<![CDATA[Business & Industry_English_财新网]]> http://english.caing.com/industry/index.html UTF-8 http://english.caing.com/industry/index.html www.caing.com 60 <![CDATA[Geely-Volvo Deal Approved by Chinese Regulator]]> (Beijing) - Geely's proposed acquisition of the Ford Motors luxury vehicle unit Volvo won approval from Chinese regulators, signaling the near-completion of the transaction which is expected to be one month ahead of schedule.

A source close to the deal told Caixin on July 29 that the US$ 1.8 billion deal received the green light from the Ministry of Commerce and the National Development and Reform Commission.

The publicity department of the Ministry of Commerce confirmed the approval with Caixin. The source told Caixin that the Chinese government has been "quite supportive" of the deal. The deal was approved by regulators in the United States and the European Union in June and July.

Geely signed the formal agreement on March 28 with Ford to acquire the entire stake in Volvo. Li Shufu, chairman of Geely, said that funding of the acquisition and future operation will cost a total of US$ 2.7 billion.

On July 6, a press release from the European Commission concerning the approval of the deal for the first time confirmed that an investment company controlled by the State-owned Assets Supervision and Administration Commission (SASAC) of Daqing City in Northern China's Heilongjiang Province will invest in Geely's acquisition. Caixin learned earlier that Daqing SASAC will offer US$ 700 million to US$ 800 million for the deal.

Geely hasn't confirmed the location of the Chinese plant for Volvo. Caixin has learned from industry insiders that Shanghai has been suggested as a location.

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]]> Fri, 30 Jul 2010 15:20:52 +0800 <![CDATA[Car Partners Turn Road Warriors over IPO Plan]]> (Beijing) -- While millions of cars rolled off its assembly lines, Beijing Automotive Industry Holding Co. Ltd. (BAIC) has spent the past few years spinning wheels over plans for shareholder restructuring and a public listing.

State-owned BAIC appears to be making progress. Caixin learned from company sources that a new shareholding structure would likely be announced by late July – a move seen as prelude to a public offering.

A source close to BAIC told Caixin that the group's long-range plan calls for current shareholders of its subsidiary Beijing Automobile Investment Co. to become the main shareholders of a new, public company.

Nevertheless, the listing proposal remains in limbo more than two years after winning regulatory approval. Company officials have yet to name a stock exchange for an initial public offering, even though a source told Caixin that a back-door listing in Hong Kong has been mentioned in the past. And financial details have not been released.

Also undecided are which assets from the sprawling group, which currently includes two joint ventures with foreign manufacturers, might be incorporated into a publicly traded company.

The greatest obstacle to progress for the IPO plan appears to be South Korea's Hyundai Motors, Beijing Automobile Investment Co.'s partner in the group's largest passenger car venture, Beijing Hyundai.

Hyundai officials have displayed "a strong lack of cooperation" toward listing efforts, sources close to BAIC told Caixin. Moreover, the foreign partner's uncooperative attitude is said to be the core reason for delays in the launch of BAIC's public company.

Beijing Automobile Investment and Hyundai each hold a 50 percent stake in Beijing Hyundai, which accounts for almost half the group's profits. The venture sold 570,000 vehicles last year, or 47 percent of the group's total sales of roughly 1.2 million cars and trucks.

Incorporating Beijing Hyundai's assets into a new, public company would smooth the path for a successful IPO, say BAIC officials. But if Hyundai refuses to let BAIC inject the venture's Chinese assets into a listed entity, the group could take another route to the stock market.

One way could involve a new, all-Chinese auto business with products based on BAIC's recent acquisition of machinery and technology from Sweden's Saab. That business is now taking shape with plans for the company's new car models to be on dealer lots before 2012.

Vacillating Plans

BAIC officially initiated a listing plan in early 2008 and hired the necessary intermediaries. The plan was soon approved by the Beijing State-owned Assets Supervision and Administration Commission (SASAC), and in May the group formed an IPO planning team and announced late 2008 as the launch target.

The target date came and went. And about a year later, BAIC Chairman Xu Heyi told Caixin the main reason for the lack of progress was that "the listing plan has yet to be confirmed."

A source close to BAIC said company executives were vacillating during that time between listing the entire group and limiting the public concern to passenger car operations.

In addition to Beijing Hyundai, BAIC operates a joint automaking venture with Germany's Daimler called Beijing-Benz Automotive Co. It's also the principal stakeholder in commercial truck manufacturer Beiqi Foton Motor Co., and a maker of light trucks called Beijing Automobile Works Co.

Proposals to include Beiqi Foton in the listed company sparked internal disputes. But BAIC executives have apparently settled the debate, according to Wang Dazong, the group's general manager, who told Caixin the group supports Beiqi Foton's independence and will exclude its assets from a listed company.

Obstructionism

Meanwhile, Hyundai makes no secret of its opposition to a BAIC listing. And its opinion matters; without Beijing Hyundai assets, a BAIC public company would be unlikely to generate much enthusiasm among capital market investors.
   
A BAIC source said the Beijing Hyundai business contributed more than 50 percent to the group's revenues of more than 100 billion yuan and profits about 10 billion yuan in 2009.

Beijing Hyundai sold 330,000 vehicles in the first quarter 2010, equal to nearly 45 percent of BAIC's total sales for that period. Meanwhile, BAIC sold 740,000 vehicles in the quarter, posting revenues of 73.7 billion yuan and earning 5 billion yuan.

Like other foreign partners in joint ventures with Chinese automakers, Hyundai has been in charge of introducing vehicle models built by Beijing Hyundai. It also takes the lead in company procurement and controls key departments such as finance.

Hyundai appears worried that a listed entity would become a strong competitor and control access to proprietary information now in the hands of Beijing Hyundai.

South Korean executives have even been accused of obstructionism. A BAIC source told Caixin that Beijing Hyundai officials prevented BAIC officials from conducting a pre-listing audit by closing the plant's front doors and blocking the entrance.

South Korean company officials also prevented their Chinese partners from accessing and investigating the financial status of the joint venture company on several occasions, the source said.
 
BAIC and Hyundai officials have held "dozens" of official and unofficial discussions that ended without agreement, the source said. Government agencies including Beijing SASAC have tried to mediate but without success.

BAIC's way around Hyundai could be to develop its own car brands and grow independent assets that attract stock investors. But the process could take years.

"Without a Beijing Hyundai asset injection, BAIC has to develop its own brands, to a certain extent, before being able to list," a source close to BAIC executives said. "This would probably take two to three years, or even longer."

The Saab deal reached in December 2009 could help BAIC reach the private product goal. As part of a 4 billion yuan investment, the company spent US$ 200 million for intellectual property rights that it's using to develop exclusive mid- to high-end sedans.

Production of up to 300,000 BAIC sedans a year based Saab technology is expected to begin soon. The first luxury sedan for the Chinese market could be ready for the market by late 2011, giving the company good reason for a stock listing regardless of Hyundai's position.

1 yuan = 14 U.S. cents

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]]> Fri, 30 Jul 2010 14:13:13 +0800 <![CDATA[Shutdown for a Gatekeeper of Telecom Gold]]>

(Chengdu) – Equipment and IT services that sell for hundreds of billions of yuan, advertising contracts worth billions of yuan, and huge piles of cash for value-added services and special projects: It's all in a pot of gold at the end of China's telecom rainbow.

Many have found the gold, from multinational equipment manufacturers such as Siemens and Ericsson to small construction companies that build infrastructure for the nation's state-owned telecom empire.

But access to this glistening pot is restricted; only a limited number of executives at giant telecom companies, like leprechauns, know the secret way.

One of the gold gate-keepers was businessman Zhang Rui(张锐), according to investigators who have spent several months tracing corruption in China's telecom industry. Zhang was a key industry insider who apparently helped suppliers and contractors find those gold nuggets, while pocketing quite a few for himself.

Zhang moved freely through the executive suites of China's telecom world, giving advice to operator chiefs who called him an "industry sage" and quietly cutting deals for contractors in ways that earned him the nickname "invisible man." Only executives at the industry's highest echelons knew his name and his game.

Beijing art lovers, however, best knew Zhang Rui as the owner of a swank restaurant on the city's near-east side and a collector of contemporary art.

He might have held on to his art-lover front while continuing to run his advisory business Beijing Ruizhi Telecommunications Consulting Co. Ltd. behind the scenes if not for an investigation that exposed a corruption trail leading to his desk.

The first step on the trail, numerous sources close to China Mobile told Caixin, was the sudden dismissal and detention of China Mobile Group's former party secretary and vice president Zhang Chunjiang（张春江） in 2009. Authorities tied him to bribes worth more than 10 million yuan.

A pair of China Mobile leaders were the next to fall: the president of Sichuan Mobile, Li Hua（李华）, who has been detained since June; and the president of both Sichuan Mobile's data department and China Mobile's wireless music operations, Li Xiangdong（李向东）, who fled China earlier this year with an unknown amount of money.

Zhang and his wife, Raynetwork Advertising Co. President Yang Ruining, were recently detained by authorities on charges that remain unclear.

In the wake of the investigations, China Mobile has launched a major personnel shuffle involving several subsidiaries. And according to a telecom industry veteran, Zhang's trouble led to an exodus of Chinese executives working for several multinational telecom suppliers. They apparently left the country to avoid trouble.

The snowballing affair reflected the breadth and depth of the telecom industry's spending habits, and the enormous incentive for contractors to do whatever may be needed to find that pot of gold.

"I never imagined that telecom server-room air conditioning systems and alarm systems could be so lucrative," said one equipment supplier. "But telecom company fixed asset investment is really big, and even a small portion from the cup is still a lot."

'Consulting' Fees

Opposite Workers Stadium in Beijing is a peculiar building that combines a modern steel structure with ancient ornamentation. It's said this is a 200-year-old house that was moved from Jiangxi Province and is now the home of Le Quai, an upscale restaurant owned by Zhang.

Local officials, foreign diplomats and celebrities alike feel at home here. Over the years, Zhang has hosted a slew of high-profile events revolving around his reputation as an art collector. Some say his home is a veritable Guggenheim Museum, with nearly 1,000 works of art.

Few art fans know, however, that Zhang made his fortune in the telecom business. He got a start in Dalian in the 1990s as a representative for switchboard makers and eventually built an empire through firms offering "consultant" services to foreign companies seeking business with state-owned telecoms, advertising deals and mobile phone services.

In Dalian, he met his rainmaker and future government-business insider Zhang Chunjiang, then-deputy director of the Dalian Post and Telecommunications Administration, who later became, among other things, the youngest vice minister ever when the Ministry of Information Industries was formed in December 1999.

Zhang kept good relations with this rising star through a period of rapid growth for the nation's telecom industry.

Since 1992, the number of fixed-line subscribers in China has increased to 1.1 billion from 10 million, while the number of mobile subscribers grew to 800 million from almost zero. Regulators and telecom operators have had to expand networks quickly and on a massive scale. Paying for all this growth required a pot of gold that equipment and service providers were eager to tap, creating enormous opportunities for insiders such as Zhang.

Foreign telecom equipment manufacturers that joined local suppliers lining up for contracts soon learned about the importance of relationships in the Chinese business world. But foreigners who found themselves caught between overseas regulatory constraints and the need to cultivate relationships signed up with Chinese agents and consultants who acted as middlemen.

Zhang signed up numerous telecom equipment and software companies who hired him as a consultant. In fact, though, authorities say he functioned as a third-party representative by transferring payments from contractors to telecom company insiders. He called the payments "consulting fees."

What Zhang did is common in the industry, insiders say, especially when foreign companies are involved. Middlemen often enjoy close ties to telecom executives and government officials.

Zhang was "a middleman for many foreign companies," a close associate said.

Gold Rush

Yet Zhang was more than a middleman. As his friend Zhang Chunjiang climbed his career ladder, Zhang expanded his business scope.

Zhang established Beijing Huamai Electronic Technology Co. Ltd. with registered capital of 2 million yuan in January 1995. His wife Yang Xuxia (who later changed her name to Yang Ruining) put up 800,000 yuan, and Zhang and Zhang Chunjiang's now ex-wife Ji Rong each put up 600,000 yuan.

This became a foundation for Zhang's other platforms, such as a company with a Hong Kong connection that made alarm systems for clients including China Telecom, China Mobile and China Unicom. But mainly these entities built relationships and shuffled documents; Caixin found only a few employees recently working at the alarm company's office in Beijing.

Zhang established his first telecom company – Beijing Siruide Computer System Integration Co. – in 1997 and became its legal representative. The company handled computer communication network technology and project integration, but also sold telecom equipment. Huamai Electronic was a shareholder. Others were Sichuan Galaxy Technology Co. Ltd. and Sichuan businessman Li Xinze.

Apparently, one of Zhang's first business ties to Sichuan was Li, who later worked up to Sichuan Mobile value-added and data services posts, and became a core member of the mobile phone music services provider Sichuan Mobile Music Base.

Zhang established Beijing Ruizhi in 1998, offering communications products as well as computer software and hardware. In 2001, the company invested in another outfit called Raynetwork.

Raynetwork was valuable because it held a telecommunications business license. Such a license requires approvals from multiple government departments and applications are tightly controlled by the government. Zhang sold it in 2007 for 7.2 million yuan.

These and other deals underscored the advantages Zhang enjoyed thanks to Zhang Chunjiang, who became director of MII's Telecommunications Management Office in 1998, and other friends in high places.

Advertising Whiz

Advertising profit potential caught Zhang's eye in 2001 after China's telecom sector had completed its first reform step, which separated companies from government administrations. Telecom operators began to spend more money on image promotion, for example, and so Zhang and his wife set up Beijing Raynet Advertising.

In the first year, the ad company's sales topped 14.7 million yuan thanks to big clients such as China Mobile and Sanyo. By 2002, revenues had soared to 56.4 million yuan.

The agency won a national contract from China Netcom in 2004, the year after Zhang Chunjiang took a job as Netcom's president.
By 2007, Raynet had expanded its client base to provincial departments of telecom operators in Shanghai, Liaoning, Changchun, and other regions. Money poured in.

"After getting the Netcom project, we basically didn't need to do ads for other telecom companies," a Raynet executive told Caixin.

"A single provincial telecom can support a large advertising company, which can live well," said a former provincial director of a mobile advertising agency.

A senior advertising source said it's not uncommon for telecom executives to invest in advertising and advertising production companies, some of which can be half-owned by a telecom company chief or his family. Because production companies have no equity links to advertising companies, it's difficult to trace the ownership links. They are also less risky than under-the-table gift-giving.
"Everyone avoids directly giving ‘red envelopes' (cash payoffs)," said one industry insider. "Travel packages, Louis Vuitton bags, jewelry, etc., are too low brow."

Raynet's performance opened a door to cooperation with the global ad giant Ogilvy & Mather. The companies established a joint venture in 2007, with Zhang's wife serving as legal representative.

Sichuan Trio

Another moneymaking venture for Zhang started in 2003, when he and Li each put up 250,000 yuan to establish We Think, a telecom technology company based in Sichuan. Its downtown Chengdu headquarters opened two years later.

The plan was to grab some of the gold available in value-added services (VAS), which had become the fastest-growing sector for the country's major telecom operators. A rapid increase in mobile phone and Internet users gave birth to an army of VAS providers.

First came text message services, and then mobile music services through places such as China Mobile's Mobile Music Base in Sichuan. Again, revenues surged.

China Mobile elevated the successful Sichuan Mobile's music business, giving it oversight of the company's nationwide music business. Numerous wireless VAS providers like We Think sprang up, and a Caixin survey found several names appeared frequently in the list of these companies' shareholders: Zhang, Li and Tan Chunling.

Sichuan Mobile became We Think's largest customer, but the Zhang-Li venture also did plenty of business with Sichuan Telecom.

We Think increased its capitalization to 5 million yuan in October 2004, with Zhang and Li increasing their share of the capitalization to 2.25 million yuan each through non-patented technology. The phrase "non-patented technology" refers to a mobile operator data service analysis system developed by the pair called Comprehensive Evaluation System for the Operational Strength of Mobile Operators.

Zhang and Li's said the system's sales revenues would rise to 6 million yuan the first year, 12 million yuan the second, and then climb to 20 million yuan, 26 million yuan and 30 million yuan respectively over the following three years. This forecast allowed them to assess intangible assets of their technology at 4.51 million yuan.

Similar technology assessments-for-investments are described in documents at other companies run by Zhang.

Service and content providers who wanted business on China Mobile's network platform had to go through the Sichuan Mobile Data Department and Mobile Music Base. We Think waltzed through the door through Zhang's connections at Sichuan Mobile.

Annual operating revenue rose to tens of millions of yuan by 2005, and in 2007 We Think reported 72.4 million yuan in revenue and net income totaling 27.1 million yuan.

These days, We Think has lost its sheen. Unpaid bills were found recently taped to the company's Beijing office gate, which is shut tight. Caixin noticed Zhang's name on one bill.

Another company registered at the address of We Think's Sichuan branch – Sichuan Heze Technology Co. Ltd. – is in the business of communications equipment consulting and equipment sales. Established in 2004, investors included Zhang, Li and Tan.

Tan was originally a director at Sichuan Television. He later opened an advertising company whose major clients were Sichuan Mobile and other telecom operators. Li and he were the shareholders.

Tan's main gig was an independent digital music support platform company for the Sichuan Mobile Music Base called Myoo Music Entertainment. He started it in 2005 and, with Li, bought the company in 2007 just as Sichuan Mobile Music Base was starting to provide mobile music services.

Myoo is currently near to launching an initial public offering on China's Growth Enterprise Market. It's already completed two rounds of fund-raising.
Wang Feng, an executive at Bond Advertising, said he invested more than 10 million yuan in Myoo. But the recent shakeup in the telecom world, the detention of Zhang, and the exposures of shady business ties linking Tan, Li and others has left him feeling uneasy about the investment.

Wang has good reason to be nervous. It appears the listing plan of Sichuan Mobile Music Base's most important service provider Myoo now hinges on the outcome of the cases against Zhang and the rest of the telecom insiders who found a way to the pot at the end of the rainbow.

1 yuan = 14 U.S. cents

2 
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]]> Fri, 30 Jul 2010 14:01:40 +0800 <![CDATA[Zijin Mining Expects Output Drop After Spill]]> (Beijing) - Zijin Mining Group Co., China's largest gold producer, announced on July 27 that its 2010 gold production may decrease by one ton due the recent copper acid leak into the Ting River.

The company said in a statement that it will limit production in the accident area in order to reduce environmental risks.


The Zijinshan gold-copper mine owned by Zijin Mining is in Shanghang Country, Fujian Province. On July 3, a wastewater leak in the copper smelting plant spilled 9,100 cubic meters of acid-laced sewage into the nearby Ting River, killing off nearly two thousand tons of fish. Zijin Mining disclosed the accident to the public nine days after it occurred. On July 16, another leak occurred at the site, dumping 500 cubic meters of toxic wastewater into the river.

In June, local fishermen said Zijin Mining's practices were related to a large fish kill in the Ting River near the Zijingshan Mine. However, the company hasn't responded to the charges.

According to the company's annual financial reports, its gold production in 2009 was 75.37 tons, accounting for 73 percent of the company's total revenue. The Zijingshan Mine produced 18 tons of gold last year.

At the same time, some media agencies have claimed that Zijin Mining offered bribes to journalists to conceal the accident. Zijin Mining has denied the accusations. The company's share trading was suspended on July 26 and 27.

On July 15, three executives from the plant were detained by the Shanghang County Public Security Bureau. Chen Junan, head of the Shanghang County Environmental Protection Bureau resigned days after the public announcement of the accident. The Fujian provincial environment protection authority shut down the copper plant.

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]]> Wed, 28 Jul 2010 18:54:28 +0800 <![CDATA[Industrial Output on a Downswing]]>

Note: China's industrial output is facing various impacts from the government's efforts to reduce energy consumption and pollution, regulate local financing platforms, and measures for cooling the property market. In June, value-added output from large scale industries increased 13.7 percent from the same period last year, down 2.8 percentage points from May. At the same time, total power consumption and power production had slower growth. Due to the decrease of industrial power demand and the large basis late last year, the year-on-year growth of China's power production and consumption are expected to continue slowing in the short term.

Source: Wind Info

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]]> Wed, 28 Jul 2010 11:35:45 +0800 <![CDATA[China Eastern to Set up Yunnan JV]]> (Beijing) - China Eastern Airlines Corp. said it will set up a joint venture with the state-owned assets regulator in Yunnan Province.

The airlines said in a statement on late July 26 that the venture will have a registered capital of 3.66 billion yuan, in which China Eastern will hold 65 percent stake and the Yunnan provincial State Assets Supervision and Administration Commission (SASAC) will have 35 percent stake.

The transaction is pending approval of China Eastern's shareholders.

According to the plan, China Eastern will invest a total of 2.38 billion yuan in two installments, including 700 million yuan in cash and 1.68 billion worth of aviation assets.

The Yunnan SASAC will invest 254 million yuan in cash and 1 billion yuan worth of land use rights in the new Kunming airport. The entire investment will be completed within two years.

A five-member board of directors will be set up for the new company, in which China Eastern will have three seats while the SASAC will have one.

China Eastern said that the joint venture will effectively use the company's investment in the Yunnan aviation market and strengthen the airlines' presence in the market.

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]]> Tue, 27 Jul 2010 12:46:19 +0800 <![CDATA[China Gold Poised for Bolivian Reserves]]> (Beijing) – State-owned China National Gold Group, the country's largest gold producer, is planning to apply for mining rights in Bolivia to explore gold mines in the country, as part of the company's effort for expanding its overseas investments.

Song Xin, vice general manager of China Gold said on July 25 that a subsidiary of China Gold has signed a contract to offer technology services for a mining project in Bolivia.

China Gold has also conducted a review on a gold mine in the Democratic Republic of Congo, and a related evaluation is underway, according to Song.

In another effort, China Gold and Russia-based Renova Group have signed a memorandum of understanding for future cooperation in mining exploration and project operation earlier this month. Detailed terms of the partnership will be worked out soon.

According to Song, China Gold will continue its gradual investment expansion in the overseas market with top priority in neighboring countries in consideration of lower transportation costs and cultural proximity, and the second priority for investment will be countries with well-developed mining industry such as the United States, Canada and Australia.

"We are active in overseas investment but remain cautious in each individual project," said Song, adding that the company will not only consider the quality of the resource but also the target country's political stability and investment environment when conducting investments aboard.

In May 2005, China Gold acquired Canada-listed Jinshan Gold Mines and renamed it as China Gold International Resources Co. to become China Gold's overseas investment vehicle.

In the first half of this year, China Gold reported sales revenues of 27.67 billion yuan, up 98 percent from the same period last year. The first half operating profit was 1.55 billion yuan, a year-on-year rise of 300 percent. The company expects to realize annual revenues of 50 billion yuan.

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]]> Tue, 27 Jul 2010 12:33:41 +0800 <![CDATA[China to Tighten Non-Ferrous Metals Output]]> China has worked out plans to rein in its non-ferrous metals refining capacities over the next five years, while moving to shut down outmoded capacities and improve industry consolidation.

Shang Fushan, vice chairman of the China Nonferrous Metals Industry Association, said on July 23 at an industry forum that the draft plan of the non-ferrous metals industry development for the Twelfth Five-Year Plan between 2011 and 2015 has set targets to limit refining capacity expansion.

According to the draft plan, by 2015, refining capacity for raw copper will be limited to 5 million tons, electrolytic copper refining capacity will be limited to between 6.5 million tons and 7 million tons. Alumina will be capped at 42 million tons; aluminum, 20 million tons; lead, 5.5 million tons and zinc, 6.7 million tons.

The draft advocates strengthening concentration in non-ferrous metals industries. It expects that by 2015, the top ten producers of copper and aluminum to occupy 90 percent of their market. The top ten leaders in zinc and lead refining are predicted to take up 70 percent of industry share.

The draft also set a target for domestic raw material supply to meet 40 percent of the copper industry's demand, 80 percent for aluminum and 50 percent for zinc. Meanwhile, it encourages domestic cooperation with natural resource companies abroad.

China Securities Journal reported that special terms for the development of five kinds of rare metals are set in the Twelfth Five-Year Plan, including tungsten, molybdenum, stannum, antimony and rare earth metals.

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]]> Mon, 26 Jul 2010 17:48:18 +0800 <![CDATA[GM Recalls Vehicles in China]]> General Motors China will recall a number of auto models sold in China due to flaws in windshield wiper fluid systems, according to a statement published by China's quality watchdog.

The General Administration of Quality Supervision, Inspection and Quarantine (GAQSIQ) said in a statement that the recall will start from July 26, without disclosing the number of vehicles affected.

According to the GAQSIQ, a defect in a heated windshield wiper fluid system, which helps to prevent frost on the windshield in winter, could lead to fires in some cases. GM will remove the system for the recalled vehicles.

The models involved include Buick Lucerne 2006-2009, Cadillac DTS, the Hummer H2, Cadillac Escalade ESV and EXT made between 2007-2009, Chevrolet Avalanche, Silverado, Suburban, Tahoe, GMC Acadia, Sierra, Yukon, Yukon XL, Saturn Outlook, as well as the Chevrolet Traverse made in 2009.

This is the second GM recall in China over the past two months. On June 8, the company recalled 1.5 million vehicles worldwide due to defects in the windshield wiper system. 

And earlier in April, GM China also announced a recall of Cadillac CTS models made between 2003 and 2007, which involved 7,942 vehicles sold in the China market.

GM sold a total of 1.83 million units in China last year, increasing 66.9 percent from the previous year.

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]]> Mon, 26 Jul 2010 17:10:02 +0800 <![CDATA[Coal Industry Profits Rise 80%]]> China's coal industry reported a total profit of 122.5 billion yuan during the first five months this year, rising 80.9 percent from the same period last year.

According to the National Development and Reform Commission (NDRC), China's domestic coal production reached 1.57 billion tons in the first half, up 20.1 percent year-on-year. Coal transportation volume was 980 million tons during the same period, up 17.5 percent year-on-year.

Data from China's customs bureau shows that over the first six months, China imported 81 million tons of coal, rising 70.6 percent from the same period last year, while exporting 10 million tons, down 13 percent.

Starting from May, hydropower generation increased, alleviating coal inventory pressure on coal-fired power plants. By the end of June, major power plants have a total of 57.8 million tons of coal storage, increased 8.23 million tons from the end of May. Coal stockpiling in Qinghuangdao Port was 5.66 million tons, down 540,000 tons from end May.

The NDRC said that coal prices have shown an upward trend since mid-April after a gradual decline early this year. The price touched a low of 680 yuan per ton in late March but later returned to 765 yuan. The commission expected that the coal prices will remain stable in the second half due to the government's increased efforts in pollution and emission reduction.

To rein in the coal price rise, the NDRC in late June asked major domestic coal producers not to raise prices. The NDRC's price department has been urging coal companies to honor 2010 coal contract prices and return any additional charges gained from higher prices by the end of June.

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]]> Fri, 23 Jul 2010 18:32:48 +0800 <![CDATA[India Drops China's Telecom Supplier Call]]>

Glimmers of hope recently caught the eyes of ZTE Corp. and Huawei Technologies Co. Ltd. executives eager for a share of India's fast-growing telecommunications equipment market.

A high-level executive at state-owned equipment manufacturer ZTE told Caixin on July 14 that several Indian telecom operators had received security permits from the Indian government that they need to initiate purchase contracts and place orders with the Chinese firms.

And just days earlier, a telecom industry news provider called Light Reading reported that a high-level Huawei executive, speaking at an industry meeting in Mumbai, had expressed hope for a breakthrough before August.

The executive predicted that the Chinese companies' issues with Indian regulators – whose decisions in April essentially banned ZTE and Huwai from the domestic market, at least for now – should be largely resolved within two months.

Still, uncertainty over Chinese supplier access to Indian telecoms persists.

An executive at another Chinese telecom equipment manufacturer said the freeze is a product of complex issues involving international relations, politics and business competition. And it's possible that the business climate for ZTE and Huawei is cloudier than their optimistic executives think.

One source said Chinese telecom manufacturer sales revenues from India have been severely affected since the ban took effect in April, and future sales are hard to predict.

Untimely Lockout

The trouble began around April 29 when, according to the Indian media outlet Business Line, India's Department of Telecommunications suspended imports of telecom equipment from ZTE, Huawei and other Chinese manufacturers. It came as a severe blow to equipment makers who view India's current buildup of 3G networks as a key to expanding their market share.

The lockout followed India's decision last December to implement a new security system for all imported telecom equipment. The system requires Indian telecom operators and foreign telecom equipment manufacturers to obtain security clearance permits from telecom regulators before completing purchase orders. 

A few weeks after the freeze on imports, the Indian government told ZTE and Huawei to disclose their shareholder information and complete security investigations within a month. Publicly listed ZTE reported its share structure, while employee-owned Huawei agreed to cooperate with the request.

India said it took the security steps over concerns that malware and spyware could be embedded in telecom equipment made abroad. Yet experts say there's more to the story.

"The root of the problem isn't trade protectionism," although India's huge trade deficit with China certainly contributed to the freeze, U.S.-based Heritage Foundation researcher Derek Scissors told Caixin.

"The core issue for India," he said, "is security."

India's Economic Times newspaper reported July 2 that since February telecom operators and Western equipment manufacturers had signed only 27 purchase orders after they passed the security check process.

Meanwhile, 450 orders worth more than US$ 2 billion had failed inspections. These rejections included orders for goods from 25 Chinese companies including ZTE, Huawei, Lenovo and FiberHome Technologies.

More than US$ 5 billion in purchase orders were signed with Chinese companies before the security regulations were implemented, said China's Ministry of Commerce, which said the Indian government's policy has primarily affected large orders placed with Chinese firms.

And even if the deals are allowed, the inspection work tied to security permitting will undoubtedly raise costs for equipment imports.

Way Around?

Ultimately, satisfying the Indian government's security concerns could hinge on the business positions of domestic telecom operators, many of whom are jostling for business in a fiercely competitive mobile phone market. Several private telecom operators want to expand market share by keeping costs low, which makes Chinese manufacturers with relatively low equipment and service costs a natural choice.

China Merchants Bank analyst Ceng Bin said cost-sensitive operators will turn down relatively expensive equipment made by non-Chinese manufacturers. As a result, he said, most Indian telecom providers want their orders with ZTE and Huawei to win security approval.

Also working in the Chinese companies' favor is the fact that parent companies of some Indian telecom operators have strong political and economic influence. These include businesses such as Reliance Communications Ltd. and Tata Teleservices Ltd. Some experts say these heavy hitters will think of ways to help equipment made in China win security clearance.

Chinese telecom firms have an additional option that could help them stay in the game in India: They apparently can bypass security rules for imports by building factories in India that would be open to direct observation by Indian government officials.

A ZTE executive said the Indian government has already raised the possibility of domestic manufacturing, while a Huawei source said it may set up a factory in India as well.

Huawei as well as ZTE reported that equipment sales to India accounted for about 8 percent of their income levels in 2009.

One analyst said the gross profit rate for ZTE sales in India was 15 to 20 percent, below the average 30 percent chalked up in its other overseas markets. ZTE operated at a loss in India before 2009, when it turned a small profit. And company profits in the region over the next several years are not expected to rise notably, the analyst said.

Yet equipment makers can benefit from huge scales of operation at Indian telecoms, which means profits can add up quickly even for low-cost goods.

Another industry analyst said if ZTE manages to grow its business in China and elsewhere overseas, particularly in the United States and Europe, a slowdown in the company's Indian sales would not seriously impact financial performance.

Still, Chinese telecom equipment firms cannot abandon the Indian telecom market, which is second in size only to China's. Moreover, the Indian market's growth rate is greater than China's.

The Telecom Regulatory Authority of India says the number of mobile phone users in India reached 618 million in May, up 16.3 million from the previous month.

1 yuan = 14 U.S. cents

2 
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]]> Fri, 23 Jul 2010 14:30:35 +0800 <![CDATA[Passenger Vehicle Market Faces Inventory Pressure]]> China's auto market is expected to see price cuts in August as dealers are seeing growing inventories due to the continuous sales decline since April.

The China Automotive Industry Climate Index declined after rising three quarters, showing a drop in industry confidence, according to China Business News. The index is jointly released by the National Bureau of Statistics and Sinotrust.

According to the China Association of Automobile Manufacturers (CAAM), China's auto sales reached 9 million units in the first half of the year, up 47.7 percent year-on-year. But in June, domestic auto production was at 1.39 million vehicles, down 1.84 percent and sales were at 1.41 million, down 1.83 percent from the previous month. Auto sales have seen month-on-month declines for the third consecutive month.

China's auto inventory reached 1.29 million this month. The inventory cycle for dealers rose to 55 days by the end of June from 41 days in February, approaching the upper limit.

Domestic auto maker BYD sold 300,000 cars over the first six months, less than half of its annual target of 800,000 units. Meanwhile, dealers from international auto giants including Toyota, Volkswagen and General Motors are not optimistic on the sales outlook for the second half and believe that companies will start to cut prices.

Cui Dongshu, deputy secretary-general of China's National Passenger Car Association, also expected that the auto market will see fiercer price competition starting from August.

In an earlier interview with Caixin, Xiong Chuanlin, deputy secretary of CAAM, said that China's auto market is experiencing abnormally rapid growth, adding that a decline is likely to show in the second half.

Shanghai Securities News reported that during a recent auto show in Changchun between July 15 and 22, a number of auto companies including FAW Toyota have started price cuts to stimulate sales, while others have launched new models at lower-than-anticipated prices.

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]]> Thu, 22 Jul 2010 17:47:37 +0800 <![CDATA[WISCO Clinches Iron Ore Deal With Venezuela]]> (Beijing) - Wuhan Iron and Steel Co. (WISCO), China's third largest steel maker, announced on July 21 that it has reached an agreement with Venezuelan iron ore supplier on the 2010 ore contract price.

According to WISCO, the iron ore price from Corp Venezolana de Guayana (CVG) is more than US$ 20 lower than the price set by the Brazilian mining giant Vale with Japanese and South Korean steel mills for delivery in the first three quarters. The price cuts are expected to save 400 million yuan for WISCO in its 2010 iron ore imports.

Venezuela will also adopt the price agreed with WISCO as its benchmark price for iron ore supply contracts with other countries this year.

“This is the first-ever contract under China prices,” WISCO said in the statement. “It’s also a significant starting point to move away from control by the world’s top three mining giants.”

In October last year, WISCO and CVG signed a contract for seven-year iron ore supply, involving more than 40 million tons of ore. In December, WISCO again won priority and rejection rights in ore purchase with CVG.

In 2009, WISCO imported 480,000 tons of iron ore from Venezuela, saving a total of 152 million yuan from the costs of purchase in spot market.

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]]> Thu, 22 Jul 2010 15:28:27 +0800 <![CDATA[CNPC Moves Base to Xinjiang]]> (Beijing) – China National Petroleum Corporation (CNPC) is set to double its investment in Xinjiang while increasing the region's crude oil production capacity to 50 million barrels of oil equivalent (BOE) by 2015, to make the region its national base.

According to CNPC, the company will accelerate oil and gas exploitation in the Xinjiang Uyghur Autonomous Region with a crude oil production target of 50 million BOE in 2015 and 60 million BOE in 2020. CNPC is also set to double its production in the Talimu oil and gas field.

CNPC plans to increase its oil refining capacity to 26 million tons a year by 2015 and further to 30 million tons by 2020, while improving its sales network and logistics services in an aim to offer a stable supply of refined oil. Production capacities of chemicals and fertilizer will also be expanded.

CNPC will speed up the construction of strategic and commercial oil reserve facilities in the next decade. The company will build six oil reserve complexes in Xinjiang and increase the reserve capacity to 15 million cubic meters by 2015.

CNPC will expand engineering services in Xinjiang to support its projects in the region and countries in Central Asia.

In addition, Xinjiang will become the center of China's oil and gas pipeline construction strategy. By 2020, two branches of the West to East Gas Transportation Project will open and two branches of pipelines will transport crude oil from Kahzakstan to China. By then, China's cross-border oil and gas transportation capacity will reach 100 million tons.

Jiang Jiemin, general manager of CNPC, said that the company will double its investment in Xinjiang over the next ten years. According to China Daily, CNPC has invested over 300 billion yuan in Xinjiang so far, running a total of 11 subsidiaries in the regions.

On July 19, a large-scale aromatic hydrocarbon production project, which is invested by CNPC's Urumqi subsidiary, was opened. The project includes the annual production of 100 million tons of para-xylene aromatic hydrocarbon, the largest of its kind in the world.

In late 2009, another CNPC subsidiary in Xinjiang, Dushanzi Petrochemical, began the production of an oil refining project with a capacity of 10 million tons a year, and an ethylene project with an annual capacity of 1.2 million tons.  

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]]> Wed, 21 Jul 2010 18:04:38 +0800 <![CDATA[Enterprises On the Take]]> Here is a list of Chinese, state-owned companies whose employees allegedly accepted bribes from CCI, according to the latest list released by the U.S. Department of Justice:

Dingzhou Power, China National Petroleum Corp., China Resources Power Holdings Co. Ltd., CNOOC, GD Power, Huaneng Power, Datang Power, China Nuclear Energy Industry Corp., China Civil Engineering Construction Corp., Guangdong Electric Power Design Institute, Sichuan Chemical Works, Central Southern China Electric Power Design Institut, Ningxia Power, CNNC Jiangsu Nuclear Power Corp., Shenhua Power, Guohua Power, Zhejiang Natural Gas, Harbin Power, Sichuan Meifeng Chemical Industry Co. Ltd., CNPC Materials Co. and so on.
 
Exact identities of some companies on the list are difficult to determine since some entries on the DOJ list in English do not accurately match their Chinese names.

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]]> Wed, 21 Jul 2010 17:54:41 +0800 <![CDATA[Payback Time for State Firms Tied to Payoffs]]> (Shanghai) - When the U.S. government announced last year that former executives at California-based valve manufacturer Control Components Inc. (CCI) had pleaded guilty to numerous counts of bribery, employees at dozens of companies in China heaved a huge sigh of relief.

Only six Chinese businesses had been implicated in the multimillion-dollar bribery case by the time the U.S. Department of Justice (DOJ) announced the convictions.

But, in fact, the pleas filed by CCI's ex-employees merely marked a stage, not the conclusion, for the illegal cash-for-contracts case. Eventually, U.S. officials charged dozens of other Chinese companies – including leading power concerns and design institutes – with accepting payoffs from CCI over several years.

And many of these alleged bribe-takers have extra reason to worry: DOJ's detailed disclosure has given authorities in China clear evidence that could be used to press domestic criminal cases and step up the nation's battle against corruption.

Regulators overseeing state-owned enterprises are apparently digging deep in search of unlawful practices. Indeed, the State-owned Assets Supervision and Administration Commission (SASAC) announced last year that it established a special unit to investigate enterprises that allegedly accepted CCI bribes.

However, nothing more has been released since SASAC's announcement in August 2009. And SASAC officials did not respond to a Caixin request for an interview.

Global Bribery

The DOJ probe exposed widespread bribery by CCI executives who traded cash gifts for business contracts with companies around the world.

CCI eventually pleaded guilty to three criminal counts and agreed to pay a US$ 182 million fine.

According to DOJ documents, CCI officials admitted paying bribes to public and private company workers as well as government officials between 1998 and 2007 in around 36 countries worldwide. The payments – totaling US$ 6.85 million – were in exchange for commercial contracts that added US$ 45.6 million to the company's earnings, DOJ said.

Headquartered in Orange County, CCI designs and manufactures control valves for oil and gas industry applications as well as power plants.

Its parent company IMI Plc., which launched an internal investigation into the bribery allegations in 2008 and cooperated with DOJ, said in a statement last year that CCI no longer employs any of the targeted executives.

DOJ withheld from the public some details of the 236 instances of bribery that it's documented. But it did not hold back from naming six Chinese enterprises in the original indictment: CNNC Jiangsu Nuclear Power Corp., China Guohua Energy Co. Ltd., CNPC Materials Co., Petrochina, Dongfang Electric Corp., and China National Offshore Oil Corp. (CNOOC).

Caixin later obtained an IMI internal document listing more than 50 Chinese companies that allegedly received bribes. Most are involved in power generation, nuclear power, or the oil and gas industry. They include large state-owned enterprises such as Shenhua Group Corp. Ltd., China Datang Corp., China Electric Power Technology Import & Export Corp., and Huaneng Power International Inc.

In addition, authorities said CCI employees often targeted Chinese design institutes for payoffs, since state-owned power companies frequently appoint and employ institutes for help in designing new plants. Designers can influence valve purchases.
 
Design institutes suspected of taking bribes from CCI include China Power Engineering Consulting Group's Central Southern China Electric Power Design Institute (CSEPDI) and those under the wings of China Civil Engineering Construction Corp. (CCECC).

Caught by DOJ's investigative net, CCI's former head of global factory sales Mario Covino and former finance chief Richard Morlok pleaded guilty to bribery charges in early 2009. Soon after, DOJ implicated four other executives in a 16-count indictment, including former CEO Stuart Carson and his wife Hong Rose Carson.

Carson was the sales director for CCI's China and Taiwan operations.

DOJ submitted court documents last October, including a letter from its case attorney Andrew Gelltin with details of the 236 bribery incidents including times, amounts, receivers and beneficiaries. The letter also made clear that a lot more than six companies in China accepted payoffs.

Chinese enterprises now suspected of accepting bribes are almost all state-owned and involved in monopolized industries, such as energy and power generation.

Most Chinese companies on the list have been unwilling to respond to the accusations.

But China Guodian's external communications department released a terse denial. "This case has no relationship to us whatsoever and is not our affair," the statement said.

Meanwhile, a source at CNNC Jiangsu Nuclear Power told Caixin the company has launched an internal investigation, although so far no results have been announced.

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]]> Wed, 21 Jul 2010 16:40:44 +0800 <![CDATA[CNPC’s Xinjiang Chemicals Project Begins ]]> (Beijing) - CNPC Urumqi Petrochemical Co.'s biggest investment to date, a large-scale aromatic hydrocarbon production project, was opened on July 19 in Xinjiang. CNPC Urumqi is a subsidiary of China National Petroleum Corp (CNPC).

The project, which involves an investment of 3.7 billion yuan, includes the annual production of 100 million tons of para-xylene aromatic hydrocarbon, the largest of its kind in the world.  
The project first won approval from the National Development and Reform Commission in May 2006 and started construction in 2008. Previously, CNPC Urumqi had a 55,000 ton aromatic hydrocarbon production capacity.

According to Xue Yuan, director of the Production Technology Department of CNPC Urumqi, 50 percent of the production from the project will be sold in Xinjiang and Central Asian countries including Kazakhstan.

Aromatic hydrocarbon products are widely used in industries like automobiles, electronics, and machinery.

The project is a key part of CNPC's ambitious development strategy in the Xinjiang Uyghur Autonomous Region. In late 2009, another CNPC subsidiary in Xinjiang, Dushanzi Petrochemical, began the production of an oil refining project with a capacity of 10 million tons a year, and an ethylene project with an annual capacity of 1.2 million tons.

CNPC Urumqi is set to raise its oil refining capacity to 10 million tons from the current 6 million tons, while focusing on the development of aromatic hydrocarbon production in the future. Last year, CNPC general manager Jia Jiemin said that CNPC Urumqi's future focus will be oil refining, fertilizer and aromatics.

In 2008, CNPC Urumqi processed 6 million tons of crude oil and produced 1.1 million tons of urea, 150,000 tons of synthetic fiber as well as 60 kinds of petrochemical products.

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]]> Tue, 20 Jul 2010 17:45:16 +0800 <![CDATA[Bright Dairy Buys Stake in New Zealand Milk Company]]> China's Bright Dairy & Food Co. announced on July 19 that it will pay 382 million yuan to buy a 51 percent stake in New Zealand milk processor Synlait Milk Ltd., the company's first-ever overseas acquisition.

Bright Dairy said it will pay NZ$ 3.15 per share for Synlait Milk, winning a 51 percent majority stake of the company. After the transaction, Bright Dairy will get four seats in Synlait Milk's seven-member board.

The deal is pending approval from the boards of the two companies and government agencies in China and New Zealand.

If successful, the deal will provide Bright Dairy with a high-quality material supply base overseas, according to the company. Bright Dairy is also counting on Synlait Milk to provide access to the high-end baby milk powder market.

Synlait Milk is expected to hit annual sales revenues of NZ$ 459 million in 2012, generating NZ$ 10.82 million in income for Bright Dairy.

Bright Dairy also disclosed that after the transaction, Synlait Milk will complete a public listing in three to five years.

Guo Benheng, president of Bright Dairy expects to complete the transaction in the fourth quarter of this year.

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]]> Tue, 20 Jul 2010 16:31:59 +0800 <![CDATA[Daimler, Beiqi Foton Sign Joint Venture Pact]]>
(Beijing) - China's leading commercial vehicle manufacturer, Beiqi Foton Motor signed a joint venture agreement on July 16 with German auto giant Daimler AG to produce heavy trucks in China.

According to Beiqi Foton, the 50-50 venture will involve a total investment of 6.35 billion yuan, with a registered capital of 5.6 billion yuan. Foton will put in 2.8 billion yuan worth of Foton's Auman brand medium- and heavy-duty truck assets as investment, while Daimler will inject 2.8 billion yuan in cash.

The venture will produce medium- and heavy-duty trucks under the Auman brand using Daimler's technology in engines, at an annual production capacity of 100,000 vehicles and 45,000 heavy diesel engines.

The venture has been a long-awaited partnership between Beiqi Foton and Daimler as Foton's board approved the partnership in early January last year. In August 2009, a plant was set to open and start trial production in 2011. However, the plan was postponed due to delays in the regulatory approval process from the Chinese government.

CEO of Daimler Dieter Zetsche said in a company statement, "The joint venture with Foton Motor represents another key milestone in implementing our China strategy."

Daimler currently runs two joint ventures in China – a sedan manufacturing venture with Beijing Automotive Industrial Holding Company, Beijing Benz Automotive Co., and a car manufacturing partnership with Fujian Motor Industry Group Co., Fujian Daimler Automotive Co. In the first half of 2010, Daimler sold 59,000 vehicles in the Chinese mainland, up 122 percent from the same period last year.

On May 27, Daimler announced a 600 million yuan R&D agreement with BYD, a privately-owned Shenzhen-based carmaker, and plans to roll out electric vehicles in 2013.

Beiqi Foton is China's largest commercial vehicle manufacturer. The company sold 370,000 cars during the first half this year, up 29.4 percent year-on-year.

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]]> Mon, 19 Jul 2010 17:28:41 +0800 <![CDATA[Geely Chairman to Head Volvo]]> Zhejiang Geely Holding Group Co.'s Chairman Li Shufu will become Volvo chairman after the privately-owned Chinese carmaker completes the takeover of the Swedish luxury brand from Ford Motor.

Geely announced on July 15 that Hans-Olov Olsson, former chief executive of Volvo, has been named as vice chairman.

According to Geely, the appointment of other senior management and board members will be announced before the completion of the transaction in the third quarter.

Geely stated that Volvo will further strengthen its position in the Europe and North America markets while expanding its Chinese market growth.

Ford announced earlier that Volvo's current chief executive, Stephen O'Dell, will become chairman of Ford's European division after the transaction. Meanwhile, Stuart Rowley, Volvo's chief financial officer (CFO) will become the CFO of the European division.
 
As the largest overseas acquisition by a Chinese automaker, Geely agreed to buy Volvo for US$ 1.8 billion earlier this year. Geely has set aside US$ 900 million to support the Swedish automaker's future development.

Geely reiterated that Volvo's headquarters will remain in Gothenburg after the takeover.

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]]> Fri, 16 Jul 2010 17:39:33 +0800