China week in review
China and Taiwan took an important step on the road to opening up their financial markets, and China is to address industrial overcapacity
China and Taiwan sign MOU to open up financial services markets
After months of negotiation, a memorandum of understanding (MOU) was finally inked between China and Taiwan, which promised to given green light to a wide range of financial activities previously deemed impossible. The MOU will be effective in mid-January 2010.
The signing of the MOU is a major positive to the Taiwan stock market. Under the agreement, Chinese asset managers that are authorised to invest in overseas markets (Qualified Domestic Institutional Investors, or QDIIs) will be able to invest up to 10% of their money in stocks listed on the Taiwan Stock Exchange. This means that Chinese QDIIs can potentially invest as much as $1 billion into the Taiwanese market starting next year.
The agreement will also open up the Chinese mainland market to Taiwanese banks and insurance companies, allowing them to set up branch offices to access the growing Chinese market. Initially these banks will focus on Taiwanese companies that have substantial operations in the Chinese market. It is unclear whether these Taiwanese banks will be able to extend loans in the Chinese Yuan. Banks and insurers from the Chinese mainland should also benefit from the MOU, but to a less extent, since the Taiwan market is relatively small and saturated. Of the major Chinese banks, Bank of China appears to be the most enthusiastic about building its presence in Taiwan. It has already established relations with a dozen major Taiwanese firms such as AU Optronics and AOC Monitor.
Market recap
China did not budge on currency appreciation this week, despite the
official visit from the US President. The official economic planning
body stepped on the brake for new capacity in the cement and glass panel
industries, raised electricity rates for non-residential uses and
signalled support for the renewable energy sector. These moves were well
received by the market. Over the past week, the Shanghai Composite Index
increased 3.8% to 3,308 points, while the Shenzhen Composite Index grew
3.3% to 13,695.
Macro and industry updates
China to address overcapacity in cement and glass panel sectors
China officially announced a freeze on new capacity in the cement and glass panel industries, which were highlighted by the government as having overcapacity issues back in September. In the cement industry, for instance, statistics indicate that China is currently building over 400 new production lines, with a further 147 in the pipeline. If all these capacities were allowed to be built, supply will outstrip demand by 70%.
Third-quarter mobile handset sales rose 11.7% year over year
More than 39 million mobile handsets were sold in the third quarter, up 11.7% year over year and 18.7% sequentially. GSM phones still dominated the sales, with an 81.2% share. CDMA phones accounted for 16.3%, while 3G smart phones were a mere 2.5%, or less than 1 million units. Although all three mobile carriers have officially launched 3G services, the uptake of such services has been low due to high prices of smart phones and a lack of attractive 3G applications so far.
Auction for ad time slots on China's national TV in 2010 drew CNY 11 billion in contracts
As the most high-profile media outlet in China with national coverage, China Central Television (CCTV) is a prime advertising vehicle for companies, and its auction for ad time slots is closely watched as a barometer for business confidence. For 2010, CCTV has signed contracts worth CNY 10.97 billion, up 18.5 % from 2009. According to research firm GroupM, food and beverage, alcohol and financial services accounted for 46.5% of the total ad spend with CCTV.
Consulting firm BCG said China had 417,000 million-dollar households in 2008
BCG further forecasts that Chinese households with at least $1 million in net worth will grow by 8.6% to 453,000 by 2009 and to 788,000 by 2013. Although these households account for less than 0.1% of the total in China, they control over 45% of the wealth in the country, the BCG research found.
Contributions from Lun Lu and Iris Tan.
