BYD seeks jump-start with asset sale, finance JV
Feb-23-2015 By : fcccadmin
Electric car maker BYD announced a major asset sale just days after it received approval for a stalled finance joint venture aimed at boosting sales. The approval for its auto finance joint venture comes as rival Geely also has just announced its own approval for a similar stalled joint venture with France’s BNP Paribas. China’s big domestic automakers like Geely and BYD have suffered over the last few years, as they rapidly lost market share in their home market to big global rivals like General Motors and Volkswagen. BYD has suffered more than most of its domestic peers, since it also placed big bets on an electric vehicle (EV) program that has yet to gain much traction despite Beijing’s strong desire to develop the clean energy sector. The financial JV should help BYD’s new energy car sales, since EVs are more expensive than traditional cars. BYD also said it would sell its BYD Electronic Components unit to Holitech for up to CNY2.3 billion. In exchange, BYD will get cash and up to 12.3% of Holitech.
Foreign banks see poor payback from Shanghai FTZ
By : fcccadmin
Foreign banks betting on an early-mover advantage by rushing into the Shanghai free trade zone (FTZ) are looking at slim pickings and high costs as the reward for their haste. When the zone was launched in September 2013, the talk was of a mini-Hong Kong with zero tariffs that would attract a wide range of industries to set up in the 29 sq km zone carved out of a part of the Pudong area in Shanghai. For the banking sector, the headline promises were full convertibility of the yuan and a market-based interest rate mechanism to smooth cross-border capital and commodity flows. Banks are still waiting for those promises to be delivered. “This is the ‘China’ way – a launch that provides a high strategic framework, while all details are gradual to come,” Jack Chan, Managing Partner of Financial Services for Ernst & Young (EY) Greater China, told the South China Morning Post. Even though the latest changes allow foreign corporates registered in the zone to borrow up to twice the value of their registered capital and bypass the approval process that was previously required, the shift in the dynamics of offshore against onshore yuan borrowing rates has reduced the attraction of doing so. The latest data available shows companies in the zone have borrowed CNY19.7 billion from offshore banks in total, a tiny proportion compared with the total registered capital in the zone. In large part, that is because banks still do not have clear rules on whether the capital borrowed within the zone can be deployed freely elsewhere in the country. Rules establishing a banking firewall between the zone and the wider mainland China require each lender to set up an independent accounting system for their branches in the zone, adding about USD10 million to start-up costs for each bank branch in the zone, Chan said. The zone’s most notable achievement to date for the banking sector is cash pooling, but the launch of this service is seen by many as a qualified success at best, the South China Morning Post reports.
Silk Road Fund set up
By : fcccadmin
China has launched a state-backed USD40 billion Silk Road Fund to finance East-West trade and investment under the “Belt and Road” initiative. The Silk Road Fund Co will provide investment and financing services for projects under the initiative. It will mainly invest in infrastructure, resource development, and industrial and financial cooperation mainly through long-term equity investment. The Silk Road Fund is jointly funded by China’s foreign exchange reserves, China Investment Corp (CIC), the Export-Import Bank of China and China Development Bank. The fund would be denominated in foreign currencies, instead of the yuan. The fund, set up on December 29 in Beijing, has started operating after it held the first board meeting in late January. People’s Bank of China Governor Zhou Xiaochuan compared the fund with the World Bank’s International Finance Corp (IFC), the African Development Bank’s mutual development fund, and the China Africa Development Fund.
Mid-sized banks suffering profit fall
By : fcccadmin
Preliminary earnings results from China Merchants Bank, China Minsheng Bank and Citic Bank showed soaring operating expenses in the last three months of the year, which slowed profit growth to record lows. For Minsheng Bank, that meant recording just 5.4% growth for 2014, the first time in its 19-year history that it has notched single-digit growth. Merchants Bank’s profits grew by 8.1% and Citic’s by just 3.9%. Most analysts believed the surge in operating costs was due to charges taken on bad loans. Minsheng Bank’s non-performing loan (NPL) rate leaped to 1.17% at the end of December from 1.04% just three months earlier. Merchants Bank’s rate edged up by just 0.01 percentage point, while Citic’s even fell. Those two banks hit the market with their bad debt, selling enough to investors to keep bad debt rates down, analysts said. “The NPL rate increase at Merchants was low but the main reason for low profit growth was still the cost of credit,” said Chen Shujin, Analyst at DBS Vickers in Hong Kong. “We have seen that they were very active in selling off distressed debt portfolios.” More than 20 banks sold about CNY120 billion in bad debt in China during 2014, more than double the year before.
Fast FDI growth recorded in January
By : fcccadmin
China’s foreign direct investment (FDI) grew at its fastest pace in nearly four years in January despite the country’s weak economic performance at the start of this year, the Ministry of Commerce (MOFCOM) said. Foreign investors channeled USD13.9 billion into the country in January, up 29.4% from a year earlier and the strongest showing since April 2011. Growth accelerated from December’s 10.3% increase. In 2014, China absorbed USD119.6 billion in non-financial foreign investment, up 1.7% year-on-year. This helped China surpass the United States to become the world’s top destination for foreign investment. There has been a noticeable shift of investment from manufacturing to the service sector and from the coastal area to inland cities. In January investment in services increased 45.1% year-on-year to USD9.1 billion, or 66% of the total. Investment in manufacturing rose 13.9% to USD3.9 billion, 28.4% of the total. Meanwhile, China’s outbound direct investment (ODI) increased 40.6% year-on-year to USD10.1 billion in January, picking up from the pace of 31.8% in December. Last year, China’s ODI reached USD116 billion, only slightly below the inbound investment.
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