Thursday, February 21, 2008

China's Credit Market Keeps Humming Aon

Great article in today's Asian Wall Street Journal by Professor Victor Shih of Northwestern. Professor Shih writes that although credit and broad money supply has tightened in the West, the opposite is true in China.

"Despite a cascade of State Council decrees restricting bank lending this year and a high-profile Politburo meeting in November that focused on the risk of inflation, bank lending last month grew by over 800 billion renminbi ($112 billion) -- equivalent to 22% of the total loan quota that Beijing's technocrats meted out to state-owned banks for 2008." (-Victor Shih, "China's Credit Boom", Asian Wall Street Journal, February 21, 2008)

That sounds like mixed signal calling to me. Shih goes on to describe in the article that indeed, although Hu Jintao backed Wen Jiabao's call for increased tightening of credit, the fact is that this did not happen which means that the Politburo is quite split on the matter. (Perhaps it's that Shanghai faction led by Xi Jinping and his people that had already begun to exert their influence even before he officially was selected into the Politburo).

Shih adeptly identifies this standoff as,

"an unusual game of chicken. China's major banks, all of which are majority state-owned and run by managers appointed by the Communist Party, are simply ignoring decrees issued by the highest authorities. In a state-dominated banking system, this is as unexpected as mid-level managers blatantly acting against the wishes of both the CEO and the board of directors. Formally the technocrats have the full backing of the ruling Communist Party and can dismiss any banker at any time. However, senior state bankers do not behave as if they take the threat of removal seriously. They've stared down such threats before, anyway -- in China, elite political discord has often compelled banks to disobey formal decrees."

I would add that this is a quintessential power struggle in China and one that will plague the Communist Party for as long as it continues to build wealth. I would also say that this is the modern version of a classic battle between the wealthy and the King in China. If this were the 1680s, we could clearly see similar factional divides between Emperor Kang Xi and the feudal princes Wu San-kuei, Shang Chih-hsin, and Keng Ching-chung (from "Emperor of China: Self Portrait of K'an-hsi" by Jonathan D. Spence, Vintage Books, 1988). The same nobility versus the king proxy struggles happened throughout European history and, let's face it, the history of the entire world ever since one person wanted something another had. But, the contemporary version of Chinese history, which is where we find ourselves today (and let's not kid ourselves, that's how the Chinese see it - they're just passing through China in the current dynasty), has an added element to it. This time the stakes are higher. 3000 - 1000 years ago, the rest of the world meant nothing to China. 800 years ago, it was the Chinese who got annihilated by the Mongols, (when David and Goliath were one in the same and no one could stop them). 150 years ago it was the Europeans who destroyed China. Now, with momentum, size, a growing military, and everybody's factories, the pie is a lot bigger and, most importantly to the Chinese, the face they stand to gain, both on an individual level and a national level, is far greater than ever before in history.

So, if you're watching the economy hum along at 9, 10, 11, and even 12% growth, and you have connections, the only mandate from heaven is to keep the wheels turning and the money flowing. That's why, as Shih astutely points out, today's biggest enemy is inflation...

"The Chinese government needs to continue monetary tightening by raising interest rates and the bank's reserve requirements. Furthermore, Messrs. Hu and Wen need to overcome internal opposition and make it clear to bankers that flouting central decrees begets serious consequences, including dismissal. Otherwise, they risk allowing inflation to spiral toward dangerous levels. In the opaque Chinese political system, strong signals, in addition to decrees and laws, continue to be necessary ingredients of credible policies."

The key policy is all of this is pricing. The biggest winners politically are going to be those that can continue to stem inflation. Given that, maybe the motivations and intentions of the bankers is in fact to prime inflation to fly through the roof and purposely sabotage the current administration in some sort of Pyrrhic Victory. (Or maybe I need to ease up on the conspiracy theories).

Wednesday, February 20, 2008

Report 4 on Four of China's Tier-3 Cities: Changzhou

Changzhou is really beginning to stake its place among the major tier-3 cities in the Yangtze River Delta (YRD) such as Wuxi, Cixi, Taizhou, and several others. In fact, at its current growth rate and projections for the future, it could conceivably rank as a tier-2 city within the next 10 years, assuming a sustained dose of foreign direct investment (FDI) and port/road infrastructure construction. The main reasons are that much like Suzhou and Wuxi before it, Changzhou is close to Shanghai and the labor force is skilled. Moreover, at 3.4 million, it is in a population growth spurt that could easily see the total population balloon to over five million over that same 10-year period. This is definitely a city to watch over the mid-term.

Changzhou (Chinese: 常州; pinyin: Chángzhōu; formerly known in English as Chang-chou, Changchow) is a prefecture-level city in southern Jiangsu province, People's Republic of China. It was also known as Yanling, Lanling, Jinling, and Wujin previously. Located on the southern bank of the Yangtze River, Changzhou borders the provincial capital of Nanjing to the west, Zhenjiang to the northwest, Wuxi to the east, and the province of Zhejiang to the south.

Located in the East China, the most prosperous Yangtze River Delta, Changzhou lies in-between the two metropolitan cities of Shanghai and Nanjing. It is about 100 miles from Shanghai and 70 miles from Nanjing. With a cultural history of over 2500 years, Changzhou is also a rising modern industrial city. It covers a total area of 180,000 acres, and 11,000 acres are urban areas. The total population in Changzhou is 3.415 million, including 840,000 urban residents.

Changzhou has a solid industrial foundation. There are over 20,000 various manufacturing companies, forming a complete industrial structure including mechanical, metallurgy, electronics, textile, garments, chemicals, pharmaceuticals, plastics, building materials and foodstuff. The six main industries in Changzhou are power industry, engineering machinery, automobile, motorcycle and their parts, power transmission equipment, electronics, new-style textile and garments. It has formed numerous brand products such as the diesel engines, loaders, power transformers, city buses, special and micro motors, DVD and indigo blue denim, etc. By now, the percentage of new and Hi-Tech enterprises accounts for 50% of the economy.


The prefecture-level city of Changzhou administers 7 county-level divisions, including 5 districts and 2 county-level cities.

Infrastructure and Transportation

-Located just south of Chang Jiang (Yangtze River), Changzhou is situated on the main Shanghai-Beijing rail line and is one of the main stops on the busy Shanghai-Nanjing route. Changzhou also has its own airport approximately 15km from the city centre. There are flights to Beijing, Guangzhou, Shenzhen, Shenyang, Kunming, Harbin and Dalian.

- Changzhou Airport's seat occupation rate has remained above 65% for several years and actually hit 70.8% in September 2007, according to the latest news released by the airport. The passenger throughput experienced a year-on-year increase of 12.95% in the first nine months of 2007, and increased by nearly 100,000 person-times when compared with the volume in the whole of 2005. The passenger throughput continued to set new monthly records in July and August. Thanks to the increase in transportation capacity, Changzhou Airport's cargo and mail throughput has experienced rapid growth. The cargo and mail throughput increased by 11.89% year-on-year in the first three quarters, and set a new monthly record in September.(China Industry Daily News, 11/6/07)

-By the end of June 2007, the downtown area of Changzhou City had 21 concrete producers and a total of 30 production bases (mixing stations) with more than 60 concrete production lines and 498 registered agitating trucks, with the annual designed concrete production capacity and the transfer pump capacity standing at 18 million cbm and 12 million cbm respectively, according to the latest information from the Secretary Office of the Changzhou Municipal Concrete Association. Based on preliminary statistics, the concrete producers in the downtown areas produced and supplied 4.6 million cbm of concrete to the market in the first half of 2007. (9/10/07, China Financials Daily News)

-Changzhou City plans to complete an investment of RMB1.058bn in the construction of trunk roads in 2007, and actually completed RMB705M in the first eight months, accounting for 66.6% of the annual target, according to the latest information released by the Changzhou Municipal Government of Jiangsu Province. (9/20/07 China Industrial Daily News)

-Jiangsu Province's Changzhou City invested RMB4.948bn in transportation projects in the first three quarters of 2007, according to the latest news released by Changzhou City's Transportation Department. Of the total, the investment in expressway construction reached RMB3.8bn, increasing by 13.4% year-on-year, and accounting for 76.8% of the total. Investment in expressways and national and provincial trunk route highways hit RMB2.137bn and RMB930M respectively, up 8.1% and 3.74% year-on-year, while the investment in rural expressways experienced a year-on-year increase of 41.79% to RMB660M.(China Industry Daily News, 10/16/07)

-Changzhou plans to invest RMB5.07 billion in traffic construction this year to build a 102 -kilometer long highway, two high-quality passenger-transportation lines, add 300 taxis to the roads and begin a number of other projects. The national highways 104 and 312 both pass by the city, and it is additionally linked to the surrounding cities in Jiangsu province as well as those in Zhejiang, Shandong and Hubei by long distance bus routes. Changzhou is situated on the main Shanghai-Beijing railway line and there is an urban rail project currently underway and due to be completed in 2015. The city also has a regional airport located 15 kilometers from the city center. Changzhou has a Category A cargo transport port located on the southern bank of the Yangtze river. There is also a passenger ferry in Changzhou, and the Beijing to Hangzhou Grand Canal which passes through the city is being expanded to include eleven 1,000MT-class berths and thirty-one 500MT-class berths as well as affiliated loading and unloading equipment. (China News Digest, 1/14/08)

Human Resources

-Changzhou is an educational hub and is home to several universities (including Ho Hai University, Changzhou Campus and Jiangsu University of Science and Technology) and middle schools (including Changzhou Middle School and Changzhou International School).

-The resumption of MG car production by Nanjing Automobile Corporation has helped to cement the relationship between a Birmingham university and a counterpart in China. The Technology Innovation Centre at the University of Central England has long been working with universities in China. Senior officials from Changzhou University Town have been among those visiting Longbridge to view NAC-MG's resumption of new MGTF production. (Birmingham Post, 6/20/07)


NANJING, March 20, SinoCast -- Changzhou, a city in China's eastern Jiangsu Province, has a thriving capital market, which supports a lot of companies to go public. The city now has 13 listed companies with 14 stocks, raising CNY 5.041 billion. Seven China-listed companies such as Changchai Company Limited, Changlin Co., Ltd., Far East Industrial Stock Co., Ltd., Jiangsu Xincheng Real Estate Co., Ltd. raised CNY 2.611 billion by issuing eight stocks. The rest six companies went public on oversea stock markets, raising CNY 2.43 billion. Three of the companies were listed on oversea stock markets last year like Changzhou Galaxy Electrical Appliance Co., Ltd. and Changzhou Trina Solar Energy Co., Ltd., raising nearly CNY 1 billion. The city plans to list five companies on oversea stock markets, and to encourage two listed companies to refinance and one company to issue bonds, to raise at least CNY 2 billion this year. As more companies in the city are listed, big investment organizations march into the capital market. Nine securities companies have set up 13 operational bodies with total transactions of CNY 106.273 billion last year. (9/27/07 Sinocast)


Trina Solar Limited ("Trina Solar" or the "Company"), a leading integrated manufacturer of solar photovoltaic products from the production of ingots, wafers and cells to the assembly of PV modules, founded in 1997, announced today the following updates relating to its previously stated capacity, operational, and technology roadmap targets that were achieved in the quarter ended December 31, 2007:

-- 150MW integrated capacity achieved for ingot, wafer, cell and module


-- Successful ramp up of new cell production lines No. 3-6

-- Increased in-house cell processing to over 75% for the Q4 2007


-- Realized in-house cell efficiency rates of up to 17.0%

(monocrystalline) and 15.6% (multicrystalline)

-- Commenced commercial production of 220-watt multicrystalline-based


-Changzhou Dongfeng Agricultural Machinery Group realized an export value of RMB190.66M in 2006, up 34% year-on-year, and the company continued to maintain significant growth in exports in 2007, announced sources at the group on July 2nd. The group exported RMB94.2M of agricultural machines in the first five months of 2007, up 52% year-on-year. (7/3/2007)

- Swedish garden equipment maker, Husqvarna, has announced plans to build a new plant in Changzhou in China. The plant, which will cost around SEK 70mn (US$ 10.91mn EUR 7.64mn), replaces an existing plant and will increase the group's annual production by approximately 1 million units. Husqvarna plans in addition to invest SEK 20mn to increase production in the Zenoah facility in Kawagoe in Japan as well as expand its R&D operation. (Esmerk Swedish News, 11/6/07)

- Changzhou Pharmaceutical Factory Co. Ltd. in eastern China's Jiangsu Province announced yesterday that the company aims to develop a formulation department in the European Union after it received EU Good Manufacturing Practice (GMP) certification last week. The company is one of only a few Chinese drug makers so far to be awarded the EU GMP certificate for finished drug production, along with Zhejiang Huahai Pharmaceutical Co. Ltd., Zhejiang Hisun Pharmaceutical Co. Ltd., Wuxi Kaifu Pharmaceutical Co. Ltd., and Zhejiang Conba Pharmaceutical Co. Ltd. Industry insiders agree that more and more Chinese pharmaceutical companies are eyeing the European Union or the United States as potential markets for their generic drugs. (11/14/07 China Business Newswire)

- CHANGZHOU, China, Dec. 11 /Xinhua-PRNewswire/ -- US-based Biomet Inc., one of three largest medical devices manufacturers in the world, on the 11th signed an agreement with the Changzhou National Hi-Tech District, eastern China's Jiangsu province, Biomet has decided to make an investment of US$15 million in the Changzhou Export Processing Zone mainly for production of orthopaedic implants and medical devices…Han Jiuyun, Vice Mayor of Changzhou municipal government, noted in his speech that development of the medical industry was given priority in Changzhou's ''Eleventh Five-Year Plan,'' and Changzhou would continue to improve its excellent platform for receiving transferred international industrial capital so as to provide Chinese and foreign businessmen with even better, faster and more effective services. (PR Newswire, 12/11/07)

-S3 Investment Company, Inc. (SIVC) announced that its Redwood Capital, Inc. subsidiary has signed Changzhou HaiJai Metallurgical Machinery Manufacturing Co. Ltd. (CMMC), a provider of metal fabrication, as a new client for its reverse merger services. Redwood Capital will assist Changzhou HaiJai Metallurgical Machinery Manufacturing Co. with efforts to access the U.S. capital markets through a reverse merger into a U.S. public company. (Knobias, 5/15/07)

-China's Do How Chemical restarted September 23 its styrene monomer plant at Changzhou following a three-day shutdown, a company source said Monday. The 210,000 mt/year plant was shut September 20 as the Changzhou State Power Company, which supplies it with power, was undergoing a turnaround. The SM plant was running at 50% nameplate capacity as of Monday, a source said. The company expects to ramp up operating rates to 100% by Tuesday night, he added. Loss from the shutdown was estimated at 2,000 mt, leaving Do How with no spot supplies for September. In October, however, the company would have around 4,000 mt of SM for the spot market, the source said. In May, US private investment firm Ewing Management Group acquired an 80% controlling stake in Do How Chemical, the remaining 20% being held by Chinese investors. (Platts Commodity News, 9/24/07)

- CHANGZHOU, China, June 25 /Xinhua-PRNewswire/ -- Changzhou National Hi- Tech District announced today that on June 24 it was promoted to be one of the first international service outsourcing base cities at the provincial level in Jiangsu. The two special parks in Changzhou National High-Tech District, namely Changzhou Software Park and the Changzhou National Animation Base, have become the important carriers of the industry, and the district was selected as one of the top five "International Service Outsourcing Demonstration Zones in Jiangsu." Six enterprises in the district, including OKI Software Technology Co., Ltd. and Changzhou CIC-Futong Technologies Co., Ltd., were recognized as the first "Key Enterprises Undertaking International Service Outsourcing in Jiangsu Province." Changzhou began developing its fledgling animation industry in 2000. So far, 31 deals have been signed worth 520 million yuan. (9/27/07, China Daily; 6/25/07 PR Newswire)

- Changzhou XD Transformer Co., Ltd. completed the installation and testing of six ZHSFPTB-112000kVA/220kV three-phase on-load tap-changing autotransformers according to the requirements of a Kazakhstan-based electrolytic aluminum plant, and has put the equipment into operation 100 days ahead of schedule. With a total value of RMB140M, this is one of the cooperation projects between the Chinese and Kazakh Governments, contracted by China Nonferrous Metal Industry's Foreign Engineering and Construction Co., Ltd. The transformers are 12m long and 8.5m wide, weigh a total of 400t and consist of a main transformer and a voltage regulation transformer. (China Industry Daily News, 10/11/07)

-Changzhou Wujin Natsteel, now wholly owned by Taiwan's Walsin Lihuwa, is investigating a possible expansion into stainless melting and rolling in the future. Walsin Lihuwa, one of Taiwan's major stainless producers, recently purchased NSL China Investments - Changzhou Wujin Natsteel's parent company. Walsin Lihuwa is now keen to produce stainless at the newly acquired Changzhou plant, according to sources. (3/19/07, Steel Business Briefing)

- Walsin Lihwa Corp (1605.TW), the world's third-largest supplier of copper wire, said it will proceed with its expansion in China as planned, regardless of new mainland labor regulations that will increase costs for manufacturers starting next year. "Our expansion is moving forward in accordance with our previously set road map," Walsin spokesman Lin Wang-tsai said. "The increase in labor costs is not seen as significant enough to put us off track," he added. Under the new Chinese labor rules that take effect Jan 1, companies must sign their employees to labor contracts. Short-duration contracts will be more closely controlled: after two consecutive short-term contracts the worker's next contract will have to be open-ended. (Xinhua Asia, 12/20/07)

-Peoria Tube Forming Corp., an Illinois firm that makes metal tubes and pipes for the likes of Volvo and Caterpillar, has 60 employees in Changzhou -- almost as many as the 70 workers it employs in its home factory, according to the company's president, Rodger Butler. All but two of the firm's Changzhou employees are Chinese, and all of them were recruited at the city's large and recurring job fair, Butler said. Peoria Tube's wholly owned Chinese subsidiary, Pacific Changzhou Tubing Co., accounts for $3 million of annual revenue, Butler said, compared with $12 million in annual revenue from the U.S. operation. Although the Peoria shop still leads in producing revenue, Butler said the company sees its greatest growth potential in Changzhou, where labor costs are much lower than in the United States and only 25 to 30 percent of the labor costs in more famous Shanghai. (New York Times, 3/21/06)

Real Estate

- Kardan NV says its real estate subsidiary GTC Real Estate will purchase an additional land plot in Changzhou, China, located next to the land plot that was acquired earlier this year. The group adds an additional 90,035 square metres of land and approximately 252,000 square metres of building rights to the project announced mid January, when Kardan said it would develop its sixth real estate project in China after winning a tender to acquire 104,000 square metres of land for 18.4 mln eur. With this acquisition, the original land plot (of 104,000 square metres with building rights up to approximately 290,000 square metres) will be increased to a total of 194,035 square metres with building rights up to approximately 542,000 square metres. (AFX International, 2/1/08)

-Howard Johnson Hotel, a five-star hotel brand under the USA-based Wyndham Group, signed a cooperation agreement on the Kaina Business Plaza project on April 9th with Changzhou Rojana Real Estate Development Co Ltd, a subsidiary of Rojana Industrial Park Public Co Ltd in Thailand. Howard Johnson will join the Kaina Business Plaza project, the tallest project in Changzhou City. They will provide hotel management services to the project and property management services to the project's hotel apartments. Their cooperation marks the development in Changzhou City of a new type of residential accommodation, the hotel apartment. (4/11/07, China Industry Daily News)

- In recent months, Changzhou City's vacant apartment area saw a rapidly increasing trend. By the end of 2007, the City's vacant apartment area covered 658,000sq.m, with the vacant area of residential apartments and business operations apartments accounting for 263,000sq.m and 300,000sq.m respectively, surging by 28.5%, 47.8% and 9.7% year-on-year. However, the vacant office space in the City dropped by 50.1% when compared to the end of 2006 to 14,000sq.m last year. (China Industry Daily News, 1/22/08)

-Investment in Changzhou City's real estate development reached RMB22.5bn in 2007, surging by 31.6% year-on-year. In terms of apartment types, completed investment in the development of residential apartments, office buildings and business operations apartments was RMB15.92bn, RMB670M and RMB3.38bn respectively, surging by 29%, 32.8% and 29.1% year-on-year, with other investment soaring by 54.3% to RMB2.53bn. The completed apartment area in Changzhou City exceeded 6 million sq.m in 2007, with the year-on-year growth rate exceeding 50%. More specifically, the completed residential apartment area covered more than 4.7 million sq.m, soaring by nearly 60%. (China Industry Daily News, 1/22/08)

-Harbour Centre Development (51) said it succeeded in bidding a piece of land located in Changzhou, the PRC with a site area of4.43 million sqft and a total GFA of about 8.68 million sqft at Rmb1.47 billion through its wholly-owned Cheer Sky Investment. The group said it will develop the Changzhou land into residential and hotel properties. (12/30/07, ET Net News)