Finance Briefs

Shares Climb Higher as Funds Chase Big Caps

China's shares rose by 1.6 percent on July 24 as funds raced to build positions in big caps such as Wuhan Iron and Steel Company, according to Shenzheng Agencies.

The benchmark Shanghai Composite Index finished at 1,089.909 points, after closing up 2.6 percent on July 23.
"Funds were chasing after blue chips during the past two days," said analyst Hu Weitao at Changjiang Securities. "They seemed to have been cheered by the yuan appreciation."

Markets gained 2.5 percent on July 19, after the government revalued the yuan by 2.1 percent on July 25 in a move seen as boosting corporate buying power and domestic consumption.
Wuhan Iron, the country's third-largest mill, was among the most actively traded stocks of the day. It increased by 4 percent to close at 3.62 yuan (45 US cents).

China United Telecommunications Corporation, the smaller of the country's two mobile telephone carriers, climbed 1.1 percent to 2.89 yuan.

Asia's largest oil refiner, Sinopec Corporation, rose 1 percent to 4.09 yuan, extending a 0.25 percent gain in the morning session.

Analysts said the market, bumping along with eight-year lows in recent months, had hit the bottom and that recent gains could be the beginning of a turnaround hoped for by investors.

The major index has fallen nearly 14 percent so far this year, extending a 15 percent slump last year.
China's Pan-Pearl River Delta to Deepen Financial Cooperation

South China's PPRD (Pan-Pearl River Delta) region took concrete steps toward

integrating its capital market, beginning with a forum held in Chengdu, Sichuan Province, on July 26, according to Yahoo News.
Song Hai, vice-governor of South China's Guangdong Province, said it was a matter of urgency to establish a multilayered capital market catering to the specific financial needs of enterprises in the vast PPRD region, which is shared by one-third of the country's population and contributes to more than 40 percent of the national gross domestic product.

Song said the region should phase in a united, well-regulated regional bond market and a regional property-rights trading platform.

To foster the integration of the regional capital market, measures should be taken to explore monetary cooperation and to strengthen financial regulations, Song added.

The PPRD framework, officially launched in 2004, encompasses Guangdong, Fujian, Sichuan, Guizhou, Yunnan, Hainan, Jiangxi and Guangdong provinces and the Guangxi Zhuang Autonomous Region and the Hong Kong and Macao special administrative regions.

Financial cooperation in the vast region has gotten more attention since the ambitious framework was launched as a strategic move to combine the Pearl River Delta's manufacturing might with Hong Hong's well-established financial capabilities.

By the end of 2004, the nine mainland PPRD members were the home of 415 listed companies and 19 fund companies, accounting for 30 percent and 41 percent of those national totals. In addition, 48 securities companies are located in the PPRD region.

Hong Kong's unique standing as a global financial centre and its participation is expected to enhance the regional financial cooperation's chances for success.

HK Banks Ready to Expand RMB Business

Hong Kong's banks are well-prepared and have the strength to expand their renminbi (RMB) business activities, Frederick Ma, secretary for financial services and the treasury in Hong Kong, said on July 26.

According to a Hong Kong Government press release, Ma, speaking at the Forum on the Development of Pan-Pearl River Delta Capital Markets in Chengdu, said that RMB deposits have grown to HK$20 billion (US$2.5 billion) since local banks were allowed to engage in RMB business operations in February 2004.

He said Hong Kong, as a fund-raising platform for Chinese mainland enterprises, will help and encourage them to use the city to gain access to the international market.

Government to Bail out Poor Financial Institutions

China's central government will loan money to financial institutions to help them pay off their debts to individual investors, a China Daily report said.

The debts stem from such things as institutions being closed down, going bankrupt or being taken over. The new rules were announced on July 28 by the People's Bank of China, the Finance Ministry and China Securities Regulatory Commission.

Central-government compensation will cover the following items: individual bank deposits, the money individuals have entrusted to financial institutions and to securities issued by financial institutions.

It also covers securities lodged with financial institutions, which have been misappropriated, and the guaranteed funds of individual investors at the securities companies. The central government will pay the entire debt for individual bank deposits and guarantee funds when banks or brokers have problems.

For items where compensation is promised, the central government will shoulder 90 percent of the debt, with local governments paying the remaining 10 percent.

China has about 130 securities companies, but most of them are performing badly.

According to the Securities Association of China, in 2004, 114 brokers lost a total of about 15 billion yuan (US$1.85 billion). That is the fourth consecutive bad year for China's securities companies.
Market regulators are now reshuffling the brokerage sector and experts say that more than half of brokers will be forced out of the arena.

ICBC to Start Selling First Bank-run Fund

The Industrial and Commercial Bank of China (ICBC) will begin selling the country's first bank-run mutual fund, a bank executive said on July 25, according to the Shenzhen Daily.

ICBC, the mainland's largest commercial lender, established the country's first bank-controlled fund management firm with Credit Suisse First Boston earlier this month in Beijing.

The Securities Times reported stock investment would account for 60 percent to 95 percent of the mutual fund's net value, while bonds and cash assets would account for 5 percent to 40 percent.
 
China's central bank adjusted the value of the currency, the renminbi, to 8.11 yuan to the US dollar on July 21 (subject to fluctuations based on a reference to a new "basket of currencies"). China's stock market rose 2.5 percent the day after the government announced the adjustment.

However, the benchmark index shed about one-fifth of its value in 2005 on top of a 15 percent slump in 2004, when it was the world's worst performing major index.

Following the ICBC, the Bank of Communications, in which HSBC Holdings owns nearly a 20 percent share, and China Construction Bank, the country's top property lender, have both said they would launch their own fund ventures in August.

Bank of Communications had tapped Schroders while Construction Bank had chosen the US Principal Financial Group Incorporated as a venture partner, banking executives said.

CITIC Approved to Establish HK Unit

CITIC Securities, a major Chinese broker, has won approval from the market watchdog China Securities Regulatory Commission to expand its business outside the mainland for the first time by setting up a unit in Hong Kong, according to China Daily.

The Hong Kong unit will get its HK$10million (US$1.3 million) in registration capital solely from the parent company, according to a statement from CITIC published on the Shanghai Stock Exchange July 29. CITIC Securities is among a first batch of domestic securities firms to explore the overseas market.

In recent years, more domestic enterprises have looked to Hong Kong to raise capital. Last year, about HK$265.6 billion (US$34 billion) was raised on the Hong Kong stock market and about HK$57.7 billion (US$7.5 billion) was collected by domestic enterprises listed in Hong Kong. Unfortunately, almost none of the domestic brokers can share in the booming market, because none of them have Hong Kong units. 

China's stock market is undergoing fundamental structural reform, but during this reform regulators say no firms can raise capital on the domestic market until the reform is completed. The sluggish domestic stock market provides domestic brokers with very limited room to make a profit.

Last year, 114 domestic brokers lost a total of 15 billion yuan (US$1.85 billion), according to Securities Association of China statistics. 

CITIC Securities is among the top 10 domestic brokers in terms of securities transaction value and gross assets. Last year it ranked No. 1 in terms of net assets, with its growth of profits of about 650 million yuan (US$80.15 million).

The Chinese Government is encouraging its financial institutions to explore the overseas market. The China Insurance Regulatory Commission issued a draft on July 28 encouraging domestic insurers to invest in the foreign insurance sector.