MARKET WATCH

Property Bulls

China’s property markets have maintained momentum in spite of government efforts to control speculation.

In June, 44 out of 70 monitored major cities witnessed month-on-month increases in prices of new commercial residences,while only 12 experienced declines. Prices stood unchanged in 14 cities, said the National Bureau of Statistics (NBS).

As for second-hand homes, prices rose in 39 cities in May over April prices, and 19 cities saw their prices decrease.

Policymakers are trying everything to prevent real estate prices from spiraling out of control. The State Council recently ordered to impose purchase restrictions in second- and third-tier cities. Prior to this,efforts to rein in property prices have been focused on the largest cities, leaving smaller ones with surging home values.

“The latest move shows the government is determined to cool the overheating property industry, despite ongoing economic slowdown,” said Zhang Dawei, an analyst with Beijing Centraline Property Co. Ltd.

“We don’t see a bubble,” said Edmund Ho,Managing Director of Standard Chartered Bank and an expert on China’s real estate. “What we’ve seen is a correction in the market.”

Even though transactions have plunged,Ho said China’s key developers would still have enough cash for most of this year due to strong sales last year and provided they remained prudent in their land purchases.

“Standard Chartered believes that it’s going to be a soft landing,” he said. “Property prices are not going to continue going down,and instead, the market will stabilize in the next six months.”

Eyes Abroad

Ambitious Chinese companies are increasing their offshore presence as they look to become global players.

Chinese companies were responsible for 46 overseas mergers and acquisitions(M&As) in the first half of 2011, jumping 31.4 percent from a year earlier, according to data from the Beijing-based Zero2IPO Research Center. The involved capital amounted to $14.74 billion, soaring 106.8 percent year on year.

As domestic firms try to graduate from low-cost manufacturing, M&As are proving to be a convenient route to the world stage.Moreover, domestic economy has steered a steady course of growth, paving way for enterprises to expand overseas, said Xu Weiqing, a senior analyst with Zero2IPO.

The M&A boom was also driven partly by China’s thirst for natural resources. Of the 46 deals from January to June, nine involved the resources and mining sector,totaling $7.78 billion in value. Sinochem Group in May agreed to pay $3.07 billion for a 40-percent stake in an oil field offshore Brazil, which is owned by Statoil, the largest oil company of Norway.

In addition, more companies are looking to snap up brands and technological knowhow. For example, Beijing Automotive Industry Holding Co. has in February purchased all equipment and technologies from a Swedish transmission plant for 31 million euros ($42.5 million). The deal came one year after the Chinese automaker acquired intellectual property rights from General Motors’ Swedish unit Saab.

Domestically, the M&A market also picked up steam. The domestic M&A deals jumped 68.4 percent to reach 389 cases, a record high since 2008. Of this total, 52 deals happened in the property sector, as deeppocketed large developers take over their financially starved smaller rivals.

Taking on U.S. Assets

China increased its holdings in U.S.Treasury securities by $7.3 billion in May for the second straight month, after five consecutive months of declines, said the U.S.Treasury Department. China retained its position as the largest foreign holder of the securities with $1.16 trillion in its portfolio.

Meanwhile, the second largest foreign holder Japan continued its net buying,increasing its holdings by $5.5 billion to$912.4 billion.

ROLLING OUT: Trucks are assembled at Bei Ben Heavy-duty Truck Co. Ltd. in Baotou, Inner Mongolia Autonomous Region, on July 20.In recent years, Baotou has taken vigorous efforts to develop the manufacturing industry of heavy-duty trucks, with its output in 2010 exceeding 12 billion yuan ($1.85 billion)

Numbers of the Week

89.4 billion yuan

China’s micro-credit companies issued 89.4 billion yuan ($13.75 billion) in new loans in the first half of this year, surging 88 percent from a year ago, said the People’s Bank of China.

485 million

China’s Internet users totaled 485 million by the end of June, said the China Internet Network Information Center.

Given uncertainties hanging over the U.S. economy and rising government indebtedness, worries abounded about safety of China’s Treasury holdings.

“China faces a dilemma in its holding of the Treasury securities,” said Dong Yuping,an economist with the Institute of Finance and Banking at the Chinese Academy of Social Sciences.

“The country has no other choice but to continue buying into securities because the U.S. government debt remains the most liquid investment product in the market,” he said.

China’s foreign exchange reserves rose by a faster-than-expected 30.3 percent year on year to reach $3.1975 trillion at the end of June.

The international credit rating agency Moody’s Investors Service has placed the U.S. Treasury securities on review for a possible downgrade. Risks of a default on U.S.Treasury securities, traditionally seen as the world’s safest investment, have increased since the government reached its legal borrowing limit of $14.294 trillion on May 16.

SOE Euphoria

China’s state-owned enterprises (SOEs)are faring well, though the broader economy is slowing down.

In the first half of 2011, SOEs raked in a combined pro fit of 1.12 trillion yuan($172.3 billion), an increase of 22.3 percent from a year ago, said the Ministry of Finance (MOF). Of this total, the centrally administered SOEs earned 765.5 billion yuan ($117.8 billion), and the rest went to local ones.

SOEs’ revenues totaled 17.42 trillion yuan ($2.68 trillion), soaring 24.2 percent year on year.

But the SOEs witnessed a decrease in pro fitability as their pro fit-to-sales ratio came in at 4.9 percent, 0.1 percentage point lower than the same period last year.

A wide divide is opening up between the SOEs. While SOEs in coal, chemicals and commercial trade sectors generated juicy returns, steelmakers and power generators experienced a plunge in pro fits, said the MOF.

The state sector is booming thanks to relatively easier access to bank loans while smaller businesses reel from a lack of financing, said Guo Tianyong, Director of the Research Center of China’s Banking Industry under the Central University of Finance and Economics.

SOEs should play a bigger role in precipitating China’s economic rebalancing,and injecting fresh steam into the macroeconomy, he said.

Robust IPOs

China’s initial public offering (IPO)market is losing momentum, but prospect remains bright.

In the first half of this year, a total of 168 firms went public in mainland A-share markets, nine companies fewer from the same period last year, said the accounting firm PricewaterhouseCoopers (PwC) in a recent report.

The IPOs raised a combined 176.3 billion yuan ($27.1 billion), plunging 18 percent from the previous year. Moreover,37.5 percent of new listings saw their prices tumbling below IPO levels.

For 2011, PwC predicted total capital raised from IPOs to drop to 400 billion yuan($61.82 billion), compared with 476.5 billion yuan ($73.3 billion) in 2010. But this figure will still be the highest globally, it said.

The decline will be accompanied with a small decrease in the number of new listings to 320 companies this year from the 349 listings a year ago—also the world’s No.1.

“Despite the decrease in IPO market activity in the first half of the year, we continue to maintain our forecast for the full year due to high confidence in the growth of China economy and domestic demand, as well as factors such as the large amount of capital and limited investment channels,” said Jean Sun, a partner at PwC China. ■