China investment

By Gordon French, HSBC

China has been the growth story of the past three decades. It has also been largely out of reach for portfolio investors. That is about to change.

Shanghai-Hong Kong Stock Connect opens a new chapter in China’s financial integration with the world, and will in time reshape the dynamics of global investment flows.

Expected to launch in October, Stock Connect will for the first time allow mainland Chinese citizens to invest directly in foreign equities, and give global investors direct access to China’s stock market. Continue reading »

China’s property market – seen by some as the biggest risk facing the global economy – appears to be weakening across the board as construction activity cools, land sales slow, apartment sales slide, unsold inventory rises, financing grows tighter and the sentiment of developers slumps markedly, according to a quarterly survey conducted by Standard Chartered Bank.

“Our Developers Sentiment Index suggests that the worst times are still ahead for many developers,” concluded the Standard Chartered report authored by Lan Shen and Stephen Green. The survey polled 30 senior managers at real estate developers in June-July in six cities – Hangzhou, Foshan, Huangshi, Baoding, Lanzhou and Nanchong – on current market conditions and expectations.

The results were almost uniformly gloomy Continue reading »

By Andy Rothman, Matthews International Capital Management

Statistics announced on Wednesday do much to challenge the view that sub-par Chinese consumer spending is to blame for the sluggish rebalancing of the world’s second largest economy away from an over-reliance on investment. For too long this opinion has obscured the crucial truth that China is actually host to the world’s best consumer story.

Real retail sales rose 10.7 per cent in June and 10.8 per cent in the first half of this year, compared to the year earlier period. The strong momentum of this spending springs from solid foundations, with real urban household disposable income rising 7.1 per cent, up from 6.5 per cent a year ago. Continue reading »

By Joel Backaler, Author of “China Goes West”

On a recent trip to London, I was shocked at how much evidence of corporate China was all around me. As I rode in a black cab, I remembered that Geely, a Chinese firm that acquired Volvo in 2010, had bought iconic British cab producer Manganese Bronze in 2013. Arriving at Heathrow, I recalled that China’s sovereign wealth fund, the China Investment Corporation, owns 10% of the firm that operates the international airport. In line at the gate, I stared at a giant display for a laptop by Lenovo, the Chinese firm that made headlines in 2005 for acquiring IBM’s ThinkPad brand.

In only a few short years, Chinese companies have gone West in a big way. However, many questions remain about what drives Chinese firms to expand beyond the boundaries of the Middle Kingdom, and what the ultimate costs and benefits of their global investments will be. Continue reading »

Next year marks the 40th anniversary of China’s recognition of Bangladesh. It’s not a celebrated anniversary for many, least of all the country’s prime minister, Sheikh Hasina. The year, 1975, was also that of the death of her father, the country’s independence hero Sheikh Mujibur Rahman. His struggle against Pakistani domination was bitterly opposed by Beijing, where in 1971 state media described him as a “puppet countenance” and the country’s creation as “fascist nonsense”. It wasn’t until he and most of his family were gunned down that China opened relations with the country. Continue reading »

For Chinese, Africa is the new El Dorado. An estimated 1m Chinese have moved to Africa in the last two decades in pursuit of a more prosperous life. They are opening shops, buying land, and exploiting mines. But how welcome are the Chinese in Africa? And is their arrival a force for good?

Looking for answers to these timely questions, Howard French, a former Shanghai bureau chief of the New York Times, undertook a grand voyage through the African continent. He met with a diverse array of Chinese merchants, entrepreneurs and business men and asked them about their practices, methods, and outcomes. Continue reading »

China Kingho Energy Group, one of China’s largest privately owned energy groups, remains optimistic it can make progress on a US$6bn-10bn Sierra Leone iron ore mining project as early as next year in spite of China’s slumping appetite for the metal ore.

“The difficulties we have faced so far are the macro-economic and market conditions,” said James Chang, director of external affairs in the Kingho chairman’s office told beyondbrics. Continue reading »

By Rafael Halpin, China Confidential

Those trying to gauge how much of an economic slowdown Beijing is prepared to tolerate, should take a look at Hebei province.

GDP growth in China’s industrial heartland collapsed to 4.2 per cent in the first quarter of this year, according to official figures. Quarterly GDP data is available on a year-to-date basis from 2005, and the first quarter reading was the lowest for Hebei since then (see chart). Continue reading »

By Gavin Bowring, Asean Confidential

China’s two-way trade with the 10 nations of the Association of Southeast Asian Nations (Asean) has grown more than fivefold over the past decade and is on course to reach nearly $500bn this year. However, Chinese direct investment into Asean has been relatively anemic by comparison, accounting for only 7 per cent of China’s total foreign direct investment (FDI) stock.

But if Beijing gets its way, this is set to change. China plans a fivefold ramp up of its FDI in the region to a cumulative $150bn by 2020 from $30bn currently. Over the same period, it sees a doubling in bilateral trade to $1trn by 2020. The map below sets out the current trade flows and dynamics. Continue reading »

For many emerging markets, the most worrying aspect of Chinese economic statistics announced on Thursday is that they reveal a slump in the construction spree that has sucked in vast quantities of metal ores and other commodities from Latin America, Africa, Russia and parts of Asia.

But which EM economies are most vulnerable as China throws the commodity cycle out of joint? Craig Botham, emerging markets strategist at Schroders, has come up with a vulnerability ranking (see chart) that identifies the exposure of EM countries to a slowdown in net non-food commodity exports to China. Continue reading »

By Francis Bassolino of Alaris Consulting

“In a market that is so large, why can’t we win our share?” So runs the familiar question at many a multinational struggling to turn a hefty investment into China into a growing profit stream.

This year, as the Year of the Horse gets underway, such habitual grumbles are sharpened by recent incidents involving some high-profile corporate names. The corruption scandal at GSK, the UK pharmaceuticals company, a write-down of US$580m on a China acquisition by Caterpillar, the US machinery giant, and the retreat from the China market of Revlon Inc, the cosmetics company, have all served to reinforce questions over whether global managers should devote more resources to China. Continue reading »

Why did inflows of foreign direct investment to China jump by a strong 16.1 per cent to $10.8bn in January?

Such a robust performance may seem counterintuitive. The Chinese economy slowed last year. Its manufacturing competitiveness is being eroded by a welter of rising costs. Several high-profile incidents – a corruption scandal at GSK, the UK pharmaceuticals company, a $580m write-down on a China acquisition by Caterpillar, the US machinery giant, and the retreat of Revlon Inc, the cosmetics company, have all raised questions over the longevity of China’s allure.

But even so, say analysts, the country retains its attractiveness for foreign investors simply because it generates superior returns. Continue reading »

Michael PettisBy Michael Pettis

In October two Chinese academics presented research proposing that China’s National Bureau of Statistics under-reports the Chinese household consumption share of GDP, officially at 36 per cent, by ten to twelve percentage points. There have been other studies suggesting that consumption is understated in the official data (although by much lower amounts). Analysts who still doubt China’s need for significant economic reform have often claimed that consumption in China is much higher than the official data reports. These upward revisions show, they argue, that the consumption imbalance in China’s economy is not as bad as is often supposed, and so will not require a sharp slowdown in economic growth as China rebalances its economy.

There are at least three reasons to be sceptical about this argument. Continue reading »

China’s local-government infrastructure initiatives are notoriously poor revenue generators. Toll roads may be the worst offenders.

Provincial debts to fund expressways – China’s motorways, most of which require drivers to pay a toll – have surged by 37 per cent since 2010, according to China’s latest National Audit Office report in June. But just as these loans have mushroomed, they have become harder to finance. Continue reading »

By Ken Peng of Citi Private Bank

China must rebalance! Yes, everyone from President Barack Obama to your average Beijing taxi driver knows that. Around 48 per cent of China’s GDP is investment, just 36 per cent is household consumption, with government spending a bloated 13 per cent and net exports, 2 per cent. Whether through timely and painful reforms now or delayed reforms and disaster later, investment growth is expected to falter and consumption to be unable to pick up the slack.

But what if these basic assumptions are wrong? Continue reading »