Highlights from the EO print edition, No. 623, June 17, 2013
Steel Companies Feel Expansion Hangover
Page 1, News
~ The Caofeidian Base (曹妃甸基地) was once one of the most famous steel plants in China. But now it's become a burden for Tangshan Iron and Steel Group (唐山鋼鐵集團(tuán)).
~ Senior managers are worrying about the 13 billion yuan they invested in the project. Over the past four years, it's lost 10 billion yuan.
~ It seems the steel industry's golden age has passed, and it's now time for steel giants to pay their debts. Tangshan Iron and Steel Group borrowed 13 billion yuan and spent all of it on the Caofeidian project. At the end of 2012, it owned 15 billion yuan to banks. A senior manager at the company said in early June that its workers had all left the project. Over the past four years, it's lost 10 billion yuan and cost Tangshan Iron and Steel Group 7 billion yuan.
~ The steel industry slump has caused losses for many other companies, like CITIC Pacific, which has undergone extensive expansion efforts in recent years. "We made 2.6 million tons of special steel last year, but only got orders for 1.5 million tons," a source in the company told the EO.
~ Unlike common steel, special steels are normally sold directly from manufacturers to customers, and rely more on orders from clients. "To be honest, we need time to achieve growth in sales and client numbers," the company source said.
~ Despite its problems, the source says CITIC Pacific is still optimistic about the special steel industry. "Special steel is only about 8 to 10 percent of the whole industry in China," he said. "The rates in developed countries are about 20 percent. Therefore we think there's potential in this field."
~ These heavy investments and over-expansions are ultimately rooted in government policy. According to a senior manager at Tangshan Iron and Steel Group, state-owned steel companies were asked to invest and expand in recent years. "The government should make strategic industry plans, but not get involved in individual projects," he said. "Those are better controlled by companies."
Original article: [Chinese]
China's Economy Remains in the Doldrums
News, page 6
~ Following the release of key economic data for May over recent days, most market economists are predicting that GDP growth in the second quarter will be slower than the 7.7 percent pace over the first three months of the year. Though there has been a rise in the number of people calling for the central bank to lower interest rates, the chances of this happening in the short-term are slim. Most economists agree that for the time being China will not loosen its policy settings.
~ The lower than expected Producer Price Index (PPI) readings, a measure of inflation at the wholesale level, over the past two months is an indication that demand from producers has remained subdued despite April and May traditionally being a peak season for industry in China.
~ One of the factors that has pushed the PPI readings lower has been overcapacity in key sectors like steel, cement and machinery which, along with rising inventories, have put downward pressure on prices.
~ Though economists are calling on industry to reduce production capacity by getting rid of out-dated equipment, local governments are all trying to prevent factories or production lines that often function as pillar industries and key employers in their own regions from being shut down.
~ A government official from a city in the poorer southwestern province of Guizhou told the EO that local governments are willing to prop up local industry with support so that they can make it through this difficult period. Though the same official did admit that "the difficulties have lasted longer than we thought they would."
~ Aside from a weak PPI figure, the pace of growth in Fixed-Asset Investment (FAI) also slowed in May. The amount of funds being invested in real estate and new infrastructure, a traditional driver of economic growth, is also expected to slow in the second half of the year as financing avenues have been restricted.
~ Weak trade figures, though the numbers have been influenced by the recent crackdown on falsified trade data, also indicate the relative weakness of the domestic economy.
~ Despite the signs of slowing growth, many analysts say that the government had vowed to seek quality over quantity when it comes to economic growth and is unlikely to loosen policy settings in the near term.
~ That said, liquidity in the money markets has tightened and the amount of lending released in May was below economists expectations, which has led to calls to drop the benchmark interest rates. Wang Yang (王洋), An analyst from China Securities Co.,Ltd (中信建投證券), told the EO that even if the central bank was to lower interest rates, the situation in relation to local governments and state-owned enterprises getting access to loans ahead of private business and manufacturing would continue.
~ Another economist at CICC recently wrote a note that said the probability of the central bank lowering the Required Reserve Ratio (RRR), the amount of funds that regulators require banks to set aside, has increased but given the pressure from the real estate market, they weren't expecting a lowering of interest rates this year.
Original article: [Chinese]
Special Feature: Cross-Strait Relations - Seeking Equality
Nation, page 9-13
~ This week's Nation section features a feature exploring the nature of cross-strait relations and is timed to coincide with the Honorary Chairman of the Kuomintang (KMT) Party Wu Poh-Hsiun's (吳伯雄) visit last week. Journalists from the EO travelled to Taiwan to interview economists and politicians about how they saw the relationship developing.
~ One article looks at the restrictions placed on university students from the mainland who go to study in Taiwan.
~ There is an interview with Gao Konglian (高孔廉), the general-secretary of the Straits Exchange Foundation (臺(tái)灣海基金會(huì)) in which he calls for more economics and less politics in the relationship.
~ There is also an interview with Lu Yuexiang (盧月香), the chairwoman of the Chinese Production Party (中華生產(chǎn)黨).
Original article: [Chinese]
China's A-shares Plummet
Market, page 17
~ From a peak of 2,334 points on May 29, China's Shanghai stock index dropped by more than 200 points, more than 9 percent, over 9 consecutive trading days to close at 2,126 points on June 13.
~ Given ongoing concerns about liquidity in the money markets and a less-than-rosy macroeconomic outlook, the stock index is likely to continue to fall.
~ Though disappointing economic figures and concerns that new companies may once again be allowed to list on the domestic market may have lit the fuse, analysts say that underlying weakenesses are the real cause.
~ Domestic investors are now more likely to invest their funds elsewhere and market analysts predict that this trend of "marginalizing" the stock market is expected to continue for a while.
Original article: [Chinese]
Cellphone Producer Cancels China Mobile Deal, Calls it an "Evil Force"
Corporation, page 28
~ Meizu (魅族), a Chinese electronic products company, has cancelled the launch of its MX2 cell phone - a device specially designed for China Mobile. According to Meizu founder Jack Wong (黃章), the reason behind the cancellation was an unpleasant cooperation with China Mobile. Wong posted on a forum that the mobile telecom carrier was a "evil force" (惡勢(shì)力) in their relationship.
~ China Mobile has officially declined to comment, but sources within the company claim that the cancellation was a business strategy by Meizu aimed at getting attention.
~ On June 13, the day the MX2 was originally scheduled to launch, Meizu put a post entitled "Our Attitude" on its website saying, "We make products we truly like for people who also love them." Many internet users complained that China Mobile, the world's largest mobile telecom carrier with 700 million users, was bullying manufacturers like Meizu.
~ Wong has said that China Mobile made a series of requirements on his company like pre-installing "junk software" in its cellphones and deleting other functions. Wong said he'd rather stop the launch than compromise with the "evil force."
~ A senior manager at China Mobile Terminal Company (中國(guó)移動(dòng)終端公司), who spoke on the condition of anonymity, said they couldn't officially comment on the event since it would help Meizu's sales. He said the two companies simply failed to reach a deal on price. "We've made cellphones of the same quality as MX2 for half the price," he said, adding that Meizu wouldn't be able to survive long in such a competitive market. He also said that the pre-installed software Wong spoke of could be deleted and that China Mobile's software requirements are standard procedure internationally.
Original article: [Chinese]
