Emerging Markets: China


By Thomas Clouse


The real deal: Insurers now have the chance to invest

China’s most recent economic figures show policymakers’ efforts to reign in the property market without derailing the country’s economic recovery are achieving mixed results. Industrial production, a measure of activity in the country’s large manufacturing sector, rose by 13.9% year-on-year in August, up from 13.4% in July, while retail sales also jumped by 18.4%, compared to 17.9% in July. At the same time, however, new RMB loans totaled 545 billion yuan ($81 billion), inflation climbed to a 22-month high of 3.5%, and housing prices in 70 large and medium–size cities increased by 9.3%. Despite the rising prices, global markets interpreted the figures overall as positive, in part because flooding across the country pushed food prices up by 7.5%, causing overall inflation numbers to increase, and the 9.3% growth in real estate prices, while high, is the lowest year-on-year monthly growth rate so far this year.

China is now the most attractive place in the world for investing in renewable energy products, according to global accounting firm Ernst & Young. After sharing the title with the United States last year, China took sole ownership of the top spot after a year of heavy investment in renewable energy production, while the United States failed to pass new alternative energy legislation. By 2020, China plans to increase its nonfossil–fuel energy production to 15% of the country’s total production. China’s support for renewable energy technology, however, may be illegal under its WTO commitments, according to the United Steelworkers Union in the US. The trade union filed a petition in September with the Obama administration complaining that China’s policies on renewable energy, including cheap land grants and low interest bank loans, gave Chinese companies an unfair advantage. The administration will have 45 days to decide whether or not to pursue a case at the WTO.

Chinese state-owned conglomerate Sinochem Group is looking for potential partners to bid for Canadian fertilizer company Potash Corporation, according to Chinese domestic media reports. In August the world’s largest mining company, BHP Billiton, made an unsolicited bid for Potash, the world’s largest fertilizer company, and in September successfully wooed investors to raise the necessary funds for the purchase. China has the world’s largest agricultural sector and is the world’s largest consumer of potassium fertilizers. Editorials in state-run publications have warned of the price-controlling powers the acquisition could potentially give to BHP. The management of Potash is also fighting against the acquisition by BHP and may seek investments from China to block the hostile takeover. Such investments would face political obstacles, however, especially if the counterbid involves a Chinese state-owned company. If BHP’s bid is successful, Chinese regulators could potentially stop the acquisition through the country’s anti-monopoly law.

Yangzijiang Shipbuilding Holdings on September 8 became the first mainland Chinese company to list in Taiwan. Yangzijiang, China’s fourth largest ship-builder, raised $112 million through the listing. In terms of voting power, each share in Taiwan is worth one half of the value of a share on the Singapore stock market, where the company is also listed. The listing follows a June trade and investment agreement between Taiwan and China, the provisions of which took effect in September. The agreement also reduces tariffs and investment barriers. Relations between Taiwan and China have warmed since Taiwanese president Ma Ying-jeou took office in 2008, replacing his pro-independence predecessor. China claims Taiwan as one of its own provinces and has threatened to invade if the island formally declares independence.

The China Insurance Regulatory Commission published new rules in September allowing insurance companies to invest in private equity and real estate. According to the statement published on the regulator’s website, insurance companies can invest up to 5% of their assets in private equity and 10% in real estate. Those investments face limitations, however, with insurance companies banned from investing in residential properties and from developing property directly. Their investments in private equity funds and real estate investment products are also capped at 4% and 3% respectively. The policy change will free up funding sources for the country’s private sector while expanding the limited investment options for insurance companies.