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Alibaba, the future is Aliyun

Alibaba, the future is Aliyun

At the start of the year Alibaba announced that they had crossed the RMB 3 trillion mark in gross merchandise volume (in excess of $450 billion USD). Founder and CEO Jack Ma has now announced that the company's dream is to reach 2 billion people around the world with his business and hit a transactional volume of $1 trillion. That would make them the equivalent of being the fifth largest country in the world by GDP.

 

 

Overview.

China's e-commerce market is dominated by Alibaba. Though the company operates through a unique combination of business models, Alibaba's core business resembles that of eBay. Alibaba acts as a middleman between buyers and sellers online and facilitates the sale of goods between the two parties through its extensive network of websites. The largest site, Taobao, operates as a fee-free marketplace where neither sellers nor buyers are charged a fee for completing transactions. Instead, the nearly 7 million active sellers on Taobao pay to rank higher on the site's internal search engine, generating advertising revenue for the company.

 

 

While the majority of sellers utilizing the Taobao website are smaller merchants, Alibaba also has a dedicated space for larger retailers: Tmall is the e-commerce site owned and operated by Alibaba that caters to well-known commercial brands that would normally operate on the high street. Even though Tmall has a fraction of the number of active sellers listed on Taobao, Alibaba is able to generate revenue from deposits, annual user fees and sales commissions charged to retailers utilizing the site.

 

 

In addition to its e-commerce sites, Alibaba has emerged as a player in the Chinese financial system. To combat customer concerns over the security and validity of transactions completed online, Alibaba created Alipay. As a secure payment system, Alipay protects buyers in the event sellers are unable or refuse to deliver goods sold. In addition to this platform, Alibaba also generates revenue from its newly launched micro-lending business arm that caters to individual borrowers.

 

 

The Alibaba Marketplaces

Alibaba's marketplaces are obviously their core revenue streams. As such, these will be the biggest drivers of growth. As of the most recent quarter, Alibaba had 423 million annual active buyers and 410 million monthly active users and transactional volume for the quarter was $115 billion - a 24% increase over the same quarter last year.

 

 

However the Chinese market is yet to be fully penetrated, by their own estimates they currently only reach about 55% of potential consumers. Furthermore it still does not have enough traction in international markets to claim the kind of long-term growth that they would require to become a truly global household name.

 

 

The future is Aliyun.

The next growth driver for the company is a brand that many do not recognise, but is nevertheless growing at a tremendous rate that may one day outdo its rivals: the cloud and specifically Aliyun Cloud. With data centers around the world having a first quarter of 2016 growth of 175% it is definitely a growing entity which Alibaba is well positioned to grow in part due to preferential government policy, regional focus and domain expertise. Aliyun certainly has the potential to become one of the growth drivers of Alibaba's future considering it currently accounts for less than 2% of its revenue.

 

 

Outlook.

The entire global market is potentially at their doorstep, not only for marketplace services, but also cloud capabilities. Not forgetting their other web and content properties like UCWeb with 400 million users, content distribution platform Youku Tudou (newly acquired) and web payment service Alipay, which has 400 million registered users and a transaction volume of $519 billion (as of 2015).

 

 

 

 

Goodbaby: baby boom

Goodbaby: baby boom

Established in 1989, Goodbaby Group is China's largest and the world's leading provider of infant and children's products such as strollers, car seats and child safety devices. Goodbaby is a professional production, manufacturing and design company with customers located in more than 70 countries and regions worldwide. According to a survey from Frost & Sullivan, in each sale of 1000 baby carriages in North America, Europe and China, 435 come from Goodbaby Group. In 2007, Goodbaby Group was listed as one of the `Top 50 Fastest-growing Companies in the World' by Boston Consultancy. Currently, the company owns four global R&D centers, 11 subsidiaries, has 35 branch offices and more than 13,000 employees worldwide.

 

 

Today they have over 3,200 stores in China, including multi-brand children's shoe stores, Mothercare shops and baby superstores, but this number is due to grow to 7,000 to 8,000 in the next few years in the wake of the relaxation of the One-Child-Policy.

 

 

The group has another listed company: Goodbaby International Holdings Ltd, which was floated on the Hong Kong stock market in 2010. It focuses on baby-care products design, production and sales, while Goodbaby China will sell those products in its network of shops.

 

 

Analysts believe China has more than 16 million to 17 million babies born each year adding that baby-related products had in recent years triggered a billion dollar market estimated $46.5 billion in 2016, involving both Chinese and Western players who needed to understand each market's specific needs.

 

 

To capture this opportunity Goodbaby launched a stroller called Pockit, able to be folded and carried onto passenger planes, which became an international best-seller. The group added two further brands it acquired in 2014: Germany's Cybex and US brand Evenflo. In particular to capture, the market for medium and high-end baby products.

 

 

Amongst Goodbaby`s leading competitors are:

Combi (Shanghai) 

Pigeon 

Procter & Gamble (China) Ltd. 

Zhejiang Beingmate Scientific Industrial Trading 

 

 

Rare-Earth Market: China monopoly?

Rare-Earth Market: China monopoly?

Most people have no idea what’s in an iPhone. Yttrium and praseodymium don’t exactly roll off the tongue, but they’re part of what make smartphones so small, powerful, and bright. These exotic materials are among the planet’s 17 rare-earth elements, and surprisingly, the soft, silvery metals are not at all rare. But they’re found in tiny concentrations, all mixed together, and usually embedded in hard rock, which makes them difficult — and messy — to isolate. In China, which mines 89 percent of global output, toxic wastes from rare-earth facilities have poisoned water, ruined farmlands, and made people sick.

 

 

Beyond high-tech gadgets, rare earths play a critical role in national defense, enabling radar systems and guided missiles. Ironically, they also power clean-energy technologies, such as wind turbines and electric cars. This year, global consumption is expected to be about 155,000 tons, far more than the 45,000 tons used 25 years ago. Demand will only grow — likely at an accelerated pace — as the world tries to rein in climate change.

 

 

At the moment, only China can satisfy that hunger. Yet in 2010, Beijing cut rare-earth exports by 40 percent — possibly to boost its high-tech sector — and cut off supplies to Japan over a territorial dispute. Its muscle flexing caused prices to soar, sparking new exploration for rare-earth deposits around the world. A boom in illegal mining in China has since driven prices back down, making it extremely difficult for non-Chinese mines to stay open or get off the ground. Nevertheless, the rest of the world hasn’t given up: There are currently 50 deposits at an advanced stage of development (see map below) that could someday challenge China’s dominance.

 

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Source:This article originally appeared in the July/August issue of  FP magazine.

Hanergy Solar Group (2016 Update)

Hanergy Solar Group (2016 Update)

Beijing based Hanergy is China`s largest, privately owned, producer of renewable energy. The group operates in the hydropower, wind power and the solar power fields, whilst it`s focus has now shifted towards the latter, the company has become the largest thin film solar panel producer in the world and has a presence in Europe, North America and Asia-Pacific. The company was featured in the MIT Technology Review’s “50 Smartest Companies of 2014” ranking,  due to its almost 1000 patents, mostly related to photovoltaic innovation.

 

 

Currently Hanergy’s installed capacity for hydropower exceeds 6 GW, whilst the same figure for wind power stands at 131 MW according to the company’s reports. The company also has the world’s largest, privately built, power station, Jin’anqiao. Its Wind power plants are in Jiangsu and Ningxia provinces.

 

However, today, the core business and focus of the company is the development and production of photovoltaic panels. Hanergy has made striking progress in becoming a global leader in the field, considering it only started the development of its photovoltaic arm 5 years ago. Local media in Guangdong, province where Hanergy launched its solar panel operations, coined new term – “Hanergy speed”. The company claims its annual capacity for producing PV panels is now over 3 GW, which would translate to 4 billions kWh of electricity annually. The group has signed construction agreements for solar power plants with a 4 GW total capacity in Inner Mongolia, Ningxia, Jiangsu, Hainan, Shandong, Hebei and other provinces, as well as in several European countries.

 

Hanergy focuses on thin film photovoltaic solar panels. Production line start-up costs are relatively high whilst efficiency is lower than traditional silicon panels, but the lower production costs and consistently improving transformation rate should increase thin film panels commercial attractiveness. Over supply in the solar industry forced numerous companies out of business, some of which were rescued by Hanergy Solar Group (HNS), in which Hanergy Group acquired a controlling stake in February this year.

 

Hanergy Group and Hanergy Solar Group have been aggressively expanding in both the domestic and international markets. It recently signed a partnership with IKEA, where it will furbish its retail stores with solar panels in the UK and China. Furthermore, by acquiring MiaSole and Global Solar Energy in the US and Solibro in Germany it has significantly strengthened its R&D capacity The latter has been working on improving conversion efficiency of Copper Indium Gallium and Selenium (CIGS) panels since the acquisition, with highest efficiency rate of patented panels being 15.5% conversion, while the latest lab tests are reaching 19.6% conversion: meaning about a fifth of sun’s radiation is being converted into electricity. Moreover, Hanergy has signed an agreement with Aston Martin Racing, and will explore possibilities of solar technology application in motorsports.

 

 

However, despite all positive news, Hanergy’s future plans seem to be both risky and reliant on Governmental patronage. The group’s investments into wind and solar farms are only 30% - 40% funded by the Hanergy itself, the rest of the capital usually coming from local governments. If Hanergy fulfills its expansion plans, it will have a solar panel production capacity of around 6.6 GW, while globally added capacity was just less than 40 GW last year, with a quarter of it coming from China. It believes that its markets success is dependent on it`s development and delivery to customers of its latest CIGS panels and considering Hanergy does not currently figure among the top sellers globally, all will indeed depend upon the volume of its CIGS panels shipped to end users.

 

 

Hanergy launches full-solar-power vehicles with daily range of 80km (2016 Update)

 

 

Hanergy Board chairman & CEO Li Hejun launched 4 new fully solar powered vehicles. The new series of vehicles includes the Solar O, Solar L and Solar A and sports car 'Hanergy Solar R” each targeted at different groups of users.

 

 

With a solar energy conversion rate of 31.6%, Hanergy's gallium arsenide (GaAs) dual-junction solar cell was awarded with a World Record Certificate by the World Record Association at the launch event. Previously, on 5 January, the technology had been recognized by the US National Renewable Energy Laboratory (NREL) for its record efficiency.

 

 

The four new full-solar-power vehicles are integrated with flexible, highly efficient GaAs solar cells, maximizing the area covered (3.5-7.5m2). Through a series of precise control and managing systems (including a photoelectric conversion system, an energy storage system and an intelligent control system), the zero-emission vehicles use solar energy as the main driving force. With 5-6 hours of sunlight, the thin-film solar cells can generate 8-10kW-hr of power per day, allowing the vehicle to travel about 80km (equivalent to over 20,000km annually), and hence satisfying the requirements for city driving under normal circumstances.

 

 

Users can manage different travelling and weather modes in a real-time, mobile, networked and smart way, selecting charging modes in accordance with varied weather conditions through Apps on their mobiles. In everyday-use mode, the vehicles can charge themselves with solar energy while traveling, making 'zero charging' possible for medium- and short-distance journeys. So, unlike traditional electric vehicles, the full-solar-power vehicles hence no longer need to rely on charging posts, eliminating the concept of 'distance per charge'. For weak sunlight or long-distance travel, the lithium batteries in the vehicle can get power from charging posts, enabling them to travel a maximum of 350km per charge.  

 

 

Hanergy claims that the four new vehicles are the first full thin-film solar power vehicles that can be commercialized, breaking the bottleneck of poor practicality of previous solar-powered vehicles. The firm has also signed a framework agreement with Foton Motor to cooperate on developing clean energy buses.

 

Enstrusted lending in China: a shadow...

Enstrusted lending in China: a shadow banking primer

By Luke Deer

 

Entrusted lending became the second largest source of financing in China in 2013 after bank loans and the largest shadow lending channel. This article explains the entrusted lending channel, looks at why it grew and at how recent changes to inter-enterprise lending rules may impact on entrusted loans.

 

 

Entrusted lending is a unique feature of shadow banking in China.  The ‘entrusted loan’ (委托贷款) channel was set up after a 1996 People’s Central Bank regulation which prohibited direct lending between non-bank entities, primarily between enterprises but also by government entities.

 

 

The first decade and a half of reform and opening after 1979 opened up informal non-bank financing activity on a large scale.

 

 

Together with widespread capital and goods shortages, the effect of these reforms by the late 1980s was a stop-start inflationary growth cycle at the macro-level, a crisis in profitability in the state-owned enterprise system and a major non-performing loan problem in the bank system.

 

 

China’s authorities’ were therefore seeking to bring non-bank financing channels under control. But legally choking off direct all forms of non-bank lending posed a problem for ‘legitimate’ financing and liquidity management, particularly among corporate affiliates and from local government financing entities.

 

 

Thus the ‘entrusted loan’ channel was set up as an official work-around to allow non-bank institutions to lend to each other indirectly via the official banking system.

 

 

Moreover, until very recently, China’s central bank, the Peoples’ Bank of China (PBOC) had sought to conduct monetary policy by directly controlling monetary aggregates through lending targets–and the ‘entrusted loan’ channel allowed the the PBOC to account for non-bank lending activity via the banking system.

 

 

Under the ‘entrusted loan’ facility banks conduct an agency businesses to facilitate loans between corporate and other non-bank entities for a fee.

 

 

Formally, the non-bank enterprise lender retains the risk on the principal and interest of its loan to its designated borrower and the banks get the right to fee income from the ‘entrusted loan’. But banks and non-banks entities could also use the entrusted loan channel to circumvent regulatory restrictions.

 

 

Until September 2015 regulators had sought to manage bank balance sheet risk by enforcing a 75 percent loan to deposit ratio, which stipulated that banks could not loan more than 75 percent of their deposit base. Because ‘entrusted loans’ do not appear as loans on bank balance sheets’ and are treated as an ‘other investment asset’ banks could use ‘entrusted loans’ to circumvent the 75% loan to deposit ratio by using the ‘entrusted loan’ channel.

 

 

The attempt by China’s monetary authorities to reign in bank lending between 2010 and 2013 led to a sharp growth in alternative balance sheet lending strategies by the banks, primarily through entrusted lending but also through issuing bankers’ acceptances.

 

 

As Chen et.al (2016) explain in a recent paper, monetary tightening between 2010 and 2013 led to a worsening LDR ratio for banks, especially for smaller second banks who were more easily squeezed by falling deposits.

 

 

It was these banks who turned aggressively to alternative lending strategies, such as ‘entrusted lending’ to mitigate regulatory risk of their worsening LDR ratio.

 

 

Banks could also trade ‘entrusted loan’ assets on the inter-bank market, and this provided further incentives for enterprising banks to build ‘entrusted loan’ businesses.

 

 

The result, according to Chen et.al (2016), was that “the share of entrusted loans in the sum of entrusted lending and bank lending tripled during the monetary tightening period [from 2011 to 2013].”

 

 

While entrusted lending could provide corporate and other non-bank affiliates with a liquidity and investment facility, entrusted loans could be used to lend to non-affiliates at interest rates above the prime lending rate to restricted industries as well for purely speculative financial investments.

 

 

From 2005 to 2010 the China Banking Regulatory Commission and the State Council passed a series of increasingly stringent restrictions on bank lending to overcapacity, polluting and ‘risky’ industries – especially real estate related sectors.

 

 

However, ‘entrusted loans’ did not count as bank loans so they could be used to circumvent lending to restricted industries.

 

 

The entrusted loan channel could also be used by companies with good access to official credit channels, such as large publicly listed enterprises and local State Owned Enterprises, to borrow at low cost from the banks and to lend at high interest rates to non-affiliates in restricted sectors.

 

 

For mature firms facing slowing growth, increased credit during the stimulus failed to offset the declining returns on investment in their core businesses, and instead they turned to speculative investment through high interest rate lending, including financing positions in the stock market.

 

 

A recent paper by Yan et.al. (2015) found that speculative lending through the entrusted loan channel was more common among publicly listed mature firms with lower growth opportunities, particularly where their earning capacity was below the prime lending rate.

 

 

While the growth of entrusted lending has attracted scrutiny, there has been little firm evidence about the the extent of speculative lending through the entrusted loan channel.

 

 

However new data reported by Chen et.al (2016) concludes that: “more than 60% of the total amount of entrusted loans was channelled to the risky industry between 2007 and 2013; out of these risky entrusted loans, 77% was facilitated by commercial banks.”

 

 

Recent policy moves may reduce ‘entrusted lending’

The entrusted loan channel was continued to grow in 2014 before eventually provoking a response from the authorities.

 

 

In January 2015, the CBRC brought in 5 restrictions on ‘entrusted loans’ designed to mitigate speculative investment though this channel by requiring that ‘entrusted loans’ only be used for lending to the ‘real economy’ purposes–and not for investing in stocks, bonds and other purely financial instruments.

 

 

Two further decisions in by the authorities in China may see a declining role for the entrusted loan channel.

 

 

First, as part of a wider shift in China’s monetary policy framework away from controlling credit aggregates, the loan-to-deposit restriction was removed by an amendment to the Law on Commercial Banks passed by the National People’s Congress Standing Committee in August 2015.

 

 

According to the CBRC spokesperson, the LDR ratio had been set up “to control liquidity risk” but it now longer fitted the reality of more diversified bank balance sheets and would instead be used as a ‘a liquidity monitoring indicator’.

 

 

The LDR ratio became a reason for banks to engage in regulatory arbitrage — and by removing the LDR ratio, banks would no longer be as constrained by the composition of the assets they could hold on their balance sheets.

 

 

Then, in October 2015, the Supreme People’s Court (SPC), ruled that direct inter-enterprise lending for ‘real-economy’ purposes would also be allowed between non-bank entities–removing the restriction on direct lending between non-banks which had been in place for nearly 20 years.

 

 

The SPC ruling on inter-enterprise lending was also subject the same 5 restrictions as had previously been applied to entrusted loans in January 2015, including the stipulation that loans must be for ‘real economy’ production and business activities.

 

 

The move towards an increased role for direct lending also fits the authorities desire for a more asset-based growth strategy.

 

 

Opening direct lending channels between enterprises will allow corporate affiliates to circulate working capital more easily, but it is not clear how the restrictions on types of allowed lending will be enforced by the courts.

 

 

Non-bank entities can go to the courts if their loan contract is breached, but they are unlikely to do so if the loan was used for investment in restricted industries or for purely speculative financial investments, which are explicitly prohibited loan use purposes under the SPC ruling.

 

 

The ‘entrusted lending’ channel will remain, but the incentives for using it are reduced because because corporate affiliates can now legally lend to each other directly and bank lending is not subject to the 75% loan-to-deposit restriction.

 

 

However, the extent to which the the ‘entrusted loan’ channel will be by-passed remains to be seen.

 

 

While enterprises can now legally engage in direct lending, finding partners and enforcing contracts can be costly and banks and other other financial institutions have an incentive to engage in the match-making inter-enterprise loans for fee income.

 

 

The opening of legal direct lending between enterprises also means we can expect more complex structured financing deals to be a growing feature of China’s financial system.

 

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This article was originally published in Frontiers of Finance in China

Luke Deer is a post-doctoral researcher at the University of Sydney and a Research Associate with the University of Cambridge Centre for Alternative Finance and with the Cambridge Judge Business School. Luke researches alternative finance in China and the Asia Pacific--with a focus on peer-to-peer lending and crowdfunding, and on financial innovation and central banking in China.

China, the Green Energy Superpower

China, the Green Energy Superpower

Investment in green energy is on the rise, and a world powered entirely by renewables is no longer a distant dream. It is the developing countries however, and China in particular, that is driving this green revolution. And these charts, from the REN21 Renewables 2016 Global Status report and the United Nations Global Trends in Renewable Energy Investment 2016 report, show how China is paving the way to a clean energy future.

 

 

 

 

1. China has the highest capacity for renewable power production

This chart shows the leading role China is already playing in the green revolution. It currently makes up about a quarter of the global capacity for renewable power, predominantly through wind power.

 

 

2. China takes the lead in wind power production

China is also the country with the most wind power capacity, and its lead over the US, in second place, increased by over 30 gigawatts in 2015.

 

 

3. Solar power is booming in China

The year 2015 saw huge growth in China’s solar power production. It moved into first place, ahead of previous solar leader Germany.

 

 

4. China is the biggest investor in renewable energy

In 2015, China had the biggest financial commitment to renewable energy, investing over $100 billion, an increase from $3 billion just over 10 years ago.

 

 

5. China helped push developing countries into the lead

Globally, $286 billion was invested in renewable power and fuels (not including hydro power) in 2015, and for the first time the developing world invested more than developed countries.

 

 

Source: World Economic Forum

New Pollution Action Plan for China

New Pollution Action Plan for China

A new set of Environmental regulations on air, water and soil pollution have recently been announced by China`s State Council: the Soil Pollution and Prevention Action Plan (also know as Soil Ten an “extension” of the Water Ten Plan). The plan outlines 10 headline actions split into 35 categories and 231 specific points aimed at making 95% of currently contaminated land fit to reuse for either agricultural purposes or urban development by 2030.

 

 

The first national survey on soil quality, released in 2014, showed the gravity of soil pollution. More than 16 percent of the samples taken nationwide were contaminated by heavy metals. Moreover, contaminants were discovered in 19.4 percent of surveyed farmland, 10 percent of forests and 10.4 percent of grassland.

 

 

Key targets:

  • To curb worsening soil pollution by 2020, and control soil pollution risks by 2030, with the aim to create a virtuous cycle in the ecosystem by 2050.
  • To ensure that over 90% of contaminated land can be utilised safely by 2020, and to increase this to 95% by 2030.
  • Using the next 2-3 years to focus on large-scale monitoring and finalising plans & laws; reining in chemical industries & heavy metals are key.

 

 

Soil pollution is the most difficult to tackle amongst soil, water and air; plus possibly the most expensive. Also, it is not possible to tackle soil pollution without addressing water pollution. Untreated wastewater can contaminate soil and conversely pollutants in soil can be washed into surface & groundwater sources contaminating them.

 

 

From the key actions to be taken, the government is signalling that it only intends to get a handle on the total area of contaminated farmland by 2018 and to only establish soil prevention & control related laws by 2020. The Soil Ten Plan singles out 8 specific industries:

 

 

  1. Non-ferrous metal extraction & processing
  2. Non-ferrous metal smelting
  3. Oil exploration
  4. Petroleum processing
  5. Chemicals
  6. Coking
  7. Electroplating
  8. Tanning

 

 

Action timeline:

  • By 2016, local governments need to finalise detailed work plans for submission to the relevant ministries;
  • By 2017, to set up national-level soil environmental quality monitoring points and monitoring networks;
  • By 2017, provincial soil remediation planning to be finalized and soil remediation result assessment methods to be issued;
  • By 2018, to finalise investigation of total area of contaminated farmland and assessment of impacts on agricultural products;
  • By 2020, soil environmental quality monitoring points to cover all the cities and counties; and
  • By 2020, to establish soil pollution prevention & control related laws and regulation system.

 

 

However one glaring challenge in the plan it the relatively limited number of  domestic companies with both the experience and infrastructure to clean contaminated land. Foreign companies with the required technologies are already involved in China, albeit participating in pilot projects funded by the World Bank or other international funds.

 

 

Analysts have estimated that the soil remediation market could be worth anywhere from RMB1-5 trillion, but authorities have struggled to determine who should pay for rehabilitating contaminated land. Many of the inland provinces targeted are not as rich as coastal regions and much of the responsibility for the costs now lies with relatively impoverished local governments.

 

China- Pakistan Energy projects reaching...

China- Pakistan Energy projects reaching fruition

The China- Pakistan Economic Corridor (CPEC) is now gaining momentum with the completion of phase 1 of a 300-megawatt solar photovoltaic power plant. Financed by the Export Import Bank of China and built by Chinese energy conglomerate Zonergy Co, has been connected to the grid in the Punjab Province of Pakistan at the Quaid-e-Azam Solar Park in Bahawalpur. A major milestone in the economic cooperation between China and Pakistan: this is the first phase of the 900MW plant that is to be the world's largest single photovoltaic power station. When completed (est. late 2016) the solar power station, will save 394,000 tons of standard coal and reduce 826,000 tons of carbon dioxide emissions every year.

 

 

The CPEC, a 3,000-km network of roads, railways and pipelines linking Kashgar in northwest China's Xinjiang Uygur Autonomous Region and southwest Pakistan's Gwadar Port, is also a major project of the "Belt and Road" initiative. Pakistani officials predict that the project will result in the creation of upwards of 700,000 direct jobs between 2015–2030, and add 2 to 2.5 percentage points to the country's annual economic growth. In addition to the Zonergy project, a number of new energy projects are being currently constructed by Chinese companies. In total over 10,400MW of energy generating capacity is to be developed between 2018 and 2020 as part of the corridor's fast-tracked "Early Harvest" projects in conjunction with the Bahawalpur PV plant.

 

 

The 1.65-billion USD Karot hydropower plant, the first investment project of the Silk Road Fund, is being developed by the China Three Gorges Corporation. Construction of the 720 MW project has begun and is expected to be put into operation in 2020.

 

 

The Port Qasim coal-fired power plant, is being constructed by Powerchina Resources Limited. The 2.085-billion USD project is due to be operational by the end of 2017.

 

 

SK Hydro Consortium is constructing the 870 MW Suki Kinari Hydropower Project in the Kaghan Valley with financing by China's EXIM bank.

 

 

The Jhimpir Wind Power Plant, built by the Turkish company Zorlu Enerji has already begun to sell 56.4 MW of electricity to the government of Pakistan, though under CPEC, another 250MW of electricity are to be produced by the Chinese-Pakistan consortium United Energy Pakistan.

 

 

Back to Coal

Despite several renewable energy projects, the bulk of new energy generation capacity under CPEC will be coal-based plants, with $5.8 billion worth of coal power projects expected to be completed by early 2019 as part of the CPEC's "Early Harvest" projects.

 

Mongolia - China relations

Mongolia - China relations

Mongolia’s economic potential is significant, with vast deposits of copper and coking coal situated close to its main market in China: according to World Bank estimates, Mongolia's economy in the coming decade will grow on average at 15 per cent. However, this potential is vulnerable as the country is increasingly reliant on two main commodities being exported to one country, making Mongolia susceptible to external shocks such as changes in commodity prices and demand in China. According to 2015 data from Trading Economics, China accounts for 89 percent of Mongolia’s exports and 26 percent of its imports and so the slowdown of the Chinese economy is of critical significance to Mongolia. Charting a course for the country from mineral wealth to long- term sustainable and diversified growth is a key task facing Mongolia.

 

 

Despite 70 years of Soviet domination, the majority of Mongolians today consider China a greater threat than Russia to its national identity and sovereignty. Although China is by far the bigger trade partner, Russia remains the more popular of its neighbors, however this might be changing.

 

 

The “Third Neighbor Policy” of building economic, political, social and military relations with outside countries, the United States foremost among them, speaks directly to Mongolian concerns about the influence of its neighbors. In the past the government has tried quietly to maintain as pragmatic an approach toward China as possible (despite strong public opinion to keep its distance). On Xi Jing Ping`s last visit in 2014, bi-lateral relations were upgraded to a “comprehensive strategic partnership”, and this has seen a distinct ramp up in Governmental relations.

 

 

Speaking of Xi JingPing`s visit, President Ts.Elbegdorj confirmed his satisfaction with the steady development of relations regarding the economy, culture, education, and humanitarian work and expressed the hope that the visit would serve as a “push to deepen the full strategic partnership between Mongolia and China.” Communications between Mongolia and China immediately dramatically increased, not only between citizens of both countries in the context of cultural exchanges, but also at the highest levels: President Ts Elbegdorj was in contact with Xi Jinping 5 times in 2014, and 3 times in 2015.
 

 

Infrastructure development.

Mongolia is keen to use China's rail network to deliver coal and other minerals to other markets as well as turning Mongolia into a "transit corridor" linking the Chinese and Russian economies. Integration of the Mongolian Steppe Route infrastructure project into the Chinese One Belt, One Road project in order to enhance cooperation in the field of agriculture and the creation of conditions required for increasing the export of Mongolian meat and meat products to China are well under way.

 

 

2014 saw a MOU for a high speed rail line project linking Beijing and Moscow through Mongolia signed by Russia and China during a visit to Moscow by the Premier of the PRC State Council Li Keqiang. This new passenger train project would reduce the 7000 km journey from 6 days to 2.

 

 


Growing debt crisis.

 

 

When a new Mongolian coalition government took office in 2012 facing extremely favorable economic conditions, including high mineral prices and strong demand from China. Gross domestic product had grown by 17.3% in 2011 and by another 12.3% in 2012. The mineral-rich country’s prospects were bright, however due to irresponsible borrowing (rapidly expanded spending on housing, government salaries, social welfare and pensions) over the last four years Mongolia now faces a debt crisis.

 

 

Mongolia became a significant global issuer of commercial paper. Between 2012 and June 2016, the government raised $3.6 billion, roughly one-third of GDP, on global bond markets, paying high interest rates. Adding in the swap arrangements with the Chinese central bank and other loan guarantees, Mongolia’s external debt position by 2015 became highly precarious, with total debt of more than 70% of GDP.

 

 

Coinciding with a continued collapse in foreign investment and a steady decline in global mineral prices due to China’s slowdown Mongolia’s growth has slowed sharply to 2.3% in 2015 and is likely to be zero or negative in 2016.

 

 

Looking to the future, three distinct possibilities arise:

 

Regional Renaissance: North-East Asia becomes more politically integrated, with strong economic growth. This
 gives Mongolia the opportunity to sell
 its main minerals and achieve economic diversification, and the challenge of managing export revenues in a way that prevents economic overheating and social unrest. The sector already accounts for
nearly 90% of the country’s exports and the foreign direct investment (FDI) it attracts amounted to nearly 50% of government revenues

 

 

China Greening: A revolution in environmental attitudes sees China lead the way in the “circular economy” and pioneering new products and services. This reduces demand for Mongolia’s main minerals, but opens up new opportunities to diversify into green products and services. Being next door to the world’s largest market presents a tactical advantage and tremendous opportunities, but also means the country’s economic performance is tightly coupled with that of China. This makes it important for Mongolia to understand emerging developments in China and what trade and investment opportunities they raise.

 

 

Resource Tensions: Geopolitical tensions ravage the region; natural resources are used for political leverage, making trade difficult. Mongolia struggles to access finance and markets for its minerals and to pursue diversification opportunities, but this scenario presents opportunities to carve out a role as a neutral and respected neighbour.

 

 

Mongolia’s newly implemented ‘third neighbor policy’ is one of the more innovative foreign affairs approaches in the country’s history. As the global political sphere changes rapidly, Mongolia’s political stability, economic developments, non-traditional national security environment, and far-sighted foreign policy strategies are crucial for continuing its democratic transition and keeping up with new developments in the Asia-Pacific

Reshaping the automobile market in China...

Reshaping the automobile market in China: digitisation

For many years, foreign manufacturers experienced record growth in China. But those days are over: last year, all major car makers reported slower growth in the world’s largest car market. China’s economic slowdown can only partially explain this phenomenon. The other reason is that local car brands have become serious competitors. Furthermore the rapidly proceeding digitisation of cars and traffic systems in China could amplify this trend.

 

 

Companies and policy-makers in China are promoting vehicle connectivity as ‘the Internet of Vehicles’. This concept covers all forms of vehicle integration within a digital infrastructure, including communication between:

  • A vehicle and its driver (or driver’s mobile)
  • Several vehicles
  • Vehicle and intelligent transportation systems
  • Vehicles and the internet
  • Vehicles and mobile networks
  • Vehicles and satellites (satellite navigation)
  • Car-related online services (pay-as-you go insurance).

 

 

Internet companies such as Baidu, Alibaba and Tencent dominate the Chinese internet and are key sources of impetus in driving the development of an Internet of Vehicles. Chinese smartphone manufacturers are the second driving force behind this trend. Xiaomi, LeTV, Huawei and ZTE have all discovered the automotive sector and re also committed to enhancing connectivity in the automotive sector.

 

 

Lastly state-owned companies are exploiting vehicle connectivity to consolidate the position of China’s Beidou satellite navigation system in the transport sector. Their long-term plan is to drive the American Global Positioning System (GPS) out of the market.

 

 

The companies involved in these new developments are all competing with each other, as they share a common goal: to design a digital ecosystem for connected cars that will provide them with a sales market for their own distinctive services and technologies and enable them to be independent of foreign suppliers and patents. They collaborate closely to this end, building cross-sector alliances where expedient. A lively network of powerful Chinese companies has thus emerged since the start of 2015, all of whom are working together to set up an Internet of Vehicles.

 

 

The Chinese Government is attempting to steer the development of the automotive sector through two fields of technology that have not been dominated by international players yet: e-mobility and the Internet of Vehicles.

 

 

Chinese car manufacturers have dominated the domestic market up till now, achieving a market share of around 75 per cent in 2015.2 A co-ordinated programme for promoting e-cars produced in China along with massive expansion and standardisation of battery-recharging facilities have helped to fuel this development.

 

 

The Internet of Vehicles represents a continuation of this strategy by the Chinese Government: they support Chinese companies in the digitisation of the automotive sector in the hope of securing them a competitive edge. Automotive companies are not the only ones to benefit, though: a number of other strategically important industries are also profiting, including the internet, information and communications sectors, quite apart from Chinese software makers. The Ministry of Industry and Information Technology (MIIT) is currently devising a strategy to promote the Internet of Vehicles as part of the 13th five-year plan (2016–2020).

 

 

Creating a competitive advantage for Chinese businesses, Beijing is no longer prepared to bow to international IT standards, patents and associated license fees, but would like to see Chinese standards adopted internationally instead. This applies to hardware and software systems for intelligent transportation systems as well as for satellite navigation and telecommunications infrastructure.

 

Source: Mercator Institute for China Studies

China State Construction Engineering...

China State Construction Engineering Corporation

China State Construction Engineering Corporation Limited (CSCEC) is China’s largest construction and real estate conglomerate. It is a public company listed on the  Shanghai Stock Exchange and ranked 37th among Fortune Global 500 companies in 2015.

 

 

Specializing in building construction projects, real estate development and investment, infrastructure construction and investment, as well as design and surveying operations. The Company’s main business activities comprise construction of residential projects, undertaking of municipal public works, road works and building construction works; undertaking of airports, housing, roads, bridges, water supply, medical facilities, hotels and tourism, government projects and sports facilities and other projects; real estate development activities; construction of highway, railway, municipal, energy, petrochemical, water, environmental protection and telecommunication projects and other infrastructure works, as well as architectural design, urban planning, engineering investigation, municipal public work design business, among others. Established in both domestic and international markets, China Construction operates in more than 20 countries and regions around the world.

 

 

National Growth.

The Company continued to enhance its infrastructure investment, construction and operation standards through high-end integration, investment/financing and business model innovations, revolving around the three major national strategies: the “Belt and Road”, “Jing-Jin-Ji Integrated Development” and “Yantze River Economic Belt”. During 2015, the value of newly executed infrastructure contracts exceeded RMB300 billion for the first time and hit RMB 314.0 billion, up 26.7% YoY. The Company has devoted itself to creating a fully integrated investment platform for “new urbanization” construction initiatives focusing on ten selected tier-1 and 2 cities.

 

 

In international contracting, China Construction is the countries largest international contractor and also the first to launch international contracting in China. With the encouragement of the Chinese government and financing assistance from the Export-Import Bank of China, CSCEC has taken increasingly bold steps as a builder and investor of overseas projects. By the end of 2015, its total contract value for overseas business was US$80.7 billion and total turnover of US$52.4 billion. China Construction has so far completed over 5,600 projects in some 116 countries and regions around the world.

 

 

Major Earnings in 2015 were: total revenue of RMB 880.6 billion, up 10.1% YoY. Specifically, revenue from the housing construction business was RMB 588.3 billion, up 6.0% YoY; revenue of the infrastructure business was RMB 141.4 billion, up 19% YoY; and that of the real estate business was RMB 142.4 billion, up 15% YoY.

 

 

Recent International contracts in include:

  • US$ 2.89 billion Pakistani Karachi-Lahore Motorway
  • Egyptian New Capital (~US$ 2.7 billion)
  • St James Suites in New Zealand, with the contract value of NZD130 million.
  • Renovation Works of 67 Municipal Roads in Libreville of Gabon.
  • Nairobi BULK Water Supply Pipeline, with the contract value of approximately USD 70 million.
  • CSCEC Middle East has been award the management facility project in Kuwait Sabah Salim University City.
  • Eastern Technological University of Panama Project with the contract value of US$176 million.
  • Oran Shopping Mall Project in Algeria with the value of US$99 million.
  • Concrete Supply Contract for a Package of Projects of China-Kazakhstan Khorgos Border Cooperation Center.
  • Crude Oil Refinery Plant in Lagos, Nigeria, with daily processing capacity of 400,000 barrels.
  • Indonesia Jakartar, Twin Tower Project.
  • Municipal road construction project of Nkayi City of Bouneza, Republic of Congo.
  • Commercial apartment development: 99 Hudson Street, New Jersey.
  • 62km Road Project in Zambia, with the contract value of ZMW177 million.
  • Dubai high-rise hotel project with the contract value equaling to US$94.82 million.
  • 190km road project in the West Province of Zambia, with a contract value of USD 200 million.
  • National Stadium Project in Ethiopia. The total contract price is USD$ 120 million.

 

 

Africa remains a favoured destination...

Africa remains a favoured destination for growth.

The story of China’s growing influence in Africa has caught the attention of many around the world but now people are worried about the apparent 84% plunge in Chinese investment across the continent. Admittedly, affected by the global economic downturn, Chinese investors are becoming more cautious when investing in volatile markets with political, currency or security risks, especially in the extractive industries. Engagement with Africa has become more diverse and complex, and certainly more beneficial to the continent.

 

 

Favoured destinations

African states with rich natural resources, such as Nigeria and Zambia, will remain favoured destinations as the host governments can leverage future income in exchange for infrastructure upgrades. Countries without much in the way of minerals to leverage, such as Ethiopia, will also welcome Chinese investors seeking to establish factories thanks to their strategic geographic locations and competitive labour costs.

 

 

In the infrastructure sector, Chinese players will be as active as two years ago. According to Deloitte, Chinese companies were responsible for 31% of all infrastructure projects in East Africa in 2014, compared to 18% contributed by European and American firms combined.

 

 

Inspired by China’s One Belt, One Road policy, Chinese construction firms will continue to pursue EPC (engineering, procurement and construction) contracts against bank or government guarantees provided by host countries. Such security will allow them to tap into competitive financing mechanisms provided by Chinese state banks and commercial banks, usually ranging from only 3% to 8%.

 

 

Further $60bn pledge

Recently, Chinese President Xi Jinping pledged another US$60bn of government financing to African projects over the next three years.

 

 

Admittedly, scholars have been critical of Chinese construction firms’ build-and-go approach, leaving no benefit to African people in terms of skills upgrades and community development. This will change, as some Chinese companies have been actively pursuing new means to remain competitive in the market.

 

 

CITIC Construction, a Chinese state-owned construction company renowned for the successful completion of thousands of housing units in Angola, has partnered with the IFC to launch a $300m investment platform with the aim to develop 30,000 affordable homes in sub-Saharan Africa over the next five years. Such initiatives will overturn those prevalent market perceptions that Chinese companies do not abide by international best practices in labour, environment and community engagement while doing business in Africa.

 

 

The number of Chinese factories seeking to enter new markets through export or factory relocation will continue to grow in 2016. Many of them express high interest in seeking local partners so as to transfer their equipment and knowledge into local businesses in industries such as steel, paper, pipelines and cement.

 

 

These companies would receive policy support from the Chinese government, which is mobilising resources to encourage Chinese manufacturing companies to export their products and technology to Africa.

 

 

Opportunities for African service providers

2016 will also become a good year for African service providers, many of which have been longing to service Chinese companies in legal, tax, human resources, marketing, public relations and other consulting fields.

 

 

Traditionally, Chinese companies tend not to employ African indigenous service providers because they assume a good relationship with African governments would enable smooth operation. This perception is changing as more Chinese companies run projects that require in-depth knowledge of market needs, distribution channels and local culture. In sectors such as electronic products, Chinese companies must establish top marketing and sales teams and focus on building strong brand images so as to compete with the large number of cheaper devices in the market.

 

 

Thus 2016 will see Chinese companies become more localised and socially responsible in Africa, and more willing to collaborate with established African and non-African players in the market. Whilst less finance will be invested in capital-heavy industries from China to Africa, the trend of Chinese engagement in the continent show no sign of stopping.

Zhuhai

Zhuhai

Overview.

Located in the southwest of the Pearl River estuary in Guangdong Province, with Hong Kong in the east and Macao in the south. It is a key point of the 21st-Century Maritime Silk Road. In just three decades Zhuhai has gone from a poor fishing village to a prosperous modern city as one of China’s first special economic zones: the city has always prioritized ecological development, boasting one of the best environments in China. Since the Hengqin FTZ (Free Trade Zone) came into operation in 2015, the city has played an increasingly important role in China’s Belt & Road Initiative. It has cooperated with Macao to build a world-class tourism and leisure center and China-Portugal economic and trade cooperation platform. Economic and trade relations with Latin American countries have also been continuously strengthened through diversification and the furthering of secure access to the outside world.

 

 

The second largest port city (behind Shenzhen) in China it has population of 1.6 million (2015. Zhuhai has three districts(Xiangzhou, Doumen and Jinwan) and five economic zones (Gaolan Port Economic, Zhuhai Hi-Tech, Zhuhai Free Trade, Hengqin FTZ, and Zhuhai Wanshan Marine Development Experimental).

 

 

The city has focused its industrial development on high-end services, high-end manufacturing, hi-tech industry, marine economy and eco-agriculture.  It is home to high-end manufacturing enterprises such as China National Offshore Oil Corporation’s (CNOOC) deep ocean engineering equipment department, Sany Heavy Industry, Ferretti, China Aviation Industry General Aircraft Co (CAIGA) and Gree Electric Appliances. The high-tech field is represented by Kingsoft, Xiaomi Tech, Meizu and United Laboratories.

 

 

Transport Links

 

 

The 55km Hong Kong-Zuhai-Macao bridge is an ongoing project due to open in 2018.

 

 

Gaolan deep water port is one of the leading International ports in Guandong province. Specializing in petrochemicals, energy and equipment the port handled 107 million tons of cargo in 2014. Following the opening of the Guangzhou-Zhuhai Railway and Gaolan Port Expressway at the end of 2012, the port has advanced its distribution and collection network. A harbor industry cluster involving fine chemicals, petrochemicals, electric power, energy, offshore equipment manufacturing, and leisure tourism has been formed, too.

Port logistics is a supporting industry of this zone. Fortune Global 500 enterprises such as BP, SANY, Shell, Lubrizol, Solvay, Hutchison Whampoa as well as central enterprises like CNOOC, PetroChina, SinoChem, COSCO, and Shenhua have settled here.

http://en.investgaolan.gov.cn/

 

 

Zhuhai Airport accommodated 4.08 million flights in 2014, this is expected to increase to 12 million by 2020.

 

 

Hengqin Free Trade Zone

Situated in the south of Zhuhai the Hengqin FTZ (Free Trade Zone) is only 34 nautical miles from Hong Kong. Covering 28 sq km, the FTZ plans a land reclamation project to double in land mass by 2020.

 

 

Preferential policies

  • Eligible enterprises in Hengqin are taxed at a reduced rate of 15 percent.
  • Administration of bonded or tax exempt production-related goods entering Hengqin from abroad has been conducted.
  • Production-related goods sold from areas of the Chinese mainland to Hengqin are treated as exports and enjoy tax refunds.
  • Transactions among enterprises located within the Hengqin FTZ are exempted from any value-added tax and/or consumption tax.
  • Hong Kong/Macao residents working in Hengqin receive the appropriate China Individual Income Tax (IIT) deduction from the Guangdong Provincial Government so that their effective China IIT burden would be close to what they would pay if they instead had been working where they are domiciled.
  • Clearance procedures for residents of Hong Kong and Macao entering and leaving Hengqin are simplified, with 24-hour passage at the Lotus Bridge Checkpoint.
  • Administrative regulations for Macao vehicles with single license plates (to be operated exclusively within Hengqin) have been issued.

 

 

Industrial Parks

These include: Zhuhai Hi-Tech Industrial Development Zone, Zhuhai Free Trade Zone, Wanshan Marine Development Experimental Zone, Zhuhai Aviation Industrial Park, Fushan Industrial Park.

 

 

 

LETS Creative Park

 

LETS Cultural District is located in the former Daishan Industrial Park, Qianshan, in the Xiangzhou District of Zhuhai. The Xiangzhou District is the political, economic and financial center of Zhuhai, hence, the ideal spot for a cultural park. The creative park will cover an area of 80,000 square meters and will be inaugurated this coming September. LETS is now renting the shop and office areas to interested clients.

 

By combining business with tourism, culture and recreation, LETS Cultural District will be able to cover different needs. A large business area will welcome creative companies and start-ups, and give them a platform where they can turn their ideas into innovations. Apart from office buildings, shared offices and a park, this quarter will also include interactive workshop areas that can be rented for the long run or as a pop-up workshop for a short period.

 

The new Hong Kong-Zhuhai-Macau Bridge which will be located in the Xiangzhou District will be completed soon. For this reason, Zhuhai’s business center will flourish in the upcoming years. Zhuhai is expected to become an economic power due to its new proximity to the international business centers Hong Kong and Macau. LETS Cultural District is ideally located in between the Nanping Bridge and the Qianshan Bridge. Hong Kong and Macau, therefore, are just a short journey over a bridge away.

 

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