Category News of China

Bank rules eased in Shanghai FTZ

China’s banking regulator has simplified administrative approvals and lifted the loan-to-deposit requirement for banks in the Shanghai free trade zone, allowing them to have greater flexibility in supporting business and testing the water for further financial reform, according to a report by Xinhua News Agency on Wednesday.

According to the new rules issued by the China Banking Regulatory Commission through its Shanghai branch on Wednesday, banks do not have to get approval from local banking authorities before setting up branches or appointing executives in the China (Shanghai) Pilot Free Trade Zone (FTZ), Xinhua reported.

Instead, they will be able to file with the authorities afterwards.

Furthermore, banks’ branches in the FTZ will not have to meet the normal loan-to-deposit requirement. Banks have also been advised to set up independent liquidity risk management systems and give necessary funding support for their lending business in the FTZ.

“The new regulations give banks more freedom to conduct business in the FTZ,” a Beijing-based banker told the Global Times Wednesday on condition of anonymity.

Normally, the establishment of new bank branches and appointment of executives requires approval from the regulator, and it can take a month for the executives to be officially appointed, he said.

Currently, banks are required to have a loan-to-deposit ratio of 75 percent, which means that they are only allowed to lend up to 75 percent of the deposits they have.

The ratio may vary among different branches, so long as the bank’s overall loan-to-deposit ratio meets the requirement.

Bank branches in first-tier cities like Beijing, Shanghai and Guangzhou have tighter limits, with loan-to-deposit ratios as low as 50 percent.

Under the new rules, bank branches in the FTZ may lend freely without the loan restriction, which will help free up more capital to support the local economy, the banker noted.

However, “the new practice could make it more difficult for the bank headquarters to balance the internal interests among branches within and outside the FTZ,” he said.

Scrapping the loan-to-deposit requirement could even help rein in shadow banking activities, he said, adding that a lot of off-balance-sheet lending or shadow banking activities are motivated by restrictions on bank lending.

The banking industry has long been calling for the elimination of the loan-to-deposit requirement, given the increasing pressure on attracting bank deposits amid interest rate liberalization and fierce competition from high-yield wealth management products offered by online financial service providers.

The loan-to-deposit requirement will be gradually phased out, and the pilot program in the FTZ will serve as a test ground for a nationwide rollout later, Guo Tianyong, a finance professor at the Central University of Finance and Economics, told the Global Times on Wednesday.

A total of 31 financial institutions including 20 foreign banks have registered with the FTZ, with total lending of 65.35 billion yuan ($10.6 billion) by the end of the first quarter, according to media reports citing the Shanghai banking regulator.

“The new rules are welcome,” Standard Chartered Bank told the Global Times in an e-mail on Wednesday. Standard Chartered has a sub-branch registered in the FTZ.

Clients want more transparent and efficient financial services, the bank said, adding that it hoped for further improvements in the FTZ.

The FTZ is developing a free trade account system to facilitate financial investment, Zhu Min, deputy director of the Shanghai FTZ administrative committee, said at the Boao Forum for Asia on April 11.

Key programs for the FTZ include easing the cross-border use of the yuan, liberalizing interest rates for loans, and facilitating offshore financing and outbound investment.

E-commerce driving demand for warehouses

An automatic distribution center, the largest in terms of daily handling capacities in Asia, will be in operation in July in Shanghai. To cope with the e-commerce surge, as much as $2.5 trillion may need to be invested in land and warehouses over the next decade and a half, one builder said.

Alibaba Group Holding Ltd’s plans for a giant initial public offering in New York highlight the vast potential for e-commerce in China – and the weak link the logistics industry must fix if those explosive growth projections are to be reached.

The aging warehouses that supply goods to customers across the world’s second-largest economy are already creaking under the strain, lacking the state-of-the-art technology that has fueled the rise of Amazon.com Inc.

By 2020, China’s e-commerce sector will be larger than those of the United States, Britain, Japan, Germany and France combined, KPMG reported. To cope with this surge, as much as $2.5 trillion may need to be invested in land and warehouses over the next decade and a half, one builder said.

That’s drawing the attention of global private equity firms like Blackstone Group LP and Carlyle Group LP.

“The real cost of building warehouses is going to be staggering,” said Jeff Schwarz, cofounder of Global Logistic Properties Ltd (GLP), the biggest foreign builder of logistics facilities in China. That translates to about 2.4 billion square meters of new warehouses – or two-thirds of the land mass of Taiwan.

Alibaba controls 80 percent of all online retail in China, and its logistics partners delivered 5 billion packages last year. While transport has kept pace with Alibaba’s rise, warehousing is in serious need of a makeover. Fewer than 20 percent of China’s warehouses are categorized as modern, with fully computerized tracking systems and the latest in retail technology, according to GLP.

And many facilities serving Alibaba and its peers are in areas that are tough for trucks to access. They often lack raised loading bays to let packages roll off conveyor belts: Instead, the vehicles are loaded by hand.

That can cut into profits. Despite China’s wages being much lower than those in the US, it can cost over twice as much to transport goods in China, GLP said.

Improving the logistics of China’s warehouses has been prioritized by none other than Alibaba cofounder Jack Ma. Last year, Alibaba announced plans to lead a consortium to invest $16 billion in the first phase of building a national logistics business, a unit of Alibaba to be chaired by Ma. Alibaba declined to comment for this article.

Alibaba’s efforts haven’t gone unnoticed. US e-commerce company ShopRunner, a rival to Amazon, will use Alibaba’s domestic logistics network when it launches in China later this year.

JD.com Inc, ranked second in China e-commerce, is also investing. In a filing for its own US listing worth up to $1.7 billion, it said it plans to spend up to $1.2 billion over the next three years to buy land and vehicles and to build warehouses.

Meanwhile, real estate developers such as China Vanke Co Ltd are diversifying into warehousing as a hedge against a faltering residential property market.

“China’s warehouse and logistics providers are trading at favorable valuations. In China, logistics space per capita is only 1/12th of that in the US, and providers stand to benefit as e-commerce expands,” said Tony Hsu, a portfolio manager at Dalton Investments.

So far this year, GLP has built 280 warehouses in China, creating about 2 million square meters of floorspace at a cost of $1.2 billion.

Blackstone, Asia’s largest private equity real estate investor, said it is in talks with several China real estate developers as it eyes the warehouse sector.

China to boost employment for college grads

Preferential policies will be granted to encourage college graduates to work at grassroots or start businesses in a move to boost employment, the State Council, China’s cabinet, announced on Tuesday.

Graduates that decide to work at grassroots will be provided with tuition compensation or a reduction in their student loan, the State Council said in a statement.

Small-sum guaranteed loans or subsidies will be given to new graduates to open online shops, it said. Small and micro businesses in technology will benefit from similar policies once they recruit a certain amount of college graduates.

According to the statement, state-owned enterprises are required to publish employment information on the Internet to safeguard a level playing field in recruitment.

The authority urged governments at all levels to give top priority to boosting employment among college graduates.

Figures from the Ministry of Education show 7.27 million university students will enter the job market this year, mostly in June and July. The number is 280,000 more than last year.

China has been confronted with a tough employment situation due to slowing economic growth, with an increasing number of jobless people, including college graduates and employees from sectors plagued by overcapacity.

Foreign developers seek partners, clients in China

Visitors to a property exhibition in Beijing last month inquire about an overseas project. Wealthy Chinese people are increasingly looking into foreign real estate investment opportunities.

Wealthy Chinese are increasingly looking for overseas real estate investment opportunities-so foreign developers are coming to China in search of clients and business partners, especially in the luxury-residential sector.

Chinese real estate companies’ overseas expansion affords individual investors a path to interests abroad, especially in developed countries with stable profit returns and a good natural environment.

“In past years, Chinese investors have not been very enthusiastic when I introduced real estate projects in Canada,” Neil Labatte, president and CEO of Talon International Development Inc, said. In the past six months, though, he’s taken many calls about buying into the Canadian housing market. It’s a “good sign of growing passion” from rich Chinese looking to spend dollars there as their focus shifts away from home, he said.

Shanghai-based international investor Greenland Group announced in March a 67,000 sq m project in Toronto, Canada’s largest city, as its latest overseas real estate acquisition. In the past year, Greenland announced deals in Australia, Malaysia, South Korea, Spain, Thailand, the UK and US.

Labatte said Chinese companies and individuals have accumulated enough wealth over past decades that many are now seeking out real estate services as part of their plans to establish businesses abroad. Individual investors who relocate outside China to settle or for work need to make a residential investment.

“There is a clear change of Chinese investors’ strategy in the Canadian real estate market,” said Labatte. “Families have been the majority of Chinese buyers of Canadian housing; usually for their kids’ education. They tended to buy large villas or luxurious apartments in high-end communities in the suburbs.” Now the purchases are of high-end downtown projects for both living and investment, he said.

Xu Dingmu, a businessman with a company headquartered in Beijing and employing 30 people, said his firm is opening a branch in Canada and he would like to purchase a floor in Toronto for office use.

“In the past, I would have preferred to rent a place, like we do in Beijing,” Xu said. “However, I plan to buy a floor because it will give me a stable profit return even if I close down the company there someday.”

He said the big time for China’s real estate market has passed and it’s not a bad idea to put some money into Canada if someone isn’t expecting huge returns from it.

Data from Jones Lang LaSalle Inc, an investment management firm offering specialized real estate services, show China’s outbound commercial real estate investments reached $7.6 billion last year, up 124 percent year-on-year. It estimated Chinese investors will spend more than $10 billion in 2014 in overseas commercial real estate markets.

Against that background, foreign developers are looking for Chinese partners to jointly seek out potential clients in China. Talon is the developer behind the Trump International Hotel & Tower Toronto, in the heart of Canada’s financial district.

Labatte is optimistic about the future of those projects, saying that the new rich generation in China has better taste and higher requirements for their housing.

“They want to be closer to vibrant city life with convenient facilities,” he said. “They want to have a luxurious lifestyle that a high-end project can provide – waiters, concierge, dining and party services included.”

He said Chinese investors are at the starting line of commercial real estate investment in Canada and the potential is huge.

At present, US and European investors lead commercial real estate investment in Canada. Chinese investors will follow rapidly, Labatte said.

“We are not here to only sell a project,” he said. “We are seeking Chinese developers to partner up” with.

He said many raw materials are imported from China for real estate construction, so Chinese companies’ strong network of contacts will benefit cooperation.

Jaguar’s joint venture integrates services

With their sights set on long-term development in China, Jaguar Land Rover and its local joint venture Chery Jaguar Land Rover Automotive Co Ltd announced the establishment of their integrated marketing sales and service organization on Friday.

The sales organization is jointly managed by both sides’ sales and marketing divisions. It will be responsible for the development and distribution of the Jaguar brand, Land Rover brand and Chery Jaguar Land Rover’s local brand in China.

Lu Yi, chief of staff at Jaguar Land Rover China, was appointed president of the sales organization, and will report directly to Bob Grace, president of Jaguar Land Rover China, Chery Jaguar Land Rover President Chris Bryant and Deputy President Zhu Guohua.

The organization consists of five functional structures: operations, after-sales, Jaguar brand, Land Rover brand and joint venture brand.

Lu was also designated as marketing, sales and service executive vice-president of Chery Jaguar Land Rover.

The sales organization proved both parties’ commitment to enhancing and expanding their operation in China, with the ultimate aim to satisfy the demands of Chinese consumers with high-quality products and services.

In the first quarter, Jaguar Land Rover China’s sales surged 36 percent year-on-year to 29,500 units. This stabilized its fourth position in the country’s luxury vehicle segment. The locally produced vehicles by Chery Jaguar Land Rover are expected to help the British brand grow further in the sector.

Jaguar Land Rover China and Chery Jaguar Land Rover will continue to implement far-reaching strategies for the China market. Both companies are firmly devoted to long-term development of the China market.

Ctrip’s quarterly profit drops 25 pct amid fierce competition

Ctrip.com International, which runs one of China’s major travel booking websites, Wednesday (US time) reported a 25 percent drop year-on-year in the net profit for the quarter through March amid domestic fierce competition in the country’s booming online tourism market.

In the first quarter, the company’s net profit was 115 million yuan ($19 million), falling for three consecutive quarters, according to a financial report posted on the NASDAQ. Its revenue jumped 36 percent year-on-year to 1.6 billion yuan.

Analysts attributed the profit slide to huge spending on promotion and acquisition over the period.

According to the financial report, total operating costs hit 1.06 billion yuan, a surge of 52 percent year-on-year. And expenses on sales and marketing activities in the first quarter increased by 61 percent to 430 million yuan from last year.

“Being confronted with increasingly heated rivalries in China’s online tourism market, Ctrip poured lots of money and effort into marketing so as to maintain its current leading position,” Wei Changren, general manager with Beijing-based Jinlü Consulting, told the Global Times Thursday.

Major Chinese online travel booking websites such as Ctrip, eLong and Qunar started a price war with each other last year, in an attempt to capture a leading position in the promising online tourism market, which is expected to reach 465.01 billion yuan in 2017, more than twice the figure of 220.46 billion yuan in 2013, read a report by Beijing-based market research company iResearch.

In July 2013, Qunar, backed by Baidu, one of China’s leading Internet companies, reportedly announced a promotion for hotel reservations during the summer vacation, offering clients 25 percent discounts on hotel room fees.

In December, Ctrip kicked off a similar activity for the whole month with up to 30 percent discount on room charges.

Ctrip also spent 200 million yuan on promotional efforts for its resort ticket purchase business in the first quarter of 2014, according to media reports.

Despite huge costs in marketing, the company still made a series of investments in its peers recently, indicating that its cash flow is in fairly good condition, Yang Yang, an industry analyst with iResearch, told the Global Times Thursday.

Ctrip is now ly.com’s second largest shareholder with the acquisition of a 30 percent stake in this Suzhou-based attraction ticket service provider for $200 million in late April.

It is also one of the anchor investors for Nanjing-based travel website tuniu.com in connection with its proposed IPO, eyeing tuniu.com’s edge in leisure package tour business.

According to financial reports, Ctrip has never suffered losses after getting listed in the US market, while its major rival Qunar has yet to turn into profitability. The NASDAQ-listed Qunar recorded a loss of 187 million yuan in 2013.

But Yang said that Qunar will threaten Ctrip’s predominant position in the OTA (online tourism agent) segment in the near future, as the former is starting to tap the market and has a stronger ability to bargain with off-line hotels and airlines due to support from Baidu.

Baidu is Qunar’s major shareholder, owning 61.05 percent of the company.

The OTA market, where online tourism websites run businesses like off-line traditional tourism agents, is promising, which was led by Ctrip in the first quarter with 51.9 percent, according to iResearch.

ELong came in second with 9.3 percent, ly.com ranked third with 6.2 percent.

Both Yang and Wei noted that Ctrip’s investment in peers could help it gain access to their user bases and even tap their competitive resources.

But the latter integration and cooperation may not go through smoothly, as its rivals may just want the capital injection and be unwilling to share core resources and technology with Ctrip, Yang said.

China has world’s 3 largest companies: Forbes

China became home for the first time to the world’s three biggest public companies and five of the top 10, according to the Forbes Global 2000 List released on Thursday.

Industrial and Commercial Bank of China (ICBC) held onto its No.1 spot for a second year, followed by China Construction Bank and Agricultural Bank of China.

The other two were Bank of China — another of the “Big Four” Chinese banks — and PetroChina, ranking ninth and tenth, respectively.

Chinese mainland and Hong Kong added 25 to the 2014 list, more than any other country, for a total of 207.

The United States accounted for the other half of the top 10 spots, and held onto its crown with 564 companies on the list. Japan trailed the U.S. with 225 companies in aggregate, despite losing 26 members this year.

The magazine said its Global 2000 is a comprehensive list of the world’s largest and most powerful public companies in terms of revenues, profits, assets and market value.

The 2014 list hailed companies from 62 countries, up from 46 in its inaugural 2003 ranking. In total, these companies raked in revenues of 38 trillion U.S. dollars and profits of three trillion with a market value of 44 trillion.

“The list presents an annual snapshot of the ever-changing global business landscape,” the magazine wrote.

Job Listing Site Zhaopin Is The Latest Chinese Company To File For A U.S. IPO

Zhaopin, China’s biggest job recruitment site, has filed for an initial public offering on the New York Stock Exchange under ticker symbol ZPN. It plans to raise up to $100 million.

Companies that stand to benefit from the IPO include Seek International, Australia’s largest online job site, which owns a 79% stake in Zhaopin, and Cavalane Holdings, which holds 19.3%.

Zhaopin was founded in 1994 and had 74 million registered users as of 2013 and about 10.5 million job postings from 250,000 unique customers in the fiscal year ending June 2013, when it recorded $147 million of revenue. Most of that amount, or 84.3%, came from its online recruitment business.

Its filing is one of several Chinese tech companies that will or are expected to hold U.S. IPOs this year. The most notable is Alibaba, China’s biggest e-commerce firm, which is expected to hold its IPO soon. Its public offering may value Alibaba at more than $100 billion.

Microblogging platform Sina Weibo also recently held its IPO (though its value fell after censorship by the Chinese government) and Alibaba rival JD.com is reportedly planning a U.S. offering for later this year.

The high profile of these companies mark a turnaround in investor sentiment toward Chinese stocks listed in the U.S. since 2012, when share prices fell after several firms pulled out of the U.S. stock market in response to accusations of improper accounting by regulators.

As Re/code’s Kara Swisher noted in an article about Alibaba’s imminent IPO, investor interest in Chinese tech stocks also runs counter to their U.S. counterparts, including Box, which recently delayed its own IPO.

Zhaopin is raising funds as its competition increases in China. According to TechNode (TechCrunch’s partner site in China), the top three job listing and recruitment sites in the country are Zhaopin, 51job, and ChinaHR.

For example, LinkedIn entered the Chinese market in February. Though China is a notoriously difficult market to tap for foreign tech companies, LinkedIn already had four million registered Chinese users from 80,000 different companies on an English-language site that had been accessible in the country for 10 years before its official launch.

As part of its official launch, LinkedIn told TechCrunch’s Ingrid Lunden that the company had formed a joint venture with Sequoia China and CBC to expand its business in the country and develop localized services. For the company, China presents a potential market of 140 million professionals, or about one in five of all knowledge workers globally, according to LinkedIn CEO Jeff Weiner.

Zhaopin also has to contend with several domestic challengers that have attracted investor attention by focusing on specific markets. These include Liepin, an executive recruiting platform that landed a $70 million Series C round in April; Neitui, an IT job site; and RenRen Headhunting, a crowdsourcing recruiting app.

Alibaba files for IPO in US

Alibaba Chairman and Non-executive Director Jack Ma.

China’s e-commerce giant Alibaba has filed initial public offering (IPO) document to the U.S. Securities and Exchange Commission (SEC) with plans to raise one billion U.S. dollars, according to SEC information and well-informed sources.

Announcing this in an internal communication to employees, founder and chairman of Alibaba Ma Yun said, “Becoming a listed company has never been our goal. It is a tactic and means to realize our mission.”

In its filing Alibaba gave no date for the proposed IPO or whether it would be on the New York Stock Exchange or Nasdaq. It cited its advantageous placement in a nation in which e-commerce is fast becoming a way of life, as Chinese consumers turn to the Internet to buy innumerable items.

Noting that being listed in the United States will expose Alibaba to chanlleges in the global financial market, Ma said,”Not all companies have the opportunities to face such global chanlleges. We are honored to be one of them.”

Analysts said the one billion U.S. dollar is only an initial figures and that the actual amount could be much bigger.

Often described as a combination of EBay and Amazon, Alibaba handled $240 billion of merchandise in 2013. With more than 7 million merchants, it has more than $2 billion in revenue and profit of more than $1 billion.

Alibaba’s sheer size could weigh on the stock price of US rival Amazon.com if the Chinese company’s shares are added to indexes and portfolios targeting e-commerce and related sectors, analysts said.

“Amazon simply doesn’t measure up to the size of Alibaba’s earnings and earnings growth rate,” analyst Robert Wagner wrote.

Alibaba’s announcement continues a flurry of IPO filings by Chinese technology companies. Internet security application developer Cheetah Mobile is expected to go public on the New York Stock Exchange on Thursday in an IPO expected to raise $153.75 million to $178.35 million. Tuniu, an online tour-booking website, plans to hold an IPO Friday on the Nasdaq Stock Market in a $120 million IPO.

Three weeks ago, Weibo Corp, the Chinese micro blogging service owned by Sina Corp and Alibaba Group Holdings Ltd, raised $285.6 million in a Nasdaq IPO while real-estate listings website Leju Holdings Ltd raised $100 million in an initial offering on the NYSE.

“The key question for China is how much new money, if any, Alibaba will raise in this US IPO,” said Peter Fuhrman, chairman and CEO of Bejing-based China First Capital.

If all the cash goes to Japan’s Softbank and US’s Yahoo, then it’s hard to see how Alibaba, its customers and the hundreds of millions of Taobao-addicted Chinese consumers will benefit from the IPO. US web-portal company Yahoo is a 24 percent Alibaba shareholder, while Japan’s Softbank has a 37 percent stake.

ChinaHR jobs recruitment firm may float in Hong Kong

ChinaHR, the fast growing Asia-focused recruitment company owned by Leslie Buckley and Denis O’Brien, is mulling over plans to float in Hong Kong.

Buckley told the Sunday Independent that an IPO was “one of the options” being considered by the group in coming years. He noted that the investment in China was “a long-term play”.

ChinaHR, formerly Saon, sold its European operations to Stepstone for around €76m last year. Its core Chinese business is forecast to grow by 60 per cent this year, having placed 1m jobs. Denis O’Brien owns 75 per cent of the recruiter, and chairman Buckley the other 25 per cent.

“One of the reasons we decided not to sell it to Stepstone was there was still plenty of heavy lifting to be done, which would see more value created over the next two years,” Buckley added. This would give the firm further bulk, should it consider raising money on stock markets.

Some of the proceeds of the sale of its European operations will be reinvested in the Chinese operations, according to Buckley. “We’ve already put in about €60m,” he said. The company may need between €20m and €40m more as it moves towards profitability over the next 18 months.

The company employs 2,600 staff in 26 cities across China, though it has a reach into 180 cities.

The acquisition of rival Monster.com in early 2013 catapulted ChinaHR into the number three slot in the competitive Chinese recruitment market. The market leaders are 51 Jobs and Zhaopin. Buckley indicated that ChinaHR was about half the size of Zhaopin, which plans to raise $200m in an IPO this year.

“There’s a lot of small companies setting up every day there. The consolidation will come and we’re in a very good position,” Buckley added.

ChinaHR may seek acquisitions of between €2m and €10m as it continues its growth spurt. “We’re always looking at acquisitions and we have an open mind.”

While further buyouts may be on the cards, the sheer size of the Chinese jobs market means that there are enormous opportunities for organic growth. “We have moved into other products. We were about 90 per cent online, now we’re about 55 per cent online and 45 per cent off line,” Buckley said.