TRANSCRIPT:
Chinese markets confused but why? More big new
IPOs and Chery+Chrysler at last:
Sinomania! Volume I Episode 23, July 10, 2007
Chinese markets are confused but why? More big
new IPOs coming; And Chery and Chrysler finally
tie the knot!
CHERYSLER
At a splashy signing ceremony last Wednesday
in Beijing, Chery Automobiles and Chrysler formally
- and finally - hitched wagons in a deal that
has America's auto industry in a tailspin. Chery
President Yin Tongyue indicated that Chrysler
will soon sell a Chery small car in the US for
only $7,000 US dollars. Chrysler Chairman Tom
LaSorda has neither confirmed nor commented on
pricing but has said that Chrysler will sell Chery
made cars in Latin America next year and North
America starting in 2009.
Nine out of ten Chrysler vehicle sales are in
North America so the company now owned by private
equity firm Cerberus Capital is eyeing exports
of Chery autos under a Chrysler brand such as
Dodge or Jeep to capture markets in Europe and
Asia.
In a related note, Fiat and Nanjing Auto may
or may not be dissolving their troubled joint
venture. Fiat denies a cash infusion claimed in
the Chinese press. Nanjing Auto bought the British
MG Rover company two years ago but its Fiat partnership
has faltered.
Ford and GM are racing to meet the new Chinese
competition but neither will have a vehicles ready
until 2010. And remember Chery is just one of
many Chinese auto companies positioning for the
United States market.
Return of the market Yo-Yo?
Chinese markets are up slightly as the week begins
almost recovering the losses from the sharp sell-off
of last week. The Shanghai Composite closed July
9 at 3,883.216 gaining just under three percent
and the news is the same across all major indexes.
Speculation is that last Wednesday's more than
five percent drop of the Shanghai composite down
to just above 3,600, was due to worry over the
spate of big new IPO share issues expected soon
and the delayed impact of the tripling of the
stamp transaction tax.
Many pundits believe that Chinese regulators
may have successfully cooled the market and point
in particular to the big decline in turnover volume
which is running around one third the level of
the May peak and new share holding accounts are
also down to about one third previous levels.
I believe last week's drop was probably due to
three key events that happened in the first part
of the week:
On July second the National Bureau of Statistics
released a macro report that indicated overheating
in industrial production and in disposable income
figures for April and May. The disposable income
figures are important since many analysts inside
and outside China believe that excess cash and
few investment options are feeding the Chinese
bull market.
Wednesday, the third annual EU-China financial
summit convened in Brussels and the Chinese delegation
specifically emphasized the need and determination
to maintain a tight monetary policy.
The summit was ignored by the American press
but revealed progress in Chinese -European cooperation
in accounting and auditing standards and progress
toward Chinese acceptance into the WTO's government
procurement agreement. The EU and China also reiterated
their desire for further convergence in monetary
policy - that could spell trouble for the dollar
in the long term.
Also on July 4, a day before the stock price
correction, the head of China's National Development
and Reform Commission, Ma Kai, said in a speech
before a session of the Chinese People's Political
Consultative Conference standing committee, that
China had failed to contain the risks of rampant
growth and the country was overheating. Ma's comment
alone was probably enough to cause nervous investors
to start selling.
The Chinese People's Consultative Conference
or CPCC is one of the top advisory boards to China's
congress and, more importantly, the State Council
that runs China's day-to-day government. As it
concluded it's session July 7, it called for China
to issue national treasury bonds to cover the
growing debt of Chinese public universities and
to focus on energy efficiency as a top national
priority.
IPO REPORT
Chinese regulators continue to encourage big
state-owned firms to partially privatize and list
on domestic exchanges. At a confab in Beijing
over the weekend Qi Bin, a director at the China
Securities Regulatory Commission, said the agency
will speed up the process for A share IPOs and
continue to push H share firms in Hong Kong to
list on the mainland.
An acceleration of IPOs remains expected for
this month and next and include PetroChina, mentioned
in a previous episode, that could raise $6 billion
US dollars, China Construction Bank, China Mobile,
both mentioned before here, and ShenHua Energy,
China's biggest coal miner, planning a Shanghai
IPO that could raise $6.3 billion US dollars.
ShenHua is already listed as a Hong Kong H Share.
Another coal giant with IPO plans is Yongcheng
Coal & Electricity Group of central Henan province
that is looking to raise up to $1.3 billion US
dollars with a dual Hong Kong and Shanghai listing
later this year.
But perhaps the most exciting opportunity is
the announced IPO of a unit of China Aviation
Industry Corp I or AVIC I, a giant conglomerate
in China's fast developing aviation industry.
Citibank was chosen as advisor for an overseas
IPO of AVIC I's Commercial Aircraft Company Ltd.
that will include the assets of AVIC's Shanghai
commercial jet manufacturing operations. AVIC
I is restructuring and may list other units.
It now seems certain that 2007 will be the Year
of the Chinese IPO. A report last week from PriceWaterhouseCoopers
says that China is on pace to raise $52 billion
from new share listings on its domestic exchanges
this year making it the world's leader. Competition
will no doubt increase between Hong Kong, New
York, London, and other exchanges to retain Chinese
business.
And interest in Chinese shares remains hot. For
example, the Hong Kong IPO of Vinda International
Holdings, China's leading toilet and sanitary
paper manufacturer, was 114 times oversubscribed
the company reported last week.
Finally, in the wake of all the reports about
the slave labor camp uncovered at a brick works
in central China - exposed not by western media
but by a local Chinese television station in Henan
province - China's Congress passed last week a
labor reform law that will require written contracts
for all employees, restrictions on the use of
temporary laborers and allow collective bargaining
by China's state-controlled unions. The new law
takes effect January 1.
