TO THE POINT: Chinese fund management companies spilled red ink in the first half of 2010 as the stock market turned bearish. The shipbuilding industry regains its lost ground but unsteady seas could capsize hopes for continued success. Chinese property developers' financing woes are intensifying. China Mobile reported modest growth in first-half profits as competition heats up among the telecom giants. Outbound M&A deals, especially those involving natural resources, by Chinese companies in the first half of this year hit a record high. China aims to lift its installed hydropower capacity to 300 million kilowatts by 2015 from the current 200 million kilowatts.

By HU YUE

Funds' Gloom

With the stock market stuck in the doldrums, Chinese investors are losing their gains, with no exception for fund management companies.

A report by Tianxiang Investment Consulting Co. Ltd. says 234 funds operated by the country's 18 fund management companies racked up painful losses totaling 154.83 billion yuan ($22.8 billion) in the first half of this year.

The biggest losers were the 93 stock funds that reported a combined loss of 99.4 billion yuan ($14.6 billion) from January to June. The Shanghai Composite Index plunged more than 26 percent in the first six months of 2010.

The bear market was awakened from its slumber as investor worries abounded that more aggressive tightening macroeconomic policies were on the way, said Zhang Xin, a senior analyst with the China Galaxy Securities Co. Ltd.

Looking ahead, fund managers are divided on where the stock market is heading. The rebound in corporate profits will make stock valuations more attractive and provide a stabilizing force to the volatile market, said Pang Jiang, a fund manager with Franklin Templeton Sealand Fund Management Co. Ltd.

But Zou Wei, a fund manager at Harvest Fund Management Co. Ltd., disagreed. "Uncertainties are gathering over the market prospect, including the economic slowdown and the European sovereign debt crisis," he said.

Shipbuilders Roar

Two years after the financial crisis, China's shipbuilding industry is ready to set sail again.

Chinese shipbuilders received new orders of 9.54 million deadweight tons in July, hitting a record high since the financial crisis, said the China Association of the National Shipbuilding Industry. The figure brought the amount in the first seven months to 33.3 million deadweight tons, 4.2 times the same period last year.

When the overwhelming financial storm swept the globe in 2008, Chinese ship makers sourcing their orders largely from the United States and Europe had nowhere to hide. Many buyers postponed deliveries or cancelled them outright since they have no cargo to transport.

In response, the government has handed out an array of generous incentives to help the hard-hit industry, such as easier access to financing. Moreover, it has encouraged qualified shipbuilders to float their shares on domestic stock markets.

A bulk cargo vessel of around 76,000 deadweight tons cost around 500 million yuan ($73.5 million) in 2008, but the price has dived to around 260 million yuan ($38.2 million) this year, says Ningbo Fonwa Shipping Co. Ltd.

In addition, most of the new orders went to a few big manufacturers, which means challenges remain for the smaller companies, said Bao.

Property Dilemma

With financial distress lingering, Chinese property developers are facing some serious headwinds.

By August 15, 40 listed real estate developers had released their first-half financial reports, reporting a dizzying average debt-to-asset ratio of 61.13 percent, say financial data provider Shanghai Wind Information Co. Ltd.

Policymakers have stepped up a stringent clampdown on bank financing to developers as part of its efforts to let air out of the housing bubble.

The financial woes remain bearable for most property developers, but the situation might worsen if their sales volume continues to plunge, said Gu Yunchang, Deputy Director of the China Real Estate and Housing Research Association.

Housing prices in 70 large and medium-sized cities rose 10.3 percent year on year in July. It was the third consecutive month that the prices rose at a slower pace and the lowest rate in six months.

Signs are emerging realtors have been succumbing to the pressure. Yongshun Real Estate Development Co. Ltd., for instance, has cut prices at a residence project in east Beijing by 20 percent.

The government will adhere to the austerity measures in the housing sector, including striking hard against speculation and increasing supplies of affordable houses, said Vice Premier Li Keqiang, during a recent visit to Changzhou, east China's Jiangsu Province.

Modest Growth

China Mobile, the world's largest telecom operator by subscribers, reported modest growth in first-half profits despite cutthroat competition.

From January to June, the company raked in a profit of 57.64 billion yuan ($8.48 billion), up 4.2 percent from one year ago.

Revenues rose 7.9 percent to 229.82 billion yuan ($33.8 billion) as the company added almost 31.76 million new customers in the first half, bringing the total customer base to 554 million.

The telecom behemoth has been gradually losing ground to smaller rivals since late 2008 when China revamped the sector and allowed China Telecom into the wireless market. Meanwhile, a spending spree on the third-generation mobile networks is also believed to have weighed on its profitability.

"We are faced with daunting challenges—intensifying competition and an already high mobile penetration," said Wang Jianzhou, Chairman of the Board of China Mobile.

In December 2008, China Mobile signed up nine out of 10 new mobile users in the country. But the share dived to barely 60 percent in July 2010. Meanwhile, subscribers are paying less. The average revenue per user—a key barometer for long-term growth prospect—slipped to 72 yuan ($10.6) in the first half from 75 yuan ($11) a year earlier.

"But we still have confidence to grow amid the increasing momentum of the Chinese economy," said Wang. "We will continue to explore the rural and migrant worker market which is showing significant growth potential. Efforts will also be made to diversify into other value-added services, such as music downloading and mobile payment."

Overseas M&As

With deep pockets at their disposal, Chinese companies are looking for cheap bargains overseas.

Chinese outbound merger and acquisition (M&A) deals in the first half of this year hit a record of 99, up by more than 50 percent year on year, said the accounting firm PricewaterhouseCoopers (PwC), in a recent report.

Natural resources are the main target for Chinese investors overseas. Fourteen resource deals were announced from January to June, with the largest being Sinopec's $4.7 billion purchase of a 9-percent interest in Canadian largest oil sands producer Syncrude.

"Although natural resources continue to be the priority industry target for Chinese investors overseas, we are seeing other industries starting to get increased attention, including high technology, manufacturing and services industries," said Andrew Li, a Transaction Services Partner at PwC. "Meanwhile, investors are broadening their target regions to include the United States, Japan and the EU."

Hydropower Expansion

China aims to lift its installed hydropower capacity to 300 million kilowatts (kw) by 2015 from its current 200 million kw.

The expansion is a needed boon for the national drive to cut carbon emissions and forge ahead with the green economy, said Zhang Guobao, Director of the National Energy Administration (NEA).

China has relied on coal to power its economic growth engine, as about 83 percent of its electricity is produced by coal-fired power stations.

Efforts will be made to develop hydropower projects across the country under stricter approval procedures, which focus on protecting the environment, the rights of relocated immigrants and land resources, said Zhang.

Meanwhile, the NEA is studying the feasibility of a plan to raise the on-grid price for hydropower to the same rate as electricity produced by thermal power plants.

The proposal, if adopted, would benefit hydropower operators but would inflate costs for grid operators and consumers, he said.