Emerging Markets : Government Gets Tough On Investors


China registered a record high trade surplus of $23.8 billion in October, surpassing most analysts predictions and intensifying pressure for further exchange rate reform and increased market access. Import growth slowed to its lowest level in 15 months, as government measures to cool the economy dampened demand for foreign products. The record surplus comes despite some government efforts in recent months to allow the Chinese yuan to appreciate, making imported products cheaper. The European Union trade commissioner and the US commerce secretary both visited China in November, keen to discuss the trade surplus. Through the end of October, the surplus totaled $133.6 billion, easily exceeding the $102 billion surplus for all of 2005.

China enjoyed some more cordial meetings when it hosted leaders from almost 50 African countries in early November for its summit on China-Africa cooperation. At the event, Chinese president Hu Jintao pledged $5 billion in new loans and credit and promised to double aid to Africa by 2009. Chinese companies also inked $1.9 billion in new contracts with African counterparts. China is increasingly looking to African countries for oil, gas and other raw materials as well as political support in the international arena.

While China is increasing its own foreign investments, investors into China are finding the going is getting tougher. The Chinese government rejected US private equity firm Carlyle Groups bid of $375 million for 85% of machinery maker Xugong Group Construction Machinery over concerns that domestic assets were being sold too cheaply. The move forced Carlyle to revise its offer to $228 million for half ownership of Xugong.

The Industrial and Commercial Bank of China (ICBC) had no trouble attracting investors when it raised $21.9 billion in the largest IPO in history. The bank, Chinas largest, offered shares on both the Hong Kong and Shanghai stock markets and exercised an over-allotment option that increased the size of the IPO.

Thomas Clouse