ChinaSoft International, a Chinese IT solutions and outsourcing provider, plans to create a regional HQ in Shanghai’s new Free Trade Zone to get closer to the financial institutions that will make FTZ their home.
Shanghai’s new Free Trade Zone has attracted a lot of media attention as many see it as laboratory for reforms that could one day be implemented nationwide.
Some 25 companies have so far been given the green light to start operations including 11 financial institutions, most of which are domestic banks. (continue reading…)
ICBC, the world’s largest bank by market value, is out to win the hearts — and pocketbooks — of Spanish investors.
We read a lot about China’s growing involvement — and influence — in Latin America. Sinolatin, a new Shanghai-based private equity firm, hopes to capitalise on that interest.
The firm, which opened its Shanghai office this month, claims to be the first bank focussed exclusively on cross-border transactions between China and Latin America, and has two core businesses, private equity and financial advisory.
Sign of the times. HSBC, the London-based banking giant, is to relocate its chief executive’s office to Hong Kong.
Anyone who had been asleep for the past twenty years would wonder what the Hong Kong and Shanghai Banking Corporation, as the bank was originally know, was doing in London in the first place.
In 1992, HSBC had to move to London to take over the Midland Bank, one of the original Big Four of British retail banking.
But the western banking market is no longer as attractive as it then was – particularly after the credit crunch.
HSBC clearly believes its greatest growth possibilities lie in Asia rather than in the west and its highly symbolic move will no doubt endear the bank to Chinese authorities.
Michael Geoghegan, group chief executive of HSBC, who will relocate to HK,said:
We can’t get away from the fact that the East is growing at a faster rate than the UK, the US or Europe. In my time it will take over from the west as the most powerful part of the world economy.”
The news has caused much hang-ringing in the UK media, the more conservative elements of which never have really forgiven the British government for handing Hong Kong back to the Chinese in 1999. The shift suggests that the City of London’s traditional pre-eminence in all things financial could come under threat.
HSBC will continue to be Britain’s biggest bank and there are no plans to move the head office or change tax domicile. Stephen Green, HSBC’s chairman, will continue to be based in the UK
More in this Times story.
Chinese IPO fever is raging once more so it was only a matter of time before Everbright Securities, the state-controlled broker, dusted off shelved plans for an IPO.
China's tenth largest brokerage by market share plans to raise up to $1.6bn in a revived initial public offering in Shanghai.
Everbright Securities will offer 30% of the new shares to institutional investors directly and will sell the remainder to institutional and retail investors through a public bidding system.
The IPO will be the second by a Chinese brokerage following Citic Securities' $213m IPO in 2002. More on Citic is this post. Waiting in the wings are two more local brokers, and Industrial Securities and China Merchant Securities, which previously tried to IPO in 2007 — see this story.
Since Beijing allowed IPOs to resume in June the five companies that have gone public jumped by an average of 112% on their first trading day and all have sold their shares at the top of the range offered to investors.
Last week China State Construction Engineering raised $7.3bn in the world's largest IPO this year. Like other recent and prospective IPO candidates, it has a distinctively “old economy” focus.
Investors recognises that investment banks and construction firms are likely the biggest winners from the government's massive economic stimulus programme. After all, who better to exploit asset price bubbles and the excess liquidity sloshing around in the system?
But, as the FT warns, brokerage flotations are also sure sign of an overheating equity market.
Salvation could be at hand for UK borrowers desperate to get back on the property ladder in the shape of Bank of China which, amazingly, believes now is a good time to enter the UK mortgage market.
The credit crunch has taken a huge toll on the UK's once-buoyant housing market and caused lenders to sharply reduce the flow of money that kept the bubble inflated for so long.
Bank of China's entry into the UK market is interesting because its lending approach is much more conservative than that of the British lenders, some of whom have had to be bailed out by the UK goverment which is now left holding hefty stakes.
BoC wants a minimum deposit of 25% from its borrowers, will perform tough credit checks and will insist on meeting each borrower face-to-face before deciding to offer a loan. In return for the tough conditions, BoC will lend at lower rates than on offer from many of its rivals.
It will also fund its mortgages from its own reserves rather than from the interbank markets. Such traditional lending practices just two years ago would have British banks laughing their heads off at the quaintness of the Chinese model.
But after the collapse of Northern Rock, which leveraged up to the hilt in the money markets, banks have belatedly realised that borrowing short and lending long can be a recipe for disaster.
Once upon a time, British borrowers might have balked at the idea of borrowing money from a bank owned by the Chinese goverment. But the UK financial services market has gone through a revolution in the past decade with a confusion of channels, exotic business models and new market entrants.
At the height of the boom, many British consumers — and many of the country's local councils — were wooed by high interest rates to put funds into Icelandic banks that had no UK presence apart from a web page and whose names they could not even pronounce.
Iceland's government had to bail out its irresponsible banks and the country is still nursing the hangover from those crazy times.
So too are many UK borrowers, but the decision of BoC to enter the mortgage market now has been taken by some observers as an encouraging sign that conditions may getting back to some semblance of normality.
At least Bank of China is easy to pronounce. And it is owned by the government — just like some of the best-known UK and Icelandic banks now are.
For venture capitalists, it seems the world can be neatly divided into two parts — China and everywhere else.
Despite the downturn, China continues to captivate the interest of VCs around the globe who increasingly see China as their engine for future growth opportunities, according to a recent survey on the global VC industry from Deloitte Touche Tohmatsu's TMT practice.
In contrast, VC interest in North America — traditional seen as the most VC-friendly market — seems to be decreasing due to the strained exit markets and the impact of recent government policies.
China is now the place to be if you are are a VC. This came though when DTT asked respondents about where they plan to increase their investments, and confirmed when they were asked which country has the most to gain in overall stature over the next three years.
China was a clear favourite among US investors with 42% of respondents believing that the country has the most to gain. Only 24% held that conviction for the US, followed by 12% for India, 5%for Brazil and 2% for Russia.
More than half of Asia-Pacific respondents were enthusiastic about China, while 20% looked at India as having the most gain, followed some way behind by Japan, the US and, surprisingly, Afghanistan.
Almost three out of 10 respondents from Europe (excluding the UK) see China as having the most to gain, followed by 16% who favour India. Finally, 35% of UK respondents eyed China as the clear winner, with India following at 24% and the US on just 9%.
But just why is there so much VC interest in China?
Gavin Ni, founder (pictured), president and CEO of Zero2IPO, a China-focussed VC research firm, said :
If you take a look at the short-term, you see China will be the first to emerge out of the worldwide downturn. China is projecting 7%-plus GDP growth in 2009 – the highest in the world. Then, looking beyond, you see a swelling middle class – but still a minority of the population – with money in their pockets to spend. That does not even scratch the surface of the eventual buying power of the largest population in the world – 1.3bn potential consumers.”
Can this love affair with China last? Ni believes it can:
A question I frequently get is whether China's recent growth in venture investing is sustainable. I would say 'of course'. I interact with China's entrepreneurs everyday. There is a real drive to win, and there's no stopping until the game is won. Others see the victory and want to win, too. And, the rules of the game from China's government continue to drive strong business growth.”
The reopening of China's IPO market is good news for speculators and also the western investment banks and advisers who have seen their fees shrivel in the recent IPO drought.
Deloitte told the Financial Times that the Chinese market for accountancy firms had been buoyant during the boom in IPOs and M&A activity, but the firm had been hard hit by the slowdown, forcing it to impose unpaid leave on staff.
Lat September, the government stopped approving IPOs in a bid to stabilise the volatile market. The lifting of the nine-month moratorium coincides with an improving stock market plus an overhaul of regulations.
The new guidelines aim to avoid some of the extreme price volatility of the past and to ensure retail or individual investors are able to get a fair proportion of new share issues.
On Monday, Guilin Sanjin Pharmaceutical,, which makes traditional Chinese medicines, will be the first to experience the new conditions by raising 911m yuan.
The moratorium was a big blow for for the western advisers which had grown fat on fee income during the boom years. It was also a big blow local investors who had grown used to substantial first-day “pops” for IPOs on the Shanghai exchange (pictured) In 2007, only two IPOs posted a loss in their Shanghai debuts, according to Thomson Financial, while the remainder almost tripled in their first day of trading.
Now that the government has reopened the flood gates, a lot more candidates are rushing to get approved, taking advantage of a local equity market that is one of the best performing in the year to date and has recovered last year's big losses.
For example, Tencent, the tech firm behind China's QQ instant messaging service, is gearing up for a Shanghai IPO. Several other heavyweights on the HK bourse — called Red Chips — are also looking to diversify their shareholder base with a mainland listing. These include computer maker Lenovo, China Mobile, the country's largest telecom operator, and China National Offshore Oil Corporation, the mainland's largest offshore oil producer by output.
Another 30 companies have reportedly received regulatory approval to list and have begun final preparation and marketing; 400 more sit in a queue waiting to be approved. More in this (free) Economist story.
Chinese consumers are obeying their government's exhortations to spend more and increasingly they are doing so using plastic.
In 2008, the number of credit and debit cards in circulation in China grew 20% to reach 1.7bn cards, the lion's share being credit cards. The number and value of transactions conducted using plastic money grew even faster by 55% and 70.5% respectively.
In the west, this tendency to live today and pay for it tomorrow arguably sowed the seeds for last year's global financial crisis, but China which last year saw its GDP growth shrink below 10% for the first time in six years, sees easy credit as the lesser of two evils.
China's domestic banks, majority-controlled by the state, have been quick to act on the government's new Carpe Diem policy.
For example, ICBC, the country's biggest bank, loaned 646bn yuan in Q1 2009, a rise of 458bn yuan over the same period of last year. Much of that increased lending went to businesses, but domestic personal loans rose by 52.5bn yuan, nearly 24bn yuan more than that in the same period last year.
Surprisingly, the explosion in credit issuance at ICBC has not come at the expense of credit quality. Indeed, ICBC boasted that at the end of Q1 2009, it had seen declines in both the amount and ratio of non-performing loans. No wonder so many western banks are desperate to get a foothold in China's still tightly-controlled retail banking market.
Nevertheless, the central bank has just warned of the risks of lax credit, after its figures showed that the level of credit card debt more than six months overdue rose 133% in Q1. Some banks have already decided to play safe by refusing credit card applications from high-risk groups like students.
Although a few foreign banks, such as HSBC's Hang Seng Bank, have been authorised to issue yuan-denominated debit cards, they are not yet allowed to issue credit cards, which is the largest and most succulent part of the pie.
Zigor Aldama, a young Spanish journalist based in China, recently wrote an interesting piece in Spanish newspaper El Diario Vasco on the contrasts between Chinese banks, which are falling over themselves to issue plastic cards, and their western counterparts, which in the recession have had to severely restrict credit to consumers and businesses.
In China, he notes, the government is desperate to boost domestic demand to compensate the loss of export revenues due to the global recession — exports previously contributed 55% of GDP.
It thus needs to encourage consumers to save less and spend more, and credit cards are seen as a perfect tool to achieve that goal, particularly as their penetration in mainland China is much less than in HK or Taiwan, the closest countries culturally to the PRC.
A few years back, credit cards were only used by wealthy city dwellers in China, but Aldama notes that young people have quickly woke up to their role as a status symbol, as indispensable today as a mobile phone or brand-name clothes.
A sociologist told Aldama that many parents get a credit card for their child — and being China, its usually a single child, of course. Even if the child has no real need for a card, the parents fearful of being seen to be behind the times, will get him or her a credit card “just in case.”
As of March 31, Chinese banks had issued more than 150m credit cards, up nearly 43% year on year. But Chinese consumers still have relatively few credit cards — just one for every nine people — compared with more than four cards per person in the US and 0.95 in Brazil.