Changing China

Giant on the move

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from Breakingviews:

Beijing gate-keeping disadvantages Chinese buyers

Hummer H3

Chinese regulators might think that a tough stance on takeovers prevents domestic bidders from overpaying for overseas targets. This approach has helped prevent unwise deals. But, as the takeover of General Motors Co's Hummer business shows, Chinese bidders may have to pay more to compensate for the regulatory risk at home.

Deep-pocketed Chinese buyers are increasingly appearing as potential buyers of assets overseas. But as well as grappling with protectionism in target countries, they also face unpredictable regulatory decisions at home. Foreign sellers are increasingly demanding that Chinese bidders pay more to compensate for these risks.

There have been many reports over the last few months that Beijing would not allow Sichuan Tengzhong Heavy Industrial Machinery to buy the manufacturer of gas-guzzling cars. The concern was that a deal would fly in the face of Beijing's goal to reduce carbon emissions. There were also doubts about Tengzhong's ability to manage a foreign brand.
The debate did not kill off Tengzhong's bid. However, it may have lengthened the negotiations, which have taken a year. GM had little choice because it had no other credible bidders lined up. However, other sellers that have a choice of buyers are unlikely to wait that long.

Moreover, there is a possibility that Tengzhong might have been forced to pay a bit more to convince the seller that they can pull it off. The final purchase was reported to be $150 million for the ownership of the brand, though this does not include key technologies which remain largely off-limits to the Chinese.

from Breakingviews:

China retail speculation adds risks to gold price

goldAs gold prices surge to a new record, China's retail investors are trading more of the yellow metal, often using borrowed money. This is further evidence that recent high prices may not be sustained.
Like investors around the world, Chinese individuals are buying gold because they are worried about inflation. After all, Beijing has already pumped an unprecedented amount of money into the system, sending asset prices higher. But Chinese retail investors are also known for their herd behaviour. Despite the recent sharp rise in gold prices, many have decided to jump in.

This is lucrative business for Chinese banks. During the first six months, mid-sized Xingye Bank, which offers gold trading business with Shanghai Gold Exchange, traded 20.9 billion yuan ($3 billion) worth of gold for its clients, almost three times as much as they did last year.
Other than earning a commission for buying and selling for their clients, the bank is also making a gamble itself. It traded 15.3 billion yuan ($2 billion) worth of gold on its own account, up 15 percent from last year.

Grandpa Wen, so happy to see you!


North Korea knows how to put on a show for honoured guests. Visiting Chinese Premier Wen Jiabao was this week treated to a special performance of the “Arirang” mass games, the world’s biggest choreographed extravaganza with as many as 100,000 participants.

Part circus act, part rhythmic gymnastics, the display features dancing girls, goose-stepping soldiers and a massive flip-card section animated by ranks of performers, which this time included one-off Chinese messages added for Wen.

from Commentaries:

China can be smarter on reserving more resources

China might have good environmental reasons to restrict the production of rare earth metals, but export quotas and duties are not the way to do it.

Instead, it should raise environmental standards which will force consolidation in the production of these metals, which are key to green technologies. That will improve China's environment, give it greater control over output, but reduce the risk of a trade battle.

from Commentaries:

Bankers leave little upside for new Hong Kong IPO

A dozen or so companies have raised money in Hong Kong over the past month to cash in on rebounding equity markets, but that window is threatening to close after a string of poor debuts.

   Glorious Property was the latest, falling by 15 percent on its debut on Friday. Its poor performance came on the heels of China South City, a real-estate developer in Guangdong province, which had the worst trading debut in Hong Kong this year by falling 23 percent.
  Even companies in more stable businesses, such as men's clothing retailer Lilang and sports shoes maker Peak Sport, also fell below their offer prices last month.

from Commentaries:

China might keep the weakest bank all to itself

Faced with a backlash against foreign investors, Beijing may
be tempted to offer shares in the last of its big four banks to
a domestic audience.

That decision may reflect China's new found confidence in
the wake of the credit crisis. But it also means Chinese investors
will retain full responsibility for the country's weakest bank.

from Commentaries:

Imagine when China runs a trade deficit

If current trends continue, China might swing to a trade deficit
in the not-too-distant future. Given that China has enjoyed more
than a decade of strong exports, this may sound a bit far-fetched.
But even if it happens, this would not necessarily be something for
the world to worry about.

Some economists have recently sounded alarm bells about the
possibility of a Chinese trade deficit. They argue that if the
Chinese current account surplus shrinks, it would leave Beijing
with less spare cash to buy U.S. Treasury bonds. Then who would
fund the U.S. budget deficit -- and, by implication, U.S.

Starbucks and the overvalued yuan












Is latte at Starbucks in China overpriced or is the local currency, the yuan, unexpectedly overvalued? The former is certainly more plausible, but it might be equally true that the yuan, if not overvalued, is at least not as undervalued as other measures suggest.

This conclusion would come from my proposed Grande Latte index, the caffeinated equivalent of The Economist’s Big Mac index. The Grande Latte index, like its burger brother, is a light-hearted attempt to find a basket of goods that can be compared across countries to assess purchasing power parity (PPP) and, by extension, fair currency value. There are serious flaws, but I will save these for, ahem, the bottom of this blog.

China’s close shave


 ************How would you like to sport a Tiananmen square or the Great Wall on your head ? Then just step into Jiangshanxiu salon.******National flags are placed at the entrance of the salon in Zhengzhou, capital of Henan province in central China and staff wear naval uniforms and the song ‘Ode to the Motherland’ plays in the background.******Ahead of the 60th anniversary of the People’s Republic of China, which will be celebrated countrywide on October 1, salon manager Cao Bin has given more than 30 customers patriotic cuts and styles – and says that’s only the start.******You can also choose a design from the real life models — the staff.******Becoming a walking work of art is absolutely free, it will just cost you time as some designs can take anything up to two hours.******Click below to watch the hairdressers in action.********* ******Video credit: REUTERS/Max Duncan******Photo credit: REUTERS/Donald Chan

The Pear Necessities



On a lighter note here is a story that we enjoyed this week out of China.

In the classical Chinese novel “Journey to the West” an imaginary fruit in the shape of a baby gives those who eat it immortality.

Northern Chinese farmer Hao Xianzhang is not hoping to live forever by turning fiction into fact, he hopes the fabled fruit can sell.