Archives April 2015

Realty growth sinks to single-digit level

A man inspects a property model display on June 14, 2014 in Rizhao, Shandong province.

Housing sales remain soft despite several policy easing measures announced by government

First-quarter investment in the real estate industry plunged to the lowest point in nearly six years, according to data released by the National Bureau of Statistics on Wednesday.

Investment in the property sector, a pillar of China’s fixed-asset investment, expanded by 8.5 percent year-on-year, dipping from 10.4 percent in the first two months.

The pace of growth was the weakest since July 2009, which was the aftermath of the global financial crisis, and a far cry from the 30 percent-plus rates recorded just four years ago.

In the previous property downturn, which occurred in the second and third quarters of 2012, growth rates remained above 15 percent.

“China’s property sector is still in a bad way. Prices continue to slide. Without a turnaround in loan growth, it’s difficult to see a rebound in real estate,” said Tom Orlik, chief Asia economist of Bloomberg.

Statistics suggest that investment growth in the sector is set for further slowdowns, which would drag down overall economic growth.

For example, funds raised by developers in the first quarter contracted 2.9 percent year-on-year, while new housing starts plunged 18.4 percent.

Yu Bin, a leading scholar with the Development Research Center of the State Council (cabinet), told a news conference earlier that real estate investment growth will decelerate further from 10.5 percent last year to about 7 percent this year. That would be about the same pace as the target for GDP growth.

In the longer term, property investment growth will stabilize in the 7 to 8 percent range, he said.

Investment is a lagging indicator that usually runs about three months behind changes in actual home sales, experts said. Given that relationship, last month’s sales performance implies that investment will stabilize in the second half of this year.

First-quarter housing sales by area fell 9.8 percent, the NBS said. That was a big improvement from the whopping 17.8 percent contraction in the first two months.

Calculations by China Daily show that in March, home sales were just marginally below the year-earlier levels: 0.9 percent down by area and 0.2 percent lower in value.

The NBS does not provide single-month data.

However, policy loosening in late March failed to ignite sales, to the surprise of many observers. After a soft patch in the first week of April, sales in the second week continued to fall.

According to the China Index Academy, the research branch of SouFun Holdings Ltd, sales in the 38 cities it monitors fell 11.2 percent last week, compared with the previous week.

In late March, the central bank said that commercial banks could reduce their minimum down-payment requirements to 40 percent from 60 percent for buyers of second homes who have outstanding mortgages on their first homes.

Separately, tax authorities said that individuals selling an ordinary home would be exempt from the usual 5.5 percent tax if they had owned that unit for more than two years, down from five years previously.

The housing authorities also said that the government would curb land supplies in second-and third-tier cities in an effort to rein in oversupply there.

Ding Zuyu, president of China Real Estate Information Corp, said that several factors had undermined the effectiveness of the policy changes.

For one thing, the Qingming (tomb-sweeping) festival is considered an inauspicious time to buy a home. The holiday fell from April 4 to 6.

Another factor, according to Ding, is that the implementation of the support policies is taking time to trickle down to the local level. Further, supplies of new apartments dwindled during the festival.

As the policies take effect nationwide, their impact will be fully felt starting from the second half of April, he said.

Chinese household income continues to grow in Q1

The average per capita income of Chinese households continued to rise in the first quarter of the year, the National Bureau of Statistics (NBS) said Wednesday.

Average per capita household income rose 9.4 percent year on year to 6,087 yuan (992.30 U.S. dollars), recording 8.1 percent growth after inflation.

The household income growth rate for 2014 was 8 percent.

Per-capita disposable income for urban people hit 8,572 yuan, up 8.3 percent. The growth rate was 7 percent in real terms.

Disposable income for rural residents stood at 3,279 yuan, up 10 percent. In real terms, it climbed 8.9 percent.

The income gap narrowed with urban residents earning on average 2.61 times more than their rural counterparts, down from a calculation of 2.66 in the same period last year, according to the NBS spokesman Sheng Laiyun.

Income growth surpassed gross domestic product (GDP) growth in the first three months, which clocked in at 7 percent, down from the 7.3 percent registered in the fourth quarter of 2014.

This still meets the official annual growth target of around 7 percent for 2015.

China created 3.2 million new jobs in urban areas in the first quarter, said Sheng, adding an NBS survey showed that China’s urban unemployment rate was “stable” at around 5.1 percent, unchanged from the rate in 2014.

The consumer price index, the main gauge of inflation, in the first quarter averaged 1.2 percent, the lowest since the fourth quarter of 2009 and lower than the government target of 3 percent, NBS announced Friday.

Huawei aims high with innovation, entrepreneurship

From a company on a shoestring budget at the time of its founding to a world renowned telecommunications giant, Huawei Technologies proves that commitment to entrepreneurship and innovation pays off.

“The only reason why Huawei exists and flourishes is its aim to better serve customers,” said rotating CEO Hu Houkun.

“The only way for Huawei to win the market’s trust and respect is through diligence,” Hu said.

Founded in 1987 with a registered capital of 21,000 yuan (3,400 U.S. dollars), Huawei took only eight years to achieve an annual sales of 1.5 billion yuan.

In 2004, Huawei launched a subsidiary in Britain. Within three years, it had orders from Germany, France, Italy and Spain.

At the end of March, the company reported a 32.7 percent increase in profits in 2014 to 27.9 billion yuan. Its revenue grew to 288 billion yuan, up 20.6 percent.

The growth was due partly to Huawei’s development of consumer business, mainly smartphone sales. Consumer business revenue hit 75.1 billion yuan last year, up 32.6 percent.

A close look at the company’s track record reveals the main driver behind its growth is its attention to innovation and research and development (R&D). In 2014, 40.8 billion yuan went on R&D, 29.4 percent more than in 2013 and 14 percent of revenue.

In the past decade, Huawei has spent more than 190 billion yuan on R&D. Among its 150,000 employees, more than 45 percent are engaged in innovation, research and development.

Huawei has been granted 36,511 patents and currently holds over 170 key positions in major international standards organizations, driving the improvement of industry standards.

“Huawei endeavors to offer the people of the whole world, especially in developing countries, fast and convenient connections at an affordable price.” Hu said.

Huawei’s ascent has not been free from obstacles: popularity breeds suspicion. Security forces in the U.S. and the UK accused the company of spying, but Huawei has been cleared through lack of evidence.

The UK’s Huawei Cyber Security Evaluation Center, which includes representatives of the British government and intelligence services concluded in a report published at the end of last month that “any risk to UK national security from Huawei’s involvement in the UK’s critical networks have been sufficiently mitigated.”

Beijing seeks new private investment to expand subway

Move comes after construction costs soar in past few years

Beijing plans to attract more nongovernment funds to fuel the rapid expansion of the subway network, the company responsible for providing finance and planning new projects has revealed.

Construction costs have almost doubled in the past six years, the Beijing Infrastructure Investment Co said.

The technical and economic performance index, which reflects construction costs, increased to 1 billion yuan ($161 million) per kilometer in 2014 for subway lines in the downtown area, according to figures released by the company. The corresponding figure in 2007 was 571 million yuan.

The municipal government has annual allocations to fund subway construction projects, and these reached 15.5 billion yuan in 2014.

Most of the money is provided by the company, which has invested more than 251.3 billion yuan in the network in recent years?enough to build 110 Bird’s Nest stadiums or 246 Water Cube aquatics centers.

Now the capital’s municipal government has released a guideline designed to attract more funds from private sources to finance large public projects, including the subway.

Yang Xuhui, an official at the Beijing Municipal Commission of Development and Reform, the city’s top economic planner, said companies can invest either alone or as a part of a consortium.

“More than one company has shown an interest,” he added.

Beijing was the first city on the Chinese mainland to build a metro system, and there are now 18 lines covering a total distance of 527 kilometers. The total is scheduled to reach around 1,000 kilometers by 2020 to meet the huge demand from the capital’s population of more than 21 million. The expansion should ease traffic congestion and reduce air pollution.

The cost of materials, labor, machinery and land acquisition and resettlement has also continued to rise, and this has pushed up the amount of investment needed, the company said.

Metro construction projects in other cities have also been affected by rising costs. It is estimated that at least 3 trillion yuan will be invested nationwide in networks that will cover a total distance of 6,000 kilometers by 2020, official Li Guoyong told China Business Times. Li works in the infrastructure projects section of the National Development and Reform Commission, the country’s top economic planning agency.

There are currently two companies involved in running the capital’s network?city-owned Beijing Mass Transit Railway Operation Corp, and Beijing MTR Corp, a public-private joint venture with Hong Kong’s MTR.

On Feb 8, Beijing MTR Corp paid 15 billion yuan for the right to operate Line 16 for 30 years. It already runs Line 4 and Line 14.

Safety is a major concern both during the construction process and after new lines open.

Le Guiping, a spokesman for Beijing MTR Construction Administration, which is in charge of building the company’s projects, said: “We have a safety and emergency command center that monitors the whole process from construction of the facilities to test runs.”

The center came into operation in January.

A second monitoring center is designed to ensure that lines operate safely. This supplies information about passenger flows and other data to the government to help it reach decisions on the future development of the network.

Intel offers olive branch of investment for growth

Intel Corp said on Wednesday that it will invest 120 million yuan ($19.3 million) to promote grass roots technology innovation in China amid deepening mistrust over information security between the United States and China.

Chief Executive Officer Brian Krzanich has sought to placate the Chinese authorities by pledging wider collaboration with local institutes and universities.

The moves came as the US added three major partners of Intel in the supercomputing sector to a technology embargo list.

Krzanich said that the vibrant atmosphere of innovation in China will help Intel find new business opportunities beyond personal computers and other traditional information technology sectors. “There is a huge opportunity for Intel to continue to grow together (with China). This growth is being driven by the public cloud, network transformation, big data and new IT services,” he said.

About 80 million yuan of the investment will be used to set up an angel investment fund. It will be the first seed-stage fund for Intel, and it will focus on companies preparing for going public.

The investment is evidently an attempt to butter up the Chinese officials. Earlier this year, in a move to boost the slowing economy, the central government encouraged individuals to start their own businesses. Ian Yang, president of Intel China, said that the newly announced investments are in line with that strategy.

Intel said that it is also considering deeper research ties with local universities. Chengdu-based Southwest Jiaotong University and Tsinghua University in Beijing are the first partners of the Intel innovation project.

“It is not good enough to bring products that we already developed or already used elsewhere. A real partnership means you bring it first to China,” Krzanich said. “We want to share pioneering ideas up front with China.”

Antonio Wang, an analyst at consultancy International Data Corp, said a good relationship with the government is becoming critical for Intel and other overseas technology companies because of the “panic” over IT security.

Intel may have to cut loose some of its top research partners in China because of a new order from the US government. Supercomputer centers based in Guangdong province and Tianjin municipality and one at a military academy?the National University of Defense Technology in Hunan province?have been added to a US “Denial List” that bans advanced technologies from being sold to these organizations, US-based technology Website vrworld.com reported on Tuesday.

The report said the ban may damage sales of Intel’s Xeon Phi accelerator because the institutes are making the world’s fastest supercomputers and will need vast volumes of high-end Intel devices.

Multiple sources at Intel confirmed to China Daily that the US had blacklisted these customers, but they said it was unlikely to harm Xeon products’ sales.

“The ban only covers research cooperation that may pose threats to the US. On-market product sales will not be affected,” one of the sources said.

China and the US have stepped up information security in the past year, with both claiming to be victims of online espionage.

China is also seeking to ensure IT security by imposing new industry standards. Some foreign technology providers have said these moves are intended to oust foreign companies from the government procurement sector.

Chinese regulators have denied that accusation, saying that local companies must also abide by the regulations.

Busy weekend for property agents

A man examines property models at a housing sales center in Hangzhou, capital of Zhejiang province. Some potential buyers anticipate further easing measures to be taken by the government to kick-start the property sector.

Easing policies lure buyers, but some still prefer to ‘wait and see’

Property agents in Shanghai have reported their “busiest weekend” in a quarter, over the three-day Qingming Festival.

However, some also detected a “wait-and-see” attitude among some potential buyers, who still anticipate further easing measures to be taken by the government to kick-start the sector.

On March 30, the central bank and the housing and banking authorities announced a relaxation of loan requirements.

For homebuyers who are applying for a mortgage for a second home, the minimum down payment is cut to 40 percent from the previous level of 60 to 70 percent. The minimum down payment for first-time homebuyers using public housing funds is cut to 20 percent, compared with the previous level of 30 percent, the central bank said.

On the same day, the Ministry of Finance also announced that homes bought at least two years ago would be exempt from capital gains tax. Previously, only homes bought at least five years ago were exempt from the tax.

According to data from fang.com, a property information platform website, 410 transactions were made during the three-day break in Shanghai.

In Shenzhen, meanwhile, property transactions continued to rise, said agents, after the boom during the three-day holiday, as new policies enable more residents to buy a second home for improving housing conditions.

Luo Junlei, an agent with Hanyu Property Ltd in Shanghai, said the latest measures had certainly helped business over the holiday weekend.

“We had to work 12 hours a day during the three-day break as potential buyers flocked to see their potential next homes?I did not even have time for lunch yesterday.” he said on Tuesday.

He said some buyers had told him the latest easing policies had encouraged them to go ahead and buy a home this year; however, as buying a home costs “serious money”, they were keen to see if any more options are introduced, making the cost even lower than that of now.

Transactions made during the three-day break were mostly spacious middle-and-upper-end apartments in downtown districts, according to Jenny Wu, director and head of residential operations for East China at real estate firm DTZ.

Gu Hanchun, a 57-year-old potential homebuyer, told China Daily: “I have visited seven apartments during the three-day holiday and two of them look good to me.

“But I think I will wait for another month to see if more discounts can be offered on mortgage rates, and if more homeowners will decide to let pro-owned apartments, pushing up supplies and lowering prices.”

Some analysts think the new policies introduced in late March mainly benefit those buyers with potentials for improving their housing conditions.

In some other cities, such as Jiangsu province’s Suzhou, people rarely make property transactions during the Tomb-Sweeping Day breaks because traditional beliefs consider it inauspicious, some sources said.

The new policies’ impacts are also different due to diverged supply and demand in some cities.

Internet boosts packaging sector

A cardboard-box maker in Huaying, Sichuan province. The paper industry is on the upswing in China due to rising demand from e-commerce companies.

Research facility plays key role in Finnish paper chemicals firm’s sustainability plans

At a temperature-controlled Kemira laboratory in Nanjing, capital of Jiangsu province, one can find lab workers and technicians huddled over consoles and machines taking notes and entering measurements in carefully calibrated charts.

Most of the research and work at the laboratory is centered on developing additives for water-intensive industries such as the paper industry. Situated in Nanjing’s chemical industrial park, it is just one of the many research institutions that is working on cutting-edge technologies for paper and pulp manufacturing industries.

Research findings from the Nanjing laboratory have already made a big difference to the Helsinki, Finland-based Kemira Oyj, the world’s largest paper chemicals maker. According to company officials, the new findings have helped Kemira boost annual output by 100,000 metric tons, especially at a time when most of its peers are downsizing production.

Jari Rosendal, president and CEO of Kemira, told China Daily that though the global paper industry has shrunk in size due to less use of printing and writing paper, it is on the upswing in China due to rising demand from e-commerce companies.

“You have no idea of how much it (China) means to the packaging industry,” he said. “On days when people go on an online shopping spree, billions of cardboard boxes are consumed.”

While online shopping is just one part of the growing demand in China, the other centers on the growing use of paper tissue products. Demand has risen for paper tissue products ranging from basic sanitary paper to niche products like waterproof kitchen paper towels and recyclable tissues, said industry experts.

China has tripled its paper production capacity in the last 10 years, and in 2009 zoomed past the United States as the world’s biggest papermaker. The size of the industry can be gauged from the fact that China’s three weeks of paper output now equals the entire annual output of Wisconsin, the top papermaking state in the US.

Rosendal said that along with economic growth, China’s demand for paper and pulp products has grown quickly in the past decade, but the market is not growing as fast as in the past, as people are going online for news and information, thereby using less printing paper.

Niu Qingmin, president of the Paper Industry Association in Jiangsu province, said that the slowing growth in China’s paper industry is a reflection of a so-called periodic excess capacity.

“China’s paper industry is going through a period of deep restructuring, because we developed too fast in the beginning, even at the expense of our environment,” he said.

“If the highly polluting factories are shut down, it will leave more room for the development of regulated companies. In such a scenario, overcapacity will no longer be an issue,” he said.

Niu said that China’s paper market will maintain steady growth in the long term, especially in the packaging and tissue sector.

The Finland-based company said it plans to offset losses in stagnant markets like Europe, by focusing on packaging, paper boards and paper tissue business growth in Asia.

Rosendal said that Kemira has more than doubled its capacity in China after setting up the Nanjing facility.

“It is quite an aggressive expansion in China, considering how much we generated for the past year.”

The chemicals company raked in about 100 million euros ($124.7 million) in China in 2013, and it plans to invest $100 million on the Nanjing unit, which will be the largest of its kind in Asia.

Kemira acquired the Netherlands-based AkzoNobel’s global paper chemicals business in July to help double its paper chemicals business in Asia Pacific, and expand its geographic reach and product portfolio.

“We don’t just go around buying up companies to show how big we can get. It is a requirement of the market,” Rosendal said. “We believe both production and demand will continue to grow in the world’s largest paper market.”

JD.com launches equity crowdfunding platform

China’s leading online direct sales company JD.com, has launched JD Equity Crowdfunding platform, to help finance the creation of start-up companies in China.

The platform will give China’s entrepreneurs access to a broad set of potential early-stage investors.

Under the model, each investment project will be led by a professional investment manager, who will be responsible for working directly with the investee companies.

The platform is expected to be China’s largest equity crowdfunding platform.

Veteran corporate strategist upbeat about China economy

China’s economy is well positioned to maintain good growth and a number of Chinese companies are becoming ready to be leaders instead of followers in high-tech sectors, a U.S. veteran expert on China’s industry and economy said.

Handel Jones, founder, chairman and CEO of US-based International Business Strategies, Inc, made the remarks in an interview with Xinhua.

Moving away from the double-digit growth of the most recent decade, the world’s second largest economy has been facing notable downward pressure and has entered a stage known as the new normal, characterized by slow, but higher quality growth.

The economy posted 7.4 percent growth in 2014, its weakest since 1990. The annual growth target was lowered to around 7 percent for 2015, arousing concern over the health and momentum of the economy.

“I’m confident that China, based on how things are going on, what the government is doing and what the companies are doing, is well positioned to have good growth in the next ten years,” Jones told Xinhua.

As to the fear-mongers who foresee the collapse of China’s economy, Jones said, “the Chinese economy has problems, but if you read the U.S. press, you have the impression that the collapse of the economy is ready to be announced.”

“I don’t see collapse of the Chinese economy, although it has to be careful about a lukewarm global market, overcapacity or risks arising from expanding local debts,” Jones, who is paying his 50th visit to China, said.

The author of the best-selling book Chinamerica, he bases his confidence on the “enormous people assets” and an efficient and visionary government.

“China has a broad base of high quality people assets. There is a strong desire to succeed, and they are very motivated and entrepreneurial,” Jones said. It is, however, important that they do not become complacent after initial success. There is a national goal as well as personal goals.

Another guarantee for the success of the Chinese economy is the role of the government in making visionary and grand industrial plans, guiding the industries and building the stage for companies to perform, he said.

“China is excellent at managing big projects and the growth of the electronics industry should be regarded as a big project,” he added.

With these advantages, there is a high probability for Chinese companies to become leaders rather than followers in some of the most influential high-tech sectors, including 5G, Internet of things, semiconductors and automobiles, he said.

Taking the telecommunications industry as an example, Jones said, “In 4G, China was behind. But in 5G, China will be the number one due to the well-planned development strategy and companies’ commitment as well as the role of government in supporting the corporate sector.”

Jones deems the Chinese government’s plan to build a 100-billion-USD semi-conductor industry as an excellent example where the government is taking initiative and of where government and industries can cooperate on becoming global leaders.

Jones also authors another best seller China’s Globalization: How China Can Become No. 1, which offers insight into how China will drive major changes in the global competitive environment over the next decade. Market forces alone are not sufficient to make the big advances required to be No. 1.

While working with several of China’s leading high-tech companies, as well as many foreign companies that are leaders in many market segments, Jones has noticed a change from being followers to becoming innovators and planning to be leaders. “This is a significant change in the mindset in China over the past one to two years,” he said.

Jones attributed the change to a sharp increase in R&D investment, a boost in managerial levels and enhancement in entrepreneurial skills as well as confidence in being able to compete in global markets.

Despite the bright future for China’s companies, there is still a long way to go before they can become clear leaders and innovators. In Jones’ eyes, it might take seven to ten or even 20 years, but “China is on a growth path, and the long-term prospects are positive.”

To leap ahead of their counterparts in developed countries, Chinese companies have to first change their mindset and focus on quality and profitability instead of market volume and low cost, Jones said.

Some Chinese companies accept or strive to be low-cost copiers and are satisfied with being No. 2. This has to be changed before China can have its own iphones, he said.

“Long-term strategies for winning have to be well-planned, and close collaboration between corporations and the government is critical,” Jones added.

4G, smartphones drive Huawei profit

Huawei Technologies Ltd yesterday posted a net profit growth of 33 percent in 2014, thanks to global demand for telecommunications network upgrade to 4G, advanced technologies and booming smartphone sales.

Huawei, the world’s No. 2 telecommunications equipment maker, reported a net profit of 27.9 billion yuan (US$4.5 billion). Global revenue rose 21 percent to 288.2 billion yuan in 2014, from 239 billion yuan a year earlier, according to Huawei’s audited report by KPMG.

The operator business, Huawei’s core business, steadily grew 16.4 percent to 192.1 billion yuan. It has got contracts from overseas markets including Europe, Africa and Southeast Asia.

Huawei has become a core equipment supplier of UK operator EE’s 4G network, which will pay 1.5 billion pounds (US$2.3 billion) between now and 2017. It will be the world’s fastest 4G network, both sides said.

The booming consumer business, mainly fueled by sales of smartphones like flagship model P7, grew 32.6 percent to 75.1 billion yuan.

The new enterprise business grew 27.3 percent thanks to surging demand of cloud computing and big data. Huawei spent 40.8 billion yuan on research and development in 2014.