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Market Watch
Business> Market Watch
UPDATED: March 30, 2010 NO. 13 APRIL 1, 2010
MARKET WATCH NO. 13, 2010
 
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Numbers of the Week

62.4 billion

China has proven iron ore reserves totaling 62.4 billion tons, said the Ministry of Land and Resources.

39.89 billion

The high-speed railway connecting Chengdu, capital of Sichuan Province, and Chongqing Municipality will require an investment of 39.89 billion yuan

TO THE POINT: The drought in southwest China casts an ominous shadow over the prospects of many listed power and chemical companies suffering from the disaster. Taiwan's economy is expected to draw strength from a shopping spree by mainland businessmen starting in April. In an effort to take heat out of the burning hot real estate sector, China is forcing 78 centrally administered state-owned enterprises out of the property market. Air China gains control of Shenzhen Airlines in a move to enhance its market presence in Guangdong Province. China Unicom reports slim profits due to rising 3G network spending. Alibaba.com, the country's largest e-commerce website, taps the booming small and medium-sized enterprise sector of Brazil.

By HU YUE

Drought Aftermath

The severe drought affecting southwestern provinces since last fall not only poses a threat to local people's lives, but also the operation of a number of listed companies.

Shanghai Securities News conducted a survey of listed companies located in the drought-ridden areas and found the impact differed between organizations.

Non-ferrous metal and chemical industries have so far been unaffected. Managers of these industries said recycled and underground water helped secure the water supply, but they worried a continuation of the drought would cause companies to face electricity shortages, as nearly 50 percent of electricity in the region is hydropower.

Power suppliers have been put under pressure since last August due to water shortages. Guizhou Qianyuan Power Co. Ltd. told Shanghai Securities News that since August 2009, upstream hydropower in some plants abated nearly 60 percent, leading to a substantial drop in power generation in January and February.

Xiang Chuan, Secretary of the Board of New Hope Group, an agricultural company, said food prices have been on the rise due to the drought, leading to cost hikes for the company.

Shopping in Taiwan

Taiwan-based China Times reported five to six purchasing delegations from the mainland will visit and buy in Taiwan starting this April. Wang Chih-Kang, head of Taiwan's "External Trade Development Council," as cited by the newspaper, said the money spent by this year's delegations "will surely exceed last year's amount and might even surpass $15 billion."

In the meantime, the number of mainland tourists to Taiwan has been on the rise. During the 2010 Spring Festival holiday (February 13-19), 35,000 mainland travelers visited Taiwan. In 2009, mainland travelers created $1.3 billion in direct revenues for the tourism industry in Taiwan.

Wang said mainland businesspeople have all made up purchasing lists prior to their trip. For instance, Wang said nine color TV set manufacturers from the mainland will come to buy $5.3 billion worth of panel products for TV sets from Taiwan companies, including Taiwan Chi Mei Corp. and Chunghwa Picture Tubes Ltd.

The Chinese mainland and Taiwan are in the process of negotiating the Economic Cooperation Framework Agreement, which is believed to strengthen economic ties across the Straits.

House Market Withdrawal

In its latest attempt to tame frothy house prices, China has ordered its 78 centrally administered state-owned enterprises (SOEs) whose core business is not real estate to pull out of property market.

The order was made by the State-Owned Assets Supervision and Administration Commission (SASAC) in a statement on its website on March 18. "Those enterprises should hammer out detailed plans of their withdrawal within 15 working days," said Li Rongrong, Chairman of the SASAC.

Of the 127 SOEs supervised by the SASAC, 94 are involved in real estate and out of that only 16 are designated property developers.

The move followed growing complaints that cash-swash SOEs are influencing land prices and squeezing private developers out of land auctions. The state enterprises were responsible for eight of the 10 most expensive land transactions all over the country last year.

The China Ocean Shipping (Group) Co. (COSCO) was first to respond. Wei Jiafu, President and CEO of COSCO, during a public appearance on March 19 promised one of its subsidiaries, COSCO (Hong Kong) Group Ltd., would sell its 8-percent stake in Sino Ocean Land Holdings Ltd. within six months.

Wu Jinglian, a renowned economist with the Development Research Center under the State Council, said it is also necessary to put pressure on SOEs to make them more efficient, improve their technologies, and strike against property speculation, he said.

Cooling the property fever also requires properly addressing the supply-demand imbalance of land, said SASAC Vice Chairman Shao Ning.

Airlines Combination

Air China will spend 682 million yuan ($100 million) to gain control of Shenzhen Airlines, the country's fifth largest carrier, as it gears up for a firm foothold in the south China market.

The Beijing-based Air China will raise its stake in the Shenzhen Airlines to 51 percent from its current 25-percent holding after the fund injection, it said in a statement to the Shanghai Stock Exchange.

Another shareholder, Total Logistics Co. Ltd., will invest 348 million yuan ($50 million) to increase its stake in Shenzhen Airlines to 25 percent from 10 percent. Huirun Investment Co., the previous controller of Shenzhen Airlines, will see its 65-percent stake diluted to 24 percent upon the deal's completion.

The privately owned Shenzhen Airlines had been struggling on the edge of bankruptcy due to diving profits and piling debt.

The deal would alleviate cash flow strains for Shenzhen Airlines and deliver a boost to the market positions of both airlines, said Air China. It is estimated the combined market share of the two companies in Shenzhen stands at 43 percent, well above that of China Southern Airlines.

Shenzhen Airlines could also expand its businesses to other parts of the country with the help of Air China's brand name influence, said Li Lei, a senior analyst with China Securities Co. Ltd.

China Unicom's Profit Woes

China Unicom Ltd., the country's second largest mobile operator, saw its profit dive a hefty 35 percent last year largely because of increased expenses on high-speed services and a lack of a one-time gain.

After releasing its annual financial report on March 24, the Beijing-based company said it increased spending on marketing to allure subscribers to its third-generation (3G) network amid rising competition from China Mobile and China Telecom.

"Our results were below expectations largely because of the start-up costs associated with setting up the 3G network," the company's Chief Financial Officer Tong Jilu said in a statement. "The pressure we're facing as a result of 3G development costs is real, but as revenue grows, things will improve."

As a result of the government-led telecom shake-up in late 2008, China Unicom was allowed into fixed-line businesses through a merger with China Netcom. But worries over the new area were abundant as the number of its fixed-line users decreased 6.748 million last year.

The company still has a lot to do in terms of effectively integrating its mobile businesses with its fixed-line segment, said Fu Liang, a renowned independent telecom expert.

Alibaba Goes Global

Alibaba.com recently partnered with a Brazilian firm to tap the booming small and medium-sized enterprise sector in the South American country.

"Internet penetration and Brazil's blossoming emerging-market economy make it ripe to market its small and medium companies on Alibaba's platform," said Timothy Leung, Sales Director of Alibaba.

Alibaba has already attracted more than 150,000 free users in Brazil and the partnership with Ludatrade Tecnologia Ltda will enable Brazilian companies to display their products and contact information on the English version of the Alibaba website, which could reach clients in 240 countries and regions.

Alibaba expects to store information of 60 to 80 percent of Brazil's exporters in its statistic base. It normally charges global suppliers a $3,000 fee, but Brazilian businesses will have to pay 50 percent more due to costs associated with translating products and catalogues into English.



 
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