Archive for February 29, 2012

China opening doors to foreign hedge funds

China has decided in principle to allow foreign hedge funds to raise capital in the Chinese mainland, a move that could open opportunities for the capital-strained Asian hedge funds industry, the South China Morning Post reported Wednesday.

There will remain major restriction on what foreign hedge funds can do in China. According to the report, all will have to register in Shanghai and can invest only in markets outside the mainland.

The Shanghai Municipal Office of Finance Service has received guidelines from China’s security and foreign exchange regulators that will allow foreign money managers to set up yuan-denominated hedge funds, the report said.

Overseas money managers have long eyed the mainland’s capital ever since 2008 as raising funds becomes more difficult for western investors.

TPG announced early this February that it had locked some 4 billion yuan of committed money, while Blackstone, Carlyle Group and investment banks including Goldman Sachs and Morgan Stanley have initiated plans to launch yuan-denominated hedge funds.

China already allows foreign firms to set up private equity funds in the country. Those funds must invest exclusively in mainland China

Chinese government throws up protective barriers on car industry

The Chinese government today ordered officials to buy “homemade” car brands. To manufacture cars in China you must have a 50% partner with a local car maker. These are known as “joint-venture” car makers. Even they will no longer qualify as government officials in China must now purchase cars from 100% owned Chinese car companies.

This is not suprising if one understands the Asian mindset. They are by-in-large mercantilist nations meaning they wish to export more than they consume. Adam Smith does not translate. Free Trade is just an ideal the Americans worry about. It doesn’t actually exist. The Japanese car maker is 95% Japanese, the Korean car market is 95% Korean and it will not change.

Your cities can all turn into Detriot, who gives a shit. Your government doesn’t care and your people are to stupid to do anything about it.





China Market Wrap-27FEB2012

– HSBC Holdings Plc <HSBA.L><0005.HK> said a $1 billion increase in its wages bill in Brazil, China and other emerging markets was the price of avoiding the stagnant growth which has dogged some rival lenders more dependent on Europe. HSBC  predicted growth in Asia and other emerging markets would outweigh sluggish European economies this year as it posted a $21.9 billion profit for 2011, the best outturn by a western bank so far.
– Hang Seng Bank <0011.HK>, a unit of HSBC Holdings Plc <0005.HK><HSBA.L>, posted a 12 percent rise in 2011 profit at HK$16.68 billion, beating forecast.
Chinese packaging paper supplier Nine Dragons Paper <2689.HK> posted a 34 percent drop in interim earnings to 836.5 million yuan for six months period ended in December.
– Spain’s Repsol <REP.MC> and China’s Sinopec <0386.HK> have made an oil discovery offshore Brazil that could be one of the biggest so far in the area and that boosted confidence that Angola’s deepwater reserves may be abundant too.
– China intends to bypass foreign brands for its government car fleet and use only local manufacturers, the latest vehicle purchase list posted on a government website over the weekend shows. The government is now turning to national automakers including SAIC Motor <600104.SS>, FAW Group, Dongfeng Motor <0489.HK>, BYD <1211.HK>, Geely Automobile <0175.HK>, Jianghuai Auto <600418.SS>, Hafei Automobile and Hunan Jiangnan Automobile, according to the preliminary purchase list for 2012.
– Regional power utility CLP Holdings Ltd <0002.HK> said on Monday that it will consider listing its India business to raise funds for further expansion there.
– Mongolia Energy Corp Ltd <0276.HK> said it had entered into a cooperation agreement with Shandong Energy Xinwen Mining Group Co., Ltd of which Xinwen will provide technical consultancy services to the Hong Kong-listed firm in its plan to build a coal washing plant in Xinjiang and its operation in Mongolia.

Chinese Funds Against Bear Bile Company’s Planned IPO







A survey showed that nearly 80 percent of Chinese fund managers

would not participate in the inquiry of a possible initial public offering of a Chinese

bear bile company, in a gesture of denial against the cruel business.

23 of the 43 surveyed fund managers, chief investment and research officers,

each from a different money managing company, are objected to Guizhentang’s

listing, and only 3 of them are in support of the company.

The survey, conducted by the official Securities Times, also showed that more

of the respondents—33, representing 77 percent of total—would not take part in

the inquiry if Guizhentang’s application is approved.

Only 62 funds in China are legally allowed to participate in the inquiry of public




China Lures U.S. Pilots with $200k pay packets. Added Bonus…no naked body scanners

“Everyone is facing a pilot shortage,” said Shen Wei, head of pilot recruitment at Shanghai-based budget carrier Spring Airlines (TPRINZ). “Foreign pilots are the quickest option.”

To help lure overseas crew members, Spring Air pays foreign pilots 30 percent more than domestic staff, Shen said, without elaboration.

Air China Ltd. (753), the nation’s largest international carrier, was offering $198,000 a year net plus bonuses for Airbus SAS A330 pilots, according to an advertisement on the website of Wasinc International, the recruitment company that helped run the job fair. During the two-day Miami event, which featured about a dozen Chinese airlines, about 70 pilots got provisional job offers, said Scott Snow, a spokesman.

Roger Grant, an American Airlines co-pilot, said in Miami that he may be able to about double his salary by moving to China and becoming a captain. He also said a move may offer better long-term prospects.


Breaking…Chinese Rare Earth Producer up 9% in Shanghai trading.

From the CMR….
Baotou Steel (SHA:600111) is up 9% today in early trading power by the news that RE exports look to double out of China in 2012. Our take on the remarker is as follows..
Everyone remembers the Japanese-Chinese fishing trawler incident in late 2010. RE exports were cutoff from China to Japan. What went unreported is that Japanese imports of RE from China were already up over 400% in 2010. They were clearly stockpiling the materials at the expense of China before China could enforce new environmental regulations. We had prices spike on the news of the export ban, then we saw prices collapse in 2011. This was no doubt due to the fact people were not buying and had already accumulated a lot of inventory in anticipation of future shortages. Now in 2012, people will need to buy RE again and we will be back off to the races on RE pricing.

China May Double Rare Earth Exports

China, the biggest supplier of rare earths, may almost double exports this year and meet quotas set by the government as lower prices stimulate demand.

Chinese exports were 49 percent of the government-alloted quota in the first 11 months of last year because the slowing global economy sapped demand, the Ministry of Commerce said in a Dec. 27statement. Overseas sales quotas may be virtually unchanged this year at 31,130 metric tons, based on Bloomberg calculations.

“Export quotas may be met this year as overseas demand recovers,” Wang Caifeng, a former official overseeing the rare- earth industry with the Ministry of Industry and Information Technology, said in an interview in Beijing. “High prices last year had deterred purchases and led to inventories depletion. Smuggling also hampered exports through illegal channels.”

Prices of rare earths have tumbled since the third quarter as consumers including makers of electric cars and wind turbines sought to reduce use. The average price of lanthanum oxide, a rare earth used in rechargeable batteries and refining catalysts, was 129,167 yuan ($20,508) a ton in the fourth quarter, 15 percent less than in the third quarter, according to data from Shanghai Steelhome Information.

Lynas Falls

Lynas Corp. (LYC), developer of the world’s largest rare earths refinery, fell as much as 4.7 percent to A$1.23 today in Sydney, set for its biggest decline in almost two weeks. It was A$1.235 at 1:26 p.m. Sydney time.

China produces at least 90 percent of the world’s rare earths, used in Boeing Co. (BA)helicopter blades and Toyota Motor Corp. (7203) hybrid cars. The nation has curbed output and exports of rare earths since 2009, when quotas were set at 50,145 tons, as part of its wider move to conserve mining resources and protect the environment.

Slashing exports boosted prices and sparked concern among overseas users such as consumers about access to supplies. China halted some mines last year, seeking to curb overcapacity, cut illegal mining and improve environmental standards.

The Chinese government allocated 10,546 tons of first-round export quotas to nine companies, including China Minmetals Corp. and Sinosteel Corp (SINOSZ)., that have met the government’s environment protection standards, the ministry said.

Export Licenses

Another 14,358 tons may be granted to 17 other companies, including Baotou Iron & Steel Group, China’s biggest producer, that was not granted an export license for this year, it said. Baotou is one of 21 smelters waiting for approval, it said.

“Baotou will be able to get the license to resume exports this year,” Wang said. “It’s just a matter of time as it takes a while for the government to review the company’s environmental improvement.”

Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co., the rare earth unit of Baotou Iron & Steel Group, has yet to receive approval to resume exports, a company spokesman, who declined to be identified because of company policy, said today by phone without providing any further details.

Baotou Steel Rare Earth gained 2.6 percent to 51.50 yuan today in Shanghai trading, beating a 0.4 percent gain in the benchmark Shanghai Composite Index.

China is encouraging its companies to develop rare earth mines abroad to help ease pressure on domestic producers, Wang said. China has the technical expertise and human resources required by overseas company in mine development and processing, she said.

Buying Mines

Australia’s Lynas Corp. and Greenwood Village, Colorado- based Molycorp Inc. (MCP) should cooperate with China, including allowing Chinese groups to buy stakes in their mines, said Wang, who’s overseen the industry for more than 30 years.

Australia blocked China’s bid in 2009 to gain control of the world’s richest rare earth deposit amid concern it would threaten supply to non-Chinese buyers. State-owned China Non- Ferrous Metal Mining (Group) Co. in May 2009 offered A$252 million ($271 million) for a 51.6 percent stake in Lynas Corp., which needed cash to resume development of the Mount Weld rare earth mine in Western Australia.

“It was a loss to Australia, not to China,” Wang said, “They should be more open-minded.”

China’s full-year export quota for rare earths this year may be about 31,130 tons, according to Bloomberg News calculations based on first-round quota figures given by the commerce ministry on Dec. 27. The quota was 30,184 tons in 2011 and 30,258 tons in 2010.

Wang is helping form a rare-earth association in China, which is expected to start in the second quarter and will be funded by industry companies, she said. The association will help the government’s planning and drafting rules for the industry, she said.

Chinese Border Residents Use Rice to Buy North Korean Wives

This reminds me of a time in the late 90’s when I was in a border town on the North Korean  border. I was told, I should hire a North Korean maid as they are cheap. They then told me  the cost of the maid is only 700 RMB. ($100 U.S.) I replied…700 RMB a month..that’s not  cheap, its the same price for a maid in Shangahi. The guy then told me…you don’t      understand… 700 RMB……she’s yours! One time payment only.

Looks like some things never change under the leadership of the “Great leader” in the    North of Korea.

from China Smack…..

The women in the photos are all North Korean women who illegally crossed the border into China because of hunger and starvation. The children in the photos are all the unregistered sons and daughters born to these North Korean refugee women and Chinese men



















WTI Crude hits $109, Asian spot price at $134

My finger is on the trigger. As we explained in the Feb issue of the CMR, we are in a “crack-up boom 2” sent to us courtesy the Central Banks of the World and their printing presses. I am still in the camp that we are melting up now, however, get ready to take profits on your oil dependent stocks. A confrontation with Iran or the summer spike in the driving season could drive gas prices even higher, and gas prices are the one thing that can bring an economy to a halt real fast.







Asia-Pacific Tapis Crude Oil tends to be the benchmark grade for oil and gasoline pricing throughout AsiaPac. As WTI cracks $109, the Tapis crude spot price has just seen the largest 3-week rise since last February and is back to July 2008 highs – over $134.

Investor Rogers Compares Myanmar Reforms to China’s Opening

Looks like its time to start spending sometime down south in Myanmar.





Feb. 22 (Bloomberg) — Investor Jim Rogers, the chairman of Rogers Holdings who predicted a global commodities rally in 1999, said Myanmar is embracing reform as China did decades earlier and he’s optimistic about the resource-rich nation’s prospects.

“If I could put all of my money into Myanmar, I would,” Rogers said at a conference in Singapore today. “Myanmar is in the same place China was in early 1979, when Deng Xiaoping said we have to do something new. Myanmar is now opening up.”

Rogers’s comments highlight increased investor interest in the economy that may be Asia’s “next economic frontier,” according to the International Monetary Fund. The IMF is pushing for an overhaul of Myanmar’s finances as President Thein Sein releases dissidents and engages with opposition leader Aung San Suu Kyi in moves that have prompted the U.S. and Europe to reassess sanctions against the former military dictatorship.

“It’s right between China and India, 60 million people, massive natural resources, agriculture,” Singapore-based Rogers said at the gathering organized by New York-based INTL FCStone Inc. “You could feed much of Asia, they have metals, they have energy, they have everything.”

China’s Deng introduced capitalist reforms in the late 1970s, lifting more than 200 million people out of poverty and transforming the nation into the world’s second-largest economy and its biggest consumer of steel, copper and coal.

‘Richest Country’

“In 1962 Myanmar was the single richest country in Asia,” said Rogers, referring to the year that marked the start of military rule. “Now it’s the poorest because it’s been so badly managed in the past 50 years. But they are changing that now.”

Myanmar may grow 5.5 percent in 2011-2012 and 6 percent in 2012-2013 on commodity exports and higher investment, the IMF said last month. The country “could become the next economic frontier in Asia” if it takes advantage of its natural resources and proximity to China and India, according to Meral Karasulu, who led an IMF mission to the country in January.

George Soros, the billionaire investor, said last month that he’d visited Myanmar recently and the president and his ministers “genuinely want an opening.”

Rice exports from Myanmar, formerly the world’s largest shipper, may more than double to 1.5 million metric tons this year, the Myanmar Rice Industry Association forecast last month. Sales totaled 700,000 tons in 2011.

China and India share more than 3,600 kilometers (2,200 miles) of border with Myanmar, whose 64 million people earn an average of just $2.25 per day, according to IMF estimates. Both nations have sought increased access to the nation’s reserves of natural gas.



China Market Wrap-24FEB2012

– HSBC <HSBA.L><0005.HK>, Europe’s biggest bank, said it would stop providing its private banking service in Japan for clients who hold more than 10 million yen ($124,500) in assets.
– MGM Resorts International <MGM.N> hopes to ride a bounceback in leisure and gambling in 2012, despite posting a wider-than-expected quarterly loss after soaring costs offset a revenue recovery for the operator of Las Vegas Strip icon Bellagio. Its unit, MGM China<2282.HK>, which owns and operates MGM Macau, rode a 26 percent surge in net revenue to $719 million in the fourth quarter.
– Shareholders of China’s TPV Technology Ltd <0903.HK> have approved its taking on the loss-making television unit of Dutch group Philips Electronics <PHG.AS>, giving it a brand to help push its global expansion.
– Dachan Food (Asia) Ltd <3999.HK>, China’s biggest white meat supplier, will focus on the development of own-brand products this year as its seeks to grow, and sees food safety as the most important issue in the market. Dachan, a main supplier of fast food restaurants Kentucky Fried Chicken <YUM.N> and McDonald’s Corp <MCD.N>, aims to raise own-brand products to more than 50 percent of total in three to four years.
– Dragonair, a unit of Hong Kong’s dominant carrier Cathay Pacific Airways Ltd <0293.HK>, said on Wednesday that it plans to expand its fleet 20 percent this year by adding six aircraft and will hire more staff to meet growing demand in Asia.
– Chinese instant noodle and beverage maker Tingyi Holdings Corp<0322.HK> expects to receive approval from Chinese regulators for its tie-up with PepsiCo Inc <PEP.N> as early as March, Tingyi’s parent company in Taipei said on Wednesday.
– Xiamen International Port Co Ltd <3378.HK> said it expected to record a reduction in net profit for 2011 as compared to the previous year due to two one-off profits two one-off profits credited to the company in 2010.
 AIA Group Ltd <1299.HK>, Asia’s No.3 insurer, reported a 40 percent rise in value of new business (VONB) in the year ended Nov. 30, 2011, helped by strong growth in Singapore, China and Malaysia.
– HSBC <HSBA.L><0005.HK> on Thursday said it will pull out of the retail banking business in Japan, including the HSBC Premier service meant for clients who hold more than 10 million yen ($124,500) in financial assets.
– Esprit Holdings Ltd <0330.HK>, the struggling Asian retailer focused on crisis-hit Europe, said plans to restore long-term profitability were on track, sending its shares up 25 percent to a five-month peak. Its first-half net profit fell 74 percent, a smaller drop than analysts had expected.
– China Minsheng Banking Corp <1988.HK><600016.SS> has received approval from the country’s securities regulator for an issue of up to 1.65 billion new Hong Kong-listed shares, which is aimed at helping it boost its capital adequacy ratio.
– The London Metal Exchange’s (LME) board was meeting on Thursday to examine non-binding bids for the world’s biggest marketplace for industrial metals, facing a possibility that the offers may be lower because bourse users oppose its plans for higher fees. Bidders include CME Group <CME.O>, Hong Kong Exchanges and Clearing Ltd (HKEx) <0388.HK>, NYSE Euronext <NYX.N> and the InterContinental Exchange (ICE) <ICE.N>, sources and media reports have said.
– A Shanghai court has rejected a request by a Chinese technology firm that the sale of Apple Inc‘s <AAPL.O> iPads be halted across the affluent Chinese city, a source with direct knowledge of the ruling said on Thursday. The company, Proview Technology (Shenzhen), had been seeking the injunction against Apple as part of its battle with the U.S. tech giant over the iPad trademark in China.
– China National Building Material Co Ltd <3323.HK>, a major Chinese cement producer, said on Thursday that it expects annual net profit for 2011 to double on an increased selling product prices and higher output in its cement segment.
– Hopewell Holdings <0054.HK>, an investment holding, property investment and development company, said its net profit for six months to December fell 1.3 percent to HK$1.82 billion.
– Department store operator Maoye International Holdings Ltd<0848.HK> said its net profit increased 11.1 percent year on year to 640.3 million yuan with total sales surging 43.5 percent to 10.4 billion yuan. It said retail industry would continue to grow rapidly with the support of government policies and the increase in consumption.
– Huaneng Renewables Corporation Ltd <0958.HK> said it estimated that there would be substantial increase in the net profit for 2011 as compared to 2010 but it might be slightly lower than earlier estimated due to foreign exchange loss resulting from an increasingly stringent control of foreign exchange settlement in China.
– Lijun International Pharmaceutical (Holding) Co Ltd <2005.HK> said it expected to record a net loss for 2011 due to a possible impairment loss on the goodwill in respect of intravenous infusion solution business.
– China Dongxiang (Group) Co. Ltd <3818.HK> said it expected its unaudited consolidated revenue for 2011 to fall by 36 percent year-on-year due to a decrease in sales as it cut back sales to distributors in China to deal with inventory issue. Margin of profit attributable to shareholders of the company is expected to decline to 3-5 percent from 34.4 percent in 2010.

Shandong villagers siphon off natural gas, carrying “bombs” home

February 20th, at an oil/gas well near the west end of Huanghe 12th street in Binzhou, Shandong Province, there were many villagers using large plastic bags to carry natural gas, a nerve-racking sight for many. The workers at the oil field stated that this indeed created many latent dangers, but their warning were to no avail.

On the morning of the 20th, when reporters first arrived, the oil extraction machinery was operating normally, a gas canister and large gas furnace were beside the machine with no people standing guard. At 10 am, a middle aged woman brought a large plastic bag to the machine. The woman skillfully opened the valve to the gas and connected it to the bag she was carrying, the plastic bag quickly rose and grew to be a 6 meter long, 1 meter wide balloon. After about 4 minutes the bag was full.


A Battle for Mongolia’s Copper Lode

From the Wall Street Journal…


TORONTO—Billionaire entrepreneur Robert Friedland built his fortune learning how to gain advantage over some of the world’s largest and most powerful mining companies.

Today Mr. Friedland is finding that dealing with giants can be tricky sport.

At issue is ownership of resources buried deep in the Mongolian desert that are among the world’s largest unexploited gold and copper deposits—a development with estimated reserves of 81 billion pounds of copper and 46 million ounces of gold.

Mr. Friedland, the chief executive ofIvanhoe Mines Ltd. and one of the sector’s most colorful moguls, is on the back foot in a squabble with industry giant Rio Tinto PLC over Oyu Tolgoi, Ivanhoe’s massive copper-and-gold project in Mongolia.

Last month, Rio Tinto increased its ownership in Ivanhoe to 51%, a stake that gives it effective control of the Canadian miner without having paid a premium to other shareholders—a move that Ivanhoe CEO and founder Mr. Friedland had fought to prevent.

Now in charge, Rio wants to hold on to Oyu Tolgoi but spin off or sell Ivanhoe’s other mining assets, according to people familiar with the matter.

One of the people said, however, that Rio is in no hurry to make such a move. For a start, the Oyu Tolgoi project still has to overcome some key hurdles, including the conclusion of power-supply negotiations with Chinese authorities.

The intentions of Mr. Friedland, who holds a 13.7% stake in Ivanhoe, are less clear. According to people familiar with the matter, he is now looking to negotiate with Rio over an exit for himself and Ivanhoe’s other shareholders.

If Mr. Friedland wanted to, he could also hold on to the bitter end. Canadian rules require a potential acquirer to own over 90% of a company’s shares before forcing a full takeover, which Rio would be unable to do if Mr. Friedland maintains his current stake.

The self-made, 61-year-old billionaire has a colorful past that takes in student activism against the Vietnam War, a youthful friendship with late Apple Inc. co-founder Steve Jobs and some of the sector’s potentially most-lucrative discoveries in recent decades. It has also included controversial forays such as Ivanhoe’s past venture in military-run Myanmar.

Mr. Friedland, who currently spends much of his time in Singapore, declined to comment for this article. An Ivanhoe spokesman said Rio’s “slim” 51% controlling interest “has not curtailed Mr. Friedland’s long-standing and active service to Ivanhoe Mines.”

The Ivanhoe spokesman said the company’s future is for all the company’s shareholders to decide, not just Rio and Mr. Friedland. The company is based in Vancouver and listed in Toronto and New York.

Mr. Friedland, who spent much of the 1970s traveling in India, where he studied Sanskrit, Hindu culture and Buddhism, once said he became interested in mining after stumbling upon an abandoned gold mine on property he was developing for a timber venture with Mr. Jobs, whom he met at Reed College in Portland, Ore., in the early 1970s.

Mr. Friedland came to prominence in the 1990s with a large Canadian nickel-deposit find. Through another company he controlled at the time, Diamond Fields Resources Inc., he sold that off to Canada’s Inco Ltd. for about $3 billion, after stoking a bidding war.

Then in 2000, Mr. Friedland and Ivanhoe, a company he founded in the mid-1990s, paid $5 million to another mining giant, BHP Billiton PLC, to buy Mongolian exploration licenses. That was followed by a related $37 million payment three years later to acquire a right to some royalties BHP retained.

After exploring the prospect, Ivanhoe now is sitting on gold and copper that analysts say could be worth some $300 billion.

“You have to take your hat off to Ivanhoe—they invested a lot of effort into an area that had no history of major discoveries,” said Terry Ortslan, a director at mining research firm TSO & Associates.

Lacking the firepower to develop Oyu Tolgoi on its own, Ivanhoe invited in another mining behemoth, London-listed Rio, which in 2006 took a 9.95% stake for $303 million. Since, Rio has invested over $4 billion to get to its current 51% stake, according to Ivanhoe.

But as Rio continued to build its ownership, analysts say the relationship frayed. In 2010, Ivanhoe adopted a shareholder-rights plan that allowed other investors to dilute Rio’s stake if it continued to grow.

Last year, Rio challenged this clause in arbitration, and Ivanhoe abandoned the plan, clearing the way for Rio to go above 50%. Rio made that move on Jan. 24, without informing Ivanhoe, according to a person familiar with the situation. A Rio spokesperson declined to comment.

Rio now has a number of options, analysts say. One is simply trying to install new board members and management and then selling off the non-Mongolian assets piecemeal.

The company could also strike a friendly deal with minority shareholders by spinning off the non-Mongolian assets, plus cash, to investors, the scenario analysts such as those at Credit Suisse AG see as most likely.

Credit Suisse estimated in a recent report that around three quarters of Ivanhoe’s net asset value is based on its holding in Oyu Tolgoi, which it values at $13.3 billion.

The rest of the company is worth around $3.4 billion, the bank figures. Those other assets include stakes in a gold project in Kazakhstan and a coal mine in Mongolia.

Mr. Friedland has been hit by setbacks before but is upbeat by nature, say some who know him. Some of his early mining promotions didn’t make investors money, but Mr. Friedland was always able to drum up interest in new ventures. Ivanhoe’s early days in Mongolia saw setbacks, including a local protest in which an effigy of Mr. Friedland in a top hat was burnt in the capital Ulaanbaatar.

Mr. Friedland has also proven controversial.

Ivanhoe once entered into a joint venture with a state-owned mining company in military-ruled Myanmar. Ivanhoe says the copper project, which it exited in 2007, brought investment into a developing country and was started before Canada placed sanctions on the regime.


China records $3.1 billion in “hot money “outflows” in 2011

BEIJING – China recorded $3.1 billion of “hot money” outflow in 2011 after adjusted by $40billion of crossborder net payment, the State Administration of Foreign Exchange (SAFE) saidon Thursday.

The outflow of speculative funds, or “hot money,” from China marked an about-face of international capital,compared with a money inflow totaling $35.5 billion in 2010, the SAFE said in its annual cross-border capital flow report.


Puda Coal Sinks 11 Percent in New York After SEC Levies Fraud Charges

Another Chinese stock fraud bites the dust. Just one more U.S. listed Chinese firm no one over here has ever heard of. It always astonishes…. the lack of due diligence performed on some of these companies. Here is a very simple one…if they have a detailed English website with an investor focus and only a shell website in Chinese…..DUH!!!!!! The are most likely a fraud. Don’t even need boots on the ground to figure that one out.

China’s Puda Coal Inc. (PUDA) tumbled 11 percent after the Securities and Exchange Commission charged two of its executives with defrauding investors.

The company’s shares sank to 25 cents per share in New York, the lowest level since Feb. 17 based on closing prices.

The SEC charged Puda chairman Ming Zhao and former Chief Executive Officer Liping Zhu, according to a statement from the regulatory body today. The executives defrauded investors into believing they were investing in a Chinese coal business when in fact they were investing in an empty shell company, the SEC said.

The Taiyuan, China-based company said in a Jan. 13 statement that director Jianfei Ni resigned from the board. On Aug. 10, 2011, Puda said it received notification from the New York Stock Exchange that the bourse intended to delist its common stock.


China Market Wrap-22FEB2012

A shares
– Chinese automaker Great Wall Motor Co Ltd <2333.HK> <601633.SS> opened its first European factory on Tuesday as part of its strategy to lift sales in the region. 
• H shares
– A firm run by John Paulson was sued on Tuesday by a prominent Miami investor who claimed the billionaire’s hedge funds failed to conduct proper due diligence on Chinese forestry company Sino-Forest Corp<TRE.TO>, parent of Greenheart Group Ltd <0094.HK>, before buying shares, costing investors more than $460 million.
– Wynn Resorts Ltd <WYNN.O>, parent of Wynn Macau <1128.HK>, plans to give evidence to U.S. authorities that it claims shows that its board member Kazuo Okada bribed foreign gaming regulators and may have violated the U.S. Foreign Corrupt Practices Act, board member Robert Miller told analysts on Tuesday.
– Jack Ma’s Chinese e-commerce firm Alibaba Group has offered around $2.5 billion to take its Hong Kong-listed <1688.HK> unit private, stressing the move was unrelated to any possible deal to buy back shares owned by Yahoo Inc <YHOO.O>. Alibaba Group is offering investors HK$13.50 in cash per share, a 46 percent premium over the last close. posted its first profit decline in more than two years in the fourth quarter of 2011 as a weak global economy hit the number of paying members for its services.
– HSBC Holdings <HSBA.L><0005.HK> is to issue shares to pay the cash element of bonuses for its UK bankers in response to regulatory pressure to preserve capital, a person familiar with the matter said on Tuesday.
– China’s Unipec, the trading arm of top Asian refiner Sinopec Corp<0386.HK>, will buy 10 to 20 percent less crude from Iran under an annual contract for 2012 than in 2011, a Chinese industry executive with direct knowledge said on Tuesday.
– A casino operator run by Australian billionaire James Packer and the son of Macau gambling tycoon Stanley Ho has expressed interest in investing in a $1 billion Manila casino project, the Philippine gambling regulator said on Tuesday. Hong Kong-listed Galaxy Entertainment Group Ltd<0027.HK> was also interested in a project in the more than 100-hectare Entertainment City near Manila Bay, construction of which is to begin late next year.
– Sinopec Kantons Holdings Ltd <0934.HK> said it plans to issue 1.037 billion rights shares in the proportion of one rights share for every existing share held at HK$3.37 each, raising up to HK$3.5 billion to fund acquisition and for development of crude oil terminals and oil storage facilities projects.
– Hong Kong Resources Holdings Co Ltd <2882.HK> said its chairman Kennedy Wong, executive directors Chui Chuen Shun and Herbert Hui have been requested by ICAC to assist them in their investigations, which do not relate to the current operations of the company. It said the investigations will have no material adverse impact on the current and future managerial, operational and financial position of the company.

Evil Overlords or Lucky Devils: The Men Who Rule Hong Kong

by Time out Hong Kong on Tuesday, February 21, 2012

The economic distortions are complex – but we can ask this question: is the only way to reverse the shrinkage of our middle class, the widening of the wealth gap and the ever-rising threat of public anger to… lynch the tycoons

Here is your typical day in Hong kong: after buying your groceries from Li-Ka Xing, you hop on to one of Cheng Yu-Teng’s buses to take you back to your Kwok brothers apartment to cook your food with, you guessed it, gas supplied by Lee-Shau Kee.

There was a time when few people in Hong Kong begrudged the city’s property tycoons. Most citizens respected their disproportionate share of luck and the determined way they had taken advantage of the system. Some even saw them as heroes with superlative acumen. But that was then and this is now.

Full article @



Forget Everything You Think You Know About Mongolia


From the blog Capitalist Exploits…

I’ve been wanting to interview my friend Chris DeGruben for the last 6 months.

Mark: Chris, we talk about it a lot, but Mongolia is just coming onto the radar of most investors. The story started many years ago. You were there early. What attracted you to the opportunity?

Chris: My father was a diplomat specialising in the Soviet Union. I thus spent my entire childhood in Soviet economies where I truly saw the transition from centrally-planned economies to market economies.

The transition process always seems to follow the same path, with cars getting bigger and better, shops getting filled with foreign goods, clothes getting more colourful, skirts shorter, etc. The one constant I found in all those transition economies was that soon enough property would be privatised, which was then followed by an enormous boom in the real estate market for a period of 10 to 20 years. This would go on until it reached what I would call “normal” market conditions, like those that we find in Europe and in other developed economies.

We have seen this throughout Eastern Europe as well as all over those CIS countries that have successfully transited their economies to a market economy model. When I first travelled to Mongolia in 2005 this dynamic was just starting. This, coupled along with the incredible story of Mongolia, provided extremely strong fundamentals in which to invest. I knew that while it might take a few years to really develop into a serious market, the opportunities were absolutely worth the wait.

Mark: You know that is something Chris and I talk about a lot on this blog. Investors need to realise that “investing” is somewhat predictable. There are certain patterns that repeat time and time again. Chris recently spoke aboutfront-running liquidity, that’s a perfect example.

Chris: That’s absolutely true, and it will be true in Mongolia as well.

Mark: You worked for Lee Cashell’s APIP in the early days. Lee’s had a lot of success, and he’s one of the guys we like to chat with regularly. What did you learn from your experience with APIP?

Chris: I learned everything I know today from Lee; he is a true entrepreneur and I loved working with him. He has an incredible understanding of the market, and to this day I very much admire what he has achieved in so little time.

I have also been lucky enough to learn all the pitfalls that exist in operating in such a dynamic market as Mongolia, and this has allowed me to develop the strategy of M.A.D. into something that is more flexible, with few conflicts of interest. We allow investors to operate with transparency, and develop tailor-made strategies that are based on solid fundamentals.

Mark: We’ve had a lot of discussions about your business activities and the services you offer at M.A.D. With the background you developed on the ground in Mongolia, and your real-world experience as your foundation, what areas are you focusing on and why?

Chris: I am always on the look-out for the best possible opportunities for investment, and Mongolia truly is a place where anything and everything is possible. I am lucky enough to operate in a market where opportunities of all kinds exist.

Unlike more mature markets which have extremely high barriers to entry, Mongolia is a country with an incredible ease of doing business. It is a country which brings together a lot of of the ingredients needed to make it one of the most attractive in the world for investors right now.

Of course Mongolia is still an emerging, frontier economy, and this brings with it its own series of issues and problems. For instance, solid and formal due diligence is extremely hard to achieve, as so much of the economy is informal, and deals are made through connections and contacts “below board” rather than “above board.”

Another enormous issue that still faces the country is the lack of scalability in its investments. While opportunities abound, they require small ticket sizes of between US$ 100k to US$ 1 million, this puts off the vast majority of institutional investors looking for US $30M plus ticket sizes.

There are three areas where we see the majority of foreign investments going into: Mining and the mining supply chain; the Mongolian Stock Exchange; and, real estate. I have looked closely at all three of those sectors, and only real estate makes sense for an investor such as myself. Let me explore this a little further.

The mining and mining supply chain sectors are certainly very interesting, and the entire growth in the Mongolian Economy is based on this sector, but I don’t know the first thing about mining. To be fair, it is a sector where there is enormous amounts of corruption on the ground. It is a sector dominated by the big boys with large cheque books (Rio Tinto, Ivanhoe, Leighton etc…) who are able to make the most of those opportunities. Small investors such as myself will have absolutely no impact, and we are left with the crumbs that no one else wanted.

Beyond that, mining and the mining supply chain is the playground of the political class, a group I would rather not mix it up with. Even if you look past the fact that there is no due diligence, that all the good plays are being taken up by people with deeper pockets than myself, it is clear by being on the ground that the mining sector is extremely volatile. The politicians in search of votes (we have a new election in June) always find populist votes easy to get by making public declarations of nationalising mining assets, cancelling licenses or levying additional taxes on the mining industry.

The world is focused on the mining industry in Mongolia, and I don’t have the resources to have a target painted on my back at all times. Mining is too capital intensive, it is a market in which you have a lot of country risk and no direct influence on returns. It’s too risky for me and for my investors.

The Mongolian Stock Exchange saw enormous growth over the last year, but has stagnated over the last few months. Again, an interesting play, I have accounts there and so do most of our investors, but we recommend it as an additional strategy in addition to real estate, not instead of it.

The reasons for this are as follows: There is a certain lack of liquidity, with a total market cap of less than US $1.5B and a daily traded value of about US $50k, it is hard to put any money into play without impacting the markets. It’s even harder to make a timely exit if you need to.

It is a place where I can and want to invest funds, but with so few stocks being traded actively beyond the top 10, it is nothing more than a waiting game where I have absolutely no added value as an investor, nor any way to differentiate myself from other investors.

We use Rescap (Eric Zurrin’s firm) as our brokers for my own accounts as well as those of our clients, and hope that with the involvement of the LSE, and the growth in the Mongolian economy we will see a strong push in the summer of 2012, but we are not holding our breath too much in case it continues to stagnate.

Another thing to bear in mind is that practically none of the listed companies on the MSE pay dividends. So, this is a pure capital growth speculation. We see our investment in the MSE following this path: Invest in stocks by closing your eyes and throwing a dart (the financials of all the companies listed are a pure work of fiction, in my opinion), pray that the markets mature enough over the coming years so that other investors come in to buy your positions (instead of listing or investing in Mongolian assets on other exchanges), and hope that the management of the companies you invest in are not all certifiably insane.

Even then you have to rely on your broker to generate sufficient liquidity to allow you to exit from your positions whenever the time has come to do so, in a matter of days, and not months.

This leaves me with Real Estate, our chosen field of expertise. Real Estate ticks all the boxes for us, it is a market with no, or very little, government involvement. This cuts out corruption (if there is no need for licensing or special government permits, we don’t rely on a mindless bureaucratic drone in search of a little envelope to carry out our business), it has no restrictions (apart from land) on foreign investments, ownership or repatriation of capital, it shows strong growth over the past few years and will continue appreciating over the coming years.

It is a market where our investors have great liquidity and can easily add value to their investments by renovating, renting, etc.

It is also important that our investors retain a certain independence with regards to their agents or brokers on the ground. All our investors own their assets outright, which means that should they wish to move the management of those assets to another agency they are free to do so at any time. This forces us to remain competitive and offer as good a level of service as possible. This is actually important to me, as it prevents us from becoming complacent.

I will go into further detail about real estate in a second, but essentially we are in a situation today where we have strong growth in demand from the expats, increasing numbers of high net worth Mongolians, foreign institutional investors and (mostly) the emerging Mongolian middle class.

Mark: That’s a great point Chris, the demand is diverse and spread across several groups, it’s not just speculation.

Chris: Exactly. Meanwhile we have dwindling supply due to the high cost of land (due to the lack of infrastructure development) the lack of talented construction workers, the lack of financing, the short duration of the summer construction months and the increasing difficulty of getting construction supplies into the country. This presents us with incredible opportunities to invest in undervalued assets with enormous growth potential.

We have come up with some very strong investment principles for real estate in Mongolia, and by following them we are fairly certain of being able to achieve above market returns. There are of course a number of risks associated with investing in the RE markets in Mongolia, but the balance is very much on the “pros” side, instead of the “cons” and makes the investment worth the risk, in particular when compared to other global markets where real estate seems to be in free-fall.

Mark: OK, you like Mongolian real estate, that’s obvious. Real estate moves fast and furious in the beginning and most investors miss the initial bump. Where are we at in the cycle?

Chris: Real Estate in Mongolia is indeed an enormously dynamic market, which seems to change overnight. There is strong growth in nearly every sector with some sectors already heading towards an oversupply situation. You’ve got to remember that UB is a tiny, tiny, tiny market with excellent opportunities, but where it is also very easy to reach an oversupply situation before we even think about it.

A single building can completely change the markets, and the city is so filled with rumours that it is often hard to know what to believe in. Having said this, there are still strong opportunities available. I bought my first apartment in UB for US$ 26,000, today it is worth about US$ 140,000, and I am achieving a rental yield (based on my initial purchase price, of over 100%).

While it may seem to some investors that today’s prices are already relatively high, I believe that we are still very far from a peak. Today we are seeing an average capital growth of about 20% per annum, and a net rental yield of about 10%. This is not bad at all when compared to other markets. I think that we still have 3 years of solid growth, as the fundamentals are still excellent. Let me explore what those fundamentals are a little bit.

Mark: Absolutely, let’s dig into that a bit.

Chris: First is the strong GDP growth that will continue over the coming years.

It is no great secret that Mongolia is now one of the fastest growing economies in the world, and this trend will continue over the coming years regardless of the global situation. This is because the growth in Mongolia is spurred by already committed levels of foreign investments, such as the US$ 7 billion needed for the development of OT, and the US$ 5 billion expected for the Tavan Tolgoi deposit.

Remember that the GDP of Mongolia is only US$ 5 to 7 billion per year. This is in addition to the growth of the supply chain that will happen regardless of a global crisis, as mining activities are long-term investments and account for cyclical movements in world economies.

Next, Mongolia has a young, urban demographic.

Something like 60% of the Mongolian population is under the age of 26. On top of that, Mongolia still has a very highly educated and literate population with a strong ability to learn foreign languages. This will lead to two things: 1) A baby boom in the coming years, exponentially increasing the size of the population from 3 million to nearly 4 million within 7 years (and therefore the size of the market); and, 2) a population with an increasing disposable income that seeks in the first instance to purchase their own homes, and will eventually be looking towards investing in real estate as a product. This will start a “buy to let” frenzy, as has been seen in other similar markets.

We have already seen a strong impact on the demand side of the market, with a switch from multi-generational households (with grandparents, parents, siblings, kids and grand kids) all living in a single 2 bed or 1 bed apartment, to a more nuclear (parents and kids only) type of family housing. This growth will of course be dependent on the growth of a mortgage market over the coming years, something that will signal the real start of an active real estate market for the population as a whole, making real estate investments accessible to a much wider section of the population.

Mark: That’s important to point out. This boom is cash-driven, there are really no mortgages to speak of in Mongolia.

Chris: Right, not yet, at least not in the sense that we’re used to in the West.

The next point is that Mongolia is restricted in its infrastructure development.

Ulaanbaatar was built for 300,000 people by the Soviets. Today its ailing infrastructure is supporting 1.2 million people. Infrastructure is crumbling across the city and the government is doing no where near enough, not only to expand the infrastructure network (sewers, water, electricity, roads etc…), but it is not maintaining what currently exists.

This means that land outside of the current city infrastructure limits is essentially worthless. This in turn is driving up prices of land within the city limits and also the cost of construction. As long as we invest in the city centre or areas connected to infrastructure, demand on those areas will continue increasing exponentially.

Despite Ulaanbaatar being surrounded by thousands of miles of steppes, it is essentially an island like Hong Kong, and should be thought of as such. If you want to build on water (in UB’s case on land with no access to infrastructure) fine, but the costs of doing so will be a multiple of building within city limits.

Then there are really low taxes and no restrictions.

With no capital growth tax, no stamp duty and only 2% income tax, Mongolia is essentially a tax heaven when it comes to Real Estate investments. Further to that, there is no restrictions on foreign ownership of real estate assets nationally (apart from land), this is unique in Asia, and a big growth factor as it allows foreign entities to invest without penalties in such a strong market.

Like I said a moment ago, Mongolia is still mostly cash purchases, with very little of the market mortgaged. With only 9% of the Real Estate market as a whole currently mortgaged, we still have a long way to go before we enter any sort of bubble territory.

This is possibly one of the strongest fundamentals that we are seeing in the market today, the math is simple: 1.2 million people in the capital, of which 700,000 live in the ger district, but are keen to upgrade their lifestyle (from outdoor toilet – painful when it is -40 outside – to indoor toilets and running hot water), and the remaining population are all crammed into barely 116,000 residential units, few of which are of good quality. Look at this alongside a national residential supply of barely 8,000 units a year, of which only 2 to 3 thousand are actually decent quality, and located within the city centre limits. This is nothing, and it will be pushing capital growth for years to come.

All of this to say that while we have seen amazing growth in the market over the past 5 years, bear in mind we started from absolute ZERO, and are now reaching a slightly more mature and normal market. It is still filled with opportunities in the right sectors.

A lot of the major risks that investors such as myself had in the early days are today gone, with enormous opportunities left for new investors. I think that we will see 3 to 5 years of strong growth pushed by the dynamics described above, with a potential for the markets to peak in 7 or so years and then stabilise at that point. So, overall it’s a great time to enter the markets.




China Commodity Updates

– Bank of China International (BOCI), the investment banking subsidiary of the Bank of China Ltd <601988.SS> <3988.HK>, is on track to become the first Chinese member of the London Metal Exchange – giving the bourse a boost while it is considering possible takeover bids – following authorisation by the UK financial regulator.

– The global zinc market could shift into a supply deficit as early as 2016 as impending closures at a number of larger mines tighten the grip on an already constrained concentrate market, China’s Minmetals Resources <1208.HK> CEO said in an interview on Monday.
– China Nickel Resources Holdings Co Ltd <2889.HK> said its unit Zhengzhou Yongtong Special Steel Co Ltd has agreed to transfer its 51 percent equity interest in Luoyang Yong’an Special Steel Co Ltd to Luoyang Anhui Trading Services Centre for 1 billion yuan as it relocates its production facilities. Luoyang State-owned Assets Supervision and Administration Commission will transfer its 49 percent equity interest for 950 million yuan.
– Vale SA <VALE5.SA>, the world’s second-largest mining company, said on Wednesday that fourth-quarter net income was $4.67 billion, in line with the average estimate of 11 analysts surveyed by Reuters

China Market Wrap- 21FEB2011

 A shares
– Chinese banks are seen to be a focus after China’s central bank said on Saturday it would cut the reserve requirement ratio (RRR) for banks by 50  basis points, effective from Feb. 24.
– Pfizer <PFE.N> and Zhejiang Hisun Pharmaceutical <600267.SS> announce progress on potential joint venture to increase access to high quality branded generic medicines and signed a framework agreement to establish JV to develop and make off-patent pharmaceutical products in China, and global markets.
– Chinese cookware maker Zhejiang Supor Co Ltd <002032.SZ>, controlled by French home appliance company Groupe SEB <SEBF.PA>, said on Saturday that its products are safe, refuting media reports that its pans could cause health problems.VALE5.SA><6210.HK>, the world’s largest iron ore producer, said on Thursday it is selling 80 percent of its ore using spot prices, nearly completing a historic shift to market-based pricing for the principal raw material used in steel.
– The China Railway Materials Co Ltd (CRM) has delivered applications to China’s stock regulator for a dual initial public offering (IPO) in Shanghai and Hong Kong as early as July, the China Business News said on Monday. The A-share IPO aims to raise about 14.7 billion yuan ($2.3 billion) to boost its railway logistics, particularly steel transportation, capacity, establish new service outlets and improve information distribution, the newspaper said. No details were given about Hong Kong listing.
• H shares
– Wynn Resorts Ltd <WYNN.O> Chief Executive Steve Wynn upped the ante in his fight against former business partner Kazuo Okada, accusing the Japanese gaming mogul of improper payments to foreign gaming regulators and forcibly buying back his 20 percent stake in the casino company at a deep discount. 
– Chinese property stocks are set to be a focus. China’s home prices fell in January from December, marking the fourth monthly fall in a row and showing that a policy-driven property market downturn is deepening, which will add to worries about a hard landing in the world’s second-largest economy. 
– Hong Kong Exchanges and Clearing Ltd (HKEx) <0388.HK>, which operates the Hong Kong bourse, was among bidders for the London Metal Exchange (LME), looking to expand beyond its main business of equities and into commodities trading, the South China Morning Post reported on Saturday citing two unnamed sources.
– CITIC Pacific <0267.HK> said its unit Sino Iron will pay an additional $822.1 million to MCC Mining (Western Australia) Pty Ltd, a unit of Metallurgical Corporation of China Ltd, for the completion of the first two production lines and the common facilities for the whole six production lines. 
– China Shenhua Energy Co Ltd <1088.HK> said its commerical coal production amounted to 26.3 million tonnes in January, up 22.3 percent from a year ago period, while coal sales fell 15.4 percent to 23.6 million tonnes.  the world’s largest iron ore producer, said on Thursday it is selling 80 percent of its ore using spot prices, nearly completing a historic shift to