Category Banking & Finance

China:Foreign banks need to be ‘local’

RULES that require foreign banks to incorporate locally before they can offer bankcards and yuan-denominated deposit service will be implemented by December 11, an official of the banking regulator said.

Passing the rule should be no problem by that date, Xu Feng, director of the banking supervision department at the China Banking Regulatory Commission, told a conference in Beijing yesterday.

The regulator has reached “more consensus” with foreign banks on the draft regulations, Xu said.

China is set to open its retail yuan business to overseas banks on December 11 under its World Trade Organization commitment.

The banking regulator has held two meetings in Shanghai and Beijing to get responses from overseas institutions about the draft.

Some of them have said it’s hard to meet the requirement of having a deposit-to-loan ratio of 75 percent.

The regulator is likely to grant overseas banks a transition period to allow them to take in deposits to meet the requirement, earlier media reports said.

Overseas banks that don’t incorporate locally will need three times more capital to offer yuan services to local individuals in the country, under draft rules given to Shanghai Daily in August.

Overseas banks which are not locally incorporated can only take fixed deposits of more than one million yuan (US$125,000), the draft noted.

China’s US$1.9 trillion household savings are like the icing on the cake that most overseas banks can’t easily overlook.

Overseas banks have 214 outlets nationwide now. The figure is the tip of the iceberg when compared with more than 70,000 run by their Chinese rivals.

Xiang Junbo, deputy governor of the People’s Bank of China, said in September that international experience has shown that a “too fast” and “too much” opening up of the banking sector will do harm, rather than benefit, a country’s economy.

RMB becomes more powerful in regional finance system

Chinese central bank announced on Tuesday that the amount of swapped currency included in the bilateral currency swap agreement between China and Indonesia has increased to about 4 billion US dollars, doubling the previous figure. Analysts say this shows that China has played a more important role in maintaining the stability of the regional finance system. It is expected that Renminbi will become a more powerful currency in regional finance system in future.

In December 2003, China and Indonesia signed a bilateral currency swap arrangement, and the total amount of swapped currency included in that agreement was 1 billion US dollars. In October 2005, when the two countries re-signed the agreement, the amount of swapped currency had increased to 2 billion US dollars.

Economists have suggested that Asian countries should establish a regional financial cooperative scheme possibly in four ways: The first is to establish a regional currency fund system; the second is to set up an exchange rate administrative system in the Asian region; the third is to set up a regional trade settlement system. Some experts also suggest that a regional currency system should be set up that takes a specific currency as the core currency in the system. Under this system, most people think that Japanese yen and Chinese yuan are the two most probable currencies to take the role.

Previously, when talking about the basket of currencies to which Renminbi refers, Chinese central bank governor Zhou Xiaochuan encouraged businesspeople to use more local currencies, not US dollar, for bilateral trade settlement.

Pushed by the central banks of China and Russia, the two countries started to use local currencies for bilateral trade settlement since January 1, 2005. Previously, China and Russia had only accepted US dollar for their bilateral trade deals.

At present, Renminbi has already become the major currency for border trade deals in countries such as Mongolia, Vietnam, Myanmar, Nepal, etc.

When Renminbi is greatly needed by neighboring countries, its influence in Asia is also greatly increased.

3.7bln foreign capital flows into Shanghai property market

According to the “2006 Shanghai Finance Stability Report” issued by the central bank, in 2005 some 3.763 billion US dollars of foreign capital flowed into the property market in Shanghai, increasing by 40% over 2004. Among the four major types of foreign capital flows, a large proportion went to the group of people who were not Shanghai local residents and spent their money directly buying real estate.

Although Chinese government had issued a regulation on limiting foreign capital’s access to domestic property market, foreign capital still kept flowing into the Shanghai property market. Many foreign-fund management companies are enthusiastic about using their money to buy office buildings or luxury apartments in Shanghai.

On July 24, a month after the central government published related regulation on limiting foreign capital¡¯s activities in China, the Hopson Group announced that it had sold all the shares of the Hopson International Mall to the Pacific Delta Investments limited at a total price of 300 million US dollars. The Hopson International Mall is located in the finance and trade area in Lujiazui. Two months later, the Genting Berhad Group in Malaysia announced that they had controlled the Changshou Commerical Plaza in Shanghai by the acquisition of the Rich Field Group at a price of 572.7 million Hong Kong dollars.

“The short-term changes in the investment market will cause investors to make some adjustment. However, for the long-term investors are still optimistic about the property market in Shanghai,” said Zhang Zhenpin£¬ president of the Colliers International Group.

His words showed that the regulation might affect their investment activities for a short period. However, it won¡¯t change their long-term investment prospect.

Floating exchange-rate regime is successful, PBC official

Chinanews, Beijing, Oct. 17 – Yi Gang, Assistant Governor of the People’s Bank of China (PBC), said recently that with one year¡¯s operation, that China’s floating exchange rate regime, which is based on market demand, has been proved successful. In 2006, China’s export competitiveness is still very strong. China’s GDP and consumption are still increasing.

He made the remarks when delivering a speech at the School of Economic Management in Beijing University of Technology. In his speech, Yi says that overall, the Renminbi exchange rate regime will remain stable at a reasonable, balanced level, and its value will rise slowly in response to the Renminbi appreciation pressure.

Since July 2005, the Renminbi value has raised by 4.7% in total. Some people once worried that Renminbi appreciation would affect China’s export competitiveness. However, the real situation has proved that such worries are unnecessary, since the trade surplus for the first nine months of this year has exceeded the total trade surplus for the whole of last year. This shows that China’s export competitiveness is still very strong, Yi claims.

ICBC draws US$130bln for coming IPO

Oct. 15 – It seems certain for the Industrial and Commercial Bank of China to set a new initial public offering (IPO) record with US$130 billion of orders so far, the South China Morning Post reported Saturday.

ICBC, China’s largest bank, has drawn more than $130 billio worth of orders from international investors for the Hong Kong portion of its IPO marketing, the English newspaper reported, quoting market sources.

The retail tranche of H shares on Hong Kong Stocks will go on sale on Monday and is expected to meet with an overwhelming response from the public.

ICBC will raise as much as $22 billion through a dual listing in Hong Kong and Shanghai, the world’s largest IPO to date, according to the newspaper.

The previous IPO record on Hong Kong Stocks was set by Bank of China, which attracted $175.6 billion worth of institutional orders for its HK$67.7 billion IPO in May.

The current $130 billion in orders were 10 times the $13.23 billion worth of H shares available to all institutional investors, including the $3.9 billion worth already set aside for 13 corporate investors and wealthy individuals.

With most big institutional investors yet to place orders, the subscription level should reach a record high before the books close, the newspaper cited a fund manager as saying.

Despite the strong demand, the deal’s sponsors and bank management have no plans to raise the indicative price range for the sale, the newspaper cited an investment banker close to the IPO as saying.

China to see insurance premiums double in 2010

Oct.16 – China will see its insurance premiums double to one trillion yuan (125 billion U.S. dollars) by 2010, driven by people’s growing demand and constant product innovation, said the state insurance watchdog.

During the 2006-2010 period, as Chinese people spend more money on cars, houses, education and travel, insurance demand will grow, according to a document released by the China Insurance Regulatory Commission (CIRC).

With a 1.3 billion population and an ageing society, China will see insurance play greater role on the improvement of social services during this period, particularly on the medical service and pension, said document.

According to the commission, China vows to create a healthy environment for the development of the insurance industry before 2010, with improved legal system and people’s enhanced awareness towards insurance.

The commission urges insurance companies to explore markets, introduce more product varieties and improve risk-control system.

By 2010, China plans to build a modern insurance industry with a batch of large insurance companies with international competitiveness, said the plan.

China’s insurance premiums hit 493 billion yuan (62 billion U.S. dollars) in 2005, ranking the 11th in the world. The industry witnessed a 25 percent annual increase from 2000 to 2005, the CIRC statistics showed.

E-mail leads Morgan Stanley analyst to resign

SINGAPORE Andy Xie’s resignation as Morgan Stanley’s chief economist in Asia last week followed an e-mail message in which he characterized Singapore as an economic failure.

Xie, a Shanghai-born economist who worked at Morgan Stanley for nine years, sent the message to his colleagues after attending the International Monetary Fund and World Bank annual meetings last month in the Southeast Asian island state.

In the e-mail message, he questioned why Singapore had been chosen as host for the conference and said that delegates “were competing with each other to praise Singapore as the success story of globalization.”

Xie also made unsubstantiated allegations about the use made of Singapore’s financial services by corrupt officials and businessmen in Indonesia.

The $118 billion Singaporean economy has experienced three recessions since the 1997 Asian financial crisis, and is expected to grow by as much as 7.5 percent this year.

The city-state is grappling with growing competition from China and India, the most populous and second most populous countries, respectively, where labor costs are less than a quarter of those in Singapore.

Prime Minister Lee Hsien Loong of Singapore said last month that the city- state’s economy could sustain annual growth of 3 percent to 5 percent for the next 10 to 15 years as the country expanded industries from information technology to tourism.

Singapore is ending a four-decade ban on casinos. The government plans to triple tourism revenue to $19 billion and double visitors to 17 million by 2015.

Officials from the public relations departments of the Monetary Authority of Singapore and the government information service declined to comment on the contents of Xie’s message. They also declined to be identified.

When reached on his cellphone Monday, Xie said that he had not decided on what he would do next.

“I’m not at liberty to comment on anything,” Xie said. “I’m in Guangzhou, and I’m taking a break on top of a mountain. It’s quite nice here.”

Morgan Stanley confirmed the contents of the e-mail message, but the firm, based in New York, said that it did not elaborate on the reasons behind departures of employees.

“This is an internal e-mail based on personal suppositions and aimed at stimulating internal debate amongst a small group of intended recipients,” Cheung Po-ling, a spokeswoman for Morgan Stanley in Hong Kong, wrote in a statement. “The e-mail expresses the views of one individual, and does not in any way represent the views of the firm.”

“Morgan Stanley has been a very strong supporter of Singapore, and has a great deal of respect for Singapore’s achievements,” Cheung said.

Morgan Stanley has handled $1.5 billion in merger deals in Singapore this year, according to data compiled by Bloomberg News.

It advised Temasek Holdings, the Singapore government investment company, in its purchase in March of a 9.9 percent stake in Tata Teleservices, based in Mumbai, India.

Xie worked at the corporate finance division at Macquarie Bank in Singapore before joining Morgan Stanley.

U.S. Insurers Press China for Access

BEIJING — American life insurance companies are pressing China to make good on WTO commitments to give them equal access to its booming market, arguing that they can help meet the needs of a fast-aging population, the head of an industry group said Tuesday.

Insurers want Beijing to remove obstacles that limit their ability to set up nationwide operations and cap foreign ownership of a Chinese insurer at 50 percent, said Frank Keating, president of the American Council of Life Insurers.

He said China’s life insurance market, now about one-tenth the size of the $540 billion-a-year U.S. market, could grow in coming years to become the world’s biggest.

Keating said his group pressed regulators in meetings this week to bring China’s licensing system in line with its promise to the World Trade Organization to treat foreign and Chinese insurers equally.

China’s current system requires foreign insurers to apply to open new offices one at a time, while Chinese competitors can win permission for a nationwide operation, Keating said.

China promised in 2004 to end such geographic restrictions and officials acknowledge that they are no longer required by regulations, but regulators still use the old system, he said.

“Our message here was a gentle chiding message that as this process goes forward it is important to be prompt, to be fair and to provide a competitive market for all,” Keating told reporters.

China faces a Dec. 11 deadline for meeting commitments to open its banking, insurance and other financial industries to foreign competitors.

Trade groups say Beijing has met most of its commitments to repeal formal barriers to foreign competition. But they say that in some areas, companies are still waiting for promised regulations that are meant to put them on an equal footing with Chinese competitors.

Keating said he told Chinese officials that foreign insurers can help Beijing cope with the needs of a rapidly graying population by selling life insurance, annuities and other retirement-related services to millions of families who can afford them.

That would let government focus on helping the poor, he said.

Keating, a former governor of the U.S. state of Oklahoma, said he plans to meet with U.S. Treasury Secretary Henry Paulson in hopes of having equal treatment in insurance made part of a U.S.-Chinese dialogue on economic matters.

The dialogue was launched last week when Paulson visited Beijing.

Keating also said that while Beijing has met its WTO commitment to let foreign investors own up to 50 percent of a Chinese insurer, his group wants to see that limit raised to allow full ownership.

The American Council of Life Insurers represents 377 companies that sell life insurance, annuities and pensions, including about 20 that operate in China.

U.S. insurers accounted for $1.5 billion of the $61.6 billion in life insurance premiums paid in China last year, according to Brad Smith, the insurance group’s vice president for international relations.

The Chinese market for insurance has been growing by 15 percent to 20 percent a year over the past decade, Smith said.

Smith said he couldn’t estimate what share of China’s insurance market foreign companies might be able to capture. But elsewhere in Asia, foreign companies account for 25 percent of Japan’s insurance market and 13 percent of South Korea’s, he said.

Insurers hope to see Beijing create tax and other incentives for families to invest in annuities, long-term health care policies and other retirement services, Keating said.

“That will free the government to focus on the 60 million poorest people,” he said. “That’s good public policy.”

Calpers looks at investing in China

The California Public Employees Retirement System, the largest US public pension fund, is considering investing for the first time in Chinese companies, aiming both to capitalise on the country’s booming economy and to raise its exposure to emerging markets.

Such a move by Calpers, which has not invested any of its $208bn (€164bn) portfolio in Chinese companies because of poor corporate governance standards, could have a ripple effect on other US public pension funds and increase demand for Chinese shares.

In an interview with the Financial Times, Russell Read, Calpers’ recently appointed chief investment officer, indicated that the fund could begin by investing in Chinese companies with US or international listings through American Depository Receipts and Global Depository Receipts.

He said the pension fund’s staff could recommend the strategy to Calpers’ board in the coming months.

Mr Read, who shaken up Calpers’ investment strategy since joining in June, said the issue of how to invest in China and other emerging markets was a primary focus for the Sacramento-based fund. “Investing properly in the emerging markets . . . is fundamental to our investment success,” he said.

Calpers, which has a reputation as a tough guardian of shareholders’ rights, has so far excluded China from its list of investable markets.

The list is updated yearly and is up for re-evaluation by the Calpers board in February, although permission to invest in ADRs and GDRs could come sooner.

In spite of China’s fast-growing economy, its capital markets have proved disappointing to foreign investors. The local stock markets have been volatile and are closed to all but a small group of investors picked by the Chinese government.

However, several big companies, including the state oil giants Petrochina and CNOOC and telecommunications operators China Telecom and China Mobile, have listings in Hong Kong and trade ADRs in the US.

Calpers has some real estate holdings in China. Other US public pension funds also have a degree of exposure to China, although in most cases it appears to be limited to real estate.

Citigroup, Northern Trust named China NSSF custodians – source

BEIJING (XFN-ASIA) – China’s National Social Security Fund (NSSF) has named Citigroup and Northern Trust as its custodian banks for overseas investment, an unidentified fund official said.

‘Citigroup and Northern Trust have been appointed,’ the official told XFN-Asia, adding that an official announcement will be made soon.

By the end of 2005, NSSF had total assets of 211.79 bln yuan.

Xiang Huaicheng, head of the NSSF, said earlier that the agency plans to invest up to 800 mln usd overseas by the end of the year, mainly focusing on Hong Kong as well as US and European markets.