been wrestling to get control of the property sector, worried that rising prices for housing are pushing poorer Chinese out of the market at a time when overall inflation is surging.

Regulators stepped up curbs on the property market last year, alarmed that 'bubbles' in property prices could collapse and trigger a financial crisis. Those efforts are starting to take effect. While urban housing prices last month rose 10.5 per cent from a year earlier, a sharp slowdown in sales transactions in recent weeks suggests a new trend.

In the first week of 2008, home sales in Beijing fell 20 per cent compared with the previous week, the state-run newspaper China Securities News reported. Sales were off 38 per cent in Shenzhen and 52 per cent in east China's Nanjing, it said.

Realtors say the slump started late last year but due to various reasons, like land supply and property hoarding by developers, the impact hasn't been seen yet in prices.

So far, there are no signs of a mortgage meltdown in China similar to that seen in the US, and experts don't foresee property prices to fall substantially. Strong economic growth and surging demand from upwardly mobile families are supporting demand.

But business is slowing, especially for the so-called 'second-hand' apartments, or existing, rather than newly built homes, that are the lifeblood of local realtors in this recently commercialised market.

'In 2008, we think property developers will face some liquidity problems and financing issues,' Matthew Kong of ratings agency Fitch Asia Corporates said recently. -- 2008 January 22      AP

China’s housing index on the rise

China´s National Housing Climate Index registered 106.59 points in November, up 0.85 points over October and 2.67 points over last November, marking the eighth consecutive monthly rise since March this year, the National Bureau of Statistics released on Monday.

Investment in real estate development entered into a fast growth track this year, with November real estate development investment index went up 0.11 points month-on-month and 3.07 points year-on-year to arrive at 104.53 points. In the first eleven months of this year, China´s real estate development investment recorded at 2.16 trillion yuan, while investment for residential housing reached 1.544 trillion yuan in the period, of which 69.3 billion yuan went into the development of affordable housing, a growth of over 30 per cent.

Meanwhile, the land development acreage category index in November went up by 0.42 points over October to reach 98.04 points, which marks a year-on-year decline of 3.49 points. China´s real estate developers made a combined development acreage of 214 million sq. meters in the first eleven months, up 8 per cent year on year.

The index for idle commercial housing went up 1.26 points over October to 111.97 points, marking a year-on-year rise of 6.54 points. By the end of November, China´s idle commercial housing acreage registered at 117.97 million sq. meters, down 4.5 per cent year-on-year; of which idle commercial residential housing acreage stood at 57.66 million sq. meters, down 14.2 per cent year on year.   - 2007 December 17   ASIA PULSE

China house prices rise fastest in two years
Prices in 70 major cities surge 9.5% in Oct

China's house prices rose in October at the fastest pace since 2005 as inflation outpaced returns on bank deposits, encouraging households to invest in property.

Fever pitch: The govt's recent steps to cool real estate speculation included lifting downpayments to 40% from 30% for housing loans. Housing sold to buyers hoping to sell at higher prices accounts for a big part of total sales

Prices in 70 major cities jumped 9.5 per cent from a year earlier after gaining 8.9 per cent in September, the National Development and Reform Commission said yesterday on its web site. That was the biggest gain since records began in August 2005. Values climbed 1.6 per cent from September.

The acceleration is fuelled by the cash flood from China's trade surplus, a record US$27 billion in October, prompting concerns about a possible property bubble.

China in September raised interest rates on some mortgages and increased minimum down payments to curb real estate speculation.

'Price gains are understandable because the strong demand is still out there,' said Liu Xihui, a Shenzhen-based analyst with Ping An Securities Co. 'The reason prices are still accelerating is probably because September's tightening measures haven't yet had an effect.'

Prices soared 19.5 per cent in October from a year earlier in Shenzhen and 15.1 per cent in Beijing, the commission said. New commercial housing valuations rose 10.6 per cent from a year earlier and second-hand prices increased by 8.7 per cent, it said.

Measures introduced by China on Sept 27 to damp property speculation included raising downpayments to 40 per cent from 30 per cent for housing loans, and to half a property's value for commercial real estate.

The steps will slow property price increases in the balance of the year by crimping buying for investment purposes, said Ping An Securities' Liu. Housing sold to buyers hoping to sell at anticipated higher prices accounts for a 'big part' of total sales, he said.

September's measures came after new taxes, higher mortgage rates and downpayment ratios imposed since 2005 failed to cool the market. Investment in real estate development jumped 30.3 per cent in the first nine months of 2007, 6 percentage points faster than a year earlier.

China's consumer prices rose 6.5 per cent last month from a year earlier, matching the decade high in August, as food costs surged. The benchmark one-year deposit rate is 3.87 per cent.

China has this year raised interest rates five times and ordered lenders on nine occasions to set aside larger reserves to curb inflation and contain bubbles in the property and stock markets. --   2007 November 14   BLOOMBERG

• Sohu Stumbles
• China's Clout
• Property Rights in China
• Real Estate in China drives IPO boom
• External investments by China
• China's Housing Prices Increase 8.9 Percent in 70 Major Cities
• China 30 cities to invest
• China rises 
• Chinese Banks head for US

China's booming economy is helping to support global growth as America turns sickly. So now it has to keep up the pace

Illustration by Bill Butcher

No country in history has sustained such a blistering rate of growth over three decades as China. Its economy grew by a staggering 11.9% in the year to the second quarter. Since 1978 it has grown by an average of almost 10% a year—more than Japan or the Asian tigers achieved over similar periods when their economies took off. But eventually every sprinter trips. Japan's growth averaged 9.5% in the two decades to 1970, but slowed to 4.7% in the 1970s and to only 1% by the 1990s.

As China has grown, it has come to matter much more to the rest of the world. For the first time it is now contributing more to global GDP growth (measured at market exchange rates) than the United States is. Yet, even as growth forecasts for China are being revised upwards, America is looking at a downturn caused by falling house prices, which threaten to clobber consumer spending. The fate of the world economy now hinges not just on America, but also on China's economic fitness continuing over at least the next two years

So what immediate threats does China face? The biggest worry is that the economy is overheating and inflation surging out of control. In August consumer-price inflation jumped to 6.5%, up from 1.3% a year earlier and its highest for more than a decade. If China slams on the brakes, its economy could suffer a hard landing, as happened after past episodes of inflation.

But inflation is nowhere near previous danger levels in 1988 and 1994, when it soared above 25% (see chart 1). Moreover, the leap in inflation does not seem to be a symptom of overheating caused by excess demand, as it was in the past. It is due entirely to the rise in food prices caused by supply-side problems. Excluding food, inflation is only 0.9%. This does not mean that food is unimportant: it accounts for one-third of the inflation basket, and rising prices could trigger social unrest. But it is not something that China's central bank can easily fix by raising interest rates. The bank has raised interest rates five times this year, but they still remain low relative to the country's growth rate.

Growing public concerns over inflation recently prompted Beijing to introduce a freeze until the end of 2007 on a wide range of government-controlled prices, such as oil, electricity and water. A more effective way to curb inflation would be to allow the Chinese currency to rise faster. This would reduce import prices of food and raw materials and also curb the build-up of liquidity as a result of rising foreign-exchange inflows.

Unless checked, excessive monetary growth combined with over-rapid GDP growth could eventually lead to more general inflationary pressures. In its latest “China Quarterly Update”, the World Bank says that in the first half of 2007 China grew faster than its potential growth rate (currently estimated at around 10.5%) for the first time in a decade (see chart 2). However, excess demand is tiny compared with previous phases of overheating so the risk of soaring inflation causing a hard landing in the near future is remote.

Bubble trouble

A second much-talked-about threat is the bursting of China's stockmarket bubble. Share prices have risen by 400% in just over two years, and average price-earnings ratios based on historic profits are around 50 (based on forecast 2008 profits they are a still-racy 30). Even though almost everyone reckons this is a bubble, history suggests that a bust is not imminent and that share prices could continue to rise for a lot longer: both Japan's Nikkei and America's NASDAQ saw p-e ratios well above 100 at their peaks.

Even if share prices did tumble this year, the impact on the economy would probably be relatively modest. The total value of tradable shares—that is, excluding those held by the government—is only 35% of GDP compared with 180% in America at its peak in 2000. Equities account for less than 20% of Chinese households' total financial assets, compared with half in America, so price swings have less impact on spending. When Chinese share prices collapsed by 55% from 2001 to 2005, GDP growth remained robust. Over the past year there has been little sign that people are saving less and spending their capital gains, so a slump in share prices should not have much impact either.

Share prices can also affect the cost of capital. But only a small proportion of Chinese companies are listed on the stock exchange and those that are rely mainly on internal finance. Only 10% of total financing for investment this year has come from equities. A more serious problem is that because firms have invested in other companies' stocks, a slump in share prices could directly hurt their profits and hence their investment. According to a study by Morgan Stanley, one-third of listed companies' profits in the first half of 2007 came from share-price gains and other investment income. If share prices sink, so will profits, which would make shares look even more overvalued.

Some analysts also worry that a sharp plunge in equity prices could seriously hurt banks' balance sheets, causing them to squeeze their lending. Chinese banks are officially not allowed to lend to investors to buy shares, but anecdotal evidence suggests that households and firms have taken out loans disguised as mortgages to buy shares. If so, the effect of the bubble bursting could be larger than the direct impact on consumers' wealth—especially if, as seems more likely, the bubble continues to swell for another couple of years before it finally bursts.

In many ways China today looks ominously similar to Japan before its bubble burst at the start of the 1990s, resulting in a decade of stagnation. Like Japan, China has high rates of saving and investment, low real interest rates, soaring asset prices, a big current-account surplus and upward pressure on its currency. After the Plaza accord between the big industrial countries in 1985, the Japanese yen rose by 80% against the dollar in three years.

Many in China have concluded that the blame for Japan's economic malaise in the 1990s lay largely with the appreciation of the yen. Beijing has therefore allowed the yuan to rise by only 10% since July 2005. But Japan's real mistake was its loose monetary policy to offset the impact of the rising yen—which further inflated the bubble—and then its failure to ease policy once the bust had happened. By holding down the value of the yuan and allowing a consequent build-up of excess liquidity, China risks repeating the same error.

However, Paul Cavey, a China economist at Macquarie Securities, suggests that China may have more in common with Taiwan in the 1980s than with Japan. Taiwan's bubble was even bigger, with share prices rocketing by 1,800% between 1985 and 1990. In Japan, reserve accumulation did not play a big role in the bubble. By contrast, the foreign-exchange inflows into Taiwan were greater in relation to its GDP than those seen recently in China. Taiwan, like Japan, saw a big rise in its exchange rate, by 60% in the four years to 1989.

In 1990-91 the Taipei stockmarket slumped by 75%, even more than the Tokyo market did. But Taiwan's growth remained fairly strong because policy was eased much sooner than it was in Japan. In other words, contrary to Beijing's fears, a big exchange-rate rise does not inevitably lead to economic depression.

The other big difference between China and Japan in the late 1980s is that Japan had a serious property bubble against which banks had lent heavily. Although a house-price crash would have much nastier consequences for China's economy than a share-price crash, because 80% of China's urban households now own their home, there is no evidence of a nationwide housing bubble. Average house prices across China are rising at an annual rate of 8%, with double-digit gains in some cities, such as Shenzhen and Beijing.

In a developed economy such increases might seem a little bubbly, but not in one in which nominal GDP is growing at an annual pace of 15%. The ratio of house prices to average income has fallen by 25% in China since 1999. In contrast, at their peak last year American house prices had risen by 45% relative to incomes. A collapse in house prices therefore seems unlikely in China.

If America sneezes

If neither a surge in inflation nor a bust in asset prices seem likely to derail China's economy over the next year or two, what about a recession in America? Exports account for over 40% of China's GDP, so some economists predict that a fall in exports as a result of a downturn in America would create massive excess capacity and a sharp fall in profits and investment—the making of a nasty hard landing. But the popular notion that China is dependent on export-led growth is a myth; domestic demand is much more important. This year the increase in China's net exports (ie, less imports) is likely to account for about one quarter of its growth—a record amount. But even without this external boost, GDP growth would still have been a respectable 9%.

During America's 2001 recession, China's export growth fell by 25 percentage points, but imports also slowed sharply, so GDP growth (as officially reported) remained strong. Since then, the share of its exports to America has shrunk; the European Union and other emerging economies are now more important markets. In the three months to August, Chinese exports to America increased by 14% compared with a year earlier, whereas those to the EU grew by 40%.

America's slowdown so far largely reflects a collapse in house-building, but if consumers cut their spending, the impact on Chinese exports would be harsher. The World Bank estimates that if American consumption falls by the equivalent of 1% of GDP, this could knock 0.2-0.5 percentage points off China's GDP growth, depending on how much the Federal Reserve does to cushion the downturn.

A recession in America would reduce China's growth, but since Beijing's policy-makers are fretting that the economy is starting to overheat, weaker exports and hence slower GDP growth might be a good thing. Not only would it reduce the risk of inflation, but it would also help to trim China's embarrassing trade surplus.

If a fall in exports threatens to slow growth by more than desired, the government's strong fiscal position means that it has plenty of room to boost domestic demand by spending more on infrastructure, education or health. The budget was in small deficit in 2006, but may now be in surplus—even excluding the large surpluses of state-owned enterprises. China's public-sector debt is only 18% of GDP, much lower than the 75% average in developed economies, giving the government ample room for a fiscal stimulus.

In the short term, therefore, an American downturn is more likely to cause sniffles in China than a heavy cold. Indeed, an American recession might be a blessing in disguise to China: if weaker exports forced the government to do more to boost domestic demand it would help to rebalance the economy and make growth more sustainable in the long run.

The bigger danger is that an American recession would inflame America's increasingly protectionist mood and make trade sanctions against China more likely. In an election year, politicians will need a scapegoat. But import barriers would do more harm to America's economy than China's. If China was forced to depend less on exports and more on consumption it would gain in the long run.

Running out of fuel?

In recent months there has been much talk about a new threat. China, it is claimed, is running short of cheap labour—the main source of its extraordinary growth. This is nonsense. It is true that average wages have risen by around 15% over the past year, but labour productivity in manufacturing has risen even faster. Indeed, wages have been rising at double-digit rates for a decade with no harmful impact on growth, because higher labour productivity has actually reduced wage costs (see chart 3). There are localised skill shortages, but it is hard to believe that China's labour surplus is exhausted when almost 60% of the population still lives in rural areas. The wide income gap between rural and urban areas will continue to attract workers from farms to factories.

In any case, it is not true that China's growth has been based primarily on cheap labour. Over the past decade, the increase in the labour force has contributed an average of only 1% a year, or one-tenth of its GDP growth. It is true that the population of working age will peak by 2015 and then start to shrink. But an analysis by the World Bank argues that China is unlikely to face a labour shortage for many years. The decline in the working-age population can be offset by making it easier for surplus labour to migrate into cities.

One thing China does not seem short of is capital investment. Indeed, some economists have long predicted that overinvestment as a result of an artificially cheap cost of capital will lead to China's downfall. Sooner or later, it is argued, overcapacity will lead to a plunge in capital spending, bringing the economy crashing to earth.

According to government figures, China's investment amounts to over 45% of GDP and is growing at 25% a year. But many economists reckon that is grossly overstated. For example, land purchases are wrongly counted as new investment when they are really just a transfer of ownership. If China were massively overinvesting, one would expect the return on capital to be falling. Instead, corporate profit margins have been rising. Mr Cavey estimates that average capacity utilisation, measured by the ratio of sales to assets, has been rising not falling—in strong contrast to Japan during its 1980s bubble.

Worries about rising excess capacity feed another long-standing concern that China's banks, groaning under the weight of non-performing loans, are heading for a crisis. Official figures show that non-performing loans had fallen to 7% of all loans early this year from almost 30% in 2001. But independent analysts suggest the true figure may be closer to 20% (down from over 50% at its peak). The fear is that an economic downturn and falling profits could lead to a surge in new bad loans.

China's fragile and inefficient banking system is certainly a drag on its economy, but the risk that a banking crisis could bring down the economy seems small. China has huge foreign-exchange reserves available to protect its banking system. Capital controls limit capital flight. And the government, unlike Japan's in the 1990s, has plenty of money if necessary to write off bad loans.

The list of potential threats to China's economy is long and some might shave a couple of percentage points off its growth rate (leaving it close to 10%). But none seems likely by itself to cause the economy to collapse in the next two years—ie, during the time when America's economy is likely to stumble. But what if several blows land at the same time? For example, an American recession breeds greater protectionism, global financial turmoil unnerves Chinese stockmarket investors, share prices collapse and a downturn creates social unrest. The overall impact on the economy would then be more painful.

China's best insurance against this is that its budget finances are in better shape than those of any other big economy. China's leaders are acutely aware of the risks of social unrest and they will be willing and able to try to spend their way out of trouble. That makes a sharp downturn in China less likely in the near future. But what about farther ahead?

China's economic success has been based on the essential ingredients of growth: high savings, openness to trade, good education and strong productivity growth. This means its long-term prospects remain strong, although its trend growth rate will inevitably slow as its economy matures and its labour force starts to shrink.

Tao Wang, Bank of America's economist in Beijing, says she is optimistic about China's economy in the short term and the long term, but thinks the medium term looks risky. There is a high chance of a sharp slowdown sometime within the next ten years. The problem with years of rapid growth is that it hides problems that are then painfully exposed when times are hard. But for the time being, the chances are that China can keep sprinting even if America takes to its sick bed. That is good news for the world.   - 2007 September 27   ECONOMIST

China growth fastest in 11 years

China’s full-year growth for 2006, figures for which were released on Thursday, has outstripped expectations, with gross domestic product expanding by 10.7 per cent, the fastest annual rise in more than a decade.

The new figure means that China has recorded double-digit economic growth for four consecutive years. It also means that if – as many expect – it records a similar pace of growth this year, China’s economy could as early as 2008 leapfrog that of Germany’s to make it the world’s third largest in absolute terms.

However, the government’s satisfaction on Thursday at the management of such strong growth was tempered by a surge in inflation to 2.8 per cent in December, compared with the whole-year rise of 1.5 per cent.

The increase in inflation and continued strong overall growth lifted expectations of possible further tightening measures from the People’s Bank of China, the central bank, in the near future.

The government’s response to the GDP figures for the most part hailed the success of a credit crunch, which has slowed growth from a peak of 11.5 per cent in the second quarter to 10.4 per cent in the fourth. - FINANCIAL TIMES   25 Jan 2007 

SHORT FACTS

• One in four people globally, including China’s population, will be able to speak Mandarin fluently by year 2007. Over 30 million people around the world now take Mandarin courses at 2,500 universities in 100 countries.    - Source: Borneo Bulletin, U.S. Census Bureau

• Shanghai families with young children spend 23.6% of total income on kids' education, a far high ratio than the 10% spent in the U.S. and Canada, according to Shanghai's Women's Union and Shanghai's Academy of Social Sciences. But among China's 480 million rural laborers, 80% only received primary education or below.    - Source: Xinhua, McCann Worldgroup

The real estate market in China is still volatile though as evidenced by the article that follows:

China to raise downpayment for second homes: sources

China will soon raise the downpayment requirement for people buying their second home to 40 per cent, in an effort to curb speculation in the red-hot property market, banking and regulatory sources said yesterday.

It will also raise to 50 per cent from 40 per cent the downpayment requirement for commercial property like offices and retail space, the sources told Reuters. They did not provide a specific date for the changes, but one official said they would be unveiled 'very soon'.

'In order to curb the excessive rises in property prices, the government will on the one hand increase the supply of low-rent flats and on the other hand raise the downpayment requirement,' said one source.

Annual property price inflation in 70 major cities accelerated to 8.2 per cent in August, with prices going up 20.8 per cent in the southern boomtown of Shenzhen and 12.1 per cent in Beijing. State media said the nationwide rise was a record high.

After the changes, there will be three different levels of downpayment requirements for people seeking mortgages to purchase a home. Anyone buying a second or subsequent home will need to put down 40 per cent; those buying their first home will pay 30 per cent if it is larger than 90 sq m (969 sq ft); and those buying a first home that is for their own use and is smaller than 90 sq m will need to pay 20 per cent.

It will be the second time in about 15 months that Beijing has raised downpayment requirements to try to cool down the property market. The Cabinet raised it for home mortgages to 30 per cent from 20 per cent in June 2006 as part of a package of measures to deter property speculation, exempting smaller, owner-occupied flats. -- Reuters    2007 September 18

• China considers changes to Property and Tax Laws

Flat sales plunge in stocks mania

Home sales in Beijing nosedived in the first three months as hundreds of thousands of investors shifted from bricks and mortar to chase quick gains in the mainland share market where valuations are stretched and trading volumes have been ballooning to record highs.

National Bureau of Statistics figures show that sales of completed residential properties in the capital tumbled almost 60 percent year on year to 615,000 square meters during the first quarter.

Presales of uncompleted flats also slumped more than 40 percent to nearly 1.8 million sqm in the same period.

Market watchers attribute the sharp fall to steep price increases as well as real estate speculators switching to the stock market. People from all backgrounds - from housewives and cooks to pensioners and professionals - are getting in on the act to "stir fry" shares, buying even small-caps.

Mainland investors opened 4.7 million new stock trading accounts in the first two months of the year, data from the China Securities Regulatory Commission show.

While transactions fell, home prices continued to climb. According to the National Development and Reform Commission, home prices in Beijing increased 9.9 percent in the first quarter.

"The ultimate reason for surging home prices is supply shortfall," said Sherman Lai Ming-kai, managing director of Centaline (China) Property Consultants.

Lai would like to see Beijing release more land for sale to stabilize the market in the long term. He expects housing prices in Beijing to rise 10 to 20 percent this year. "Some buyers will return to Beijing's's property market in the second half when developers are expected to speed up sales of new projects, as normally annual sales volume including the primary and secondary markets should exceed 20 million sqm," Lai said.

Property consultancy CB Richard Ellis said macroeconomic measures as well as sluggish sales during the Lunar New Year holidays combined to drive residential transaction volumes lower in the first quarter.

Enforcement of a land appreciation tax in February indicated a new round of austerity measures aimed at cooling China's soaring property sector, as previous initiatives seemed inadequate.

"LAT and the regulation of foreign purchases of commercial housing will continue to have a positive effect on stabilizing prices and discouraging investment," CB Richard Ellis said in a report.

Notwithstanding the fact, with the release of several top-quality projects in Beijing, Shanghai and Guangzhou, the average sale price of these three cities increased in the first quarter, the consultancy said.

Lai of Centaline said home prices in Guangzhou were up less than 10 percent in the first quarter, while apartment prices in Shenzhen jumped more than 10 percent amid a dearth of new supply. Average housing prices in the two cities climbed 20 percent last year, outperforming other cities. "Unless the central government introduces tougher measures, housing prices should continue their upward trend nationwide this year while transactions may pick up," Lai said   -   THE STANDARD     26 April 2007

China property prices rise faster in January
Prices in 70 major cities up 5.6% from a year earlier

(BEIJING) China's property prices rose faster in January, the nation's top planning agency said yesterday, even as the government has been trying to slow increases withcurbs on land supply and bank loans.

Prices in 70 major Chinese cities in January increased 5.6 per cent from a year earlier, 0.2 of a percentage point faster than the growth rate in December, the National Development and Reform Commission said in a statement on its website.

The January prices were 0.6 per cent higher than in December, it said.

New housing prices rose 6.1 per cent in January from a year earlier, one-fifth of a percentage point slower than in the previous month, the statement said.

The southern city of Shenzhen, which adjoins Hong Kong, had the fastest gain, 10.2 per cent, followed by Beijing with a 9.9 per cent increase, it said.

China's economic growth has averaged 10 per cent a year for the past five years, fuelling property demand and pushing up prices. Property prices in 70 major Chinese cities rose 5.5 per cent last year, 2.1 percentage points slower than in 2005, as the government imposed curbs on land and bank loans, the central bank said in a Feb 9 report.

Yet property prices in some big Chinese cities are 'still rising too fast', and the government will 'stabilise' prices by containing excessively strong demand, increasing the supply of small and medium-sized apartments and tightening regulation, the official Xinhua news agency reported on Feb 25, citing a meeting of the State Council, the nation's Cabinet.

Prices of second-hand housing climbed 5.3 per cent in January from a year earlier, 1.1 percentage points faster than in December, according to the statement.

Non-residential commercial property including office buildings and industrial warehouses sold at prices 4.5 per cent higher than a year earlier, 0.1 of a percentage point more than in December. - BloomberG    2007 March 1

China's economy set for longest expansion since '78: Goldman Sachs
It may grow 9.8% next year and 10% in 2008

China's economic boom will probably continue for at least another two years, making it the longest and least volatile expansion since free-market reforms began in 1978, Goldman Sachs Group Inc said.

The world's fourth-largest economy may grow 9.8 per cent next year and 10 per cent in 2008, Goldman economist Liang Hong said yesterday in a note to clients. The expansion will cause only 'limited' pressure on inflation to quicken, she said.

China's entry into the World Trade Organisation five years ago prompted the government to open more of the economy to competition, leading to productivity gains, Ms Liang wrote. The World Bank last month forecast the economy will expand 10.4 per cent this year, which would be the fastest pace since 1995. 'Trend growth is likely to be close to 10 per cent in China over the medium term, driven by significant productivity gains,' Ms Liang wrote. 'The real economy has become much more flexible and market-oriented compared with the last cyclical boom more than 10 years ago.'

The Chinese economy grew 10 per cent in 2003, 10.1 per cent in 2004 and 10.2 per cent last year. During the last five-year stretch of at least 10 per cent expansion - from 1992 to 1996 - growth varied between 14.2 per cent and 10 per cent and the inflation rate climbed as high as 28 per cent.

Using Ms Liang's estimates, the size of China's economy would increase to US$3 trillion in 2008 assuming the nation's currency is unchanged against the US dollar, according to Bloomberg calculations. The yuan has climbed 5.7 per cent from 8.3 per dollar, where it was pegged for a decade until July 2005. It traded at 7.8258 to the dollar at 10:45am in Shanghai.

Such an expansion means China could overtake Germany as the world's third-largest economy. Germany's gross domestic product was worth US$2.8 trillion last year, according to Bloomberg data.

China's prospects of achieving smoother and more sustainable growth are also bolstered by the central bank's larger role in economic policy, wrote Ms Liang.

The People's Bank of China has raised interest rates twice this year and forced banks to set aside more money as reserves to rein in lending and investment.

The central bank 'now commands a much better understanding of macro issues and has a broader range of tools to conduct monetary policy', Ms Liang said. It 'has managed to 'stay on the curve' with much fewer hiccups than during past cycles'.

China's economy has grown an average 9.7 per cent a year since former leader Deng Xiaoping began market reform in 1978, and is currently expanding at about double the pace of the global economy. - 2006 December 5 Bloomberg

China mortgage market is Asia's largest

China's housing mortgage market has become Asia's largest with a value of US$227 billion, according to the most recent quarterly Bank for International Settlements report.

The market, which didn't exist until 1998, made up about 10 per cent of China's gross domestic product in 2005, the Basel, Switzerland-based BIS said. China's GDP last year was 18.2 trillion yuan (S$3.6 trillion).

China, where traditionally people in urban areas live in a free welfare housing system, didn't have privately owned houses until the 1980s, the report said. The market remained small until the government ended the welfare housing system in 1998. Commercial banks have since become the dominant lender in the primary mortgage market, according to the BIS.

Property prices in 70 cities in China increased 5.4 per cent in October on average from a year earlier, compared with a 5.3 per cent gain in September, the National Development and Reform Commission said on its website last month.

South Korea has the second-largest amount of mortgage debt outstanding among the six countries compared in the report, which was written by Basel-based Haibin Zhu.

The market in South Korea grew three-fold since 2001 to US$200 billion this year, and mortgage loans account for 26.6 per cent of the economy, the report said.

The region includes Singapore and Hong Kong, where mortgage loans account for 61 per cent and 44 per cent of the economies respectively, the BIS report said. -   2006 December 12     Bloomberg

China property prices up 5.8%

China's urban real estate prices increased 5.8 per cent from a year earlier in May, faster than the 5.6 per cent rise the previous month, a government survey showed.

Property prices, including residential and commercial houses, rose 0.7 per cent from April, according to a survey of the nation's 70 biggest cities, the National Development and Reform Commission said in a statement on its website yesterday.

New housing prices climbed 6.1 per cent last month from a year earlier, slowing from a 6.4 per cent rise in April, the top planning agency's survey said.

China's authorities are under increasing pressure to slow the rise in property prices after taxes and higher mortgage rates imposed in 2005 failed to prevent prices rebounding, prompting complaints that property has become unaffordable for many people.

The north-eastern city of Dalian, in Liaoning province, reported the highest new residential apartment price increases in May: 15.2 per cent year-on-year and 3.5 per cent from April.

Shanghai's new apartment prices fell 6.2 per cent year-on-year in May, according to the survey.

The price of second-hand housing rose 6.7 per cent from a year earlier, accelerating by 0.9 percentage point from April, the survey said.

China's government on May 29 announced a plan to raise the minimum downpayment for larger apartments to 30 per cent and more than doubled the period during which a property sales tax will apply, as part of efforts to cool surging property prices. -  15 June 2006  Bloomberg

China launched a series of steps Monday aimed at curbing the mainland's soaring property prices, including raising the minimum down payment for home buyers and sales tax on the transaction of second-hand apartments

China launched a series of steps Monday aimed at curbing the mainland's soaring property prices, including raising the minimum down payment for home buyers and sales tax on the transaction of second-hand apartments.

The initiatives, following general guidelines laid down by the State Council on May 17, will raise the minimum down payment to 30 percent from the current 20 percent for people buying flats larger than 90 square meters.

The government also extended the period applying sales tax for selling second-hand apartments, amounting to 5.5 percent of the sales income, to five years from two years.

Both new rules will take effect Thursday, said a statement issued by nine ministries, including the Ministry of Construction, the Central Bank and State Administration of Taxation, published by the official Xinhua News Agency.

The new regulations contain more specifics on payment, land supply and taxation, elaborating on the guidelines given by Premier Wen Jiabao, known as the six-point directives, on May 17.

This marked the second time Beijing has taken measures to cool down rising property prices since 2005. Last June 11, the government introduced the original sales tax on the transaction of second-hand properties, in an effort to beat down real estate speculators.

"The rules last year didn't solve the problems such as rapid surging prices in a few cities, conflict in the structure of house supply, and unregulated market manners," Monday's statement said.

Housing prices in 70 large and medium-sized Chinese cities rose an average of 5.5 percent in the first quarter of 2006 from a year earlier after dipping for several months. Some major cities, such as Beijing, Shenzhen, Guangzhou and Dalian, reported price hikes of more than 15 percent, according to a recent National Development and Reform Commission report.

Buyers of apartments smaller than 90 squares meters for individual use will be exempt from the increase on minimum down payment, in order to meet the need of middle and low income residents, the statement said Monday.

The new regulations also require property developers to build at least 70 percent of the units smaller than 90 sq m in projects approved or those starting construction from Thursday.

The new rules also urge developers to start building on the acquired land as soon as possible.

The government threatens to reclaim land if developers haven't started construction two years after land acquisition.

In addition, commercial banks are not allowed to lend money to developers with less than a 35 percent deposit of the project capital, the statement said.

Bankers may not accept apartments vacant for more than three years as security for the loan.

The central government also urges provincial and city governments to provide a certain amount of affordable housing for low income groups by the end of the year, although no specific number of units is specified.

"We welcome the new policy. I believe the measures will be very positive for the Chinese property market in the long-run," said Walter Ng, strategic planning director of Nan Hoi Properties, one of the developers specializing in the luxury property market in Shenzhen.

"For the meantime, only those companies lacking cash and landbanks will be affected."

Ng said Nan Hoi would enjoy an edge over other competitors because his firm has enough landbanks for use over the next three to five years and is in no need of project financing.

However, other property market watchers mostly said they believe the government's new measures will negatively impact the market, at least in the near term.

At Land Power, a real estate consultancy, chairman Michael Choi Ngai- min said the latest measures may dampen short-term investors in light of higher costs and risks of property resale. Choi said flat price increases in Guangzhou and Shenzhen are likely to slow after climbing about 8 percent this year.

A salesman from a US investment bank said the new measures will affect developers in Beijing, Shenzhen and Shanghai the most as they have seen the greatest price hikes during past months.

Shenyin Wanguo Asset Management director Alex Wong Kwok-ying said: "Lots of speculative momentum will be taken out by these strong measures. However, the impact on the China property market in the long run will be limited."

Mainland property stocks dropped an average 5 percent Monday, and Shenyin Wanguo's Wong forecast another 5 percent decline today.

China Overseas Land & Investment shares fell 4.37 percent to HK$4.375, while China Resources Land dropped 6.06 percent to HK$3.875. - by Amy Gu, Raymond Wang,Katherine Ng and Winnie Pang     THE STANDARD    30 May 2006

China to enforce tax to cool property market

China is set to enforce a 12-year-old capital gains tax on property transactions to curb speculation in red-hot real estate markets in major cities, a Hong Kong newspaper reported on Thursday.

Wen Wei Po cited an unidentified source as saying China would apply the previously unenforced 20 per cent tax on capital gains from property transactions on houses sold within two years of purchase, or a tax of between 2 and 5 per cent on the full transaction value if the capital gain could not be confirmed.

When the tax became law in 1994 it applied to sales within five years of purchase. The law will initially be enforced in about 10 major cities, including Beijing, Guangzhou and Shenzhen, that have posted sharp rise in house prices so far this year, the paper said.

China, worried about a property bubble that could destablise its booming economy, has taken a series of steps to cool the real estate sector. The government had also launched a nationwide capital gains tax of 5.5 per cent last June on houses sold within two years. - REUTERS    25 May 2006

Investors Clamor To Expand in China
Foreign real-estate investors are ramping up their activities in China's biggest cities, even though prices have risen and there are signs of a coming downturn.

The thinking is that Shanghai will beat out Hong Kong to become China's financial and commercial center and emerge as one of the world's great cities, on a par with New York and London. Investors in Beijing's hot market believe it will benefit from a pre-2008 Olympic boom.

And most recently, currency speculators have helped boost prices, snapping up real estate as they anticipate that China will ease its currency's peg to the dollar. That would drive the Chinese currency higher and raise the value of the investors' real-estate holdings.

It's a risky game. Skeptics argue that property values are rising too fast, outpacing personal-income growth among China's burgeoning middle class. Since 2000, residential prices in Shanghai are up an average of 85%. At the same time, rents have started to slide. Such an imbalance can't last, says Peter Churchouse, a Hong Kong-based hedge-fund manager specializing in real estate.

The upshot is that property developers accustomed to reaping 6% rental yields in Shanghai now are finding it difficult to eke out 3% to 4% gross, close to what real-estate investors expect in less risky markets, such as New York and London. Rents are unlikely to go up, Mr. Churchouse explains, as properties built to entice middle-class buyers increasingly become unaffordable.

Michael Hart, head of Shanghai research at Jones Lang LaSalle, says he has seen rents fall in apartments ranging between $1,500 and $5,000 per month. In one complex outside Shanghai, rents have dropped around 10% in three months, said David Zhang, an analyst at hedge fund Dynasty Asset Management.

Yet foreign investors are clamoring to expand in China. Although there is no exact calculation of foreign inflows into property, Mr. Hart says the available data indicate overseas investment is growing. In 1995, China real-estate investment totaled $38 billion, with a minuscule portion of that coming from foreigners, Mr. Hart says. By contrast, in 2003, $122 billion flowed into China's property sector, and a 2003 survey by the Shanghai government revealed that 5%, or about $6 billion, came from investors in Europe and the U.S., as well as in Hong Kong and Taiwan.

Shu Yin Lee, who manages a $25 million real-estate portfolio for Grand River Investments, says he isn't worried about having to pay two or three times what he paid in the past to acquire new properties in Shanghai. In his view, higher prices are justified because Shanghai's long-term prospects for becoming a world-class metropolis remain appealing. "In a way, we've taken the 'Real Estate for Dummies' approach," Mr. Lee says.

Many observers expect developers to manage risk by diversifying to other Chinese cities. "One of the reasons people are looking at other places is that the market in Shanghai is too crowded," says Mr. Hart. As for that city, he says, some developers who chose wisely will do well, while those who bought land and developed projects indiscriminately may struggle to see a profit. -  19 Jan 2005   by Laura Santini   WALL ST. JOURNAL 

Chinese luxury property market a high stakes gamble  

Investors in luxury Chinese property are playing a high stakes game, with forecasts for rising prices offset by dire warnings of falling rents, poor sales opportunities and the threat of government intervention.

Few analysts predict a total property market crash in Shanghai because demand for low- and medium-cost housing in the booming city is high. But people who buy luxury flats for a quick profit could end up disappointed.

"A hot-shot in Hong Kong who bought a half million dollar home in Shanghai will find that he can't lease it and he can't sell it," said Peter Churchouse, a veteran Hong Kong-based property analyst who left investment bank Morgan Stanley to run a hedge fund devoted to property.

Shanghai is widely expected to become a major financial centre over the next decade, on a par with London, New York and Tokyo, but at this point there are not enough high-earners to fill expensive apartments.

"It's going to have to go through some cycles and pain to get there," said Churchouse.

While Shanghai luxury residential prices have jumped on average by about 20 percent in the last two years, rents have held steady. In Beijing, villa prices have not moved in the last couple of years but rents have fallen about 10 percent.

And with no sign that the Chinese luxury rental market is set for a quick recovery, Churchouse says property prices are ripe for a fall.

"You can't have prices and rents going in opposite directions for a long time," he said.

Not everyone agrees. Morgan Stanley analyst Kenny Tse says Shanghai apartment prices could rise a further 15 percent this year.

Demand will hold strong, Tse says, while new rules to reduce building sizes and heightened government sensitivity over relocating residents to make way for new projects will squeeze new city centre supply.

REVALUATION, RESALE, REGULATORY RISKS

Speculation is rife, especially in Shanghai. Developers say purchase contracts for some sparkling new 100 sq m apartments doubled in price last year to as much as $550,000 before construction even finished.

A similar apartment in Hong Kong could cost as much as $2.5 million, which is why so many young professionals in the city prefer to buy on the mainland.

But the first test of the luxury market could come if the Chinese government revalues its yuan currency. A survey of 25 strategists last week gave a median 65 percent likelihood China would adopt a more flexible foreign exchange regime this year.

Hong Kong, Taiwan and Singapore business people who bought luxury apartments in China would be tempted to cash in on Chinese assets after a revaluation, which would increases the U.S. dollar value of their investments.

But with the secondary market already weak, finding buyers would be difficult.

Most buyers want new apartments, so the big price rises in recent years have tended to feed through to developers, such as Hong Kong's Kerry Properties and Shui On Land, and Singapore's CapitaLand and Keppel Land .

The divergence between rents and property values has driven rental yields in Shanghai to 5 percent, down from 15 percent three years ago, according to Tse.

That is still above Hong Kong's 3 percent yield for luxury homes, but Tse says he would steer clear of the market.

"I personally wouldn't buy anything in China if it gives less than 7 or 8 percent rental yield," Hong Kong-based Tse said. "The risk is too high."

Tse says investors should be wary of a lack of transparency in China's property market -- reliable data is difficult to find -- and the risks of direct government intervention.

In the last year, the government instituted a series of ad hoc measures to cool the economy, including an attempt to improve property market regulation and transparency. However, the net result was to help drive up land prices.

Beijing introduced land auctions in the place of often shady deals between developers and local governments, put a 6-month moratorium on developing agricultural land and froze bank lending for land purchases.

But analysts say the government is equally capable of bringing in draconian policies that would depress the housing market, such as mass land sales, or alternatively, clamping down on mortgage lending and sharp interest rate rises. ($1=8.276 Yuan) - 1 Feb 2005    REUTERS

China is the world's most attractive place for foreign direct investment 

(FDI), topping the United States for the first time, according to management consultancy AT Kearney's annual FDI confidence survey.

Unease over the state of the world's largest economy and optimism about China's entry to the World Trade Organisation prompted the switch, said the survey, published on  and seen by Reuters on Tuesday.

The study, dated this month, said nearly one in three corporate executives cited China as their preferred first-time destination for investment, more often than any other market.

''Investors in all regions and sectors ranked the state of the US economy as their primary source of unease and biggest likely driver of future investment decisions,'' Kearney said.

Kearney said China's WTO entry, its successful bid for the 2008 Olympics, steady economic growth and stable politics outweighed negative factors such as huge non-performing loans at state banks and a murky regulatory environment.

China attracted US$29.54 billion in foreign direct investment during the firstseven months of 2002, jumping 22 per cent year on year, according to official data.

Other large emerging markets such as Mexico, India and Poland had all dipped in terms of their attractiveness when compared with the last survey, conducted in February 2001.

The United States, Britain, Germany and France rounded out the top five, with Brazil falling to 13th place this year from third last year.

Kearney polls executives from the world's 1,000 top revenue-generating companies annually.   - 2004 October   SOUTH CHINA MORNING POST    

Land Freeze in Beijing
Clamp on land to hit developers

The latest round of urban redevelopment controls in China may reduce land supply by 20 to 30 per cent, or up to 100 million square metres per year.

The new controls, announced by the State Council last month, could result in real estate investment falling by 200 billion yuan to 400 billion yuan (HK$188 billion-HK$376 billion) a year, representing 3-7 per cent of the mainland's annual fixed asset investment, Morgan Stanley analyst Kenny Tse said.

``Real estate investment as a percentage of total fixed asset investment could fall from last year's peak of 18 per cent,'' he said.

Beijing's decree calling for an immediate freeze on all urban redevelopment projects would cause a significant slowdown in supply of new land in the medium term and significant negative earnings revisions for some developers.

``Based on past experience, we believe most relocation projects will face a delay of at least 18 months. Local government officials are likely to be extremely sensitive in granting permission for redevelopment/relocation projects due to the accountability risk,'' Tse said. ``Only a handful of projects may slip through if previous approvals were granted.''

His comments came after the State Council issued strict nationwide guidelines on relocation/redevelopment projects on June 15, which are intended to reduce supply, slow down real estate investment, maintain social stability and cut down on dubious practices in the property industry.

The policy was announced ahead of the end of a six-month moratorium on land auctions in October.

The measures should be effective in easing over-investment in some parts of the property sector and add weight to the austerity programme which began in August 2003, Tse said.

Tse believes the combined effect of tighter credit, a freeze on land supply and curbs on the sale of uncompleted properties in the secondary market in Shanghai will accelerate industry consolidation in the near term. ``Smaller less-capitalised developers will either face an exit or seek partners with stronger balance sheets to remain in the game. Larger developers will likely seek merger and acquisition opportunities for land replenishment in the absence of land auctions,'' Tse said.

Winners under the new conditions are likely to be companies focusing on mass-residential development away from city centres and hence not requiring heavy relocations, he added.

``In the context of Shanghai, the losers appear to include Shui On Land, HKR International and China Resources Land as they all hold key projects in the city centre, which still require extensive relocation, in our view,'' Tse said.  - by Eli Lau    HONG KONG STANDARD    2 July 2004  

No property market collapse, says China
Housing prices will continue to rise but at a gradual pace

(HONG KONG) China's Ministry of Construction has moved to allay fears of a collapse in the mainland's booming property market, saying prices would continue to rise at a gradual pace during the rest of the year, South China Morning Post reported yesterday.

Xie Jiajin, the ministry's property department director, said on China Central Television on Sunday the sector was 'returning to a rational path'. There was no possibility of a collapse in the market, she said.

Ms Xie said she had observed from her own investigations that 70 per cent of the flats in new property projects released this year were taking a month to sell. She described this as a 'reasonable' market response. What happened last year, when people queued up for flats two to three days before they went on sale, was abnormal and needed to be corrected, she said.

Ms Xie's remarks came after recent figures showed a slight easing in growth in property investment and prices. Investment in the property sector from January to May rose 32 per cent year-on-year to 370 billion yuan (S$76.6 billion). That rise was 2.6 percentage points lower than the increase in the January-April period.

The property development investment index, a measure of activity in the sector released by the National Statistics Bureau, was at 106.53 for May, down 0.62 points from April.

The total area of newly developed land across the country in the first five months was up 19.8 per cent year-on-year to 64.8 million square metres - 12.4 percentage points lower than the increase from January to April.

Developers broke ground on 225 million sq m of residential and commercial housing during the period, up 18.7 per cent over the same time last year but down 0.6 percentage points when compared to growth from January to April.

Still, the cost of housing in the first five months of the year was 2,708 yuan per sq m on average - up 10.6 per cent over the same period last year. The average price of residential accommodation in Shanghai and Beijing was more than 5,000 yuan per sq m, the highest in the country.

Ms Xie blamed earlier price increases on speculative buying. She predicted residential property prices would grow steadily in the coming months, pushed by strong demand from people buying properties to live in rather than for speculation. But there would be no big fluctuations, she said. China began introducing policy changes at the beginning of the year to rein in the rapidly developing sector. The measures were aimed at tightening loans extended by banks, controlling land supply and restricting house demolitions.    - July 6 2004    SINGAPORE BUSINESS TIMES

China's efforts to rein in its housing boom may take the steam out of a rally in Hong Kong-traded property developers such as New World China Land, whose shares have more than doubled from a record low in April.

Around Asia's Markets: Beijing clamps down on property

China's efforts to rein in its housing boom may take the steam out of a rally in Hong Kong-traded property developers such as New World China Land, whose shares have more than doubled from a record low in April.

China has begun limiting building approvals and land supplies and in June told banks to restrict property lending. Real estate investment surged by a third in the first eight months of this year to 557 billion yuan, or $67 billion. Top officials have expressed concern that an overheated market, left unchecked, could damage economic growth.

"There are innumerable signs of an unsustainable boom in real estate in China, especially in Shanghai," said Robert Zulkoski, chief executive of Colony Capital Asia.

Property prices are in need of "serious correction," he said in an address to the Asia Society in New York.

New World China, China Overseas Land Investment, Henderson China Holdings and other developers, have bet that investment spurred by China's entry into the World Trade Organization two years ago, plus the 2008 Olympics in Beijing and the 2010 World Expo in Shanghai, will keep the boom going.

"We are keen on the mainland because the economy is robust, the population is large, the demand is high and the people are becoming more affluent," said Chew Fook Aun, chief financial officer of Kerry Properties.

Many investors agree. Shares of New World China, a unit of the Hong Kong developer New World Development, have risen 163 percent since April 28, when the stock reached a record low during the SARS epidemic. New World China has assets of more than $2.6 billion on the mainland.

China Overseas Land, an arm of China's ministry of construction, has climbed 82 percent during the same period, while Henderson China Holdings has jumped 50 percent.

Those gains exceed the 34 percent rise in the Hong Kong benchmark Hang Seng index in the same period.

In Shanghai, where house-hunting has become a weekend obsession for many residents, home prices have risen as much as 50 percent in the last two years, according to property consultant Colliers International.

But the property boom has alarmed Beijing. The central bank governor, Zhou Xiaochuan, said last month that runaway credit and excess money flowing into real estate could create a bubble. Analysts fear that the already fragile banking system would be undermined if a subsequent collapse in prices caused borrowers to default.

Since last week, commercial banks have been required to keep more reserves on hand to back deposits, a move that the central bank estimates could drain about $18 billion from the financial system and reduce funds available for lending.

The government has also said it will limit construction of luxury homes to prevent rising housing prices from stoking inflation and told banks to finance construction rather than land purchases.

As a result, the developers stock prices might already have seen their best days.

"All the measures on credit and supply, the effect of which may start to take hold later on, may be negative on property prices," said Eric Wong, an analyst at UBS Securities Asia. "A lot of the rebound in property stocks may have taken place already."

Chinese property is "a high-risk area," according to Agnes Lee of Standard Poor's. "There are high regulatory risks, low transparency, and the profit margin is very uncertain."    - By Jasmine Yap and Jianguo Jiang Bloomberg News    September 29, 2003

Graft in China real estate fuels discontent
Minister hits out at developers, city planners over graft, forced relocations

BEIJING - A senior government official admitted yesterday that China's overheated and chaotic real estate market was riddled with corruption, demolitions and forced relocations, fuelling social discontent.

Construction vice-minister Liu Zhifeng also told journalists that up to 29 per cent of commercial housing in China remained vacant, investment into the sector was too hot and property development was too dependent on bank loans.

'At present there is indeed a great deal of corruption in real-estate development especially in the relocation of people and in city planning,' Mr Liu said at a press conference. 'In some places this is relatively serious.'

He blamed developers and local city government planners, saying they had not met the needs of the market when planning residential development and had 'blindly' undertaken projects that were well beyond the financial capacity of ordinary Chinese.

Developers and city planners also refused to follow regulations in demolishing old homes, relocating citizens and paying compensation, a situation that has caused widespread discontent, Mr Liu said.

'The relocation issue is an area where people have made the most complaints. In some cases this is a very serious issue and the State Council has placed a lot of concern on settling this,' he added.

In the past few weeks, at least two people have publicly attempted suicide over government relocation policies, with a disgruntled man from central Anhui province attempting to set himself on fire in front of the portrait of revolutionary Mao Zedong on central Tiananmen Square on Monday.

According to the National Bureau of Statistics, real estate investment in China rose 33 per cent to 556.6 billion yuan (S$118 billion) in the first eight months of 2003, with growth in investment in August falling some 6.6 percentage points from the previous month.

State press reports indicate there was a yearly increase in investment of 20 per cent from 1998 to 2002.

Last year, the gross volume of individual housing consumption and building expenses totalled 800 billion yuan, of which 450 billion yuan was tied up in building and selling commercial homes, Mr Liu said.

He said that in 2002, 25 million square metres of new housing came onto the market, increasing the total commercial housing to 285 million square metres.

As of end-July, 97 million square metres remained unsold, or approximately 29 per cent, but of this, Mr Liu said, more than half had been on the market less than a year and were difficult to consider as vacant housing.

He said also that between 30 and 40 per cent of all Chinese bank loans were tied up in real estate, both in personal housing loans and land development loans. China's central bank has taken measures to curb over-lending, including recalling 180 billion yuan in short-term loans in June.  - AFP    19 Sept 2003 

Mainland property prices have risen strongly this year, partly due to massive investment in the construction industry.

But over-investment has seen vacancy rates rise sharply in the first eight months, reaching 14.1 per cent of the country's overall gross residential and commercial floor area. According to a recent survey conducted by the State Development Planning Commission and National Bureau of Statistics, housing prices in 35 cities nationwide increased by 4 per cent on average in the third quarter over the same period last year.

The average house price in Shenzhen was about 692,120 yuan (HK$652,253), the highest in China, while the annual disposable income per household was 77,087 yuan, also the highest, the survey found. Guangzhou was second in terms of housing prices, at 495,720 yuan.

In Beijing the average house price was 488,370 yuan and annual disposable income was 39,365 yuan, while in Shanghai they were 382,060 yuan and 43,804 yuan respectively.

Analysts said property prices in these four cities had risen more than 10 per cent so far this year.   - Hong Kong Standard            4 November 2002

Another Asian Nation Battling a Crisis

With one of the world's fastest-growing economies, China seems to have mastered the move to capitalism with surprising speed. But its financial sector is still struggling to cope with the waste from decades of socialism.

For years, banking decisions depended not so much on creditworthiness as on personal ties to government officials and even bribery. China's banks ended up lending hundreds of billions of dollars worth of yuan and renminbi to unsound enterprises, usually state-owned, that soon defaulted.

China's government took a big step in 1999 to start cleaning up the mess, setting up four asset management corporations - modeled after the American government agency that handled the savings and loan bailout - to take over and dispose of $170 billion of the banks' worst loans.

These focused on essentially hopeless deadbeats, who had failed to repay anything since at least 1995, and sometimes even longer.

But now the cleanup is proving less ambitious thanpromised, and is falling far short of its goal of helping push China further toward a market economy. Many of the loans, instead of being sold for cash, have simply been converted into stock in the bankrupt companies, allowing even the most inefficient to stay in business under government ownership.

Moreover, the asset management companies are being forced to compete against the state-owned banks themselves, at least one of which has told potential buyers it may cover as much as half the cost of acquiring assets now being auctioned off here and in other Chinese cities.

The loan problem lies at the heart of one of China's biggest economic problems these days: its financial system often fails to channel capital efficiently from savers into productive investments. The result is that scarce investment capital and other resources remain tied up indefinitely in businesses so unproductive that the finished goods they produce may be worth even less than the raw materials they use.

Zhu Rongji, China's prime minister and an advocate of financial reform, has personally championed the sale of nonperforming loans. But Mr. Zhu is expected to retire soon; Chinese financial experts in Beijing say that progress on this front will be a bellwether of how committed the next generation of leaders will be to continuing economic reforms.

Fred Hu, a Goldman, Sachs economist who is informally advising China's finance ministry on the asset management corporations, said that continued delay in disposing of bad debts could cost China enough to retard its growth rate by as much as two percentage points in the coming years.

"The progress has been very, very slow, almost at a snail's pace," he said. "It has taken too long, and that has translated into lost opportunities."

One big problem is that banks were so lax in issuing many of the loans that collateral was not properly registered or titles of ownership not checked. This makes it almost impossible for buyers to take the borrowers to court to force settlements.

"We went through and did an incredible amount of work and said `whoa,' " said one investment banker, who insisted on anonymity. "Seventy percent of the documents had massive defects in them."

An even bigger problem is that many state-owned factories occupy what is now prime real estate in downtown areas. But these factories, many of them unproductive money losers dating back to the 1950's, have work forces and well-connected managers whom local officials are reluctant to antagonize by allowing loan buyers to foreclose, bulldoze the factories and erect higher-value buildings like first-class office complexes or shopping malls.

As a result, the nonperforming loans owned by the asset management companies are nearly worthless. Two consortiums led by Morgan Stanley and Goldman, Sachs are now in the final stages of buying some of the least dubious loans, with a face value of $1.4 billion. But the investment banks will make an initial payment of just 8 cents on the dollar, with further payments up to a total of 20 cents on the dollar if they find themselves able to collect an unexpectedly high fraction of the loans' value.

To be sure, China's economy is growing by 8 percent a year, the fastest pace of any of the world's big economies. But even Chinese government officials are warning that the growth may not be sustainable, and that the expansion may slow soon.

Moreover, much of China's growth has come from the roughly $350 billion in foreign investment that has poured into the country over the last decade, which has by and large been efficiently invested. By contrast, China's banking system has bad debts that are larger - in comparison to the size of the economy - than Japan's, which has suffered for more than a decade from the overhang of bad debts from its speculative frenzy of the 1980's.

The debt problem, and China's halting efforts to address it, can be best seen here in Shenzhen, a sprawling industrial city near Hong Kong in the southern coastal province of Guangdong. The province is one of China's main economic engines, accounting for two-fifths of its exports.

Yet it also has one of the highest rates of loan defaults in the country, the legacy of a commercial real estate bubble in the mid-1990's and a free-wheeling government-business culture in which bankers frequently issued loans to friends or in exchange for bribes.

The Cinda Asset Management Corporation has managed to foreclose on only a handful of properties here that were used as collateral for loans issued by one of China's Big Four state-owned banks, the China Construction Bank. Cinda and China Construction Bank together are now beginning to auction a mishmash of properties here and around the country to which they have gained title through foreclosures.

Cinda has been saddled with mostly dregs, like several exhibition halls in a small convention center that closed in 2000 and now is being used as a warehouse. China Construction Bank, by contrast, has somewhat more valuable assets: two floors in a hotel and office complex that closed about the same time, for example, along with 48 office suites in the 57-story Tower A of United Plaza, one of the city's premier addresses.

But even those are proving tough sales. In an unusual arrangement to attract buyers, the China Construction Bank is offering to lend the money for up to 50 percent of the winning auction bids for its holdings and Cinda's.

That is making it even harder for other potential sellers in the property market. The Shenzhen K&C Industrial Company, a manufacturer of television monitors for closed-circuit building security systems, has been mulling the sale of its office suite on the 48th floor of Tower A, said Peng Nan, the company's executive director.

But when the local real estate community learned that China Construction was dumping its suites, the price for office space in the building fell 50 percent, to 5,000 renminbi a square meter, or $56 a square foot. Shenzhen K&C paid nearly twice as much for its suite when the building opened in 1999, and refuses to sell it at a loss, which might mean that the company has to stay put for a while, Mr. Peng said.

"If I sell this unit, I won't sell for less than 10,000" renminbi a square meter, he said.

Low prices and subsidized loans from state-owned banks are a big problem for the asset management corporations, which paid the banks full face value for the loans. The corporations are owned by the Ministry of Finance but raised part of the money in cash by borrowing from China's central bank, the People's Bank of China. The corporations raised the rest by giving 10-year bonds to the banks.

But the asset management corporations are having so much trouble selling the loans that they have struggled even to raise the money for the interest payments on the bonds.

They have no money to repay the central bank, which has lent a sum equal to several times its capital base.

A new paper published by two economists, Guonan Ma and Ben S. C. Fung, at the Bank for International Settlements, the coordinating agency for central banks around the world, expresses particular alarm. The asset management corporations have sold just one-eleventh of their loan portfolios for cash over the last two years. Even though these tended to be the best loans in their portfolios, the corporations collected an average of just 21 cents for each dollar of face value.

The result is that the asset management corporations have only raised cash equal to 1.9 percent of the original values of all of the loans transferred to them by the banks, according to statistics in the paper. While many more deals have been done for stock, it is not clear what if any value can be assigned to stock in companies that have not paid interest on their bank debts since at least the mid-1990's.

The researchers also warned that China may have endangered the financial health of its central bank by relying on it, instead of directly on taxpayers, to bankroll much of the cost of the asset management operations. The central bank's exposure, "represents no small risk to the institution and its further development as a modern central bank," the paper says, warning that if the asset management corporations fail, they could easily wipe out the capital of the central bank.

Chinese experts play down this risk. In China, as in other countries with bad-debt problems, the tab for the bank bailout will eventually be picked up by the national treasury and therefore ultimately by taxpayers, instead of by the central bank, they contend.

Western banks hope to help resolve the situation - and make a profit for themselves at the same time. Michael Berchtold, the president of Morgan Stanley's Asian and Pacific operations, said that his company believed it understood the risks. The Morgan Stanley consortium includes Salomon Smith Barney, a unit of Citigroup; Lehman Brothers; and real estate funds that they advise.

In many cases, it should be possible for loan buyers to reach a settlement with the original buyer to pay off the loan for some fraction of face value. If a Western enterprise can buy a loan for 8 cents on the dollar and sell it to the original borrower for 15 cents on the dollar, one investment banker said, it can make a profit even as the original borrower may improve its balance sheet enough to tackle other inefficiencies.

The international investment banks have found elsewhere that they have more expertise and more flexibility in reaching loan settlements. The original lenders often donot want to set a precedent by letting borrowers pay back loans for much less than the original value.

"Over the medium term," Mr. Berchtold said, "we expect to put a meaningful sum to work in nonperforming loans in China. - NEW YORK TIMES   26 October 2002

HISTORICAL DATA:

• Will China Get Rich Before it Gets Old?   - 2006 
• China's Investment Strength is Sustainable  -   GOLDMAN SACHS

1998 1999 2000 2001 2002F 2003F GDP(US$bn) 946.3 991.4 1080.0 1157.3 1236.0 1331.6 GDP per capita (US$) 758.2 787.4 853.2 907.1 961.7 1029.0 Population (mn) 1248.1 1259.1 1265.8 1275.8 1285.2 1294.1 GDP by expenditure (% yoy) Private consumption 6.7 8.2 9.2 8.7 7.5 8.1 Fixed asset investment 10.1 71 10.1 12.0 10.0 12.0 Government consumption 11.4 11.1 10.0 11.0 11.0 9.0 Domestic demand 8.1 7.3 12.1 8.9 8.1 8.9

Figures provided by Goldman Sachs

CHINA ECONOMICS

1998 1999 2000 2001 2002F 2003F Real GDP growth (% yoy) 7.8 7.4 8.0 7.3 6.8 7.2 GDP per capita(US$) 758.2 787.4 853.2 907.1 961.7 1029.0 Value added industrial production growth (% yoy) 8.9 8.8 11.5 9.7 9.5 10.8 Fixed asset investment (% yoy) 10.1 7.1 10.1 12.0 10.0 12.0 Retail sales (% yoy) 7.6 8.2 9.8 9.2 8.6 8.9 Exports (% yoy, in US$) 0.5 6.1 27.9 7.0 7.5 11.5 Imports (% yoy, in US$) -1.5 18.2 35.8 8.2 9.5 13.6 Trade Balance (US$bn) 43.5 29.2 24.1 23.1 20.0 16.6 Current account balance (US$) 29.3 15.7 20.5 16.9 11.7 3.9 Forex reserves (US$bn) 145.0 154.7 165.6 212.3 250.0 300.0 External debt (US$bn) 146.04 151.83 145.73 170 180 180 M2 growth (% yoy,year-end) 14.8 14.7 12.3 14.2 15.0 15.0 Exchange rate (Yuan/US$, year-end) 8.28 8.28 8.28 8.28 8.28 8.28

Figures provided by Goldman Sachs and published in South China Morning Post

Investment and retail	Trade	Stock indices
ARCHIVED NEWS STORIES

  from THE STANDARD  15 Sept 2005

China is definitely not as easy as one might think.    There are so many issues to consider:

• Budget Luxury hotels
• Doing Business in China is not so easy
• China's image
• Primer for novices
• China Retail Developers Not Experienced
• Shanghai Property Tycoon jailed for 16 years
• Capital Gains Tax around the corner
• China instituting Antitrust laws
• What kind of Chinese?
• Why China Matters
• Economic Growth 
• China bans Celebrity Endorsers 
• Orange County housing in China
• Rich in China
• Mr. Shanghai - Hong Kong's Vincent Lo
• China's 'herd' mentality
• Telecom in China

HOTELS & TOURISM SECTOR

Overseas capital is showing a strong interest in investing in China’s tourism industry

Overseas capital is showing a strong interest in investing in China's tourism industry as the country has fully opened the tourism market to the outside world and lowered the access threshold for overseas investment.

In the 2007 China Tourism Investment Talks held in Ningbo, Zhejiang Province recently, overseas businesses occupied more than 30 per cent of the seats of the talks, far more than the previous two talks.

Data shows that overseas investment in China's tourism industry averaged 30-40 billion yuan a year, making up 25 per cent of the nation's total capital in the tourism sector, and they cover hotels, travel agency and building of scenic spots. The development space of China's tourism industry is conducive to luring foreign capital Its open attitude gives a boost to the briskness of its
tourism capital market, and the rapid development of the tourism industry creates a chance for overseas capital to flow in.

It is estimated that China's tourism industry will maintain rapid growth in 2007, with total tourism revenue to exceed 950 billion yuan (US$1128.3 million). Experts predicted that the industry will keep growing over 10 per cent annually on average in the coming years. Among them, the individual consumption in tourism will grow 9.8 per cent annually, and business tourism will grow 10.9 per cent. By 2010, the tourism revenue will make up 8 per cent of China's GDP.

According to forecast of the world Tourism Organization, China will become the world's largest tourism destination and fourth largest tourist source by 2020. Such a huge tourism market is due to attract more and more overseas capital to seek for profits. Meanwhile, the country has a better soft environment for tourism investment, such as improved infrastructure and supporting facilities, matured operation mode and investment concept and enhanced service of the government, and various emerging tourism projects, which all are very attractive to foreign capital.

Layout of overseas capital in China´s tourism industry By origins of overseas capital, overseas investment in China´s tourism industry mainly comes from 27 countries and regions at present. Among them, Hong Kong, the United States and the United Kingdom take the first three places in terms of investment amount, accounting for 50 per cent, 11 per cent and 9 per cent of the total overseas investment in the sector.

By region directly invested by overseas businesses, overseas investment is mainly concentrated in the country´s eastern coastal areas, with Zhejiang, Fujian, Jiangsu and Guangdong, attracting 27 per cent, 12 per cent, 11 per cent and 10 per cent of the total respectively. By key overseas-invested projects, the service sector had 212 projects invested by overseas capital in 2006. Among them, 40 were large projects with contractual overseas investment totaling US$1.403 billion and actual overseas investment totaling US$440 million.

Generally speaking, overseas investment in China´s tourism industry will continue showing a trend of accelerated growth. According to the State Tourism Administration, China plans to build 12,697 tourism projects in 11th Five-Year Plan period (2006-2010), and they will need 1783.422 billion yuan of investment, including 138.561 billion yuan of overseas investment. By region, 74.848 billion yuan of overseas investment will be channeled to the eastern part of China, 24.414 billion yuan to the central part, 22.929 billion yuan to the western part, and 16.43 billion yuan to the northeastern
part.

Experts hold that the entrance of overseas investment will play an important role in further expanding China's tourism industry scale, improving the tourism industry system, upgrading the industry quality and promoting the industry to upgrade.   - 2007 December 12   ASIA PULSE

Jumeirah to hit Chinese market

The Dubai-based luxury hotel group Jumeirah is planning to have at least 10 hotels in China in the next three years, local Gulf News paper reported on Wednesday.

Jumeirah's development plans in China are part of its expansion strategy in Asia to create a geographically balanced portfolio, according to the report. The group currently manages 10 hotels in Dubai, London and New York and will manage a residential development, Jumeirah Island, currently under construction near Phuket.

"We are looking all over Asia for new developments but China is a key market. Two-thirds of our 16 hotels in Asia will be in China," the group's vice-president for sales Tricia Warwick was quoted as saying.

Jumeirah has so far three confirmed projects in China's Beijing, Shanghai and Guangzhou. The 338-room Han Tang Shanghai is scheduled to open in mid-2008. The group is also looking to open new hotels in Indonesia, Japan and India and will open a regional office in Singapore in March 2008 to oversee its development in the region.

Jumeirah is part of Dubai Holding, which is owned by Dubai Government. Its portfolio includes the sail-shaped Burj Al Arab, the world's tallest all-suite hotel.  - 2007 December 21   ASIA PULSE

Chinese internet users are five times as likely to have blogs as Americans

 
BUSINESS INSIDER.COM    

China Faces Widest Wealth Gap Since 1978

New Data Heightens Fears of Social Unrest

The wealth gap between urban and rural Chinese continues to increase, renewing concerns among Chinese leaders that the growing disparity could lead to social unrest. The per capita income of urban Chinese averaged RMB 17,175 ($2,515) last year, compared to RMB 5,153 ($754) in the countryside, a ratio of 3.33 to 1, according to the National Bureau of Statistics. That's the widest gap since China reformed its economic policies in 1978. Most of China's economic prosperity is found on the eastern seaboard, while the rural interior has lagged.   - 2010 March 10  Source: AFP