Trading in shares in Sino-Forest, a China-based timber company, has been halted for 15 days by the Ontario Securities Commission (OSC), which alleged that senior company officials “appear” to have misrepresented its revenues and to have exaggerated its timber holdings. Shares in Sino-Forest have lost nearly three-quarters of their value since June after reports by Muddy Waters, an investor-owned research firm, that alleged the company was a fraud. The Canadian regulator said the company had raised CAD2.9 billion in stock and bond offerings since 2004 and 2009 and had more than 150 subsidiaries registered in the British Virgin Islands and China. Allen Chan, the company’s Chairman and Chief Executive, resigned on August 28. Chan, who co-founded Sino-Forest in 1992, will be replaced as Chairman by William Ardell and as Chief Executive by Executive Director Judson Martin.

China Southern Airlines, which generates 80% of its revenues on domestic routes, posted a 33.3% increase in first-half net profit to CNY2.76 billion. Sales rose 22% to CNY42.4 billion, of which 92% was from its passenger division. Passenger yield rose 10% year on year, while passenger numbers rose 6.1% to 38.4 million. Cargo revenue, which accounted for 6.7% of total sales, increased 13% to CNY2.8 billion. “The uncertainties in the global economy are looming, though the market outlook for the domestic market still remains pleasant,” the company said. Competitor Air China said net profit fell 12% to CNY4.06 billion. Chinese carriers outperformed most of their peers in the region because of the country’s economic growth. Passenger numbers at Air China rose 7.4% year on year to 23.7 million in the first half, with domestic traveler numbers increasing by 8.5%. International passenger growth was stalled by the tsunami and nuclear crisis in Japan in March. The number of international passengers only inched up by 0.1%, to 3.1 million in the first six months of the year.

China’s second-tier cities are attracting attention from international airlines as they seek faster growth. International Airlines Group (IAG) has started a search to pinpoint possible destinations in southwestern China. IAG currently operates 27 weekly flights from London to three Chinese cities ― Beijing, Shanghai and Hong Kong. Deutsche Lufthansa plans to launch the first intercontinental air route to Qingdao in Shandong province in 2012. In March, KLM Royal Dutch Airlines launched a service to Xiamen in Fujian province, its seventh destination in China. Qatar Airways also said it was expanding its flight network to second-tier cities in China. Jones Lang LaSalle Hotels calculated that during the coming two years, China’s second- and third-tier cities will see rapid growth in the availability of high-quality office space which could lead to an influx of business travelers. Chengdu is leading the growth in office accommodation.

China hopes Europe will take steps to protect China’s investments there, President Hu Jintao told French President Nicolas Sarkozy during the French President’s five-hour stop-over in Beijing. However, he nonetheless voiced confidence in the euro and vowed to keep investing. Sarkozy sought China’s support for his agenda at the G20 summit in November in Cannes. “China will continue making Europe one of its principal investment markets, and we hope that Europe will take measures to ensure the security of Chinese investments there,” Hu Jintao said. About a quarter of China’s record foreign currency reserves of more than USD3 trillion are in euro assets. Sarkozy has said China’s backing is essential for France’s G20 goals, which include a roadmap for tackling economic imbalances and measures to reduce market speculation and commodity price volatility.

Finance

• Shares of the big four banks have dropped on fears they will be forced into emergency fund raisings due to bad debts outstanding at local government financing vehicles (LGFVs). Banks may need to tap shareholders for around USD700 billion to fund bad loan write-downs, according to economists at Spanish bank BBVA. The estimate covers all Chinese banks. The big four banks account for about 45% of total banking assets in China.
• China Construction Bank (CCB) hopes to offer most of its proposed CNY80 billion in subordinated debt in Hong Kong by the end of this year, Chairman Guo Shuqing said. He added that the cooperation with Bank of America-Merrill Lynch on various services would be extended until the end of next year, and possibly for another five years. The U.S. bank holds a 10% stake in China Construction Bank.
• Wu Xiaoling, a former Deputy Governor at the People’s Bank of China (PBOC), said at the annual China Bankers Forum in Beijing that Chinese banks would face substantial capital stress after the implementation of the Basel III framework. The rules will require “banks of systematic performance” to keep a minimum capital adequacy ratio of 11.5%, while banks of non-systematic importance would have to meet a threshold of 10.5%.
• China Life Insurance plans to raise CNY30 billion by issuing subordinated debt to improve its ability to fund claim payouts. It would boost the company’s solvency ratio ― capital relative to premiums written ― by at least 40 percentage points. The ratio had dropped to 164.21% by the end of June from 211.99% six months previously. Chinese insurers have raised more than CNY100 billion by issuing subordinated debt. China Life Insurance reported a first-half profit decline of 28.1% from a year earlier.
• The Shanghai Gold Exchange raised the margin requirements – the initial minimum amount of cash an investor must deposit before making a transaction – for three gold forward contracts from 11% to 12% to curb speculation. It was the second time this month that the exchange has increased margin requirements. It raised trading margins from 10% to 11% on August 11. Gold prices have increased rapidly on international markets in the past few weeks amid worries of a global economic recession and worsening sovereign debt issues in the euro zone.
• China Minsheng Banking Corp, seeking to reassure investors, said that none of the loans it had extended to local government financing vehicles (LGFVs) had defaulted. The bank held CNY172.1 billion of such loans at the end of June. The bad loan recognition mechanism of Chinese banks is based on real defaults rather than being a forward-looking assessment.
• Bank of China, which reported an almost 28% increase in first-half profits to CNY66.51 billion, said there was no immediate need to raise provisions for bonds issued by debt-stricken European countries. The bank had CNY1.14 billion in debt securities issued by Portugal, Ireland, Italy and Spain at the end of June. The bank holds 22% of its assets overseas, which generates about 20% of its profits. In the second half, the bank will increase oversight of foreign assets and domestic sectors deemed risky, President Li Lihui said.
• The Industrial and Commercial Bank of China (ICBC) and the Agricultural Bank of China (ABC) reported record first-half profits of CNY109.5 billion, up 29.4%, and CNY66.67 billion, up 45.4%, respectively.
• Commercial banks will be required to include margin deposits paid by their clients to secure the issuance of banker’s acceptance, letters of guarantee and letters of credit in their required reserves. Such deposits amounted to CNY4.4 trillion at the end of July. “We estimate that the step could lock up about CNY800 billion in bank liquidity,” said one banking analyst. The Big Four banks and the national postal bank will start paying deposits to the central bank from September 5, while other banks will start paying from September 15.
• Bank of America (BofA) plans to sell half of its 10.64% stake in China Construction Bank (CCB). The news comes days after Warren Buffett’s Berkshire Hathaway made a USD5 billion investment in BofA. The U.S. bank had paid USD2.5 billion for a 9% stake in CCB ahead of the lender’s initial public offering (IPO) in August 2005. The purchase was subject to a lock-up period, which expired last week.
• China Taiping Insurance Holdings performed better than expected in its life insurance business despite tighter regulations banning insurance companies from sending sales people to bank branches to sell their insurance policies and products. Instead, only bank employees with insurance agent licenses can sell insurance policies at bank branches. The company’s net profit rose 20.4% to HKD725.78 million in the first half compared with the same period last year. Gross premiums and policy fees dropped by 0.4% to HKD27.16 billion.
• London-based Terra Firma Capital Partners, one of Europe’s largest private equity companies, is set to open an office in Beijing. It is looking to make major investments between €300 million and €500 million in China, particularly in sectors such as social housing, cinemas, agriculture and new energy.

Foreign investment

• China’s Ministry of Commerce (MOFCOM) plans to allow foreign direct investment (FDI) of yuan raised offshore next month. But investment of yuan in negotiable securities and financial derivatives will still be prohibited. Foreign investors can’t use overseas-raised yuan to provide loans or to repay domestic or overseas loans. Presently, foreign investors can only convert foreign currencies into yuan for direct investment projects and the process is subject to complicated regulatory approvals.
• Using China’s foreign-exchange reserves to accelerate direct investment in the U.S. will help China to limit losses from the depreciation of the dollar and may reduce the risk of a global economic recession, said Wei Jianguo, Secretary General of the China Center for International Economic Exchange (CCIEE). Since 2003, China has invested in 230 projects worth a total of approximately USD11.7 billion in 35 U.S. states.

Foreign trade

• Gong Huiwen, a researcher with the State Administration of Taxation, suggested that duties should be lowered on luxury products that are more commonly used by the public, such as cosmetics and perfumes. But duties on more exclusive items, such as watches and jewelry, should be raised. Zhao Ping, an official at the Ministry of Commerce (MOFCOM), also advocated a “dynamic classification” of luxury products. Government departments are still studying the issue and a decision on a possible tax change will be released by the end of this year.

Macro-economy

• A preliminary reading of the HSBC Purchasing Managers’ Index showed a rebound to 49.8 from a final reading of 49.3 for July in the second month the HSBC Flash PMI fell below the reading of 50, indicating economic contraction. The low reading was attributed to tighter monetary policies, higher production costs and sluggish overseas demand. Sub-indices that missed the 50-point mark included new export orders, output, new orders, stocks of purchases, and employment.
• Companies investing in the newly opened free-trade island of Hengqin in Zhuhai will enjoy a profit tax rate that is 40% lower than elsewhere on the mainland, while Hong Kong and Macao residents working there will be granted salaries tax rebates. The profit tax of 15% compares with 25% elsewhere and is the lowest in eastern China. Hengqin has even more advantageous policies compared to the other 15 free-trade zones. While the previous free-trade zones were set up only for manufacturing, the island aimed to attract tourism, financial services, cultural innovation, Chinese medicine and health care, scientific research and hi-tech industries.
• The Swiss bank UBS revised downwards growth in China’s gross domestic product (GDP) to 9% this year from an earlier projection of 9.3%. It also cut the growth estimate for 2012 to 8.3% from 9%. Deutsche Bank and Morgan Stanley also cut their outlook. “A sharp drop in export growth, which may start in the fourth quarter of 2011, is also likely to hit manufacturing investment and consumption,” UBS Hong Kong-based Economist Wang Tao said.
• China’s fiscal revenue rose 30.5%, year on year, to CNY6.67 trillion in the first seven months of this year, meeting 74.4% of the government’s annual revenue target. In the same period, public spending grew 29.7% to CNY5.14 trillion, or 51.3% of the annual target. Minister of Finance Xie Xuren said the government would spend more on social welfare this year and tighten restrictions on official spending on banquets, overseas travel and government vehicles.

Petrochemicals

• China will grant tax rebates on natural gas imports in a bid to lighten the financial burden of the country’s state-owned oil companies which have to sell the gas at a loss due to a gap between domestic and global prices. The rebates will apply to imports of piped and liquefied natural gas (LNG) from 2011 to 2020. The rebates may help ease the financial costs of PetroChina and other oil companies which are operating and building more LNG receiving terminals. China’s LNG imports jumped 66% to 1.18 million tons in July from a year earlier.
• China urged Libya to protect its investments and said the oil trade benefited both countries, after Abdeljalil Mayouf, an official at the Libyan rebel-run oil firm AGOCO, warned that Chinese oil companies could suffer after the ousting of Moammar Gaddafi. Last year 3% of China’s imported crude came from Libya. China shipped about 150,000 barrels of oil per day from Libya last year through Unipec, the trading arm of Sinopec Corp.
• The Ministry of Land and Resources plans to declare shale gas a priority mineral so as to better manage the unconventional gas resource. The country may hold 31 trillion cubic meters of recoverable shale gas reserves based on rough estimates. China in July awarded exploration rights to two shale blocks in the Sichuan Basin to Sinopec and Henan Province Coal Seam Gas Development and Utilization, marking the start of
  commercial shale gas exploration.
• Hong Kong and China Gas (Towngas) reported a 16% rise in net profit, excluding one-off items, to HKD3.22 billion in the first six months of this year. Towngas has a portfolio of 127 projects spanning upstream, mid-stream and downstream natural gas supply, sewage treatment and new energy sources in 21 provinces and regions across the mainland. The company claims to be the largest piped-gas enterprise in China in terms of sales, which leapt 21.49% to 5.2 billion cu m in the first-half.
• CNOOC posted a better-than-expected 51% surge in half-year earnings to CNY39.34 billion on rising crude prices, but revised downwards its 2011 production target because of oil spills in Bohai Bay. Sales surged 51.2%  to CNY124.6 billion as CNOOC’s average realized oil price jumped 41% to USD108.16 a barrel in the first half. The company cut its annual output target by 6.7% to 331 million to 341 million barrels of oil equivalent (BOE). Oil and gas production rose 12.9% to 168.7 million BOE in the first half of the year.
• PetroChina  managed to eke out a 1% gain in first-half net earnings to CNY66 billion as higher oil prices and output offset losses of CNY21 billion in the refining and gas import business. The firm processed 491.4 million barrels of crude oil in the first half, up 11.9% on an annual basis. PetroChina’s crude oil output rose 5% in the period, the largest increase in recent years, and its natural gas output gained 5.3%.

Real estate

• Planning authorities in Wuhan have confirmed plans to erect the tallest building in China. No timetable or cost estimates were given. At 666 meters tall, the planned Wuhan building would be 34 m taller than the Shanghai Tower, which is expected to be completed in 2014.
• Shanghai has the most expensive prime office rents in China and is the 11th-most costly in the Asia-Pacific region, according to a report by Colliers International. The city’s average prime office rent rose 2.7% from the first quarter to CNY7.8 per square meter in the second quarter of this year. Hong Kong topped the quarterly list in the region with prime office rents of more than USD120 per square foot per year, followed by Tokyo and Singapore. Beijing was in 12th spot with rents of USD40 per square foot per year.
• The number of people buying previously occupied high-end homes in Shanghai has fallen sharply this month, indicating that tighter curbs on home buying have stopped many affluent buyers from entering the market. Sales of previously occupied homes that cost more than CNY50,000 per sq m plunged 40% on an annual basis to 383 units in Shanghai during the first seven months of this year, according to Century 21.
• President Hu Jintao said that China should implement a land-saving strategy, continue to adopt strict regulations to protect arable land and improve land use. He called for less reliance on land resources to create economic growth and for protecting the interests of farmers after land requisition. In addition to the previous 84 cities that have been required to report to the central government for approval of construction land, 22 other cities which only needed approval from the provincial authorities have now been added.
• The Ministry of Housing and Urban-Rural Development is creating a network to link property ownership in more than 40 cities, a move aimed at curbing property buying on a national scale. The network will make it easier to ascertain how much property a person owns in these cities.
• Luxury homes are still the preferred investment of rich people, according to Albert Lau, Shanghai-based head of Savills China. China’s consumer price index rose to 6.5% in July, the fastest pace in three years and almost double the one-year deposit rate of 3.5%. With the benchmark stock index losing 9% this year and limits on overseas investment, the rich are still turning to property, defying a government determined to cool the market. High-end property – defined as selling above CNY40,000 per sq m – accounts for approximately 7% of China’s overall residential market.
• China’s most expensive flats per square meter were on sale at Beijing’s Heritage Estate, or Diaoyutai Courtyard No 7, next to the Diaoyutai State Guest house, and were priced at more than CNY300,000 per sq m. The city’s government halted sales at the complex in June and began an investigation into the developer for possible “profiteering”.

Retail

• American apparel maker Guess plans to open hundreds of stores in China in the next five years. Chief Executive Paul Marciano described that growth target “as one of the greatest opportunities ever for our company” and acknowledged China as “a major factor in our future investments”. At any of the meaningful malls that you visit, you will find a Guess store, he added. Guess, which has 113 retail locations in China, is on track to launch 40 more stores and concessions by the end of this year. China’s consumer spending on luxury bags, footwear, cosmetics and apparel will reach a record CNY84 billion this year, according to Bain & Co.
• British supermarket chain Tesco launched a CNY725 million Chinese bond sale at a yield of 1.75%. Tesco joins companies such as McDonald’s and Caterpillar in issuing yuan-denominated debt in Hong Kong to take advantage of cheap financing. Tesco entered China in 2004 and has a network of more than 100 stores in 10 provinces.

Science & technology

• Dr Cao Yilin, a renowned plastic surgeon at Shanghai Jiao Tong University who shot to fame after growing a human ear on a mouse, presented evidence to support his work, after accusations of scientific fraud were leveled against him in June. Cao grew the ears by seeding human cartilage cells into a biodegradable ear-shaped mould and transplanting this onto the back of a hairless mouse. He first conducted the experiment with a research team at Harvard University in the mid-1990s and published the results in 1997.

Stock markets

• Hong Kong’s Securities and Futures Commission (SFC) has charged Simon Chui, a former Assistant Director in Citic Pacific’s Finance Department, with insider trading. He pleaded not guilty and was released on bail of HKD50,000. He is alleged to have sold a total of 81,000 Citic Pacific shares on September 9 and 12, 2008, after he learned the company had suffered a HKD15.5 billion loss from a wrong bet on Australian dollar futures. If convicted, he could face a maximum jail term of 10 years and a fine of HKD10 million.
• China’s stock market is approaching its bottom after several weeks of declines, according to Li Jiange, Chairman of China International Capital Corporation (CICC). CICC’s net profit slid nearly 70% to CNY130 million in the first half of the year, while revenue declined 26.66% year-on-year to CNY1.41 billion.

Travel

• Huang Yi, Spokesman for the State Administration of Work Safety, said the train crash near Wenzhou on July 23 in which 40 passengers died, “should not have happened” and that “it could have been avoided and prevented”.  He added there were faults in the signaling system and also shortcomings in the emergency and safety management systems. A manager at China Railway Signal & Communication Corp that manufactured the signaling, has died from a heart attack.
• The Ministry of Railways (MOR) plans to raise up to CNY100 billion by selling corporate bonds later this year, up from CNY80 billion in such debt sold last year. Analysts said the timing would make it a test of investor demand for its debt. The first tranche of the bonds, worth CNY20 billion to CNY30 billion, is expected to be issued soon, with the maturities set at seven and 20 years.
• China CNR Corporation, which reported a 145% jump in first-half net profit to CNY1.6 billion, warned its business would suffer if there was a “major reduction” in railway projects. Revenue rose 61.8% to CNY41.13 billion largely because of the aggressive roll-out of the high-speed railway system. The firm’s high-speed passenger train sales rose 190% to CNY11.36 billion.

One-line news

• According to results from the sixth national census, 26 provinces, autonomous regions and municipalities are “ageing societies”, meaning that more than 7% of the population is over 65, up from the 13 ageing provinces identified by the fifth national census in 2000.
• Beijing is likely to resume approving new nuclear power projects after recently completing a round of safety checks, according to Zhang Shenwen, General Manager of China Resources New Energy Holdings. Construction on the Taohuajiang nuclear project in Hunan province, one of the first inland nuclear plants, will start soon. But Ma Sui, Company Secretary of Harbin Electric, said approval of new projects was unlikely in the second half of this year, and changes to Beijing’s 2020 nuclear power capacity targets may not be known until next year.
• China’s largest drug distributor Sinopharm posted a 23% increase in first-half profit to CNY785 million. Sinopharm said it has almost finished establishing networks in all China’s provinces after spending CNY2.5 billion on acquisitions in the first six months of 2011. First-half sales jumped 48% to CNY48 billion.
• Hebei Governor Chen Quanguo was appointed Party Secretary in Tibet as part of new round of rotations among provincial leaders in the run-up to the Communist Party’s 18th Congress in autumn next year. He replaces Zhang Qingli, who succeeded Zhang Yunchuan as Party Secretary of Hebei. Yunnan Governor Qin Guangrong was promoted to Party Secretary of the province. Li Jiheng becomes Governor of Yunnan.
• Chinese courts will have the power to confiscate the illegally obtained assets of people suspected of corruption, terrorism or other serious crimes on the run a year after they are declared wanted by police, according to a draft revision of the Criminal Procedure Law being reviewed by the National People’s Congress Standing Committee. In the past, assets of those who fled the country could be frozen but not confiscated.