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Food and Beverage Industry Suffered Lowest Growth in 21 Years

On February 8, 2014, the China Cuisine Association published a report indicating that the revenue for China’s food and beverage industry in 2013 was 25.392 trillion yuan (US$4.19 trillion), up 9 percent from 2012. This represented the lowest growth in 21 years. The report also stated that, in 2013, the business structure of the food and beverage industry underwent a major shift: high end food and beverage businesses suffered the greatest losses. Their revenue declined for the first time, while the mid-range food and beverage businesses gained main stream popularity. The report said that the high end businesses are slowly adjusting their business model to find their niche in the industry. However, the pressure to stay in business in the industry remains high in general. The report also suggested that, in 2013, Microblog, food, and restaurant review websites such as weixin and WeChat became the new sales platform for food and beverage businesses.

Source: People’s Daily, February 9, 2014
http://finance.people.com.cn/n/2014/0209/c1004-24302911.html

Briefings | | |   Economy/Resources

Mergers and Acquisitions in the Dairy Industry to Peak Prior to May

According to an article published by People’s Daily, mergers and acquisitions in the dairy industry have started and will peak prior to May of this year. In 2013, the central administration introduced the series of policies driving this phenomenon in order to improve the quality of the products in the baby formula industry. The article stated that the Ministry of Industry and Information Technology set a target to allow two years for the dairy industry to consolidate and transform into ten large enterprises, each with annual revenue of over two billion yuan (US$330 million), its own patents, and the ability to compete in the world market.

Currently there are 128 dairy manufacturing companies. The article said that most are small to mid-size companies. China’s Food and Drug administration has ordered that all dairy manufacturers complete an audit and inspection for their license renewal by May 31. If the manufacturer fails to do so, it will be shut down and be given two years to come back. The article continued with the prediction that this policy will allow those companies who fail to meet the requirements to find another way to survive. Estimates are that close to 1/3 of the companies will close. According to an industry expert quoted in the article, most of them are small size businesses. Therefore some experts predict that the small size dairy manufacturers will be better off putting themselves up for sale to get some money back instead of facing elimination.

Source: People’s Daily, February 7, 2014
http://shipin.people.com.cn/n/2014/0207/c85914-24288124.html

Briefings | | |   Economy/Resources

Xinhua: HSBC January Chinese PMI Hit Six-Month Low

Xinhua recently reported that the newly released HSBC January Chinese Manufacturing PMI (Purchasing Managers Index) number showed a six-month low, at 49.5. This is the first time since August 2013 that the number fell below 50. Qu Hongbin, HSBC Chief Economist of the China Region, commented that the Chinese manufacturing industry demonstrated a very weak start in 2014, mainly caused by the low volume of new export orders and the low level of domestic business activities. Companies surveyed suggested that some primary export markets are seeing a lower demand. Qu suggested that the decision makers should pay attention to the risks, which may require policy adjustments. PMI is an indicator of financial activity reflecting purchasing managers’ acquisition of goods and services. A PMI number below 50 typically reflects a decline.
Source: Xinhua, January 30, 2014
http://news.xinhuanet.com/fortune/2014-01/30/c_119192408.htm
Briefings | | |   Economy/Resources

More Securitization of State-Owned Enterprises to Come

China Securities reported that local governments may securitize state-owned enterprises in amounts up to 20.7 trillion yuan in their efforts to raise funds for local expenditures. In the past, local governments resorted to borrowing and the sale of government land in order to raise funds. The central government has recently made the local government’s debts a focus of attention. 

According to a statement that China’s Ministry of Finance made last week, in 2013, the proceeds from government land sales reached 4.1 trillion yuan, a 44 percent increase over 2012. Statistics released by the National Audit Office last month showed that, in 11 provinces, 316 cities, and 1,396 counties, the debts guaranteed by the sale of government land accounted for 37 percent of outstanding local government debts. 
The stated goal of some local governments is to securitize 40 percent of the enterprises that they own by the end of 2015. More provinces, particularly those with a large number of state-owned enterprises, are expected to push beyond 40 percent. Based on a 40 percent securitization rate and a 10 percent asset increase of state-owned enterprises, it is estimated that such securitization of state-owned enterprises will reach 20.7 trillion yuan by the end of 2015. 

Source: China Securities reprinted by Xinhua, January 30, 2014 
http://news.xinhuanet.com/fortune/2014-01/30/c_126081679.htm

Briefings | | |   Economy/Resources

Netease Financial: ICBC Stock Fell below Net Asset Value

Netease Financial, a well-known Chinese online financial news site, recently reported that the stock value of the Industrial and Commercial Bank of China (ICBC) fell below the Bank’s net asset value on January 15. ICBC ranked number one in China’s banking industry in terms of corporate loans and corporate deposits and Euromoney named ICBC the “Best Bank in China.” Ninety percent of the publicly traded Chinese banks are now suffering below net asset market prices. At the same time, 143 companies listed on the Chinese stock market fell below net asset value. Based on the outcomes of the recent central government audit reports, local government debts are at all-time highs. Most of them were funded by state-owned commercial banks. It seems the landslide of the banking industry’s stocks has not ended yet. 
Source: Netease Financial, January 15, 2014
http://money.163.com/14/0115/15/9IL0MURF00251LJJ.html
Briefings | | |   Economy/Resources

Chinese Bank Deposits See Transfers

According to Xinhua, the China Banking Regulatory Commission is considering accelerating the introduction of bank insolvency regulations. Its official, Yan Jingmin, stated, “In the future, let capital speak. If a commercial bank cannot maintain solvency, it will exit.” 

“To allow banks to go bankrupt means the State will not cover the deposits of customers in commercial banks [when the bank goes bankrupt],” added Xinhua. The invisible guarantee by the credit of State will end. The depositors would be compensated by the insurance mechanism established in the bank insolvency regulations. 
It was further reported that under the proposed insurance mechanism, the maximum compensation to depositors would be 500,000 yuan. In a panic, Chinese depositors have started to transfer their money in excess of 500,000 to different banks. 
Sources:
Xinhua, January 15, 2014 
http://news.xinhuanet.com/fortune/2014-01/15/c_126006365.htm 
Jinghua Times reprinted by People’s Daily, January 16, 2014 http://finance.people.com.cn/bank/n/2014/0116/c202331-24133060.html
Briefings | | |   Economy/Resources

China Review News Agency: The End of the U.S. QE Measures Will Lead to Massive Capital Outflow

On January 6, 2014, China Review News published an article on China’s economy. According to the article, the slower growth of China’s economy in 2013 was the result of the government’s nationwide macro-control. While maintaining stable economic progress in 2014, the Chinese government will push forward economic reform. However, the approaching end of the U.S. quantitative easing (QE) measures will cause the withdrawal of hot money from China and even lead to a massive capital outflow. Therefore, China must get ready to deal with a shortage of money.

Source: China Review News, January 6, 2014
http://hk.crntt.com/doc/1029/6/2/6/102962683.html?coluid=53&kindid=0&docid=102962683&mdate=0106080210

Briefings | | |   Economy/Resources

Xinhua: China to Test Privately Owned Banks This Year

Xinhua recently reported that the China Banking Regulatory Commission (CBRC) announced on January 7 that China is set to start an experiment to allow banks to be fully privately owned. The CBRC is planning to take a very conservative approach and allow only three to five banks this year. Meanwhile private capital can now be part of the ownership of current banks. The fully private banks will only be able to do business under a “limited license,” which will impose restrictions on the scope of business, operating regions, and customer profiles. In addition to these “limited restrictions,” all private banks will be required to establish a “will,” which must explain what will happen if the bank were to file for bankruptcy in a circumstance where taxpayers provided no bailout. Over thirty publicly traded companies have filed their applications to enter the banking business.
Source: Xinhua, January 7, 2014
http://news.xinhuanet.com/2014-01/07/c_125965308.htm
Briefings | | |   Economy/Resources